ifrs-illustrative-financial-statements-investments-funds

Ifrs
Illustrative financial statements:
Investment funds
December 2010
kpmg.com/ifrs

© 2010 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
About this publication
These illustrative financial statements have been produced by the KPMG International Standards Group (part of
KPMG IFRG Limited), and the views expressed herein are those of the KPMG International Standards Group.
We would like to acknowledge the principal contributors to this publication. They are Ewa Bialkowska and
Arina Tomiste of the KPMG International Standards Group and the following reviewers of the KPMG investment
management international standards working group:
Theo Evangelakos KPMG in Bermuda
Joseph Ryan KPMG in Bermuda
Lino Junior KPMG in Brazil
Peter Hayes KPMG in Canada
Richard Reading KPMG in Canada
Andrew Stepaniuk KPMG in the Cayman Islands
Hellen Chemeli KPMG in the Cayman Islands
Dermot Dempsey KPMG in the Channel Islands
Admire Chatiza KPMG in the Channel Islands
Vivian Chui KPMG in Hong Kong
Gaurav Mohan KPMG in Hong Kong
Sara Partanen KPMG in Hong Kong
Arion Yiu KPMG in Hong Kong
Frank Gannon KPMG in Ireland
Barry Winters KPMG in Ireland
Victor Chan Yin KPMG in Luxembourg
Joseph De Souza KPMG in Luxembourg
Gareth Horner KPMG in the UK
Arevhat Tsaturyan KPMG in the UK
Content
The purpose of this publication is to assist you in preparing the financial statements of an investment fund
in accordance with IFRSs. It illustrates one possible format of financial statements for fund-specific entities
based on a fictitious tax-exempt open-ended single-fund investment company, which does not form part of a
consolidated entity nor holds investments in any subsidiaries, associates or joint venture entities. The company’s
redeemable shares are classified as financial liabilities and the management shares meet the definition of
equity; the company is outside the scope of IFRS 8 Operating Segments. The company is not a first-time
adopter of IFRSs (see Technical guide). Appendix II provides an example of disclosures for a fund within the
scope of IFRS 8 with multiple reportable segments. Appendix III provides an example of disclosures for a fund
whose puttable instruments are classified as equity.
This publication reflects IFRSs in issue at 1 December 2010 that are required to be applied by an entity with an
annual period beginning on 1 January 2010 (“currently effective” requirements). Other IFRSs or amendments
that are effective for annual periods beginning after 1 January 2010 (“forthcoming” requirements) have not
been adopted early in preparing these illustrative financial statements. However, example disclosures for
the early adoption of IFRS 9 Financial Instruments issued in November 2009 are included in Appendix I. This
publication focuses on disclosure requirements that are specific to funds’ activities. For other disclosures that
might be relevant, please refer to our publications Illustrative financial statements and Illustrative financial
statements: banks.

This publication illustrates only the financial statements component of a financial report, prepared under IFRSs
as issued by the IASB, and the independent auditors’ report. However, typically a financial report will include at
least some additional commentary by management, either in accordance with local laws and regulations or at
the election of the entity (see Technical guide).
When preparing financial statements in accordance with IFRSs, an entity should have regard to its local legal
and regulatory requirements. This publication does not consider any requirements of a particular jurisdiction.
The IASB established an Expert Advisory Panel (the panel) to assist the IASB in reviewing best practices in
the area of valuation techniques and formulating any necessary additional guidance on valuation methods
for financial instruments and related disclosures when markets are no longer active. The panel issued its
final report Measuring and disclosing the fair value of financial instruments in markets that are no longer
active on 31 October 2008. Part 2 of the report contains guidance on disclosures. This publication does
not illustrate these disclosures, unless they are also required by IFRS 7 Financial Instruments: Disclosures.
For an illustrative example of disclosures in the panel’s report and explanatory notes see our publication
Illustrative financial statements: banks published in January 2010.
IFRSs and their interpretation change over time. Accordingly, these illustrative financial statements should not
be used as a substitute for referring to the standards and interpretations themselves.
References
The illustrative financial statements are contained on the odd-numbered pages of this publication. The
even-numbered pages contain explanatory comments and notes on the disclosure requirements of IFRSs.
The illustrative examples, together with the explanatory notes, however, are not intended to be seen as
a complete and exhaustive summary of all disclosure requirements that are applicable under IFRSs. For
an overview of all disclosure requirements that are applicable under IFRSs, see our publication Disclosure
Checklist.
To the left of each item disclosed, a reference to the relevant currently effective standard is provided;
generally the references relate only to disclosure requirements, except that note 3 highlights key accounting
requirements in relation to significant accounting policies. The illustrative financial statements also contain
references to our publication Insights into IFRS (7th
Edition 2010/11).
What’s new in the 2010 illustrative financial statements
‖ Major changes from the March 2010 edition of Illustrative financial statement: investment funds are
‖ highlighted by a double line border running down the left margin of the text within this document. The major
‖ changes from the March 2010 edition include the following:
‖ l presentation of the statement of financial position in order of liquidity;
‖ l inclusion of management voting shares that meet the definition of equity;
‖ l addition of an example of alternative sensitivity analysis disclosures for an entity that does not use a Value-
‖ at-Risk (VaR) analysis to manage market risk (see note 4); example VaR analysis disclosure is presented in
‖ Appendix V; and
‖ l addition of an appendix illustrating example disclosures for the early adoption of IFRS 9 issued in
‖ November 2009.

Other ways KPMG member firm professionals can help
A more detailed discussion of the general accounting issues that arise from the application of IFRSs can be
found in our publication Insights into IFRS.
In addition to Insights into IFRS, we have a range of publications that can assist you further, including:
●● IFRS compared to US GAAP
●● Illustrative financial statements
●● Illustrative financial statements: banks
●● Illustrative financial statements: First-time adopters
●● IFRS Handbooks, which include extensive interpretative guidance and illustrative examples to elaborate or
clarify the practical application of a standard
●● New on the Horizon publications, which discuss consultation papers
●● IFRS Practice Issues publications, which discuss specific requirements of pronouncements
●● First Impressions publications, which discuss new pronouncements
●● Newsletters, which highlight recent developments
●● Disclosure checklist.
KPMG’s IFRS Briefing Sheet – Issue 227 provides an overview of newly effective IFRSs and other
considerations, which are intended to be a reminder of recently issued accounting guidance that may affect
interim and annual financial statements for the period ending 31 December 2010.
IFRS-related technical information, including the above Briefing Sheet, is also available at www.kpmg.com/ifrs.
For access to an extensive range of accounting, auditing and financial reporting guidance and literature, visit
KPMG’s Accounting Research Online. This web-based subscription service can be a valuable tool for anyone who
wants to stay informed in today’s dynamic environment. For a free 15-day trial, go to www.aro.kpmg.com and
register today.

Technical guide
Form and content of financial statements
IAS 1 Presentation of Financial Statements sets out the overall requirements for the presentation of financial
statements, including their content and structure. Other standards and interpretations deal with the recognition,
measurement and disclosure requirements related to specific transactions and events. IFRSs are not limited to
a particular legal framework. Therefore financial statements prepared under IFRSs often contain supplementary
information required by local statute or listing requirements, such as a directors’ report (see below) and, more
specifically for funds, an investment manager’s report and trustee’s report.
Choice of accounting policies
The accounting policies disclosed in these illustrative financial statements reflect the facts and circumstances
of the fictitious tax-exempt open-ended single-fund investment company on which these financial statements
are based. They should not be relied upon for a complete understanding of the requirements of IFRSs and
should not be used as a substitute for referring to the standards and interpretations themselves. The accounting
policy disclosures appropriate for an entity depend on the facts and circumstances of that entity, including the
accounting policy choices an entity makes, and may differ from the disclosures presented in these illustrative
financial statements. The recognition and measurement requirements of IFRSs are discussed in our publication
Insights into IFRS.
Reporting by directors
Generally local laws and regulations determine the extent of reporting by directors (or similar) in addition to the
presentation of financial statements. IAS 1 encourages, but does not require, entities to present, outside the
financial statements, a financial review by management. The review describes and explains the main features
of the entity’s financial performance and financial position, and the principal uncertainties it faces. Such a report
may include a review of:
●● the main factors and influences determining financial performance, including changes in the environment
in which the entity operates, the entity’s response to those changes and their effect, and its policy for
investment to maintain and enhance financial performance, including its dividend policy;
●● the entity’s sources of funding; and
●● the entity’s resources not recognised in the statement of financial position in accordance with IFRSs.
On 8 December 2010 the IASB published IFRS Practice Statement Management Commentary, which proposes
a framework for the preparation of management commentary that accompanies financial statements prepared
in accordance with IFRSs. An entity is not required to comply with this framework for the preparation and
presentation of management commentary in order to assert compliance with IFRSs.
First-time adopters of IFRSs
These illustrative financial statements assume that the entity is not a first-time adopter of IFRSs. IFRS 1 First-
time Adoption of International Financial Reporting Standards applies to an entity’s first financial statements
prepared in accordance with IFRSs. IFRS 1 requires extensive disclosures explaining how the transition from
previous GAAP to IFRSs affected the reported financial position, financial performance and cash flows of an
entity. These disclosures include reconciliations of equity and reported total profit or loss at the date of transition
to IFRSs and at the end of the comparative period presented in the entity’s first IFRS financial statements,
explaining material adjustments to the statements of financial position, changes in equity and comprehensive
income, and identifying separately the correction of any errors made under previous GAAP. An entity that
presented a statement of cash flows under previous GAAP also explains any material adjustments to its
statement of cash flows. For more information see KPMG’s Illustrative financial statements: First-time adopters,
published in February 2010.

