Eirles Three Limited. Directors report and. financial statements. For the year ended. 30 June Registered number

Transcription

1 Registered number June 2014 For the year ended financial statements Directors report and

2 Statement of directors responsibilities 8 Directors Report 3 7 Directors and other information 1 2 Contents Page Notes to the financial statements Statement of changes in equity 14 Statement of cash flows 13 Statement of comprehensive income 12 Statement of financial position 11 Independent auditor s report 9 10

3 Christian Donagh (Irish) Rhys Owens (Irish) Eimir McGrath (Irish) Turlough Galvin (Irish) Alternate Director to Liam Quirke Alternate Director to Liam Quirke Alternate Director to Michael Whelan Alternate Director to Michael Whelan Liam Quirke (Irish) Niall OCarroll (Irish) Directors Michael Whelan (Irish) Directors and other information United Kingdom London EC2P 2AT 6 Bishopsgate PC Box 441 Arranger AG, London Branch Deutsche Bank Ireland Dublin 1 1 Harbourmaster Place I FSC Chartered Accountants, Statutory Audit Firm Independent auditor KPMG Ireland Dublin 3 Eastpoint Business Park company Secretary 61h Floor, Pinnacle 2 Administrator & Deutsche International Corporate Services (Ireland) Limited United Kingdom London EC2N 2DB 1 Great Winchester Street Deutsche Trustee Company Limited Winchester House London EC2V 7EX United Kingdom 100 Wood Street Fifth Floor Trustee The Law Debenture Corporation p.l.c. Ireland IFS C Dublin 1 Registered office 5 Harbourmaster Place EirIes Three Limited

4 London EC2P 2AT United Kingdom 6 Bishopsgate P0 Box 441 Custodian Deutsche Bank AG, London Branch Directors and other information London EC2P 2AT United Kingdom 6 Bishopsgate P0 Box 441 Swap Counterparty Deutsche Bank AG, London Branch Dublin 2 Ireland 70 Sir John Rogerson s Quay Solicitor Matheson London EC2P 2AT Ireland and Vienna Listing Agent United Kingdom 6 Bishopsgate P0 Box 441 Deutsche Bank AG, London Branch Luxembourg Listing Agent L-2953 Luxembourg 69 Route d Esch Listing Agents Banque International a Luxembourg SA. United Kingdom London EC2P 2AT 6 Bishopsgate P0 Box 441 Banker Deutsche Bank AG, London Branch EirIes Three Limited

5 from the issuance of that particular series debt securities issued. Memorandum. Within each series the entity holds collateral purchased with the proceeds raised special purpose entity. Each series is governed by a separate Supplemental Programme Principal activities, business review and future developments Company ) for the year ended 30 June The Directors present the annual report and audited financial statements of (the The program was set up in October 2000 as a segregated multi-issuance Directors Report 3 swap counterparty for all series. any costs, fees, expenses or out-goings incurred. Deutsche Bank AG, London Branch is also the As arranger, Deutsche Bank AG, London Branch also agreed to reimburse the Company against The entity holds cash and cash collateral, investments in total return swaps and investment The credit risk of the investment securities and total return swaps is borne by either the, Company s year. securities. Please refer to notes 5 and 7 to the financial statements for more information. swap counterpafty (in cases where a default swap transaction has been entered into for that taxable under the Irish law at a current rate of 25% and the net amount is retained as the profit forthe transfers to the Company an amount of USD 1,000 as corporate benefit (income). This income is For every new issuance of debt securities, Deutsche Bank AG, London Branch, as arranger, (a) for further details about how the Company manages credit risk. particular series) or the Company s holders of debt securities issued. Refer to note 4 (b) (i) and profile via the derivative financial instruments entered into by the vehicle. can finance and reduces issue costs for the debt securities issued. Programme ) to issue debt securities. Debt securities will be issued in Series (each a Series ) and AM to not rated are possible. This arrangement grants greater flexibility to the sponsor in what it Company. There is no minimum rating requirement attached to series meaning that ratings from The Company has established a EUR lo,000,000,000 Multi-Issuance Programme (the the terms and conditions of the debt securities of each Series will be set out in a separate Each series of debt securities issued is secured as set out in the terms and conditions of the debt additional security as may be described in the relevant Supplemental Programme Memorandum debt securities each of which is rated independently, without reference to other series issued by the investments ( the investment securities ) and to alter the interest rate risk and credit rate risk of this The programme offers investors the opportunity to invest in a portfolio of Supplemental Programme Memorandum (each a Supplemental Programme Memorandum ). securities issued including a first fixed charge over certain collateral as set out in the relevant Supplemental Programme Memorandum and a first fixed charge over funds held by the Agents under the Agency Agreement (each as defined in the terms and conditions of the debt securities Agreement and/or Option Agreement and/or Repurchase Agreement and/or Credit Support issued). Each Series may also be secured by an assignment of the Company s rights under a Swap Document (each as defined in the terms and conditions of the debt securities issued) and any (together the Mortgaged Property ). For details about the assets held by the Company refer to note This segregated multi-issuance structure enables to issue numerous series of

6 (2013: EUR 79m) for the year and a net gain on derivative financial instruments of EUR 2Dm (2013: 1.0gm (2013: EUR 1.052m). nil). Refer to notes 13, 14 and 15 of the financial statements for further information. At the 30 June 2014, the carrying value of the Company s total debt securities issued was EUR corresponding loss on debt securities issued of EUR 117.7m (2013: EUR 106.7m) on the debt securities issued for the year resulting in a net profit of nil for the year ended 30 June 2014 (2013; EUR 27.8m). Due to the limited recourse nature of the debt securities issued the company made a The company made a net gain on investment securities and total return swaps of EUR 97.7m Principal activities, business review and future developments (continued) Directors Report (continued) full. The Company also partially redeemed series 75, 86, 131, 195, and 196. Series 236 was with the company s processes, personnel and infrastructure, and from external factors other than 4 The Directors and Secretary who held office on 30 June 2014 did not hold any shares in the defined in the Companies Act 1990, at anytime during the year. Company or in any Group Company at that date, or during the year. There were no contracts of any significance in relation to the business of the Company in which the Directors had any interest, as Directors, Secretary and their interests company s operations. investment securities, total return swaps and derivative financial instruments held by the Company. the risk management framework in place to deal with these risks are explained in note 4 and 22 of the financial statements. Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated The principal risks and uncertainties facing the Company relate to the debt securities issued, The principal financial risks and uncertainties facing the Company (other than operational risk) and generally accepted standards of corporate behaviour. Operational risks arise from all of the credit, market and liquidity risks such as those arising from legal and regulatory requirements and Risks and uncertainties There were no changes in Directors during the year. changes in Directors during the year dividend for the year under review. The results for the year are set out on page 12. The Directors do not recommend the payment of a Results and dividends for the year Series 13, 21, 29, 31, , 58, 64, 68, 69, 83, 84, 85, 86, 87, 121, 122, 149, 161, 170, 175, 176, 247, 248, 255, 256, 265, 266, 267, 269, , 272, 279, 282, 284, 293, 294, 297, SE81O, SCL36, SCL44, and 5CL , 276, 277, 278, 290, 295, and 296 have never been issued. 151, 154, 156, 167, 169, 174, 181, 182, 184, 185, 195, 196, 201, 208, 220, 221, 227, 236, 240, 244, 177, 180, 188, 210, 212, 228, 230, 231, 233, 238, 241, 249, 252, 253, 254, 260, 261, 263, 273, 274, 52, 55, 56, 59, 60, 63, 70, 71, 72, 73, 75, 77, 81, 86, 89, 93, 110, 115, 116, 129, 131, 146, 147, 150, The following series are currently in issue as at year end date: Series 36, 40, 41, 43, 46, 47, 48, 51, extended to mature on 12 December 2016 and Series 255, 256, and 265 were extended to mature During the year, series 148, 232, 286, and 287 matured while series 158 and 264 were redeemed in on 31 March EirIes Three Limited

