OCCO Eastern European Fund (Incorporated in the Cayman Islands) Registered No. CR

Transcription

1 OCCO Eastern European Fund (Incorporated in the Cayman Islands) Registered No. CR Audited Annual Report For the Year ended 31 December 2015 ISIN No. KYG (Class A Series A ) ISIN No. KYG (Class B Series B GBP) ISIN No. KYG (Class A Series A (restricted)) ISIN No. KYG (Class A Series A EUR (restricted)) ISIN No. KYG (Class A Series A GBP) ISIN No. KYG (Class A Series A EUR) ISIN No. KYG (Class A Series A CHF) ISIN No. KYG (Class A Series C (restricted)) ISIN No. KYG (Class A Series C EUR (restricted)) ISIN No. KYG (Class A Series C ) ISIN No. KYG (Class A Series C GBP) ISIN No. KYG (Class A Series C EUR) ISIN No. KYG (Class D Series D (restricted)) ISIN No. KYG (Class D Series D ) ISIN No. KYG (Class D Series D EUR) ISIN No. KYG (Class D Series D GBP) (restricted)

2 Contents Page Management and Administration...2 Report of the Investment Manager...4 Report of the Directors...5 Independent Auditors' Report to the Directors...7 Statement of Comprehensive Income...8 Statement of Financial Position...9 Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares...10 Cash Flow Statement...11 Schedule of Investments...12 Notes to the Financial Statements...14 Supplementary Information...38 Notice of Annual General Meeting...39 Form of Proxy

3 Management and Administration Directors Wladyslaw Bartoszewski (Polish) Steven Bates (British) Jonathan Bradley (British) Erwin Brunner (Swiss) Anderson Whamond (British) all of the registered office below Registered Office PO Box 309 Ugland House Grand Cayman KY Cayman Islands Investment Manager* Charlemagne Capital (IOM) Limited St Mary s Court, 20 Hill Street Douglas Isle of Man IM1 1EU British Isles Prime Brokers Credit Suisse Securities (Europe) Limited One Cabot Square London E14 4OJ United Kingdom Goldman Sachs International Peterborough Court 133 Fleet Street EC4A 2BB United Kingdom Custodian BNY Mellon Trust Company (Ireland) Limited Guild House Guild Street Dublin 1 Ireland Administrator and Registrar BNY Mellon Investment Servicing (International) Limited Riverside Two, Sir John Rogerson's Quay Grand Canal Dock Dublin 2 Ireland Board Support Services Provider Maples Secretaries (Cayman) Limited PO Box 1093 Boundary Hall Cricket Square Grand Cayman KY Cayman Islands * For the purpose of the Alternative Investment Fund Manager Directive ( AIFMD ), the Investment Manager is the Alternative Investment Fund Manager ( AIFM ). Effective 1 January 2015 Charlemagne Capital (IOM) Limited resigned as Company Secretary and Maples Secretaries (Cayman) Limited was appointed as Board Support Services Provider. 2

4 Management and Administration (continued) Share Distributor Charlemagne Capital (UK) Limited 39 St James's Street London SW1A 1JD United Kingdom Auditors KPMG PO Box 493 Century Yard Grand Cayman KY Cayman Islands Legal Advisers As to matters of Cayman Islands Law Maples and Calder 11 th Floor, 200 Aldersgate Street London EC1A 4HD United Kingdom As to matters of English Law Stephenson Harwood 1 Finsbury Circus London EC2M 7SH United Kingdom As to matters of US Law Dechert LLP 160 Queen Victoria Street London EC4V 4QQ United Kingdom Swiss Paying Agent Banque Cantonale de Genève 17, quai de l'ile 1204 Geneva Switzerland Swiss Representative Carnegie Fund Services SA 11, rue du Général-Dufour 1204 Geneva Switzerland Additional Information for Swiss Investors The Fund is established as an exempted company under the laws of the Cayman Islands and compliant with Swiss law for distribution to qualified investors in or from Switzerland. The Swiss representative is Carnegie Fund Services S.A., 11, rue du Général-Dufour, 1204 Geneva. The Swiss paying agent is Banque Cantonale de Genève, 17, quai de l Ile, 1204 Geneva. Investors in Switzerland can obtain the documents of the Fund, such as the Offering Memorandum including the Articles of Incorporation, the annual and interim reports, and further information free of charge from the Swiss representative. This document may only be issued, circulated or distributed so as not to constitute an offering to non-qualified investors in Switzerland. Recipients of the document in Switzerland should not pass it on to anyone without first consulting their legal or other appropriate professional adviser, or the Swiss representative. 3