6 Illustrative financial statements: Investment funds
December 2010
Note Reference Explanatory note
1. IAS 1.10 In these illustrative financial statements, the titles of the statements, with the exception of
the statement of changes in net assets attributable to holders of redeemable shares (see
explanatory note 4 below), are consistent with the titles used in IAS 1. However, these terms
are not mandatory and different titles are permitted.
2. IAS 1.45 The presentation and classification of items in the financial statements is retained from one
period to the next unless changes are required by a new standard or interpretation, or it is
apparent, following a significant change to an entity’s operations or a review of its financial
statements, that another presentation or classification would be more appropriate. The
entity also considers the criteria for selection and application of accounting policies in IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.
3. IAS 1.10(b) A complete set of financial statements comprises, as one of its statements, a statement of
comprehensive income for the period.
IAS 1.81 Total comprehensive income represents the changes in equity during a period other than
those changes resulting from transactions with owners in their capacity as owners, which is
presented either in:
●● one statement (i.e. a statement of comprehensive income); or
●● two statements (i.e. a separate income statement and a statement beginning with profit
or loss and displaying components of other comprehensive income).
These illustrative financial statements illustrate a single statement of comprehensive income.
For an example of the two statements approach, please refer to our publication Illustrative
financial statements published in August 2010.
4. IAS 1.10(c) A complete set of financial statements comprises, as one of its statements, a statement of
IAS 1.106 changes in equity. However, as there is a minimal equity in the Fund, no statement of
changes in equity is presented. Instead, a statement of changes in net assets attributable
to holders of redeemable shares is presented. Although IFRSs do not require presentation
of this statement, it may provide users of the financial statements with relevant and useful
information with respect to the components underlying the movements in the net assets of
the fund attributable to the holders of redeemable shares during the year.

Contents
Reference Page
IAS 1.10, 49 Financial statements1, 2

Statement of financial position 9
Statement of comprehensive income3
11
Statement of changes in net assets attributable to holders of redeemable shares4
13
Statement of cash flows 15
Notes to the financial statements 17
Independent auditors’ report 85
Appendices
‖ I Example disclosures for entities that early adopt IFRS 9 (2009) 87
II Example disclosures of segment reporting – multiple segment fund 97
III Example disclosures of open-ended fund with puttable instruments classified as equity 105
IV Example disclosures of schedule of investments – unaudited 115
‖ V Example disclosures of exposure to market risk – Value-at-Risk analysis 119

December 2010
1. IAS 1.55, 58 Additional line items, headings and subtotals are presented separately in the statement
of financial position when such presentation is relevant to an understanding of the entity’s
financial position. The judgement used is based on an assessment of the nature and liquidity
of the assets, the function of assets within the entity, as well as the amounts, nature and
timing of liabilities. Additional line items may include, for example, “other assets” for the
inclusion of prepayments.
IAS 1.57 IAS 1 does not prescribe the order or format in which an entity presents items. Additional line
items are included when the size, nature or function of an item or aggregation of similar items
is such that separate presentation is relevant to an understanding of the entity’s financial
position and the descriptions used, and the ordering of items or aggregation of similar
items may be amended according to the nature of the entity and its transactions to provide
information that is relevant to an understanding of an entity’s financial position.
2. IAS 1.60, 61 In these illustrative financial statements we have presented assets and liabilities broadly
in order of liquidity. An entity also may present its assets and liabilities using a current/non-
current classification if such presentation provides reliable and more relevant information. For
each asset and liability line item that combines amounts expected to be recovered or settled
within (1) no more than 12 months after the end of the reporting period, and (2) more than
12 months after the end of the reporting period, an entity discloses in the notes the amount
expected to be recovered or settled after more than 12 months.
3 IFRS 7.8 The carrying amounts of each of the categories of financial assets and financial liabilities are
required to be disclosed in either the statement of financial position or the notes. In these
illustrative financial statements this information is presented in the notes.
4. ‖ It has been assumed for the purpose of these illustrative financial statements that
‖ management shares issued by the Fund meet the definition of equity. Determination of
‖ whether an instrument meets the definition of equity can be complex and is further discussed
‖ in our publication Insights into IFRS (3.11.10).
5. IAS 39.48A, In accordance with IAS 39 Financial Instruments: Recognition and Measurement the best
AG72 measure of fair value of a financial asset and financial liability is a quoted price in an active
market. The quoted price for an asset held is usually the current bid price and for a liability
held is the asking price. On the other hand, in accordance with the Fund’s prospectus, the
redemption amounts of the redeemable shares are calculated using the mid-market prices of
the Fund’s underlying investments/securities sold short.
Owing to the differences in the measurement bases of the Fund’s underlying investments/
securities sold short and the redemption amounts of the redeemable shares, a mismatch
results in the statement of financial position giving rise to a presentation issue. In our view,
one solution may be to present the net assets attributable to holders of redeemable shares
in a two-line format. The first line would be the amount of the net assets attributable to
holders of redeemable shares measured in accordance with the prospectus, which reflects
the actual redemption amount at which the redeemable shares would be redeemed at the
reporting date, and the next line would include an adjustment for the difference between this
and the amount recognised in the statement of financial position. This reflects the fact that
for a fund with no equity all recognised income and expense should be attributed to holders
of redeemable shares, which also means that if all the shares are redeemed, then a dilution
levy of such amount would be required. This issue is discussed in our publication Insights into
IFRS (3.6.940.50 – 60). The treatment in a fund with no equity is applied by analogy in these
illustrative financial statements to a fund with minimal equity.

Illustrative financial statements: Investment funds 9
December 2010
Reference Statement of financial position1, 2, 3

IAS 1.10(a), 51(c), As at 31 December
60, 113 In thousands of euro Note 2010 2009
‖ Assets
IAS 1.54(i) ‖ Cash and cash equivalents 51 71
IAS 1.54(d) ‖ Balances due from brokers 10 4,619 3,121
IAS 1.54(d) ‖ Receivables from reverse repurchase agreements 11 4,744 3,990
IAS 1.54(h) ‖ Other receivables 29 46
IAS 1.54(d) ‖ Non-pledged financial assets at fair value through profit or loss 12 26,931 24,471
IAS 1.54(d), ‖ Pledged financial assets at fair value through profit or loss 12 2,691 2,346
IAS 39.37(a) ‖
‖ Total assets 39,065 34,045
‖
‖ Equity4
‖ Share capital 13 10 10
‖ Total equity 10 10
‖
‖ Liabilities
IAS 1.54(m) ‖ Balances due to brokers 10 143 275
IAS 1.54(m) ‖ Payables under repurchase agreements 11 2,563 2,234
IAS 1.54(k) ‖ Other payables 103 101
IAS 1.54(m) ‖ Financial liabilities at fair value through profit or loss 12 3,621 1,446
‖ Total liabilities (excluding net assets attributable to
‖ holders of redeemable shares) 6,430 4,056
‖
IAS 1.6, 54(m), ‖ Net assets attributable to holders of redeemable
IAS 32.IE32 ‖ shares5
14 32,625 29,979
Represented by:
Net assets attributable to holders of redeemable shares
(valued in accordance with prospectus)5
32,647 29,996
Adjustment from mid-market prices to bid/ask-market prices5
14 (22) (17)
32,625 29,979
The notes on pages 17 to 83 are an integral part of these financial statements.