7 Series August 2014 EUR 4,050,000 Series July 2014 EUR 500,000 Series 196 8August 2014 EUR 266,000 Series October2014 EUR 17,050,000 following series were partially repurchased after 30 June 2014 on the respective dates: Since the end of the reporting period, the Company has not issued any new debt securities and the Subsequent events Directors Report (continued) 5 changes are accurately reflected in the Company s financial statements. processes to identify changes in accounting rules and recommendations to ensure that these The Board is responsible for assessing the risk of irregularities whether caused by fraud or error in and external matters with a potential effect on financial reporting. The Board has also put in place financial reporting and ensuring that the processes are in place for the timely identification of internal and reporting routines and monitors and evaluates the external auditor s performance, qualifications the financial reporting process and reports to the Board. and independence. The Administrator has operating responsibility for internal control in relation to From time to time, the Board also examines and evaluates the Administrator s financial accounting The Administrator is also contractually obliged to prepare the annual report including financial accounting and reporting issues as the need arises. statements for review and approval by the Board. The Board evaluates and discusses significant International Corporate Services (Ireland) Limited (the Administrator ) to maintain the accounting The Board has established processes and systems of internal control and risk management to Administrator is contractually obliged to maintain proper books and records and to that end performs reconciliations of its records to those of the Servicer and the Trustee. records of the Company independently of (the Servicer ) and the Trustee. The ensure effective oversight of the financial reporting process. These include appointing Deutsche assurance against material misstatement or loss. the Company s financial reporting objectives and can only provide reasonable and not absolute internal control and risk management systems for the Company in relation to the financial reporting The Board of Directors (the Board ) is responsible for establishing and maintaining adequate Annual Corporate governance statement process. Such systems are designed to manage rather than to eliminate the risk of failure to achieve There were no other subsequent events that require disclosure in these financial statements up to Memorandum. The downgrade has no impact on the outstanding nominal of debt securities issued. assessing the transfer of custodian for certain collaterals in which Deutsche Bank AG, London Branch, was downgraded to A3 from A2 by rating agency Moody s. As a result, the Company is Branch is the custodian and a minimum prescribed rating is required per Supplemental Program the date of signing the report. On July 29, 2014, the long term credit rating of the swap counterparty, Deutsche Bank AG, London of the investments and the termination of the swap. These redemptions took place at par value. The holders of the respective debt securities have been paid the net proceeds following the disposal

8 detecting or preventing the risk of significant deficiencies in financial reporting for every significant The Board delegates the asset valuation function to Deutsche Bank AG, London Branch (the swap risks which the Board judges to be significant for internal control over financial reporting. These control structures include segregation of responsibilities and specific control activities aimed at The Administrator is contractually obliged to design and maintain control structures to manage the Annual Corporate governance statement (continued) account in the financial statements and the related notes in the Company s annual report. Directors Report (continued) 6 date on which the transfer was lodged by the Company, send to the transferee notice of the refusal. in respect thereof. If the Directors refuse to register a transfer, they shall, within two months after the deemed to remain the holder of the share until the name of the transferee is entered on the register cases where the share is not fully paid, by or on behalf of the transferee. The transferor shall be The instrument of transfer of any share shall be executed by or on behalf of the transferor and, in Transfer of shares day administration of the Company to the Administrator as stated above. subject to the supervision and direction by the Directors. The Directors have delegated the day to The Board is responsible for managing the business affairs of the Company within the Articles of Association. The Directors may delegate certain functions to the Administrator and other parties Powers of Directors With regard to the appointment and replacement of Directors, the Company is governed by its of Association themselves may be amended by special resolution of the shareholders. Articles of Association and Irish Statute comprising the Companies Acts, 1963 to The Articles Appointment and replacement of Directors and amendments in the Articles of Association There are no restrictions on voting rights. any special rights of control over the company s share capital. No person has a significant direct or indirect holding of securities in the Company. No person has the Company in relation to the financial reporting process. to perform effective monitoring and oversight of the internal control and risk management systems of currently no need for the Company to have a separate internal audit function in order for the Board Given the contractual obligations of the Administrator, the Board has concluded that there is accurate manner. The Board has an annual process in place to ensure that appropriate measures updated and communicated via appropriate channels, such as , correspondence and meetings to ensure that all financial reporting information requirements are met in a complete and are taken to consider and address the shortcomings identified and measures recommended by the independent auditor. The Company s policies and the Board s instructions with relevance for financial reporting are counterparty ) which operates a sophisticated system of controls to ensure appropriate valuation of the assets. All the values for the financial instruments held by the Company have been provided by the swap counterparty. In our opinion, Deutsche Bank AG, London Branch is the most appropriate and reliable source of such fair values in its capacity as the swap counterparty. We are satisfied approximation of those values. that the amounts as stated in the Company s financial statements represent a reasonable

9 Regulations 2010 (the Regulations ), which were published by the Irish Minister for Enterprise, Under Regulation 91(9)(d) of the European Communities (Statutory Audits) (Directive 2006/431EC) between asset and liability mismatches. enters into certain derivatives to hedge out interest rate and currency risk exposures arising The sole business of the Company relates to the issuing of asset-backed debt securities. It also Audit Committee Directors Report (continued) 7 Date: 30 October 2014 Director ØerfIate Director Michael Whelan Tur,JduAh Galvin fc: On behalf of the board Statutory Audit Firm, have expressed their willingness to continue in office. In accordance with Section 160(2) of the Companies Act, 1963, KPMG, Chartered Accountants, Independent auditor Harbourmaster Place, IFSC, Dublin 1. resources to the finance function. The books of account of the Company are maintained at S which employs accounting personnel with the appropriate expertise and by providing adequate Companies Act, 1990 with regard to the books of account by engaging an external service provider The Directors believe that they have complied with the requirements of Section 202 of the Accounting records Company. No reductions in nominal occurred during the year for Series 116. A credit event occurred on May 23, 2014 relating to Credit Default Swap of Series 116 sold by the Credit events exemption under Regulation 91(9) (d) of the Regulations. relation to the financial reporting process. Accordingly, the Company has availed itself of the monitoring and oversight of the internal control and risk management systems of the Company in need for the Company to have a separate audit committee in order for the Board to perform effective securities issued by the Company, the Board of Directors has concluded that there is currently no Given the contractual obligations of the Administrator and the limited recourse nature of the Trade and Innovation on 25 May 2010, such a Company may avail itself of an exemption from the requirement to establish an audit committee.