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6 Report of the Directors The Directors present to the Shareholders the Annual Report and Financial Statements for the year ended 31 December Incorporation and Organisation OCCO Eastern European Fund (the "Company or Fund") was incorporated on 13 December 2001 with limited liability as an exempted company under the Companies Law of the Cayman Islands with registered number CR The Company registered under the Mutual Funds Law of the Cayman Islands on 2 January The Company is an open-ended investment company designed to enable investors to take advantage of investment opportunities in Eastern and Emerging European Securities. Results, Activities and Future Developments The results of the Fund for the year ended 31 December 2015 are set out in the Statement of Comprehensive Income on page 8. A detailed review of activities and future developments is contained in the Report of the Investment Manager. Directors The Directors during the year and to date were: Wladyslaw Bartoszewski Steven Bates Jonathan Bradley Erwin Brunner Anderson Whamond Directors and Other Interests Anderson Whamond is a non-executive director of the Investment Manager. Mr Whamond is a shareholder of Charlemagne Capital Limited ( CCL ) the parent of the Investment Manager and Share Distributor. Mr Whamond also has a family interest in the share capital of CCL. Mr Whamond and family held 92,000 Class B Series B GBP shares of the Fund (31 December 2014: 92,000 Class B Series B GBP shares). Steven Bates is a Director of the Fund and as at 31 December 2015 held 258 Class A Series A shares (31 December 2014: 258 Class A Series A shares) of the Fund. Jonathan Bradley is a director of the Share Distributor. Employees (including parties related to employees) of the Investment Manager also held shares in the Fund as disclosed below: Share Class Class A Series A 2, , Class B Series B GBP 366, , As at 31 December 2015 an entity associated with the Investment Manager held 406,040 Class D Series D (restricted) shares (31 December 2014: 375,107 Class A Series C (restricted)) shares of the Fund. Save as disclosed above, none of the Directors had any interest during the period in any material contract for the provision of services which was significant to the business of the Fund. Save as disclosed above and in Note 3 to the financial statements, none of the Directors had any interest during the year in any material contract for the provision of services which was significant to the business of the Fund. Dividend Policy The Directors will have absolute discretion as to the payment of dividends and do not currently intend to pay dividends on the shares. 5

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8 ABCD KPMG PO Box 493 Telephone: Century Yard Fax: Grand Cayman KY Internet: CAYMAN ISLANDS Independent Auditors Report to the Directors We have audited the accompanying financial statements of OCCO Eastern European Fund (the Company ), which comprise the statement of financial position and schedule of investments as at 31 December 2015, and the statement of comprehensive income, statement of changes in net assets attributable to holders of redeemable participating shares and cash flow statement for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of 31 December 2015, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. 6 May 2016 KPMG, a Cayman Islands partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

9 Statement of Comprehensive Income Expressed in United States Dollars Year ended 31 Year ended 31 Notes December 2015 December 2014 Income Interest income on - Cash and other assets 285, ,737 Dividend income 6,171,019 14,729,641 Net gain/(loss) on financial assets and financial liabilities at fair value through profit or loss 12 35,048,763 (8,046,528) Net investment income 41,505,674 6,801,850 Expenditure Investment Manager fees: - Annual fees 3.2 7,940,797 11,188,111 - Performance fees 3.2 2,017,251 22,321 Board Support Services Provider fees ,179 30,390 Administrator and Registrar fees , ,609 Legal, audit and professional fees 239, ,192 Listing and insurance fees 63,460 61,776 Directors' fees and expenses , ,922 Conversion/Depository fees 192,677 Other expenses 241, ,163 Operating expenses before finance costs 11,506,803 12,994,161 Net income/(loss) from operations before finance costs 29,998,871 (6,192,311) Finance costs Interest expense 2,293,705 4,122,293 Dividends paid on short sales 7,321,725 10,919,608 Stock borrowing fees 2,172,961 3,657,016 Swap finance costs 1, ,489 Total finance costs 11,789,558 19,334,406 Taxation Withholding tax on dividend income 1,095,236 2,279,262 Capital gains tax ,076 Total taxation 1,095,236 2,467,338 Change in net assets attributable to holders of redeemable participating shares resulting from operations 17,114,077 (27,994,055) The Directors consider that all results derive from continuing activities. The accompanying notes form an integral part of these financial statements 8

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11 Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares 31 December December 2014 Expressed in United States Dollars Total Total Balance as at beginning of year 537,427, ,224,856 Subscriptions 106,905,231 88,712,497 Redemptions (241,522,324) (188,515,783) Equalisation (161,338) Change in net assets attributable to holders of redeemable participating shares resulting from operations 17,114,077 (27,994,055) Balance as at end of year 419,763, ,427,515 The accompanying notes form an integral part of these financial statements 10

12 Cash Flow Statement Expressed in United States Dollars 31 December December 2014 Operating activities Change in net assets attributable to holders of redeemable participating shares resulting from operations 17,114,077 (27,994,055) Adjustments: Net realised (gain)/loss on investments 3,834,623 (66,211,922) Net movement in unrealised depreciation\(appreciation) on: - investments and foreign currency transactions (38,883,386) 74,258,450 Increase in interest and dividends payable 36, ,931 Decrease/(increase) in interest and dividends receivable 4,457,063 (4,951,426) Decrease/(increase) in receivable from subsidiary 20,619,473 (20,619,473) Increase/(decrease) in payable to subsidiary 1,357,039 (1,847,593) Decrease in other debtors 31,918 5,760,685 (Decrease)/increase in other creditors 9,138,280 (15,941,974) Net sales of investments 36,762,119 22,791,465 Net cash inflow/(outflow) from operating activities 54,467,743 (34,192,912) Financing Proceeds from issue of shares 106,905,231 88,712,497 Payment on redemptions of shares (241,522,324) (188,515,783) Change in equalisation credit (37,880) (1,494,060) Net cash outflow from financing activities (134,654,973) (101,297,346) Net decrease in cash and cash equivalents (80,187,230) (135,490,258) Cash and cash equivalents at beginning of the year 463,002, ,492,482 Cash and cash equivalents at end of the year (including margin cash) 382,814, ,002,224 Cash inflow from operating activities include: Gross dividends received 10,630,715 9,778,244 Dividends paid for investments sold short (7,274,746) (10,327,479) Interest received 283, ,708 Interest paid 2,304,147 (4,151,491) The accompanying notes form an integral part of these financial statements 11