December 2010
1. IAS 1.81(a) This illustration is based on a single statement of comprehensive income as the Fund has no
other components of other comprehensive income other than profit or loss for the period.
IAS 1.32 Items of income and expense are offset only when required or permitted by an IFRS. This
issue is discussed in our publication Insights into IFRS (4.1.170).
IAS 1.85 An entity presents additional line items, headings and subtotals when this is relevant to an
understanding of its financial performance.
2. IAS 1.99 An entity presents an analysis of expenses based on function or nature. In these illustrative
financial statements, this analysis is based on the nature of expenses. Individual material
items are classified in accordance with their nature or function, consistent with the
classification of items that are not material individually. This issue is discussed in our
publication Insights into IFRS (4.1.20 – 40).
IAS 1.87 No items of income or expense may be presented as “extraordinary”. The nature and amounts of
material items are disclosed as a separate line item in the statement of comprehensive income
or in the notes.This issue is discussed in our publication Insights into IFRS (4.1.82 – 86).
3. IAS 1.82(a) IFRSs do not specify whether revenue can be presented only as a single line item in the
statement of comprehensive income, or whether an entity also may include the individual
components of revenue in the statement of comprehensive income, with a subtotal for
revenue from continuing operations. In these illustrative financial statements, the most
relevant measure of revenue is considered to be the sum of interest income, dividend
income, net foreign exchange loss and net gain from financial instruments at fair value
through profit or loss. However, other presentations are possible.
4. IFRS 7.20(c)(ii) Fee income and expense arising from trust and other fiduciary activities that result in the
holding or investing of assets on behalf of individuals, trusts, retirement benefit plans and
other institutions are required to be disclosed. In these illustrative financial statements this
disclosure has been given in the statement of comprehensive income. Alternatively, it may be
given in the notes.
5. IAS 32.35, 40 Interest, dividends, gains and losses relating to a financial instrument or a component that is
a financial liability are recognised as income or expense in the statement of comprehensive
income. Because redeemable shares are classified as financial liabilities, any distributions
on these shares are presented as finance costs. Interest expense and dividends payable on
securities sold short have been classified as operating expense, but, depending on the facts
and circumstances, presentation as part of finance cost is also possible.
6. IAS 12.2 In our view, withholding taxes attributable to investment income (e.g. dividends received)
should be recognised as part of income tax expense, with the investment income recognised
on a gross basis. This issue is discussed in our publication Insights into IFRS (3.13.420.30).
7. IAS 33.2, 3 An entity with publicly traded ordinary shares or in the process of issuing ordinary shares that
are to be publicly traded, should present basic and diluted earnings per share (EPS) in the
statement of comprehensive income. The requirements to present EPS only apply to those
funds whose ordinary shares are classified as equity. Nevertheless, some funds may wish to
or may be required by local regulations to present EPS. When an entity voluntarily presents
EPS data, that data should be calculated and presented in accordance with IAS 33 Earnings
per Share. This issue is discussed in our publication Insights into IFRS (5.3.10.10).

December 2010
Reference Statement of comprehensive income1, 2
IAS 1.10(b), 81(a) For the year ended 31 December
In thousands of euro Note 2010 2009
Interest income3
7 603 429
IAS 18.35(b)(v) Dividend income3
272 229
IAS 1.35 Net foreign exchange loss3
(19) (16)
IFRS 7.20(a) Net gain from financial instruments at fair value through
profit or loss3
8 3,251 2,397
IAS 1.82(a) Total revenue3
4,107 3,039
IAS 1.99 Investment management fees4
(478) (447)
IAS 1.99 Custodian fees4
(102) (115)
IAS 1.99 Administration fees4
(66) (62)
IAS 1.99 Directors’ fees (26) (15)
IAS 1.99 Transaction costs (54) (73)
IAS 1.99 Audit and legal fees (74) (67)
IFRS 7.20(b) Interest expense5
(75) (62)
Dividend expense on securities sold short5
(45) (19)
IAS 1.99 Other operating expenses (8) (41)
Total operating expenses (928) (901)
IAS 1.85 Operating profit before finance costs 3,179 2,138
IAS 32.40 Dividends to holders of redeemable shares5
14 (178) (91)
IAS 1.82(b) Total finance costs (178) (91)
IAS 1.85 Profit before tax 3,001 2,047
IAS 1.82(d) Withholding tax expense6
9 (45) (39)
IAS 1.6, 1.82(f), Increase in net assets attributable to holders of
IAS 32.IE32 redeemable shares 2,956 2,008

December 2010
1. IAS 1.106 A complete set of financial statements comprises, as one of its statements, a statement
of changes in equity. However, as equity in the Fund is minimal and there were no changes
in equity balances, no statement of changes in equity is presented. Instead, a statement of
changes in net assets attributable to holders of redeemable shares is presented. Although
IFRSs do not require presentation of this statement, it may provide users of the financial
statements with relevant and useful information with respect to the components underlying
the movements in the net assets of the Fund attributable to the holders of redeemable shares
during the year.
2. IAS 1.110 When a change in accounting policy, either voluntarily or as a result of the initial application
of a standard, has an effect on the current period or any prior period, an entity presents the
effects of retrospective application or retrospective restatement recognised in accordance
with IAS 8 in the statement of changes in equity. These illustrative financial statements do not
demonstrate example of IAS 8 disclosures; for an example of such disclosures, please refer to
our publication Illustrative financial statements.

December 2010
Reference Statement of changes in net assets attributable to holders of
redeemable shares1
IAS 1.106 For the year ended 31 December
Balance at 1 January 14 29,979 18,461
Increase in net assets attributable to holders of redeemable
shares 2,956 2,008
Contributions and redemptions by holders of redeemable
shares:
Issue of redeemable shares during the year 6,668 15,505
Redemption of redeemable shares during the year (6,978) (5,995)
Total contributions and redemptions by holders of
redeemable shares (310) 9,510
Balance at 31 December 14 32,625 29,979

December 2010
1. IAS 7.18, 19 In these illustrative financial statements cash flows from operating activities are presented
using the direct method, whereby major classes of cash receipts and payments related to
operating activities are disclosed. An entity also may present operating cash flows using the
indirect method, whereby profit or loss is adjusted for the effects of non-cash transactions,
accruals and deferrals, and items of income or expense associated with investing or financing
cash flows. For an example statement of cash flows presenting operating cash flows using
the indirect method see our publications Illustrative financial statements or Illustrative
financial statements: banks.
IAS 7.43 When applicable, an entity discloses investing and financing transactions that are excluded
from the statement of cash flows because they do not require the use of cash or cash
equivalents in a way that provides all relevant information about these activities.
2. IAS 7.33, 34 Interest paid and interest and dividends received are usually classified as operating cash flows
for a financial institution. Dividends paid may be classified as a financing cash flow as they
represent a cost of obtaining financial resources. The Fund has adopted this classification for
dividends paid to the holders of redeemable shares. In these illustrative financial statements
dividends paid on securities sold short are classified as operating cash flows as they result
directly from holding short positions as part of the operating activities of the Fund.
3. IAS 7.14(g), 15 In these illustrative financial statements gross receipts from the sale of, and gross payments
to acquire, investment securities have been classified as components of cash flows from
operating activities as they form part of the Fund’s dealing operations.
IAS 7.16(g), (h) Receipts from and payments for futures, forwards, options and swap contracts are presented
as part of either investing or financing activities, provided that they are not held for dealing or
trading purposes, in which case they are presented as part of operating activities. However,
when a contract is accounted for as a hedge of an identifiable position, the cash flows of the
contract are classified in the same manner as the cash flows of the positions being hedged.
This issue is discussed in our publication Insights into IFRS (2.3.60.10).
If hedge accounting is not applied to a derivative instrument, then it is preferable that the gains
or losses on the derivative instrument are not presented as an adjustment to line items related
to the hedged item, even if the derivative instrument is intended to be an economic hedge of
these items. However, in our view, derivative gains and losses may be shown in the statement
of comprehensive income as either operating or financing items depending on the nature of
the item being hedged. In our view, the possibilities for the presentation in the statement of
comprehensive income also apply to the presentation in the statement of cash flows.This
issue is discussed in our publication Insights into IFRS (5.6.220.110 – 120).
4. IAS 7.22 Cash flows from operating, investing or financing activities may be reported on a net basis
if the cash receipts and payments are on behalf of customers and the cash flows reflect the
activities of the customer, or when the cash receipts and payments for items concerned turn
over quickly, the amounts are large and the maturities are short.
5. IAS 7.21 Major classes of gross cash receipts and gross cash payments arising from investing and
financing activities are disclosed separately, except to the extent that the cash flows are
reported on a net basis (see explanatory note 4 above).
6. IAS 7.45 When applicable, an entity presents a reconciliation of cash and cash equivalents reported
in its statement of cash flows with those presented in the statement of financial position. In
these illustrative financial statements the amounts presented in the statement of financial
position match the amounts presented in the statement of cash flows and therefore no
reconciliation is presented.

December 2010
Reference Statement of cash flows1
IAS 1.10(d), 113 For the year ended 31 December
IAS 7.10 Cash flows from operating activities
IAS 7.31, 33 Interest received2
619 454
IAS 7.31, 33 Interest paid2
(73) (63)
IAS 7.31, 33 Dividends received2
227 228
IAS 7.31, 33 Dividends paid on securities sold short2
(45) (19)
IAS 7.15 Proceeds from sale of investments3
9,382 8,271
IAS 7.15 Purchase of investments3
(10,613) (17,713)
IAS 7.22(b) Net non-dividend receipts/(payments) on securities
sold short4
629 (2)
IAS 7.22(b) Net receipts/(payments) from derivative activities4
1,581 (3)
IAS 7.22(b) Net non-interest (payments)/receipts from repurchase
and reverse repurchase agreements4
(428) 299
IAS 7.14 Operating expenses paid (808) (848)
Net cash from/(used in) operating activities 471 (9,396)
IAS 7.10, 21 Cash flows from financing activities5
IAS 7.17 Proceeds from issue of redeemable shares 14 6,668 15,505
IAS 7.17 Payments on redemption of redeemable shares 14 (6,978) (5,995)
IAS 7.34 Dividends paid to holders of redeemable shares2
14 (178) (91)
Net cash (used in)/from financing activities (488) 9,419
Net (decrease)/increase in cash and cash equivalents (17) 23
Cash and cash equivalents at 1 January 71 50
IAS 7.28 Effect of exchange rate fluctuations on cash and cash
equivalents (3) (2)
Cash and cash equivalents at 31 December6
51 71

December 2010
1. IAS 1.7 The notes to the financial statements include narrative descriptions or analysis of amounts
disclosed in the primary statements. They also include information about items that do not
qualify for recognition in the financial statements.