10 The Directors are responsible for preparing the Directors Report and financial statements, in that law the Directors have elected to prepare the Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). accordance with applicable law and regulations. company law requires the Directors to prepare financial statements for each financial year. Under financial statements Statement of Directors responsibilities in respect of Directors report and the 8 Date: 30 October 2014 Director Alternate Director Michael Whelan Tqjj.i4 Galvin On behalf of the board that it faces. business of the Company, together with a description of the principal risks and uncertainties they have complied with the above requirements in preparing the financial statements; the financial statements, prepared in accordance with IFRSs as adopted by the EU, give a of the Company for the year then ended; and the Directors report includes a fair review of the development and performance of the The Directors confirm that, to the best of their knowledge and belief: true and fair view, of the state of the assets, liabilities, financial position and of its profit/loss The Directors are also required by the Transparency (Directive 2004/109/EC) Regulation 2007 and the Transparency Rules of the Irish Central Bank of Ireland to include a Directors report containing Company. a fair review of the business and a description of the principal risks and uncertainties facing the prevent and detect fraud and other irregularities. financial statements comply with the Companies Acts, 1963 to They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Company and to accuracy at any time the financial position of the Company and enable them to ensure that its The Directors are responsible for keeping proper books of account that disclose with reasonable presume that the Company will continue in business. to 2013; and comply with IFRSs as adopted by the EU and in accordance with the Companies Acts 1963 select suitable accounting policies and then apply them consistently; make judgments and estimates that are reasonable and prudent, prepare the financial statements on the going concern basis unless it is inappropriate to In preparing the financial statements, the Directors are required to: presentation. Acts to financial statements giving a true and fair view are references to their achieving a fair present fairly the financial position and performance of the company. The Companies Acts, 1963 to The Company s financial statements are required by law and IFRSs as adopted by the EU to 2013 provide in relation to such financial statements that references in the relevant parts of those

11 comprises the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Changes in Equity. the Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is Irish law and International Financial Reporting Standards We have audited the financial statements of for the year ended 30 June 2014 which INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF EJRLES THREE LIMITED I e!a J Dub!in 1 IFSC 1 Harbourmaster Place Cooperative I KPMG Internatianat), a Swbt entity KPMG an Irish a of KPMG of partnership firms and affiliated member him KPMG the International network independent member with 9 the financial statements have been properly prepared in accordance with the Companies Acts 1963 to 2013 the state of the Company s affairs as at 30 June 2014 and of its result for the year then ended; the financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU. of In our opinion: Opinion on financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge appropriate to the Company s circumstances and have been consistently applied and adequately disclosed; acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. the reasonableness of significant accounting estimates made by the Directors: and the overall presentation annual report to identi& material inconsistencies with the audited financial statements and to identi& any of the financial statements. In addition, we read all the financial and non-financial information in the An audit involves obtaining evidence about the amounts and disclosures in the financial statements Scope of the audit of the financial statements responsible for the preparation of the financial statements giving a true and fair view. Our responsibility is Standards on Auditing (UK and Ireland). Those standards require us to comply with Financial Reporting Council s Ethical Standards for Auditors. As explained more fully in the Directors Responsibilities Statement set out on page 8 the Directors are to audit and express an opinion on the financial statements in accordance with Irish law and International Respective responsibilities of directors and auditor we have formed. This report is made solely to the Company s members, as a body, in accordance with section 193 of the To the fullest extent permitted by law. we do not accept or assume responsibility to anyone other than the (IFRSs) as adopted by the European Union. Companies Act Our audit work has been undertaken so that we might state to the Company s members those matters we are required to state to them in an auditor s report and for no other purpose. Company and the Companys members as a body, for our audit work, for this report, or for the opinions Audit KPMG

12 ENDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF EIRLES THREE LIMITED (continued) Matters on which we are required to report by the Companies Acts 1963 to 2013 We have obtained all the information and explanations which we consider necessary for the purposes of our audit. The financial statements are in agreement with the books of account and, in our opinion, proper books of account have been kept by the company. In our opinion the information given in the directors report is consistent with the financial statements. The net assets of the company, as stated in the balance sheet are more than half of the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 30 June 2014 a financial situation which under Section 40(1) of the Companies (Amendment) Act, 1983 would require the convening ofan extraordinary general meeting of the company. Matters on which we are required to report hy exception We have nothing to report in respect of the provisions in the Companies Acts 1963 to 2013 which require us to report to you if, in our opinion the disclosures of directors remuneration and transactions specified by law are not made.,1 4 ililbi,e Kenny / For and on behalrof KPMG Chartered Accountants, Statutory Audit Firm Date:( October 2014 I Ilarbournicister Pliwe IFSC, Dublin Ireland I0

13 Statement of financial For the year ended 30 June position Note OOO 000 Assets Cash and cash equivalents Cash collateral Derivative assets Investment securities and total return swaps at fair value through profit or loss Other assets Total assets ,388 29, , , ,529 1,083, ,681 16,944 1,268,881 1,244,906 Liabilities Derivative liabilities Debt securities issued at fair value through profit or loss Other liabilities ,557 1,089,572 7, ,349 1,052,198 10,199 Total liabilities Equity Share capital Retained earnings Total equity Total liabilities and equity 11 1,268,721 1,244, ,268,881 1,244,906 On behalf of the board C / Michael Whelan Director Turlougj%alvin Altejfe Director Date: 30 October 2014 The notes on pages 15 to 61 form an integral part of these financial statements II

14 Net gain from derivative financial instruments 14 19, Net finance loss on debt securities issued 15 (117,701) (106,721) Note OOO OOO and total return swaps , Net gain from investment securities Statement of comprehensive income 12 The notes on pages 15 to 61 form an integral part of these financial statements Date: 30 October 2014 Director Alt rn Director Michael Whelan Turl gh alvin On behalf of the board operations. All items dealt with in arriving at the profit for the year ended 30 June 2014 related to continuing Total comprehensive income for the year - Other comprehensive income - - Resuitfor the year - - Income tax expense Profit before taxation - - Other expenses 17 (171) (110) Otherincome Operating income -