13 Schedule of Investments as at 31 December 2015 Number of Shares/Contracts Fair/Market Value US$ Description Cost % of Net Assets FINANCIAL ASSETS AT FAIR VALUE EQUITIES Hungary MOL Hungarian Oil and Gas Plc 223,446 10,786,023 10,977, % Richter Gedeon Nyrt 220,560 4,225,752 4,168, % 15,011,775 15,146, % Kazakhstan KazMunaiGas Exploration Production 474,142 3,475,016 3,506, % 3,475,016 3,506, % Poland Bank Zachodni WBK S.A. 73,401 5,847,127 5,340, % Powszechny Zaklad Ubezpieczen S.A. 1,520,810 17,060,283 13,234, % UNIWHEELS AG 127,676 3,966,352 3,993, % 28,459,683 22,568, % Russia Aeroflot - Russian Airlines OJSC 11,320,430 6,619,222 8,683, % Alrosa PAO 12,562,902 9,878,520 9,648, % Bashneft OAO 85,338 2,577,417 2,320, % Bashneft OAO PFD 69,708 1,847,914 1,637, % Globaltrans Investment PLC GDR 882,034 3,786,300 3,925, % Lenta Ltd. GDR 968,886 7,213,410 6,564, % MMC Norilsk Nickel PJSC ADR 1,270,583 16,376,763 16,018, % Moscow Exchange MICEX-RTS OAO 5,849,579 8,259,429 7,352, % Sberbank of Russia ADR 3,600,999 22,035,313 21,238, % Surgutneftegas OAO 6,715,794 4,425,224 4,068, % Uralkali OJSC 1,583,346 4,208,029 3,837, % X5 Retail Group NV GDR 607,038 10,315,657 11,412, % Yandex NV 277,620 4,237,822 4,362, % 101,781, ,070, % Turkey KOC Holding A/S 931,221 4,225,137 3,493, % Turkiye Garanti Bankasi AS 6,212,488 20,118,225 15,177, % 24,343,362 18,670, % TOTAL EQUITIES 173,070, ,962, % SWAPS Notional Value Unrealised Gain/Loss Russia RTS Index Future March 16 (9,031) (13,628,682) 177, % 177, % TOTAL SWAPS 177, % CONTRACTS-FOR-DIFFERENCE HELD SHORT Notional Value Unrealised Gain/Loss Eastern Europe MSCI Emerging Markets Europe (8,518) (2,081,970) 14, % 14, % Russia Seversta (1,026,974) (8,626,582) 594, % Tatneft - Sponsored ADR (122,441) (3,258,155) 26, % 621, % TOTAL CONTRACTS-FOR-DIFFERENCE HELD SHORT 635, % CONTRACTS-FOR-DIFFERENCE HELD LONG Notional Value Unrealised Gain/Loss South Africa Telkom S.A. Ltd. 2,090,889 8,724, , % 490, % TOTAL CONTRACTS-FOR-DIFFERENCE HELD LONG 490, % INVESTMENT COMPANY Investment in Subsidiary 1,349, % 1,349, % The accompanying notes form an integral part of these financial statements 12