December 2010
Notes to the financial statements1
Page
1. Reporting entity 19
2. Basis of preparation 19
3. Significant accounting policies 21
4. Financial risk management 33
5. Use of estimates and judgements 61
6. Classifications and fair values of financial assets and liabilities 69
7. Interest income 71
8. Net gain from financial instruments at fair value through profit or loss 71
9. Withholding tax expense 71
10. Balances due from/to brokers 73
‖ 11. Receivables from reverse repurchase agreements and payables under repurchase agreements 73
12. Financial assets and financial liabilities at fair value through profit or loss 75
‖ 13. Equity 75
14. Net assets attributable to holders of redeemable shares 77
15. Related parties and other key contracts 81
16. Subsequent events 83

December 2010
1. If financial statements are prepared on the basis of national accounting standards that are
modified or adapted from IFRSs and are made publicly available by publicly traded companies,
then the International Organization of Securities Commissions (IOSCO) has recommended
including the following minimum disclosures:
●● a clear and unambiguous statement of the reporting framework on which the accounting
policies are based;
●● a clear statement of the entity’s accounting policies on all material accounting areas;
●● an explanation of where the respective accounting standards can be found;
●● a statement explaining that the financial statements are in compliance with IFRSs as
issued by the IASB, if this is the case; and
●● a statement explaining in what regard the standards and the reporting framework used
differ from IFRSs as issued by the IASB, if this is the case.
2. IAS 1.36 When the entity changes the end of its reporting period and annual financial statements are
presented for a period longer or shorter than one year, the entity discloses the reason for the
change and the fact that comparative amounts presented are not entirely comparable.
In this and other cases an entity may wish to present pro forma information that is not required
by IFRSs, for example, pro forma comparative financial statements prepared as if the change in
the end of the reporting period was effective for all periods presented.The presentation of pro
forma information is discussed in our publication Insights into IFRS (2.1.80).
3. IAS 1.19, In the extremely rare circumstances in which management concludes that compliance with a
20, 23 requirement of a standard or an interpretation would be so misleading that it would conflict
with the objective of financial statements set out in the Framework for the Preparation and
Presentation of Financial Statements, an entity may depart from the requirement if the
relevant regulatory framework requires or otherwise does not prohibit such a departure.
Extensive disclosures are required in these circumstances.
4. IAS 10.17 An entity discloses the date when the financial statements were authorised for issue and
who gave that authorisation. If the entity’s owners or others have the power to amend the
financial statements after their issue, then the entity discloses that fact.
5. IAS 1.25, Taking account of specific requirements in its jurisdiction, an entity discloses any material
IAS 10.16 uncertainties related to events or conditions that may cast significant doubt upon the entity’s
ability to continue as a going concern, and whether they arise during the period or after the
reporting date.
6. IAS 21.53, 54 If the financial statements are presented in a currency different from the entity’s functional
currency, then an entity discloses that fact, its functional currency, and the reason for using
a different presentation currency. If there is a change in the functional currency of the entity,
then the entity discloses that fact together with the reason for the change.
7. IAS 1.122 An entity discloses the judgements, apart from those involving estimations, that management
has made in the process of applying the entity’s accounting policies and that have the most
significant effect on the amounts recognised in the financial statements. The examples that
are provided in paragraphs 123 and 124 of IAS 1 indicate that such disclosure is based on
qualitative data.
IAS 1.125 An entity discloses the assumptions it makes about the future, and other major sources
of estimation uncertainty at the end of the reporting period, that have a significant risk of
resulting in a material adjustment to the carrying amounts of assets and liabilities within the
next financial year. The examples that are provided in paragraph 129 of IAS 1 indicate that
such disclosure is based on quantitative data (e.g. appropriate discount rates).

December 2010
Reference Notes to the financial statements
IAS 1.10(e), 51(a), 1. Reporting entity
(b), 1.138(a), (b) [Name] (the Fund) is a company domiciled in [country]. The address of the Fund’s registered
office is [address]. The Fund’s shares are not traded in a public market and it does not file its
financial statements with a securities commission or other regulatory organisation for the
purpose of issuing any class of instruments in a public market.
The Fund is an open-ended investment fund primarily involved in investing in a highly diversified
portfolio of equity securities issued by companies listed on major European stock exchanges
and on the New York Stock Exchange (NYSE), unlisted companies, unlisted investment funds,
international derivatives and investment grade debt securities with the objective of providing
shareholders with above average returns over the medium to long term.
IAS 1.138(a), (b) The investment activities of the Fund are managed by XYZ Capital Limited (the investment
manager) and the administration of the Fund is delegated to ABC Fund Services Limited (the
administrator).
IAS 1.112(a) 2. Basis of preparation1
(a) Statement of compliance
IAS 1.16 The financial statements of the Fund as at and for the year ended 31 December 20102
have
been prepared in accordance with International Financial Reporting Standards (IFRSs).3
IAS 10.17 The financial statements were authorised for issue by the board of directors on [date].4
(b) Basis of measurement5
IAS 1.117(a) The financial statements have been prepared on the historical cost basis except for financial
instruments at fair value through profit or loss, which are measured at fair value.
(c) Functional and presentation currency�6
IAS 1.51(d), (e) These financial statements are presented in euro, which is the Fund’s functional currency. All
financial information presented in euro has been rounded to the nearest thousand.
(d) Use of estimates and judgements7
The preparation of the financial statements in conformity with IFRSs requires management to
make judgements, estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimates are revised and in
any future periods affected.
IAS 1.122, 125 Information about significant areas of estimation uncertainty and critical judgements in applying
accounting policies that have the most significant effect on the amounts recognised in the
financial statements are described in notes 4 and 5.

December 2010
1. When a change in accounting policy is the result of the adoption of a new, revised or
amended IFRS, an entity applies the specific transitional requirements in that IFRS. However,
in our view an entity nonetheless should comply with the disclosure requirements of IAS 8
to the extent that the transitional requirements do not include disclosure requirements. Even
though it could be argued that the disclosures are not required because they are set out
in the IAS 8 requirements for voluntary changes in accounting policy, we believe that they
are necessary in order to give a fair presentation. This issue is discussed in our publication
Insights into IFRS (2.8.20). For an example of disclosures relating to a change in accounting
policy see our publication Illustrative financial statements.
2. IAS 8.28, 29 When a change in accounting policy, either voluntarily or as a result of the initial application of
a standard, has an effect on the current period or any prior period, an entity discloses, among
other things, the amount of the adjustment for each financial statement line item affected.
IAS 8.49 If any prior period errors are corrected in the current year’s financial statements, then an
entity discloses:
●● the nature of the prior period error;
●● to the extent practicable, the amount of the correction for each financial statement line
item affected, and, if IAS 33 applies to the entity, basic and diluted earnings per share for
each prior period presented;
●● the amount of the correction at the beginning of the earliest prior period presented; and
●● if retrospective restatement is impracticable for a particular prior period, then the
circumstances that led to the existence of that condition and a description of how and
from when the error has been corrected.
3. IAS 8.5 Accounting policies are the specific principles, bases, conventions, rules and practices that an
entity applies in preparing and presenting financial statements.
4. Accounting policies in these illustrative financial statements reflect the facts and
circumstances of the fictitious open-ended single-fund investment company on which these
financial statements are based. They should not be relied upon for a complete understanding
of IFRS requirements and should not be used as a substitute for referring to the standards
and interpretations themselves. Accounting policy disclosures appropriate for an entity
depend on the facts and circumstances of that entity and may differ from the disclosures
illustrated in this publication.
5. IFRS 7.B5(e) ‖ An entity discloses how the statement of comprehensive income amounts are
‖ determined, for example, whether net gains and losses of financial assets and liabilities
‖ measured at fair value through profit or loss include interest and dividend income.
‖
IFRS 7.20(b) ‖ In these illustrative statements interest income for financial assets at fair value through
‖ profit or loss is presented separately from net gain from financial instruments at fair
‖ value through profit or loss. However, other presentations, for example, inclusion of
‖ interest income with the gain from financial instruments at fair value through profit or loss,
‖ are permitted.
6. The method of calculating the effective interest rate is discussed in our publication Insights
into IFRS (4.6.40).