15 Adjustments for: Profit for the year Cash flows (used in) I from operating activities OOO 2013 Statement of cash flows 13 The notes on pages 15 to 61 form an integral part of these financial statements Cash and cash equivalents as at 30 June Cash and cash equivalents as at 1 July Net change in cash and cash equivalents (5) 177 (234,268) (36,214) (270,482) Coupon receipts Net payments in respect of derivative financial instruments and total return swaps Cash flows from investing activities Proceeds from maturity I disposal of investment securities Net cash (used in) I from operating activities Net cash used in financing activities Coupon payments on debt securities issued Movement in viorking capital Change in other assets Change in other liabilities Net cash from investing activities Payments on maturity I redemption of debt securities (2,251) (2,257) (4,508) 6, ,086 (119,207) 32,094 87,973 (49,097) (34,373) (83,470) Cash flows used in financing activities 4,175 2, ,073 46, ,012 (32,875) (487) (16,118) 34,023 36,053 78,725 34,530 4,953 36,138 swaps (29,912) (38,262) (66,747) (27,230) (19,310) (11,420) Derivative income (170) (228) (1,882) (13,862) Net unrealised gain on derivative financial instruments Net realised gain on derivative financial instruments Net unrealised gain on investment securities Net unrealised loss on debt securities issued Net realised gain on investment securities and total return Net realised loss on debt securities issued Coupon income Coupon expense and total return swaps Unrealised foreign exchange loss on cash collateral

16 Profit for the year Balance as at 1 July OOO 000 capital earnings Total Share Retained Statement of changes in equity 14 The notes on pages 15 to 61 form an integr& part of these financial statements Balanceasat 3OJune2Ol Total comprehensive income for the year Other comprehensive income Profit for the year Balance as at 30 June Total comprehensive income for the year Other comprehensive income - - -

17 Harbourmaster Place, IFSc, Dublin 1. under a lobn Multi-issuance note programme. The company is a special purpose company that has been established to issue debt securities General information Ireland with registered number The registered office of the company is 5 (the company ) was incorporated on 18 October 2000 in the Republic of 15 IFRS 13 Fair Value Measurement. This standard establishes a single framework for IFRS 7 Financial Instruments: Disclosures. measuring fair value and making disclosures about fair value measurements, subject to limited exceptions, when such measurements are required or permitted disclosure requirements about fair value measurements in other IFRSs, including of a liability reflects its non-performance risk. IFRS 13 replaces and expands the advantageous market to which the company has access at that date. The fair value participants at the measurement date in the principal or, in its absence, the most sell an asset or paid to transfer a liability in an orderly transaction between market by other IFRS5. Under IFRS 13, fair value is the price that would be received to (i) Effective for annual periods beginning on 1 January 2013 (c) New standards and interpretations not yet adopted Company s financial statements during the year. There were no changes in accounting policies which would have a financial impact on the (b) changes in accounting policies statements for the year ended 30 June The comparative information, for 2013 presented in these financial statements has been prepared on a consistent basis. The accounting policies set out below have been applied in preparing the financial Acts 1963 to Reporting Standards (IFRSs) as adopted by the EU and in accordance with the companies The financial statements have been prepared in accordance with International Financial (a) Statement of compliance 2 Basis of preparation the Directors on 30 October The company has no direct employees. The financial statements were authorised for issue by profile of the portfolio through the use of derivative instruments. The program offers investors the opportunity to invest in a portfolio of investments, the investment securities and total return swaps, and alter the interest rate risk and credit risk EirIes Three Limited

18 2 Basis of preparation (continued) (c) New standards and interpretations not yet adopted (continued) (i) Effective for annual periods beginning on 1 January 2013 (continued) Although many of the IFRS 13 disclosure requirements regarding financial assets and financial liabilities were already required, the adoption of IFRS 13 requires the company to provide additional disclosures. These include, but are not limited to, fair value hierarchy disclosures for certain financial assets and financial liabilities measured at amortised cost. There was no measurement impact on the company in relation to adoption of this standard. Refer to Note 22 (e) Fair values for further details. Amendments to IFRS 7 Financial Instruments: Disclosures (Offsetting Financial Assets and Financial Liabilities). The amendments introduce disclosures about the effect or potential effect of offsetting arrangements on an entity s financial position. Based on the new requirements, the Company that at this time no new disclosures arise as there is no offsetting of financial assets and financial liabilities in the statement of financial position and there are currently no master netting arrangement or similar arrangements in place. assessed (ii) Effective for annual periods beginning after 1 January 2013 The Directors have set out below both the upcoming EU endorsed and un-endorsed accounting standards, amendments or interpretations and have then summarised the new requirements that may be relevant to the Company. Description Effective date (period beginning)* IFRS 10 Consolidated Financial Statements, IFRS II Joint I January nangemenrs, IFRS 12 Disclosure of Interests in Other Entities. IASB also issued las 27 Separate Financial Statements (201 1). which supersedes las 27 (2008) and las 28 Investments in Associates and Joint Ventures (201 1), which supersedes las 28 (2008). Investment Entities (Amendments to IFRS 10, IFRS 12 and las 1 January ) OJfretting Financial Assets and Financial Liabilities (Amendment I January 2014 to las 32) Recoverable Amount Dtwlosures for Non-Financial Assets I January 2014 (Amendments to las 36) Novation of Derivatives and Continuation of Hedge Accounting I January 2014 (Amendments to las 39) IFRIC2I Levies I January2014 Defined Benefit Plans: Employee Contributions (Amendments to 1 July 2014 las_19) Annual improvements to IFRSs Cycle, and I July 2014 Annual_Improvements_to_IFRSs_ _Cycle IFRS 9 Financial Instrmnents (2009, and subsequent amendments I January 2018 in_2010_and_2013) IFRS 14 Regulatory Deferral Accounts I January 2016 *Where new requirements are endorsed the EU effective date is disclosed. For un-endorsed standards and interpretations, the IASBs effective date is noted. Where any of the upcoming requirements are applicable to the company, it will apply them from their EU effective date. ** EU endorsed 16