14 Schedule of Investments as at 31 December 2015 (continued) Number of Shares/Contracts Fair/Market Value US$ Description % of Net Assets FINANCIAL ASSETS AT FAIR VALUE continued TOTAL INVESTMENT COMPANY 1,349, % TOTAL FINANCIAL ASSETS AT FAIR VALUE 163,616, % Description Number of Shares/Contracts Proceeds Fair/Market Value US$ % of Net Assets FINANCIAL LIABILITIES AT FAIR VALUE EQUITIES Poland Grupa Lotos S.A. (534,912) (3,940,242) (3,681,854) (0.88)% mbank (62,487) (5,919,371) (5,013,504) (1.19)% Orange Polska SA (4,705,463) (9,313,106) (7,863,130) (1.87)% PGE Polska Grupa Energetyczna SA (1,871,802) (7,421,310) (6,165,139) (1.47)% (26,594,029) (22,723,627) (5.41)% Romania OMV AG (160,698) (4,349,922) (4,559,376) (1.09)% (4,349,922) (4,559,376) (1.09)% Russia Magnit OJSC GDR (996,230) (48,060,343) (40,058,408) (9.54)% Mail.Ru Group Ltd. GDR (198,594) (4,314,060) (4,493,189) (1.07)% MegaFon OAO GDR (941,603) (12,957,415) (10,946,135) (2.61)% Novolipetsk Steel OJSC (741,456) (6,597,576) (6,261,596) (1.49)% PhosAgro OAO GDR (310,781) (4,146,329) (4,001,306) (0.95)% SeverStal (371,542) (4,041,907) (3,120,953) (0.75)% (80,117,630) (68,881,587) (16.41)% Turkey Akbank TAS (6,302,431) (19,716,776) (14,489,713) (3.45)% BIM Birlesik Magazalar A/S (208,678) (4,147,519) (3,667,106) (0.88)% (23,864,295) (18,156,819) (4.33)% TOTAL EQUITIES (134,925,876) (114,321,409) (27.24)% FUTURES Notional Value Fair/Market Value US$ Poland WIG20 INDEX Future March 16 (269) (2,549,659) (62,228) (0.02)% (62,228) (0.02)% TOTAL FUTURES (62,228) (0.02)% CONTRACTS-FOR-DIFFERENCE HELD SHORT Notional Value Unrealised Gain/Loss Russia Evraz Plc (1,322,198) (1,423,879) (204,916) (0.05)% Magnitogorsk Iron & Steel Works (17,574,626) (4,512,827) (51,861) (0.01)% (256,777) (0.06)% South Africa Mediclinic International Ltd. (3,719,829) (28,743,587) (866,667) (0.21)% Vodacom Group Ltd. (857,032) (8,448,679) (471,880) (0.11)% (1,338,547) (0.32)% TOTAL CONTRACTS-FOR-DIFFERENCE HELD SHORT (1,595,324) (0.38)% CONTRACTS-FOR-DIFFERENCE HELD LONG Notional Value Unrealised Gain/Loss United Arab Emirates AL Noor Hospitals Group 2,328,741 37,900,651 (102,991) (0.02)% (102,991) (0.02)% TOTAL CONTRACTS-FOR-DIFFERENCE HELD LONG (102,991) (0.02)% TOTAL FINANCIAL LIABILITIES AT FAIR VALUE (116,081,952) (27.66)% NET INVESTMENTS 47,534, % OTHER ASSETS LESS LIABILITIES 372,228, % TOTAL NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE PARTICIPATING SHARES 419,763, % The accompanying notes form an integral part of these financial statements 13

15 Notes to the Financial Statements 1. The Company OCCO Eastern European Fund (the "Company or Fund") was incorporated on 13 December 2001 with limited liability as an exempted company under the Companies Law of the Cayman Islands with registered number CR The Company registered under the Mutual Funds Law of the Cayman Islands on 2 January The Company has been established as an open-ended investment company and as such has the power to issue and redeem its shares. The most recent offering memorandum is dated June 2015 (the "Prospectus"). The Fund s agents and the Investment Manager perform all significant functions. Accordingly, the Fund itself has no employees. Investment Objective and Policy The investment objective of the Fund is to generate absolute returns through investing in Emerging Market Securities. The Fund will invest principally in Emerging Market Securities, but may also invest up to 25% of its assets in securities that are not Emerging Market Securities. The Fund may take both long and short positions. Some Emerging Markets are at an early stage of their development and therefore do not provide a complete range of investment instruments. The Fund will consider all available instruments including equity securities (listed and unlisted), debt securities (rated and unrated), depositary receipts, futures and options, warrants, OTC derivatives (including equity swaps) and cash. The Fund may also invest in index futures contracts and currency forward contracts for hedging purposes. The Fund may employ leverage in such circumstances as the Investment Manager may determine up to 200% of Net Asset Value. The Fund will consider all available types and sources of leverage to increase its exposure, whether through borrowing of cash or securities, or leverage embedded in derivative positions or by any other means. The Investment Manager will employ arbitrage strategies for the Fund, which may include investing in other funds which invest in Emerging Markets. The Investment Manager broadly defines Emerging Markets countries as countries not included at the time of investment in the MSCI World Index (the "Index"). However the Investment Manager may at times determine, based on its own analysis of macroeconomic factors or company attributes, that countries and/or companies included in the Index should nonetheless be considered as having "emerging" status for the purpose of the Fund's investments. The Fund reserves the right to substitute another index for the Index in the event that the Fund and the Investment Manager agree that the use of the Index is no longer available or is otherwise inappropriate due to a substantial difference from the way in which countries are classified for the purpose of the Index as at 1 May Borrowing Powers The Fund may employ leverage of up to two times its Net Asset Value. Portfolio Information - Non-Disclosure Agreement Shareholders are advised that they may request detailed portfolio information and that they will be furnished with such additional information in a standard format subject to the execution of a non-disclosure agreement between the Shareholder and the Company (the "Non-Disclosure Agreement"). Pursuant to the terms of the Non-Disclosure Agreement, Shareholders will warrant to the Company that they will keep the portfolio information supplied confidential and will not disclose such information to any third party. The Directors confirm that this information is available to all shareholders subject to the execution of a non-disclosure agreement and that no shareholder shall be disadvantaged by the provision of this information to any shareholder. 14