December 2010
2. Basis of preparation (continued)
(e) Changes in accounting policies1, 2
There were no changes in the accounting policies of the Fund during the year.
IAS 1.112(a), 3. Significant accounting policies3, 4
117(a), (b) The accounting policies set out below have been applied consistently to all periods presented
in these financial statements.
(a) Foreign currency
IAS 21.21, 23(a) Transactions in foreign currencies are translated into euro at the exchange rate at the date
of the transaction. Monetary assets and liabilities denominated in foreign currencies are
translated at the reporting date into euro at the exchange rate at that date. Non-monetary
assets and liabilities denominated in foreign currencies that are measured at fair value are
translated into euro at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on translation are recognised in the statement of
comprehensive income as net foreign exchange loss, except for those arising on financial
instruments at fair value through profit or loss, which are recognised as net gain from financial
instruments at fair value through profit or loss.
IFRS 7.B5(e) (b) Interest5, 6
IAS 18.35(b)(iii) Interest income and expense, including interest income from non-derivative financial assets
at fair value through profit or loss, are recognised in the statement of comprehensive income
using the effective interest method.
The effective interest rate is the rate that exactly discounts the estimated future cash
payments and receipts through the expected life of the financial asset or liability (or, when
appropriate, a shorter period) to the carrying amount of the financial asset or liability. When
calculating the effective interest rate, the Fund estimates future cash flows considering all
contractual terms of the financial instrument, but not future credit losses. Interest received
or receivable, and interest paid or payable are recognised in the statement of comprehensive
income as interest income and interest expense, respectively.
IFRS 7.21, (c) Dividend income and dividend expense
B5(e) Dividend income is recognised in the statement of comprehensive income when the right to
receive income is established. For quoted equity securities this is usually the ex-dividend date.
For unquoted equity securities this is usually the date when the shareholders have approved
the payment of a dividend. Dividend income from equity securities designated at fair value
through profit or loss is recognised in the statement of comprehensive income as dividend
income.
The Fund incurs expenses on short positions in equity securities equal to the dividends due
on these securities. Such dividend expense is recognised in the statement of comprehensive
income as operating expense when the shareholders’ right to receive payment is established.
IFRS 7.B5(e) (d) Dividends to holders of redeemable shares
Dividends to holders of redeemable shares are recognised in the statement of comprehensive
income as finance costs when they are authorised and no longer at the discretion of the Fund.
[Provide more detail to reflect the circumstances of the particular fund].

December 2010
1. IFRS 7.B5(e) In these illustrative financial statements net gain from financial instruments at fair value
through profit or loss includes:
●● gains and losses, other than interest and dividend income, on financial assets and financial
liabilities designated as at fair value through profit or loss upon initial recognition;
●● gains and losses, other than dividends payable on securities sold short classified as held
for trading; and
●● gains and losses on all derivatives.
However, other presentations are possible, for example, this line also could include interest
and dividend income, interest expense and dividends on securities sold short.
2. ‖ In our view, an entity may apply any reasonable cost allocation method to determine the cost
‖ of financial assets sold that are part of homogeneous portfolio (e.g. average cost or first-in,
‖ first-out). The selected method should be applied consistently. This issue is discussed in our
‖ publication Insights into IFRS (3.6.1280.50).
3. IAS 39.9, 11A Financial assets or liabilities (other than those classified as held for trading) may be
designated upon initial recognition at fair value through profit or loss, in any of the following
circumstances, if they:
●● eliminate or significantly reduce a measurement or recognition inconsistency (“accounting
mismatch”) that would otherwise arise from measuring assets and liabilities or
recognising the gains or losses on them on different bases;
●● are part of a group of financial assets and/or financial liabilities that is managed and for
which performance is evaluated and reported to key management on a fair value basis in
accordance with a documented risk management or investment strategy; or
●● are hybrid contracts in which an entity is permitted to designate the entire contract at fair
value through profit or loss.
IAS 39.AG4B These illustrative financial statements demonstrate the fair value option for debt securities
and equity investments that are managed and evaluated on a fair value basis as part of the
Fund’s documented investment strategy.

December 2010
3. Significant accounting policies (continued)
IFRS 7.21, (e) Net gain from financial instruments at fair value through profit or loss1
B5(e) Net gain from financial instruments at fair value through profit or loss includes all realised and
unrealised fair value changes and foreign exchange differences, but excludes interest and
dividend income, and dividend expense on securities sold short.
‖ Net realised gain from financial instruments at fair value through profit or loss is calculated
‖ using the average cost method.2
IFRS 7.21 (f) Fees and commission expenses
Fees and commission expenses are recognised in the statement of comprehensive income as
the related services are performed.
(g) Income tax
IAS 12.2 Under the current system of taxation in [insert name of the country of domicile] the Fund is
exempt from paying income taxes. The Fund has received an undertaking from [insert name of
the relevant government body] of [insert name of the country of domicile] exempting it from
tax for a period of [insert number of] years up till [insert year of expiry].
However, some dividend and interest income received by the Fund are subject to withholding
tax imposed in certain countries of origin. Income that is subject to such tax is recognised
gross of the taxes and the corresponding withholding tax is recognised as tax expense.
IFRS 7.21 (h) Financial assets and financial liabilities
IAS 39.14, 38 (i) Recognition and initial measurement
IFRS 7.B5(c) Financial assets and liabilities at fair value through profit or loss are recognised initially on the
trade date at which the Fund becomes a party to the contractual provisions of the instrument.
Other financial assets and liabilities are recognised on the date they are originated.
Financial assets and financial liabilities at fair value through profit or loss are measured initially
at fair value, with transaction costs recognised in the statement of comprehensive income.
Financial assets or financial liabilities not at fair value through profit or loss are measured initially
at fair value plus transaction costs that are directly attributable to its acquisition or issue.
(ii) Classification
The Fund has classified financial assets and financial liabilities into the following categories:
Financial assets at fair value through profit or loss:
●● Held for trading – derivative financial instruments
l Designated as at fair value through profit or loss – debt securities and equity investments.3
Financial assets at amortised cost:
●● Loans and receivables – cash and cash equivalents, balances due from brokers, receivables
from reverse repurchase agreements and other receivables.
Financial liabilities at fair value through profit or loss:
l Held for trading – securities sold short and derivative financial instruments.
Financial liabilities at amortised cost:
●● Other liabilities – balances due to brokers, payables under repurchase agreements,
redeemable shares and other payables.

December 2010
This page has been left blank intentionally.

December 2010
(h) Financial assets and financial liabilities (continued)
(ii) Classification (continued)
IAS 39.9, AG15 A financial instrument is classified as held for trading, if:
●● it is acquired or incurred principally for the purpose of selling or repurchasing it in the near
term;
●● on initial recognition it is part of a portfolio that is managed together and for which there is
evidence of a recent pattern of short-term profit taking; or
●● it is a derivative, other than a designated and effective hedging instrument.
IAS 39.9 The Fund has designated certain financial assets at fair value through profit or loss when the
assets are managed, evaluated and reported internally on a fair value basis.
A non-derivative financial asset with fixed or determinable payments may be classified
as a loan and receivable unless it is quoted in an active market, or it is an asset for which
the holder may not recover substantially all of its initial investment, other than because of
credit deterioration.
Note 6 provides a reconciliation of line items in the statement of financial position to the
categories of financial instruments, as defined by IAS 39.
IAS 39.58 (iii) Amortised cost measurement
The amortised cost of a financial asset or liability is the amount at which the financial asset
or liability is measured at initial recognition, minus principal repayments, plus or minus the
cumulative amortisation using the effective interest method of any difference between the
initial amount recognised and the maturity amount, minus any reduction for impairment.
IAS 39.48 (iv) Fair value measurement
Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction on the measurement date.
IAS 39.48A When available, the Fund measures the fair value of an instrument using quoted prices in an
active market for that instrument. A market is regarded as active if quoted prices are readily
and regularly available and represent actual and regularly occurring market transactions on an
arm’s length basis.
If a market for a financial instrument is not active, the Fund establishes fair value using a
valuation technique. Valuation techniques include using recent arm’s length transactions
between knowledgeable, willing parties (if available), reference to the current fair value of other
instruments that are substantially the same, discounted cash flow analyses and option pricing
models. The chosen valuation technique makes maximum use of market inputs, relies as little
as possible on estimates specific to the Fund, incorporates all factors that market participants
would consider in setting a price, and is consistent with accepted economic methodologies
for pricing financial instruments. Inputs to valuation techniques reasonably represent market
expectations and measures of the risk-return factors inherent in the financial instrument. The
Fund calibrates valuation techniques and tests them for validity using prices from observable
current market transactions in the same instrument or based on other available observable
market data.