19 relevant to the Company. as detailed in the previous table and have concluded that the following may be The Directors have considered the new standards, amendments and interpretations (ii) Effective for annual periods beginning after 1 January 2013 (continued) 2 Basis of preparation (continued) (c) New standards and interpretations not yet adopted (continued) 7 sale and loans and receivables. A financial asset would be measured at amortised measured at fair value with these generally being presented through profit or loss. IFRS 9 has two financial asset measurement categories: amortised cost and fair on the principal outstanding. All other financial assets would be continually re on specified dates to cash flows that are solely payments of principal and interest cost if it is held within a business model whose objective is to hold the assets in order to collect contractual cash flows, and the asset s contractual terms give rise value and eliminates the existing las 39 categories of held-to-maturity, available for IFRS 9 Financial Instruments: will arise in relation to any interest it holds. operation. The Company is currently assessing whether any additional disclosures exposes an entity to variability of returns from the performance of the other entity or disclosures relating to the nature, risks and financial effects of interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. Interests are widely defined as contractual and non-contractual involvement that IFRS 12 Disclosure of Interests in Other Entities sets out more comprehensive subsidiary interest. as it is a stand-alone entity with no interests that could potentially qualify as a The Directors have assessed that IFRS 10 will not have an impact on the Company based on all facts and circumstances and is reassessed if there is an indication that agent or principal in its involvement with an investee. The assessment of control is there are changes in those facts and circumstances. (ii) it has the power over relevant activities of the investee that affect those returns Consolidation - Special Purpose Entities. Under the new standard an investor controls an investee when (i) it has exposure to variable returns from that investee and (üi) there is a link between that power and those variable returns. The standard includes specific guidance on the question of whether an entity is acting as an for consolidation that replaces the existing requirements of both las 27 and SIC-12 IFRS 10 Consolidated Financial Statements establishes a new control-based model Based on its initial assessment, the Company does not expect these amendments clarifying the guidance on when an entity currently has a legally enforceable right to to have an impact. Financial Assets and Financial Liabilities) clarify the offsetting criteria in las 32 by The amendments to las 32 Financial Instruments: Presentation (Offsetting set-off and when gross settlement is considered to be equivalent to net settlement.

20 under the fair value option, with certain exemptions, to present fair value changes IFRS 9 introduces a new requirement in respect of a financial liability designated (c) New standards and interpretations not yet adopted (continued) 2 Basis of preparation (continued) (ii) Effective for annual periods beginning after 1 January 2013 (continued) Derivative financial instruments are measured at fair value; Investment securities and total return swaps designated at fair value through profit or Debt securities issued designated at fair value through profit or loss are measured at in applying accounting policies that have the most significant effect on the amounts 18 recognised in the financial statements are described in Note 22(e). Information about significant areas of estimation uncertainty and critical judgements revised and in any future periods affected. to accounting estimates are recognised in the period in which the estimates are Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions may differ from these estimates. assets and liabilities that are not readily apparent from other sources. Actual results The preparation of the financial statements in conformity with IFRS requires management accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are reviewed on an ongoing basis and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of Assumptions and estimation uncertainties- Measurement of fair values to make judgments, estimates and assumptions that may affect the application of (e) Use of estimates and judgements The methods used to measure fair values are discussed further in Note 3(a). fair value. The financial statements are prepared on the historical cost basis except for the following: loss are measured at fair value; and (d) Basis of measurement awaiting finahsation of the remaining amendments before the evaluation can be commenced the process of evaluating the potential effect of this standard but is expected to have a material impact on the Company s financial statements as the macro hedging. las 39 at that point will be completely replaced. The Company has completed. Given the nature of the Company s operations, this standard is not Company adopts fair value accounting in relation to all its significant financial instruments. Future amendments are expected, in relation to impairment of financial assets and measurement of financial liabilities from las 39. that are attributable to the liability s credit risk in other comprehensive income rather than being reflected through profit or loss. Apart from this change, IFRS 9 largely carries forward without substantive amendment the guidance on classification and

21 The financial instruments held by the Company at fair value through profit or loss include (a) Financial instruments these financial statements. The accounting policies set out below have been applied consistently to all years presented in 3 Significant accounting policies 19 Investment securities and total return swaps securities issued at fair value through profit or loss. loss when either Derivative financial instruments are carried at fair value through profit or loss. The or liability that is classified as held-for-trading or designated as at fair value through profit or loss. Other financial instruments are carried at amortised cost. A financial asset or financial liability at fair value through profit or loss is a financial asset Categorisation cash flows that would otherwise be required under the contract. would otherwise arise; or value basis; Derivative financial instruments; and The assets or liabilities are managed, evaluated and reported internally on a fair The asset or liability contains an embedded derivative that significantly modifies the Investment securities and total return swaps (TRS); Debt securities issued. The designation eliminates or significantly reduces an accounting mismatch which the following: Designation at fair value through profit or loss upon initial recognition The Company has designated financial assets and liabilities at fair value through profit or Company has designated the investment securities and total return swaps as well as debt Investment securities are held by the Company and these are designated as at fair value through profit or loss. Total return swap agreements includes cash on deposit with swap Company; such derivatives are carried at fair value through profit or loss. statement of comprehensive income. The Company also writes credit default swap interest rate or market fluctuations affecting the relevant collateral assets. Such therefore all changes in their fair value are recognised through profit or loss in the assets and liabilities that are used to economically hedge the risk to the Company from Derivative financial instruments held for risk management purposes include derivative Derivative financial instruments government bonds, loans, mortgage bonds and receivables under total return swaps. minimal initial net investment and therefore are classified as financial assets at fair value las 39 Financial Instruments: Recognition and Measurement as these do not have counterparty, credit linked collateral and embedded credit default swaps which the Company sold protection. These do not qualify as derivative financial instruments under through profit or loss. investment securities include corporate bonds, fund units, derivatives are not formally designated into a qualifying hedging relationship and derivatives for certain series as noted in Note 6, that may create economic returns for the Eirles Three Limfted

22 modifies the cash flows that would otherwise be required under the contract reduce an accounting mismatch or contain an embedded derivative that significantly liabilities at fair value through profit or loss when they either eliminate or significantly Debt securities issued The debt securities issued are initially measured at fair value and are designated as (a) Financial instruments (continued) 3 Significant accounting policies (continued) 20 permitted by the accounting standards. liability simultaneously. Income and expenses are presented on a net basis only when amounts and intends either to settle on a net basis or to realise the asset and settle the of financial position when, and only when, the Company has a legal right to offset the Offsetting Financial assets and liabilities are offset and the net amount presented in the statement discharged, cancelled or expire. The Company derecognises a financial liability when its contractual obligations are recognised as a separate asset or liability. Any interest in transferred financial assets that is created or retained by the company is Derecognition The Company derecognises a financial asset when the contractual rights to the cash ownership of the financial asset are transferred. flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of Financial assets and financial liabilities not categorised as at fair value through profit or loss are subsequently measured at amortised cost. comprehensive income. from changes in the fair value of the financial assets or financial liabilities at fair value cost on the trade date, which is the date on which the Company becomes a party to the contractual provisions of the instruments. From trade date, any gains or losses arising for initial direct costs in the case of instruments to be carried subsequently at amortised Recognition and measurement The Company initially recognises all financial assets and liabilities at fair value adjusted through profit or loss are recorded through profit or loss in the statement of subsequently at amortised cost for measurement purposes. amortised cost, adjusted for initial direct costs in the case of instruments to be carried expenses and other payables. These are categorised as financial liabilities measured at Financial liabilities that are not at fair value through profit or loss include accrued are categorised as loans and receivables for measurement purposes. active market include cash at bank, deposits with credit institutions and other assets and Financial assets that are not at fair value through profit or loss and are not quoted in an Financial assets and liabilities that are not at fair value through profit or loss