16 2. Significant Accounting Policies The financial statements are prepared in accordance with International Financial Reporting Standards ( IFRS ) and interpretations adopted by the International Accounting Standards Board ("IASB"). The financial statements are prepared on a fair value basis for financial assets and financial liabilities at fair value through profit or loss and derivative financial instruments. Other financial assets and financial liabilities are stated at amortised cost or redemption amount (redeemable participating shares). The Fund is denominated in United States Dollar ( or US$ ). The functional and presentation currency of the financial statements is the United States Dollar and not the local currency of the Cayman Islands reflecting the fact the shares of the Company are marketed to international investors, the majority of shares are issued in United States Dollars and distributions to investors may be made in United States Dollars. The preparation of financial statements in conformity with IFRS require management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. Changes in accounting policy and disclosures: The accounting policies adopted are consistent with those of the previous financial year. Standards issued but not yet effective up to the date of issuance of the Company s financial statements are listed below. IFRS 9 Financial Instruments: Classification and Measurement IFRS 9 as issued reflects the first phase of the IASB s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Company s financial assets but will potentially have no impact on classification and measurements of financial liabilities. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. Investment Entities : Applying the Consolidation Exemption (Amendments to IFRS 10, IFRS 12, and IAS 28) These amendments, inter alia, clarify that an investment entity may provide investment-related services to their parities- even if those activities are substantial to the entity as long as the entity continues to meet the definition of any investment company. The amendment are effective for annual periods beginning on or after 1 January Based on initial assessment, these amendments are not expected to have a material impact to the Company. The significant accounting policies adopted by the Company are as follows: 2.1 Dividend income and dividend expense Dividend income is recognised in the Statement of Comprehensive Income on the date on which the right to receive payment is established. For quoted equity securities, this is usually the ex-dividend date. For unquoted equity securities, this is usually the date on which the shareholders approve the payment of a dividend. Dividend income from equity securities designated as at fair value through profit or loss is recognised in profit or loss in a separate line item. 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. 15

17 2. Significant Accounting Policies (continued) 2.2 Expenses Expenses are accounted for on an accruals basis. 2.3 Deposit interest Deposit interest is accounted for on an accruals basis. 2.4 Value of investments The Fund classifies all its equity investments into the financial assets and financial liabilities at fair value through profit or loss category. These include investments in equity securities, bonds and liabilities from short sales of financial instruments and derivative financial instruments. The Investment Manager determines the appropriate classification of its investments at the time of purchase and reevaluates such designation on a regular basis. All listed or quoted securities are booked at cost on purchase and subsequently re-measured at fair value on the valuation day. Fair value is based on the quoted price at the Statement of Financial Position date, without any deduction for estimated future selling costs or other valuation method deemed appropriate to measure fair value by the Directors. Unlisted investments for which a quoted market value cannot be obtained are valued using the Directors estimation of the realisable value of such investment. If a quoted market value becomes available subsequently, the instrument is measured at fair value. The policy set out in the Prospectus, with certain exceptions, provides for securities to be valued at mid-market prices on each valuation day. Unrealised gains and losses arise from changes in the fair value of investments held, including the effect of foreign exchange. Realised gains and losses on investments are determined on a FIFO basis. All realised and unrealised gains and losses are included in the Statement of Comprehensive Income as they arise. 2.5 Investments sold short Investments sold short are those positions where the Fund has sold a security that it does not own in anticipation of a decline in the market value of the security and are classified as liabilities held-for-trading in accordance with IAS 39. To enter a short sale, the Fund may need to borrow the security for delivery to the buyer. On each day the short sale transaction is open, the liability to replace the borrowed security is marked to market and an unrealised gain or loss is recorded. While the transaction is open the Fund will also incur an expense for any dividends or interest which will be paid to the lender of the securities. 2.6 Derivative contracts As part of the Fund s investment strategy, the Fund enters into certain derivative contracts, all of which are classified as trading instruments and recognised on the Statement of Financial Position at fair value. The fair value of open positions in forward contracts, futures contracts, swaps and contracts-for-difference is calculated as the difference between the contract price and fair value based on reported market prices of the underlying contract variables. Realised and unrealised gains and losses are included in the Statement of Comprehensive Income. Realised gains or losses include net gains or losses on contracts which have settled or for which offsetting contracts have been entered into. 2.7 Foreign currency transactions The Fund maintains its books and records in which is the functional and presentation currency of the Fund. Monetary assets and liabilities denominated in foreign currencies are translated at the applicable rate of exchange in effect at the Statement of Financial Position date. Transactions in foreign currencies are translated at the rate of exchange prevailing at the time of the transactions. Foreign currency differences are recognised in the Statement of Comprehensive Income. 2.8 Cash and cash equivalents For the purpose of the Cash Flow Statement, cash and cash equivalents comprise cash deposited with banks, cash balances at brokers, margin cash and bank overdrafts. 16