December 2010

December 2010
IAS 39.48 (iv) Fair value measurement (continued)
IFRS 7.28(a) The best evidence of the fair value of a financial instrument at initial recognition is the
transaction price, i.e. the fair value of the consideration given or received, unless the fair
value of that instrument is evidenced by comparison with other observable current market
transactions in the same instrument (i.e. without modification or repackaging) or based on
a valuation technique whose variables include only data from observable markets. When
transaction price provides the best evidence of fair value at initial recognition, the financial
instrument is initially measured at the transaction price and any difference between this price
and the value initially obtained from a valuation model is subsequently recognised in profit
or loss on an appropriate basis over the life of the instrument but not later than when the
valuation is supported wholly by observable market data or the transaction is closed out.
Assets and long positions are measured at a bid price; liabilities and securities sold short are
measured at an asking price.
IFRS 7.B5E All changes in fair value, other than interest and dividend income and expense, are recognised
in the statement of comprehensive income as net gain from financial instruments at fair value
through profit or loss.
(v) Identification and measurement of impairment
IFRS 7.B5(f) At each reporting date the Fund assesses whether there is objective evidence that financial
assets measured at amortised cost are impaired. A financial asset or a group of financial assets
is impaired when objective evidence demonstrates that a loss event has occurred after the
initial recognition of the asset(s), and that the loss event has an impact on the future cash
flows of the asset(s) that can be estimated reliably.
IAS 39.65 Objective evidence that financial assets are impaired can include significant financial difficulty
of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan or
advance by the Fund on terms that the Fund would not otherwise consider, indications that
a borrower or issuer will enter bankruptcy or other observable data relating to a group of
assets such as adverse changes in the payment status of borrowers or issuers in the group,
or economic conditions that correlate with defaults in the group. When a subsequent event
causes the amount of impairment loss to decrease, the decrease in impairment is reversed
through profit or loss.
Impairment losses on assets carried at amortised cost are measured as the difference
between the carrying amount of the financial asset and the present value of estimated future
cash flows discounted at the asset’s original effective interest rate. Impairment losses are
recognised in profit or loss and reflected in an allowance account against loans and receivables.
Interest on impaired assets continues to be recognised through the unwinding of the discount.
The Fund writes off financial assets carried at amortised cost when they are determined to be
uncollectible.

December 2010

December 2010
IAS 39.15-42 (vi) Derecognition
The Fund derecognises a financial asset when the contractual rights to the cash flows from
the financial asset expire, or when it transfers the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred
or in which the Fund neither transfers nor retains substantially all the risks and rewards of
ownership and does not retain control of the financial asset. Any interest in transferred financial
assets that qualify for derecognition that is created or retained by the Fund is recognised as a
separate asset or liability in the statement of financial position.
On derecognition of a financial asset, the difference between the carrying amount of the
asset (or the carrying amount allocated to the portion of the asset derecognised), and the
consideration received (including any new asset obtained less any new liability assumed) is
recognised in the statement of comprehensive income.
The Fund enters into transactions whereby it transfers assets recognised on its statement
of financial position, but retains either all or substantially all of the risks and rewards of the
transferred assets or a portion of them. If all or substantially all risks and rewards are retained,
then the transferred assets are not derecognised. Transfers of assets with retention of all or
substantially all risks and rewards include, for example, securities lending and repurchase
transactions.
The Fund derecognises a financial liability when its contractual obligations are discharged or
cancelled or expire.
(vii) Offsetting
IAS 32.42 Financial assets and liabilities are offset and the net amount presented in the statement of
financial position when, and only when, the Fund has a legal right to set off the recognised
amounts and it intends either to settle on a net basis or to realise the asset and settle the
liability simultaneously.
Income and expenses are presented on a net basis only when permitted under IFRSs, for
example, for gains and losses arising from a group of similar transactions, such as gains and
losses from financial instruments at fair value through profit or loss.
(viii) Specific instruments
IAS 7.46 Cash and cash equivalents
Cash and cash equivalents comprise deposits with banks with original maturities of less than
three months, other than cash collateral provided in respect of derivatives, securities sold short
and securities borrowing transactions.
Receivables and payables under repurchase agreements and securities lent and
borrowed
IAS 39.AG51(a)-(c) When the Fund purchases a financial asset and simultaneously enters into an agreement to
resell the same or substantially similar asset at a fixed price on a future date (“reverse repo”),
the arrangement is accounted for as a loan and receivable, recognised in the statement of
financial position as receivables from reverse repurchase agreements, and the underlying asset
is not recognised in the Fund’s financial statements.

December 2010
1. IAS 1.31 When new standards, amendments to standards and interpretations will have no, or no
material, effect on the financial statements of the entity, it is not necessary to list them as
such a disclosure will not be material.
2. ‖ See Appendix I for example disclosures on the early adoption of IFRS 9 Financial Instruments
‖ issued in November 2009 (IFRS 9 (2009)).

December 2010
(viii) Specific instruments (continued)
Receivables and payables under repurchase agreements and securities lent and
borrowed (continued)
When the Fund sells a financial asset and simultaneously enters into an agreement to
repurchase the same or similar asset at a fixed price on a future date (“repo”), the arrangement
is accounted for as a borrowing, recognised in the statement of financial position as payables
under repurchase agreements, and the underlying asset continues to be recognised in the
Fund’s financial statements.
Securities borrowed by the Fund are not recognised in the statement of financial position. If the
Fund subsequently sells the borrowed securities, the arrangement is accounted for as a short
sold position, recognised in the statement of financial position as financial liabilities at fair value
through profit or loss, classified as held for trading and measured at fair value through profit or
loss. Cash collateral for borrowed securities is included within balances due from brokers.
IAS 39.AG51(a) Securities lent by the Fund are not derecognised from the Fund’s statement of financial
position. The Fund discloses cash collateral pledged by the borrower in note 11. When the
counterparty has the rights to sell or repledge the securities, the Fund reclassifies them in the
statement of financial position as pledged financial assets at fair value through profit or loss.
Receivables from reverse repurchase agreements and payables under repurchase agreements
are subsequently measured at amortised cost.
Redeemable shares
The Fund classifies financial instruments issued as financial liabilities or equity instruments in
accordance with the substance of the contractual terms of the instruments.
The Fund has two classes of redeemable shares in issue: Class A and Class B that rank pari
passu in all material respects and have the same terms and conditions other than [list down
the differences in terms between the Class A shares and Class B shares, e.g. management
fee rate, incentive fees etc.]. The redeemable shares provide investors with the right to require
redemption for cash at a value proportionate to the investor’s share in the Fund’s net assets,
after deduction of the nominal amount of equity share capital, at each monthly [daily/quarterly]
redemption date and also in the event of the Fund’s liquidation.
The redeemable shares are classified as financial liabilities and are measured at the present
value of the redemption amounts. In accordance with the Fund’s prospectus, the redemption
amounts of the redeemable shares are calculated using the mid-market prices of the Fund’s
underlying investments/securities sold short. On the other hand, in accordance with the Fund’s
accounting policies, assets and long positions are measured at a bid price and liabilities and
securities sold short are measured at the asking price (see note 3(h)(iv)). The differences in
the measurement bases of the Fund’s underlying investments/securities sold short and the
redemption amounts of the redeemable shares have been presented as an adjustment in the
statement of financial position.
IAS 8.30, 31 (i) New standards and interpretations not adopted 1
A number of new standards, amendments to standards and interpretations are effective
for annual periods beginning after 1 January 2010, and have not been applied in preparing
these financial statements. None of these are expected to have a significant effect on the
measurement of the amounts recognised in the financial statements of the Fund. However,
IFRS 9 Financial Instruments issued in November 2009 (IFRS 9 (2009)) will change the
classification of financial assets.

December 2010
1. IFRS 7.31 An entity discloses information that enables users of its financial statements to evaluate the
nature and extent of risks arising from financial instruments to which it is exposed. Those
risks typically include, but are not limited to, credit risk, liquidity risk and market risk.
IFRS 7.33 For each type of risk, an entity discloses:
●● the exposures to risk and how they arise;
●● its objectives, policies and processes for managing the risk and the methods used to
measure the risk; and
●● any changes in the above from the previous period.
IFRS 7.B6 The disclosures required by paragraphs 31 – 41 of IFRS 7 in respect of the nature and extent
of risks arising from financial instruments are either presented in the financial statements
or incorporated by cross-reference from the financial statements to another statement,
such as a management commentary or risk report, that is available to users of the financial
statements on the same terms as the financial statements and at the same time. The location
of these disclosures may be guided by local laws. In these illustrative financial statements,
these disclosures have been presented in the financial statements.
IFRS 7 requires only risk disclosures for financial instruments. Financial risk exposures from
non-financial instruments, e.g. credit risk from operating leases, are disclosed separately if an
entity chooses to disclose its entire financial risk position.
2. In these illustrative financial statements the disclosures in respect of financial risk
management have been presented to illustrate different potential scenarios and situations
that an entity may encounter in practice. An entity tailors its respective disclosures for the
specific facts and circumstances relative to its business and risk management practices,
and also takes into account the significance of its exposure to risks from the use of financial
instruments.
3. Operational risk is not a risk that is specifically discussed in IFRS 7. However, to the extent
that operational risk arises from financial instruments, it requires disclosure under the general
requirements of the standard.
4. IAS 1.134 The entity discloses information that enables users of its financial statements to evaluate its
objectives, policies and processes for managing capital.