23 in an orderly transaction between market participants at the measurement date. The fair Fair value is the price that would be received to sell an asset or paid to transfer a liability Fair value measurement principles (a) Financial instruments (continued) 3 Significant accounting policies (continued) 21 attributable to equity holders and are recorded directly in equity. financial instruments that are classified in equity are distributions from the net income remeasurement of debt securities to fair value. Finance payments associated with Finance payments associated with financial liabilities are dealt with as part of the ongoing financial liability. To the extent that these conditions are not met, the proceeds of issue are classified as a assets for a fixed number of its own equity instruments. instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company s own equity instruments or is a derivative that will be settled by the Company s exchanging a fixed amount of cash or other financial where the instrument will or may be settled in the Company s own equity party under conditions that are potentially unfavourable to the Company; and financial assets or to exchange financial assets or financial liabilities with another they include no contractual obligations upon the company to deliver cash or other of shareholder s funds) only to the extent that they meet the following two conditions: The financial instruments issued by the Company are treated as equity (i.e. forming part (b) Financial liability and equity developed from recognised valuation models. Some or all of the inputs into these models estimated based on assumptions. For more complex instruments, the company uses proprietary models, which usually are may not be market observable, and are derived from market prices or rates or are the fair value of common and simpler financial instruments like call options, interest rate and currency swaps. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models. The company uses widely recognised valuation models for determining with sufficient frequency and volume to provide pricing information on an ongoing basis. financial assets and financial liabilities are based on quoted bid market prices or dealer price quotations for financial instruments traded in active markets, where these are financial instruments fair value is determined by using valuation techniques. value of a liability reflects its non-performance risk. The determination of fair values of available. A market is regarded as active if transaction for the asset or liability takes place The Company measures instruments quoted in an active market at bid price. For all other EirIes Three Limited

24 The Company has applied IFRS 8 Operating Segments which puts emphasis on the The Company is engaged as one segment. It involves the repackaging of bonds and management approach to reporting on operating segments. (c) Operating segments 3 Significant accounting policies (continued) 7 and accrual), and unrealised fair value changes including foreign exchange differences. bonds and total return swaps, and includes realised income (including coupon receipts Net gain from investment securities and total return swaps relates to investments in (f) Net gain from investment securities and total return swaps and total return swaps, derivative financial instruments or debt securities issued, as appropriate. comprehensive income and are included under net gain/(ioss) from investment securities Foreign currency differences arising on retranslation are recognised through statement of that the fair value was determined. at fair value are retranslated to the functional currency at the exchange rate at the date Non monetary assets and liabilities denominated in foreign currencies that are measured functional currency at the exchange rate at that date. liabilities denominated in foreign currencies at the reporting date are retranslated to the Company at exchange rates at the dates of the transactions. Monetary assets and Transactions in foreign currencies are translated to the functional currency of the (e) Foreign currency transaction statement of financial position. Cash and cash equivalents and cash collateral are carried at amortised cost in the Cash collateral is held as security for issuance of certain debt securities. insignificant risk of changes in their fair value. within three months provided all parties agree to the transaction. These are subject to Cash and cash equivalents consist of cash held on deposit which can be terminated (d) Cash and cash equivalents and cash collateral assets. Refer to note 22(a) concentration risk for the geographical segmental information of the subsequently securitised to avail of potential market opportunities and risk-return asymmetries. other debt instruments, on behalf of investors, which are bought from the market and

25 (g) Net gain from derivative financial instruments (h) Net finance loss on debt securities issued settlements and foreign exchange differences. derivatives held by the Company and includes realised and unrealised fair value changes, Net gain from derivative financial instruments relates to the fair value movements on 3 Significant accounting policies (continued) 23 which they are approved. Share Capital is issued in Euro. Dividends are recognised as a liability in the period in (k) Share capital and dividend All other income and expenses are accounted for on an accruals basis. U) Other income and expenses that affects neither accounting nor taxable profit. Deferred tax is measured at the tax that the related tax benefit will be realised. recognition of assets or liabilities in a transaction that is not a business combination and reviewed at each reporting date and are reduced to the extent that it is no longer probable profits will be available against which the asset can be utilised. Deferred tax assets are A deferred tax asset is recognised only to the extent that it is probable that future taxable based on the laws that have been enacted or substantively enacted by the reporting date. purposes. Deferred tax is not recognised for temporary differences arising on the initial rates that are expected to be applied to the temporary differences when they reverse, of assets and liabilities for financial reporting purposes and the amounts used for taxation Deferred tax is provided for temporary differences arising between the carrying amounts reporting date, and adjustment to tax payable in respect of previous years. rates applicable to the Company s activities enacted or substantively enacted at the Current tax is the expected tax payable on the taxable income for the year, using tax consistent with the accounting for the item to which it is related. recognised through profit or loss, in other comprehensive income or directly in equity Income tax expense comprises current and deferred tax. Income tax expense is (I) Taxation value changes and foreign exchange differences. financing costs (including coupon payments and accruals) realised and unrealised fair Finance expense on debt securities issued relates to debt securities issued and includes

26 The program was set up in October 2000 to issue multiple series of debt securities, with the rating on each series independent of the other (if applicable). cost of issuing. series of debt securities ranging from AAA to not rated at inception. This gives the sponsor greater flexibility in what it can finance through this vehicle and it reduces the 4 Financial risk management (a) Introduction and overview This means that (the Company or the Issuer ) can issue various 24 The net proceeds from the issue of the debt securities are paid to the Swap Counterparty behalf of the company or to enter into total return swap arrangements with the Swap Counterparty. The Company has entered into Asset Swap Agreements with Deutsche Counterparty. In return, the Swap Counterparty will pay to the Company amounts equal to the coupon payments payable on the debt securities issued. collateral will deliver the portfolio or the proceeds of its redemption to the Swap to purchase a portfolio of investments securities plus any interest accrued thereon on to the interest received in respect of the collateral, and on the maturity date of the Asset Swap arrangements, the Company pays to the Swap Counterparty amounts equal Bank AG, London Branch. The credit quality details of the investment securities and total return swap held by the Company are disclosed in Note 4(b)(i). During the term of the to issuance regardless of whether it is to be rated or not. Each series of issued debt securities is reviewed by a recognised rating agency prior remedies on behalf of the holders of debt securities. other swap transaction for any other series. and apart from the assets relating to any other series. Assets relating to any particular series of debt securities issued are held separately For each series of debt securities issued, only the trustees are entitled to exercise The Company is a bankruptcy remote SPE, organised in Ireland. Debt securities are issued in separate series. Any swap transaction entered into by the Company for a series is separate from any include the following: segregation and protection of assets safeguards against the company s bankruptcy and/or default of the other series of debt securities issued. The segregation criteria settle the obligation due to the holders of the affected debt securities issued. This This ensures that if one series defaults, assets held in other series may not be used to securities and total return swaps, and alter the interest rate risk and credit risk profile of the portfolio through the use of derivative instruments. The Programme offers investors the opportunity to invest in a portfolio of investment Each Series is governed by a separate Supplemental Programme Memorandum (6PM). Each Series consists of an investment in collateral from the proceeds of the issuance of The company was set up as a segregated multi issuance Special Purpose Entity (SPE). debt securities and I or Alternative Investments.