18 2. Significant Accounting Policies (continued) 2.9 Equalisation credit If Shares are subscribed for at a time when the Net Asset Value per Share is greater than the Peak Net Asset Value per Share, the investor will be required to pay an amount in excess of the then current Net Asset Value per Share equal to the Relevant Percentage of the difference between the then current Net Asset Value per Share (before accrual for the Performance Fee) and the Peak Net Asset Value per Share, an Equalisation Credit. The Equalisation Credit ensures that all holders of Shares have the same amount of capital at risk per Share Recognition The Fund recognises financial assets and liabilities at fair value through profit or loss on the date it commits to purchase the instruments. From this date any gains and losses arising from changes in fair value of the assets are recognised. Financial instruments are measured initially at fair value (transaction price). Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately. Subsequent to initial recognition all instruments are measured at fair value, except that any instrument that does not have a quoted market price in an active market is stated at the lower of cost less impairment losses and the Directors estimation of the realisable value of such investment Unrealised gains and losses on subsequent measurement Unrealised gains and losses arising from a change in the fair value of trading instruments are recognised in the Statement of Comprehensive Income Derecognition A financial asset is derecognised when the Fund loses control over the contractual rights that comprise that asset. This occurs when the rights are realised, expire or are surrendered. A financial liability is derecognised when it is extinguished. Assets that are sold are derecognised and corresponding receivables from the buyer for the payment are recognised as of the date the Fund commits to sell the assets Redeemable participating shares All redeemable participating shares issued by the Fund provide the investors with the right to require redemption for cash at the value proportionate to the investor s share in the Fund s net assets at the redemption date. In accordance with IAS 32 such instruments give rise to a financial liability for the present value of the redemption amount. In accordance with the Prospectus, the Fund is contractually obligated to redeem shares, with certain exceptions, at mid-market prices Subsidiaries Subsidiaries are investees controlled by the Fund. The Fund controls an investee if it is exposed to, or has the rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Baneasa Holdings Limited (the subsidiary ), which was established for efficient portfolio management purposes was incorporated in Cyprus on 20 February 2009 under Cypriot Law. As at 31 December 2015, the Company owned 100% of the outstanding shares of Baneasa Holdings Limited. During the year the Company provided finance to the subsidiary for portfolio investments and at the year end the Company owes the subsidiary 1,357,039 (2014: due from subsidiary 20,619,473), The Company is an investment entity and measures investments in its subsidiaries at fair value through profit or loss based on the net asset value of the subsidiary. 3. Related Party Transactions 3.1 Directors Anderson Whamond is a non-executive director of the Investment Manager. Mr Whamond is a shareholder of Charlemagne Capital Limited ( CCL ) the parent of the Investment Manager, Charlemagne Capital (IOM) Limited and Share Distributor. Mr Whamond also has a family interest in the share capital of CCL. Mr Whamond and family held 92,000 Class B Series B GBP shares of the Fund (31 December 2014: 92,000 Class B Series B GBP shares). 17

19 3. Related Party Transactions (continued) 3.1 Directors (continued) Steven Bates is a Director of the Fund and as at 31 December 2015 held 258 Class A Series A shares (31 December 2014: 258 Class A Series A shares) of the Fund. Jonathan Bradley is a director of the Share Distributor. Employees (including parties related to employees) of the Investment Manager also held shares in the Fund as disclosed below: Share Class Class A Series A 2, , Class B Series B GBP 366, , As at 31 December 2015 an entity associated with the Investment Manager held 406,010 Class D Series D (restricted) shares (31 December 2014: 375,107 Class A Series C (restricted)) shares of the Fund. Save as disclosed above, none of the Directors had any interest during the period in any material contract for the provision of services which was significant to the business of the Fund. 3.2 Investment Manager fees Annual fees The Investment Manager is entitled to receive a fee, in respect of the Series A CHF Shares, Series A EUR Shares, Series A GBP Shares, Series A, Series A CHF (restricted) Shares, Series A EUR (restricted) Shares, Series A GBP (restricted) Shares, Series A (restricted) Shares and Class D Shares, equivalent to 1.5% per annum of the average monthly Net Asset Value per Series A CHF Share, Series A EUR Share, Series A GBP Share, Series A Share, Series A CHF (restricted) Share, Series A EUR (restricted) Share, Series A GBP (restricted) Share, Series A (restricted) Share, Series D EUR Share, Series D GBP Share, Series D Share, Series D EUR (restricted) Share, Series D GBP (restricted) Share and Series D (restricted) Share. The Investment Manager is entitled to receive a fee, in respect of the Series C CHF Shares, Series C EUR Shares, Series C GBP Shares, Series C, Series C CHF (restricted) Shares, Series C EUR (restricted) Shares, Series C GBP (restricted) Shares and Series C (restricted) Shares, equivalent to 2.5% per annum of the average monthly Net Asset Value per Series C CHF Share, Series C EUR Share, Series C GBP Share, Series C Share, Series C CHF (restricted) Share, Series C EUR (restricted) Share, Series C GBP (restricted) Share and Series C (restricted) Share. In respect of the Class B Shares the Investment Manager is entitled to receive a fee of 0.75% per annum of the average monthly Net Asset Value per Series B GBP Share. These fees are payable monthly in arrears. The Investment Manager may also recover out of pocket expenses reasonably incurred by it or its agents or delegates in the performance of their respective functions. The Investment Manager fees accrued for the year ended 31 December 2015 amounted to 7,940,797 (31 December 2014: 11,188,111) of which 617,334 (31 December 2014: 815,809) was outstanding at year end. Performance fees The Investment Manager is also entitled to receive a Performance Fee (the "Performance Fee") from the Fund in respect of the Class A Shares and Class D Shares calculated on a Share-by-Share basis so that each Share is charged a Performance Fee which equates precisely with that Share s performance. This method of calculation ensures that (i) any Performance Fee paid to the Investment Manager is charged only to those Shares which have appreciated in value, (ii) all holders of Shares have the same amount of capital per Share at risk in the Fund, and (iii) all Shares of the same series have the same Net Asset Value per Share. Given that the Net Asset Value per Share will differ for each series of Shares, each series of Shares should be considered wholly distinct for the purposes of calculating any Performance Fees. The Performance Fee will be calculated in respect of each period of twelve months ending on 31 December in each year (a Calculation Period ). The Performance Fee will be deemed to accrue on a monthly basis as at each Valuation Day. 18