December 2010
IAS 8.30, 31 (i) New standards and interpretations not adopted (continued)
The standard is not expected to have an impact on the measurement basis of the financial
assets since the majority of the Fund’s financial assets are measured at fair value through profit
or loss.
IFRS 9 (2009) deals with classification and measurement of financial assets and its
requirements represent a significant change from the existing requirements in IAS 39 in
respect of financial assets. The standard contains two primary measurement categories for
financial assets: at amortised cost and fair value. A financial asset would be measured at
amortised cost if it is held within a business model whose objective is to hold assets in order
to collect contractual cash flows, and the asset’s contractual terms give rise on specified dates
to cash flows that are solely payments of principal and interest on the principal outstanding.
All other financial assets would be measured at fair value. The standard eliminates the existing
IAS 39 categories of held to maturity, available for sale and loans and receivables.
For an investment in an equity instrument that is not held for trading, the standard permits an
irrevocable election, on initial recognition, on an individual share-by-share basis, to present all
fair value changes from the investment in other comprehensive income. No amount recognised
in other comprehensive income would ever be reclassified to profit or loss. However, dividends
on such investments are recognised in profit or loss, rather than other comprehensive income
unless they clearly represent a partial recovery of the cost of the investment. Investments in
equity instruments in respect of which an entity does not elect to present fair value changes
in other comprehensive income would be measured at fair value with changes in fair value
recognised in profit or loss.
The standard requires that derivatives embedded in contracts with a host that is a financial
asset within the scope of the standard are not separated; instead the hybrid financial
instrument is assessed in its entirety as to whether it should be measured at amortised cost or
fair value.
The standard is effective for annual periods beginning on or after 1 January 2013. Earlier
application is permitted. The Fund does not plan to adopt this standard early.
IFRS 7.31 4. Financial risk management1, 2
(a) Introduction and overview
IFRS 7.31, 32 The Fund has exposure to the following risks from financial instruments:
●● credit risk
●● liquidity risk
●● market risk
●● operational risk. 3
IFRS 7.33 This note presents information about the Fund’s exposure to each of the above risks, the
Fund’s objectives, policies and processes for measuring and managing risk, and the Fund’s
IAS 1.134 management of capital.4

December 2010
1. IFRS 7.34 IFRS 7 requires disclosure of quantitative data on credit risk based on the information
provided internally to key management personnel of the entity (as defined in IAS 24 Related
Party Disclosures), e.g. the entity’s board of directors. An entity explains how those data are
determined. This issue is discussed in our publication Insights into IFRS (5.6.340).
The example shown in these illustrative financial statements in relation to credit risk assumes
that the primary bases for reporting to key management personnel on credit risk is monitoring
of credit ratings of counterparties to debt securities, reverse repurchase and derivatives
transactions, brokers and bankers and industry concentration of debt securities. However,
other presentations are possible.

December 2010
4. Financial risk management (continued)
(a) Introduction and overview (continued)
(i) Risk management framework
IFRS 7.31 The Fund maintains positions in a variety of derivative and non-derivative financial instruments
in accordance with its investment management strategy. [Insert description of the Fund’s
investment strategy as outlined in the Fund’s prospectus]. The Fund’s investment portfolio
comprises listed and unlisted equity and debt securities, derivative financial instruments and
investments in unlisted investment funds.
The Fund’s investment manager has been given a discretionary authority to manage the assets
in line with the Fund’s investment objectives. Compliance with the target asset allocations
and the composition of the portfolio is monitored by the board of directors on a [daily/weekly/
monthly] basis. In instances where the portfolio has diverged from target asset allocations, the
Fund’s investment manager is obliged to take actions to rebalance the portfolio in line with the
established targets, within prescribed time limits.
IFRS 7.33 (b) Credit risk1
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an
obligation or commitment that it has entered into with the Fund, resulting in a financial loss
to the Fund. It arises principally from debt securities held, and also from derivative financial
assets, cash and cash equivalents, balances due from brokers and receivables from reverse
repurchase agreements. For risk management reporting purposes the Fund considers and
consolidates all elements of credit risk exposure (such as individual obligor default risk, country
and sector risk).
(i) Management of credit risk
IFRS 7.33(b) The Fund’s policy over credit risk is to minimise its exposure to counterparties with perceived
higher risk of default by dealing only with counterparties meeting the credit standards set out
in the Fund’s prospectus and by taking collateral. [Insert specific risk management policies and
investment guidelines relating to credit risk as outlined in the Fund’s prospectus].
IFRS 7.33(b) Credit risk is monitored on a [daily/weekly/monthly] basis by the investment manager
in accordance with policies and procedures in place. [Insert specific risk management
procedures. This should include how the risk is managed and measured]. The Fund’s credit risk
is monitored on a [monthly, quarterly, other] basis by the board of directors. Where the credit
risk is not in accordance with the investment policy or guidelines of the Fund, the investment
manager is obliged to rebalance the portfolio within [state number of days] days of each
determination that the portfolio is not in compliance with the stated investment parameters.
IFRS 7.33(c) ‖ As a result of the improving economic conditions in 2010, certain credit limits have been
‖ redefined. The Fund’s experience is that the economic recovery has had a greater impact on
‖ [name markets] markets.
(ii) Exposure to credit risk
IFRS 7.36(a), (b) The Fund’s maximum credit risk exposure (without taking into account collateral and other
credit enhancements) at the reporting date is represented by the respective carrying amounts
of the relevant financial assets in the statement of financial position. The risk on some of
these exposures, principally receivables from reverse repurchase agreements, is mitigated by
collateral held.

December 2010

December 2010
(b) Credit risk (continued)
(iii) Investments in debt securities
Credit risk arising on debt securities is mitigated by investing primarily in investment-grade
rated instruments, principally with credit ratings of at least “AA” or equivalent as determined by
[credit rating agency]. The investment manager reviews a monthly rating update from the rating
agency and rebalances the portfolio where necessary. The Fund may also invest in unrated debt
securities whereby the investment manager assigns a credit rating to these securities using a
methodology that is consistent with that used by the credit rating agency.
IFRS 7.34(c) At 31 December, the Fund was invested in debt securities with the following credit quality:
IFRS 7.36(c) Rating 2010 2009
AAA/Aaa 35.8% 45.7%
AA/Aa 61.1% 52.4%
BBB/Baa 3.1% 1.9%
Total 100.0% 100.0%
(iv) Derivative financial instruments
IFRS 7.36(c) The Fund enters in two types of derivative transactions: exchange-traded derivatives and over-
the-counter (OTC) derivatives. Credit risk arising from exchange-traded derivatives is mitigated
by margin requirements. OTC derivatives expose the Fund to the risk that the counterparties to
the derivative financial instruments might default on their obligations to the Fund.
IFRS 7.36(b), (c) Derivative financial instruments are transacted with counterparties that are rated at least AA
based on rating agency [X] ratings, within predetermined limits, and with whom the Fund has
signed master netting agreements. Master netting agreements provide for the net settlement
of contracts with the same counterparty in the event of default. As a result of master netting
agreements, at 31 December 2010, the Fund would be entitled to offset derivative assets of
€451 thousand (2009: €299 thousand) against derivative liabilities in the event of counterparty
defaults. For the purposes of reporting in the statement of financial position, the derivative
financial assets and liabilities have not been offset, as they do not meet the offsetting criteria.
The net exposure to credit risk mitigated by master netting arrangements may change
significantly within a short period of time due to the highly volatile nature of the fair value of
the derivatives.
‖ The following table sets out the fair values and the notional amount of derivative assets and
‖ liabilities held by the Fund as at the reporting date:
‖
‖ 2010 2010 2009 2009
‖ In thousands of euro Fair value Notional Fair value Notional
‖
‖ Derivative assets
‖ Listed equity index options 249 5,000 29 400
‖ Foreign currency forward contracts 219 2,000 300 2,700
‖ Equity indices futures contracts 54 7,500 - -
‖ Foreign currency futures contracts 23 2,500 106 1,500
‖ Total derivative assets 545 17,000 435 4,600

December 2010

December 2010
(iv) Derivative financial instruments (continued)
‖ 2010 2010 2009 2009
‖ In thousands of euro Fair value Notional Fair value Notional
‖
‖ Derivative liabilities
‖ Listed equity index options (1,066) (16,000) (756) (15,000)
‖ Foreign currency forward contracts (822) (10,000) (106) (1,200)
‖ Credit default swaps (485) (12,800) - -
‖ Interest rate swaps (464) (5,900) (372) (4,000)
‖ Total derivative liabilities (2,837) (44,700) (1,234) (20,200)
(v) Balances due from brokers
IFRS 7.36(c) Balances due from brokers represent margin accounts, cash collateral for borrowed securities
and sale transactions awaiting settlement. Credit risk relating to unsettled transactions is
considered small due to the short settlement period involved and the high credit quality of the
brokers used. As at the reporting date 72% (2009: 69%) of the balances due from brokers are
concentrated amongst three brokers (2009: four brokers) whose credit rating was AA (2009:
AA).The investment manager monitors the financial position of the brokers on a quarterly basis.
(vi) Cash and cash equivalents
IFRS 7.36(c) The Fund’s cash and cash equivalents are held mainly with XYZ Bank, which is rated AA
(2009: AA) based on rating agency [X] ratings. The investment manager monitors the financial
position of XYZ Bank on a quarterly basis.
(vii) Receivables from reverse repurchase agreements
IFRS 7.36(b) The Fund enters into reverse repurchase agreements that may result in credit loss in the event
that the counterparty to the transaction is unable to fulfil its contractual obligations to the
Fund, and the collateral value decreases rapidly and is insufficient to cover the amount due. At
31 December 2010 the fair value of debt securities held as collateral against receivables from
reverse repurchase agreements was €4,999 thousand (2009: €4,190 thousand). In instances
in which the value of the collateral decreases below the predetermined collateral coverage,
the agreement requires the counterparty to post additional collateral. In addition, the Fund
minimises its credit risk by monitoring counterparty creditworthiness.
(viii)Concentration of credit risk
IFRS 7.34(c) The investment manager reviews credit concentration of debt securities held based on
counterparties and industries [and geographical location].
IFRS 7.B8(a) As at the reporting date, the Fund’s debt securities exposures were concentrated in the
following industries:
2010 2009
% %
Banks/financial services 48.8 54.5
Automotive manufacturing 15.1 12.3
Information technology 12.5 8.0
Pharmaceutical 8.2 13.1
Other 15.4 12.1
100.0 100.0