27 The Swap Counterparty delivers the collateral to the account of the Company and pays (a) Introduction and overview (continued) sum equal to the redemption amount payable on the debt securities. the Company amounts equal to the interest payable under the debt securities, and if the swap agreement has not terminated prior to the maturity date of the respective notes, a 4 Financial risk management (continued) 25 financial asset fails to meet its contractual obligations. Credit risk arises principally which the Company has entered into. from the Company s credit-linked securities and also from the derivative contracts Credit risk is the risk of the financial loss to the Company if the counterparty to a (i) Credit risk The Company does not have any externally imposed capital requirements. the Company s objectives, policies and processes for measuring and managing risk and note 22 to these financial statements. the Company s management of capital. Further quantitative disclosures are included in This note presents information about the Company s exposure to each of the above risks, (Ni) Market risk; (ü) Liquidity risk; and (i) Credit risk; The Company has exposure to the following risks from its use of financial instruments: instruments are borne fully by the holders of debt securities issued. relating to the investment securities, total return swaps and derivative financial The risk profile of the Company is such that market, credit, liquidity and other risks The Board of Directors has overall responsibility for the establishment and oversight of the company s risk management framework. (b) Risk management framework the proceeds from the investment securities or total return swaps and any payment the loss. The ultimate amount repaid to the holders of these debt securities will depend on proceeds received in Euro and are subsequently carried at fair value through profit or The debt securities issued are initially recorded at fair value which equates to the Swap counterparty is obliged to make under the terms of the swap agreement. securities. the holders of the related debt securities will depend on the proceeds from the investment For series where no swap agreements were entered into, the ultimate amount repaid to the relevant series, the Company has sold credit protection on a number of reference Deutsche Bank AG, London Branch. In exchange for the receipt of premium income for The Company also entered into a number of Credit Default Swap Agreements with entities, as detailed in Note 6. ErIes Three Limited

28 the documentation of the relevant series. swaps, and other securities with counterparties that have a credit rating defined in The Company limits its exposure to credit risk by investing in bonds, total return (i) Credit risk (continued) 4 Financial risk management (continued) (b) Risk management framework (continued) 26 Refer to the table in note 22(e) Fair Values for further details. the underlying portfolio of reference entities might require a specific amount of the the Swap Counterparty that has purchased the credit protection from the Company. Company any such payments in respect of the credit default swap, i.e. the underlying Secondly, the Company has also sold credit protection to the Swap Counterparty in Refer to note 6 Derivative financial instruments for further details. securities by way of corresponding reduction in the nominal amounts of those debt securities issued depending on the terms and conditions attached to debt securities issued. Swap Counterparties. The credit default swap is a leveraged arrangement. debt securities issued. This leverage increases the risk of loss to the Company and, reference entities is achieved by entering into credit default swap agreements with therefore, to the holders of debt securities. The linking of the Company s issued debt securities to the underlying portfolio of The aggregate reference portfolio notional amounts are usually substantially higher than the notional amounts of the credit default swaps and the nominal amounts of the portfolio of reference entities would ultimately be borne by the holders of debt which the credit protection has been sold are credit-linked to the credit quality of the return for a premium. The corresponding debt securities issued by the Company on underlying portfolio of reference entities. Therefore any default or credit events in collateral, i.e. certain investment securities held by the Company to be delivered to However, due to the limited recourse nature of the debt securities issued by the Counterparty and/or the Company s holders of debt securities for that particular Because of the limited recourse nature of the debt securities issued by the Company, depending on the loss amounts, as well as, other terms and conditions on the debt. series. principally from the investment assets and total return swaps which the Company The credit risk relating to underlying reference entities as shown in note 22(d) arises holds which are credit-linked to a portfolio of underlying reference entities. Any default or credit events in the underlying portfolio of reference entities may trigger a reduction in the nominal amounts of the debt instrument which the Company holds any such losses would ultimately be borne by either the Company s Swap 22(a). the priority of payments described in the 5PM of the relevant series. by the swap counterparty and/or the holders of the debt securities as designated in The risk of default on these assets and on the underlying reference entities is borne The credit quality of the Company s investment securities has been disclosed in note EirIes Three Limited

29 obligations arising from its financial liabilities that are settled by delivering cash or Liquidity risk is the risk that the Company will encounter difficulties in meeting (ii) Liquidity risk 4 Financial risk management (continued) (b) Risk management framework (continued) 27 currency swap agreements and the asset swap agreements, respectively. Cross currency swaps are incorporated in the asset swap, where applicable. Foreign exchange risk and interest rate risk are economically hedged with the use of exposures within acceptable parameters while optimising the return on risk. The objective of the market risk management is to manage and control market risk holdings of financial instruments and receivables under total return swaps. interest rates and other price risk will affect the Company s income or the value of its Market risk is the risk that changes in market prices, such as foreign exchange rates, (Hi) Market risk any of its contractual commitments during the year. or to swap counterparty. The Company or the Swap Counterparty did not default on There were no liquidity issues experienced by the Company or the Swap Counterparty in respect to meeting its obligations to holders of debt securities issued subject to market conditions. The timing and amount of proceeds from realising the collateral of each series is investment securities, total return swaps and derivatives. Should the net proceeds securities, the other assets of the Company are not contractually required to be made securities and/or the Swap Counterparty according to established priority of payment. limited to the net proceeds upon realisation of the collateral of that series, i.e. The Company s obligation to the holders of debt securities of a particular series is available to meet payment and the deficit is instead borne by the holders of debt be insufficient to make all payments due in respect of a particular series of debt another financial asset, or that such obligation will have to be settled in a manner disadvantageous to the Company.