20 3. Related Party Transactions (continued) 3.2 Investment Manager fees (continued) For each Calculation Period, the Performance Fee in respect of the Class A Shares and Class D Shares will be equal to 20%, (the "Relevant Percentage") of the appreciation in the relevant Net Asset Value per Share during that Calculation Period above the Base Net Asset Value per Share. The Base Net Asset Value per Share is the greater of the relevant Net Asset Value per Share at the time of issue of that Share and the highest relevant Net Asset Value per Share achieved as of the end of any previous Calculation Period (if any) during which such Share was in issue. The Performance Fee in respect of each Calculation Period will be calculated by reference to the Net Asset Value before deduction for any accrued Performance Fees. Class B Shares are not subject to a Performance Fee. If an investor subscribes for Shares at a time when the relevant Net Asset Value per Share is other than the Peak Net Asset Value per Share, certain adjustments will be made to reduce inequities that could otherwise impact the subscriber or the Investment Manager. The Performance Fee will be charged at the end of each Calculation Period by redeeming such number of the investors shares as have an aggregate Net Asset Value equal to the Relevant Percentage of any such appreciation. An amount equal to the aggregate Net Asset Value of the Shares so redeemed will be paid to the Investment Manager as a Performance Fee. At the end of each Calculation Period, if the relevant Net Asset Value per Share (before accrual for the Performance Fee) exceeds the Peak Net Asset Value per Share, that portion of the Equalisation Credit equal to the Relevant Percentage of the excess, multiplied by the number of relevant Shares subscribed for by the Shareholder, will be applied to subscribe for additional Shares of the relevant class for the Shareholder. Additional Shares will continue to be so subscribed for at the end of each Calculation Period until the Equalisation Credit, as it may have appreciated or depreciated in the Fund after the original subscription for Shares was made, has been fully applied. If the Shareholder redeems his Shares before the Equalisation Credit has been fully applied, the Shareholder will receive additional redemption proceeds equal to the Equalisation Credit then the remaining multiplied by a fraction, the numerator of which is the number of relevant Shares being redeemed and the denominator of which is the number of relevant Shares held by the Shareholder immediately prior to the redemption in respect of which an Equalisation Credit was paid on subscription. Equalisation of 37,880 was paid during the year ended 31 December 2015 (31 December 2014: nil). The Performance fee accrued for the year ended 31 December 2015 amounted to 2,017,251 (31 December 2014: 22,321) including crystallised performance fees on redemptions of which 1,593,666 (31 December 2014: nil) was outstanding at year end. 3.3 Board Support Services Provider fees From 1 January 2015 Maples Secretaries (Cayman) Limited (the Board Support Services Provider ) replaced Charlemagne Capital (IOM) Limited (the Company Secretary ). Maples Secretaries (Cayman) Limited receives a base fee of US$5,000 per annum payable in advance. In addition the Board Support Services Provider is entitled to reimbursement of any expenses incurred in this capacity and where the Board Support Services Provider agrees to provide optional services, additional fees shall be payable in connection with the performance of such services. Board Support Services Provider fees and expenses for the year amounted to 21,179 (31 December 2014: 30,390). Up to 31 December 2014 Charlemagne Capital (IOM) Limited was entitled to receive an annual fee of 20,000 ( 7,500 up to 30 November 2013). This fee was accrued monthly and paid quarterly in arrears. In addition the Company Secretary was entitled to reimbursement of any expenses incurred by it in this capacity. 3.4 Share Distributor fees The Share Distributor is entitled to receive the initial charge of up to 5% of the amount subscribed by an investor and which is payable by an investor upon subscription. The Share Distributor is also entitled to reimbursement of any out-of-pocket expenses and other disbursements properly incurred by it. The Share Distributor fee accrued for the year ended 31 December 2015 amounted to nil (31 December 2014: nil). 3.5 Balances due to and from subsidiary As at 31 December 2015 the Fund had an amount payable to the subsidiary of 1,357,039 (31 December 2014: an amount receivable from subsidiary of 20, ). This amount represents the net amount payable/receivable to/from the subsidiary resulting from trade transactions and cash transfers transacted between the Fund and the subsidiary. 19