December 2010
1. IFRS 7. 34(a), An entity discloses summary quantitative data about its exposure to liquidity risk, based on
B10A information that is provided internally to key management personnel of the entity (as
defined in IAS 24), e.g. the entity’s board of directors. An entity explains how those data are
The example shown in these illustrative financial statements in relation to liquidity risk
assumes that the primary basis for reporting to key management personnel on liquidity risk
is the ratio of liquid assets to anticipated redemptions and monthly redemption levels. The
example also assumes that this is the entity’s approach to managing liquidity risk. However,
other presentations are possible.

December 2010
(viii) Concentration of credit risk (continued)
There were no significant concentrations in this portfolio of credit risk to any individual issuer
or group of issuers at 31 December 2010 or 31 December 2009. No individual investment
exceeded five percent of the net assets attributable to the holders of redeemable shares either
at 31 December 2010 or 31 December 2009.
(ix) Settlement risk
The Fund’s activities may give rise to risk at the time of settlement of transactions. Settlement
risk is the risk of loss due to the failure of an entity to honour its obligations to deliver cash,
securities or other assets as contractually agreed.
For the majority of transactions the Fund mitigates this risk by conducting settlements through
a broker to ensure that a trade is settled only when both parties have fulfilled their contractual
settlement obligations. Settlement limits form part of the credit approval and limit monitoring
processes described earlier.
IFRS 7.37 (x) Past due and impaired assets
No financial assets carried at amortised cost were past due or impaired either at 31 December
2010 or 31 December 2009.
IFRS 7.39 (c) Liquidity risk1
Liquidity risk is the risk that the Fund will encounter difficulty in meeting obligations arising
from its financial liabilities that are settled by delivering cash or another financial asset, or that
such obligations will have to be settled in a manner disadvantageous to the Fund.
IFRS 7.39(c) (i) Management of liquidity risk
The Fund’s policy and the investment manager’s approach to managing liquidity is to have
sufficient liquidity to meet its liabilities, including estimated redemptions of shares, as and
when due, without incurring undue losses or risking damage to the Fund’s reputation.
The Fund’s prospectus provides for the monthly [daily/quarterly] creation and cancellation of
shares and it is therefore exposed to the liquidity risk of meeting shareholder redemptions at
each redemption date [at any time].
The Fund’s financial assets include unlisted equity investments, which generally are illiquid. In
addition, the Fund holds investments in unlisted open-ended investment funds, which may be
subject to redemption restrictions such as side pockets or redemption gates. As a result, the
Fund may not be able to liquidate some of its investments in these instruments in due time in
order to meet its liquidity requirements.
The Fund’s listed securities are considered to be readily realisable as they are actively traded on
major European stock exchanges and on the NYSE.
IFRS 7.33(b), 39(c), The Fund’s liquidity risk is managed on a daily basis by the investment manager in accordance
B11E with policies and procedures in place. [Insert specific risk management policies and investment
guidelines relating to liquidity risk as outlined in the Fund’s prospectus as well as the risk
management procedures. This should include how the risk is managed and measured].

December 2010
1. IFRS 7.39 ‖ In addition to disclosures provided under paragraph 34 of IFRS 7 that are based on
‖ information provided internally to key management personnel, an entity also discloses:
‖
‖ l a maturity analysis for non-derivative financial liabilities;
‖l a maturity analysis for derivative financial liabilities, which should include those instruments
‖ for which contractual maturities are essential for an understanding of the timing of the cash
‖ flows; and
‖ l a description of how it manages the liquidity risk inherent in the above.
2. IFRS 7.B11D ‖The contractual amounts disclosed in this analysis are gross undiscounted cash flows and
‖ therefore may not agree with the carrying amounts in the statement of financial position.
‖
‖ IFRS 7 does not define contractual maturities. It therefore leaves open to interpretation the
‖ amounts that need to be included in the analysis for certain types of financial liabilities, such
‖ as derivatives and perpetual instruments. In our view, both the interest and principal cash
‖ flows should be included in the analysis, as this best represents the liquidity risk being faced
‖ by the entity. This issue is discussed in our publication Insights into IFRS (5.6.390.70).
‖
IFRS 7.B11 ‖ In preparing the contractual maturity analyses for financial liabilities, an entity uses its
‖judgement to determine an appropriate number of time bands.
‖
IFRS 7.B11E ‖ An entity discloses how it manages liquidity risk inherent in its maturity analyses for derivative
‖ and non-derivative financial liabilities. An entity also discloses a maturity analysis of financial
‖ assets that it holds for managing liquidity risk, if such information is necessary to enable
‖ users of its financial statements to evaluate the nature and extent of liquidity risk.
3. IFRS 7.B11B ‖ In these illustrative financial statements it is assumed that disclosure of contractual maturities
‖ for all derivative financial liabilities held by the Fund is essential for an understanding of the
‖ timing of the cash flows.

December 2010
(c) Liquidity risk (continued)
(i) Management of liquidity risk (continued)
The Fund’s overall liquidity risk is monitored on a [monthly, quarterly, other] basis by the board
of directors. The Fund’s redemption policy only allows for redemptions on the last day of each
month [quarter, other] and shareholders must provide 14 days’ notice. It is the investment
manager’s policy to have liquid assets comprising cash and cash equivalents and investments
in commercial paper for which there is an active and liquid market equal to at least 105 percent
of [monthly, quarterly, other] anticipated redemptions. At the reporting date the Fund has
investments of €4,891 thousand (2009: €3,415 thousand) in commercial paper.
‖ The board of directors is empowered to impose a redemption gate should redemption levels
‖ exceed 10 percent of the net assets value of the Fund in any redemption period.
IFRS 7.B11F(a), ‖ In addition, the Fund maintains the lines of credit of €300 thousand that it can access to meet
50(a) ‖ liquidity needs. If the line of credit is drawn, interest would be payable at the rate of Euribor
‖ plus 150 basis points (2009: Euribor plus 160 basis points). The Fund has no restrictions on the
‖ use of this facility.
IFRS 7.39(a), (b) (ii) Maturity analysis for financial liabilities1, 2
The following are the contractual maturities of financial liabilities, including estimated interest
payments.
Gross
nominal
Carrying inflow/ Less than 1 to 3 3 months
IFRS 7.B11 In thousands of euro amount (outflow) 1 month months to 1 year
31 December 2010
Non-derivative liabilities
Securities sold short (784) (784) (784) - -
Balances due to brokers (143) (143) (143) - -
Payables under repurchase
agreements (2,563) (2,755) (1,213) (1,542) -
Other payables (103) (103) (103) - -
Net assets attributable to
holders of redeemable shares (32,625) (32,647) (32,647) - -
IFRS 7.B11B Derivative liabilities3
(2,837)
Outflows (9,182) (7,542) (1,640) -
Inflows 6,250 5,500 750 -
(39,055) (39,364) (36,932) (2,432) -

December 2010
1. IFRS 7. 34(a) An entity discloses summary quantitative data about its exposure to market risk, based on
information that is provided internally to key management personnel of the entity (as
defined in IAS 24), e.g. the entity’s board of directors. An entity explains how those data are
In these illustrative financial statements it is assumed that the primary basis for reporting to
key management personnel on interest rate risk is a gap analysis and the weighted average
number of days to maturity. In respect of foreign exchange risk, it is assumed that the
primary basis for reporting to key management personnel is an analysis of concentration risk
in relation to individual currencies arising from both monetary and non-monetary assets and
liabilities. In respect of other price risk, it is assumed that the primary basis for reporting to
key management personnel is an analysis of the portfolio diversification by asset type and
industry concentration of equity investments. However, other presentations are possible.
2. IFRS 7.40(a) ‖ An entity discloses how profit or loss and net assets attributable to holders of redeemable
‖ shares would have been affected by changes in a relevant risk variable that were reasonably
‖ possible at the end of the reporting period. Such a sensitivity analysis is disclosed for each
‖ type of market risk to which the entity is exposed at the end of the reporting period.
‖
IFRS 7.41 ‖ In these illustrative financial statements it is assumed that the Fund does not prepare a
‖ sensitivity analysis such as a Value-at-Risk analysis (VaR) that reflects the interdependencies
‖ between risk variables. However, we have illustrated in Appendix V an example disclosure for
‖ a fund that uses a VaR analysis.

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