21 4. Charges and Fees 4.1 Prime Broker fees The Prime Broker performs a variety of brokerage and custodial services on commercial terms for the Fund for which fees are charged at normal commercial rates. The Prime Broker is also entitled to reimbursement of all expenses. Fees payable to the Prime Broker are subject to review from time to time. 4.2 Administrator and Registrar fees The Administrator and Registrar is entitled to receive fees at such rates as may be agreed from time to time between the Fund and the Administrator and Registrar. Initially, the Administrator and Registrar is entitled to receive fees based upon the average Net Asset Value, calculated and paid monthly at the following rates: 0.11% up to 200 million; 0.09% of the next 200 million; 0.07% of the next 200 million; and 0.05% in excess of 600 million. subject to a minimum monthly fee of 5,000. The Administrator and Registrar is also entitled to receive a monthly fee of 500 per series of shares for providing shareholder and transfer agency services, 20 per account per annum, 5 per subscription or redemption and up to 10 per account for new account opening. Further, the Administrator and Registrar is entitled to be repaid all of its reasonable out-of-pocket expenses properly incurred by it in the performance of its duties which shall include but not be limited to, technology costs related to internet services, transaction charges related to share purchase/redemption, legal expenses, courier and telecommunication costs. Administration fees and expenses for the year ended 31 December 2015 amounted to 882,676 (31 December 2014: 996,609) of which 191,264 (31 December 2014: 184,544 ) was outstanding at year end. 5. Financial Instruments and Concentration of Risks The main risks arising from the Fund s financial instruments are as follows: 5.1 Market risk Market risk embodies the potential for both losses and gains and includes currency risk, interest rate risk and price risk. The Fund s strategy on the management of investment risk is driven by the Fund s investment objective as disclosed in Note 1. The performance of the Fund can decrease as well as increase. a) Market Price Risk Market price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. The maximum price risk resulting from the ownership of financial instruments is determined by the fair value of financial instruments. The Investment Manager considers the asset allocation of the portfolios in order to minimise the risk associated with particular countries or industry sectors whilst continuing to follow the Fund s investment objectives as outlined in Note 1 to these financial statements. Eastern European countries present different economic and political conditions from those in Western markets, and less social, political and economic stability. The securities markets in Eastern Europe are smaller, less sophisticated, less liquid and generally more volatile than in the United States and Western Europe. Risk is an integral part of the investment process. Risk is monitored by the Investment Manager, Charlemagne Capital (IOM) Limited, through its Risk Management team and risk meetings being held on a regular basis. Risk is considered statistically, with a risk management system being used to monitor and predict risk. The risk management system helps manage equity risk against expected returns. The Fund is managed within given risk parameters. The intent is to ensure that risk is assessed as thoroughly as upside potential in deciding what size positions are appropriate for each stock: in effect, ensuring that risks are thoroughly understood and that position sizes match level of assessed risk. 20

22 5. Financial Instruments and Concentration of Risks (continued) 5.1 Market risk (continued) a) Market Price Risk (continued) Details of the nature of the Fund s investment portfolio at the Statement of Financial Position date are disclosed in the Schedule of Investments beginning on page 12. As at 31 December 2015 the Fund has net financial assets and financial liabilities at fair value through profit or loss of 47,534,486 (31 December 2014: 60,314,351), included within this are contracts- for-difference, swaps and futures which have a net liability gross exposure as disclosed in Note 6. The following table sets out a sensitivity analysis in relation to market price risk and its effect on the net asset value of the Fund. Given the nature of the markets that the Fund is invested in, a 10% change in asset prices (both positive and negative) has been applied to the portfolio and the approximate change in net asset values for the Fund is detailed below. Cash, settlements and fees are assumed unchanged. All other market parameters are also assumed unchanged: Impact on Net Asset Value due to movement in Market Prices Positive 10% Negative 10% 31 December ,028,908 (2,028,908) 31 December ,950,750 (1,950,750) b) Foreign exchange risk Currency risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate because of changes in the rate of exchange between the currency in which the financial asset or liability is denominated in and the functional currency of the Fund. A portion of the financial assets of the Fund are denominated in currencies other than the (the functional currency) with the effect that the Statement of Financial Position and total return can be significantly affected by currency movements. The Fund s currency risk is managed on an ongoing basis by the Investment Manager in accordance with policies and procedures in place. The Fund s overall currency positions and exposures are monitored by the Investment Manager. All of the Fund s investments are held at fair value (see Note 2.4). Eastern European countries present different economic and political conditions from those in Western markets, and less social, political and economic stability. The securities markets in Eastern Europe are smaller, less sophisticated, less liquid and generally more volatile than in the United States and Western Europe. The Fund s investment portfolio exposure to fluctuations in foreign exchange rates for the year ended 31 December 2015 is as follows: Non-interest Non-interest Forward Cash Bearing Bearing Currency Other and Cash Financial Financial Exchange Assets/ Net Equivalents Assets Liabilities Contracts Liabilities Exposure Currency British Pound 3,774 - (307,906) 20,608,506-20,304,374 Euro 16,897 - (4,559,376) 24,731,946-20,189,467 Hong Kong Dollar Hungarian Forint - 15,146, ,146,243 Polish Zloty 6,951 22,568,716 (22,785,856) (4,184,088) - (4,394,277) Romanian Leu (22) (22) Russian Rouble - 37,548,487 (51,861) ,496,626 South African Rand 5, ,781 (1,338,547) (27,537,060) - (28,378,971) Swiss Franc ,290,879-4,290,879 Turkish Lira 1,175,698 18,670,805 (18,156,819) - - 1,689,684 1,209,153 94,425,032-47,200,365 17,910,183-66,344,003 21