30 Bank AG, London Branch. Cash and cash equivalents consists of cash at bank balances which are held with Deutsche Cash and cash equivalents Cash and cash equivalents and cash collateral Refer to Note 22(a) for credit ratings for cash and cash equivalents and cash collateral. terminated within three months provided all parties agree to the transaction. These represent restricted cash and can only be used for activities relevant to the respective series. 294 (2013: Series 36, 208, 247 and 294). These deposits which are held with banks can be Cash collateral consists of cash held as collateral for series 36, 201, 208, 247, 269, 270 and Cash collateral 41,388 29,

31 6 Derivative financial instruments Less Greater than than 2014 Total Less Greater than one than one year one year year one year 2013 Total OOO Derivative Asset 109,789 69, ,862 swaps Credit default swaps assets 97,340 97,340 47,979 7,961 55, ,398 16, ,768 77, , , ,099 Derivative liabilities Asset - swaps Credit default swaps 169,842-1, ,842-1, ,160 5, ,160 5, , , , ,349 The Company entered into swap other than those mentioned below, to eliminate the mismatch between the amount payable in of those issued debt securities and the return from the investment securities held by the Company as collateral. asset agreements, The consist mainly of interest rate obligations and in certain credit default applicable. asset swaps cases, respect swaps, swaps where the Company bought protection as currency swaps, credit default The Company has also entered into credit default swaps where it has sold protection for series 116, 196, 201, 232 and 240 in order to provide an risk profile which is suited to the needs of the investors (the holders of the debt securities issued). asset In where no are in place for a series, the credit risk is borne by the holders of debt securities issued by the Company. During the year, no swap were entered into for the following series: 70, 71, 72, 73, 146, 169, 208, 227, 236, 247, 248, 255, 256, 265, 266, 293 and 297. cases swaps agreements 29

32 Total return swaps 4,639 3, Bonds and other securities 974,890 1,079,901 Designated at fair value through profit or loss ODO Investment securities and total return swaps through profit or loss 30 return swaps. Refer to note 22(a) for credit risk disclosure relating to the investment securities and total the nominal under total return swap is reduced by an amount equal to the amount of the default amount as per the terms of the SPM. and the Company s obligation under the debt securities issued is also reduced by the same In the event of reference entity default, a notice is served to the Company. In case of default, securities through the credit default swap. The Company is then exposed to credit risk in deposit with the swap counterparty under the swap agreement. The deposit is synthetically swap. The swap counterparty provides a return that replicates the return due to the holders of The Company has issued certain passthrough series of notes which do not meet the the debt securities and also reimburses all the expenses related to the series. 71, 72, 73, 146, 169, 227, 236, 248, 255, 256, 265, 266, and 297. Ail these were not recognised issued by the Company. 6. The investment securities and total return swaps are held as collateral for debt securities respect of the CDS Swap Counterparty. In cases where no swaps are in place for a series, the risk, The credit risk is eventually transferred to the swap counterparty or the holders of debt linked to the credit performance of a portfolio of reference entities through a credit default Total return swap in the financial statements for the year ended 30 June The carrying value of the assets of the Company represents their maximum exposure to credit credit risk is borne by the holders of debt securities issued by the Company as detailed in Note recognition criteria under las 39. As at 30 June 2014, the passthrough series in issue were 70, Under these arrangements the proceeds from the issuance of debt securities are held on 979,529 1,101,886 One to five years 253, ,755 Greater than five years 671, ,834 Within one year 54, ,297 swaps at fair value through profit or loss Maturity analysis of investment securities and total return 979,529 1,083,886

33 Coupon income receivable from investment securities and total Other receivables Withholding tax recoverable 66 2,319 return swaps 12,435 14,447 8 Other assets All of the above assets are current. 9 Debt securities issued at fair value through profit or loss In the event that accumulated losses prove not to be recoverable during the life of the debt 31 SE81O, SCL36, SCL44, and SCL78. Series 36,40,41,43,45,46,47,48,51,52,55,56,59,60,63, 75, 77, 81, 86, 89, 93, 110, 248, The debt securites for the following series are listed on the Luxembourg Stock Exchange: 244, 247, , 256, 265, 266, 267, 262, 284, 293 and , 131, 147, 150, 151, 154, 156, 167, 174, 184, 195, 196, 201, 208, 220, 221, 227, 236, 240, The debt securites for the following series are listed on the Irish Stock Exchange: Series 116, by the Company. securities issued, then this will reduce the obligation to the holders of the debt securities issued investors recourse per series is limited to the net assets of that particular series. instruments as disclosed in Note 6 are secured by collateral held as noted in Note 7. The The Company s obligations under the debt securities issued and related derivative financial 1,089,572 1,052,198 One to five years 266, ,207 Greater than five years 596, Within one year 226,446 30,120 through profit or loss Maturity analysis of the debt securities issued at fair value Designated at fair value through profit or loss 1,089,572 1,052, Refer to Note 22 (a) for Credit Risk disclosure. 12,681 16,944

34 73, 115, 146, 169, 185, 269,270,271, 272, 279, and 297. The debt securites for series 181 and 182 are listed on the Vienna Stock Exchange and series The debt securites for the following series are not listed on any exchange: Series 70, 71, 72, 293 is listed on the Cayman Stock Exchange. 9 Debt securities issued (continued) 32 3 ordinary shares of 1 each Issued and fully paid Authorised: 100,000,000 ordinary shares of 1 each 100, , Share capital SAIl of the above other liabilities are current. 7,592 10,199 Other payables 497 2,752 Coupon payable on debt securities issued 7,025 7,375 Accrued expenses OOO 10 Other liabilities event until maturity. assumption that there will not be any payment calls made due to an occurence of a credit 2014 was 3,819,019 (2013: 91,713,684) less than the contractual amount at maturity on The fair value of financial liabilities designated at fair value through profit or loss as at 30 June

35 OOO 000 OOO 000 value value value value Carrying Fair Carrying Fair Accounting classifications and fair values of financial assets and liabilities 33 financial assets and liabilities whose carrying amounts approximate fair value. The financial instruments not accounted for at fair value through profit or loss are short term Total liabilities 1,268,721 1,268,721 1,244,746 1,244,746 Derivative liabilities 171, , , ,349 through profit or loss Financial liabilities at fair value Debt securities issued 1,089,572 1,089,572 1, ,052,198 fair value through profit or loss Financial liabilities designated at Other liabilities 7,592 7,592 10,199 10,199 Financial liabilities at amortised cost Total assets 1,266,881 1,268,881 1,244,906 1,244,906 Derivative assets 234, , , ,099 through profit or loss Financial assets at fair value and total return swaps 979, ,529 1,083,886 1,083,886 Investment securities value through profit or loss Financial assets designated at fair cost 54, ,921 Other assets 12,681 12,681 16,944 16,944 Financial assets at amortised cost Cash and cash equivalents Cash collateral 41,388 41,388 29,491 29,491 Total financial assets at amortised

36 13 Net gain from investment securities and total return swaps OOO OOO Net gain from investment securities and total return swaps designated at fair value through profit or loss (including coupon receipts): - Bonds and loans 97,079 78,197 - Total return swaps ,734 78,955 Analysed as follows: Coupon income including accruals 29,912 38,262 Net unrealised gain on investment securities and total return swaps 66,747 27,230 Net realised gain on disposal! maturities of investment securities 1,882 13,862 and total return swaps Net unrealised foreign exchange loss on cash collateral (807) (399) 97,734 78, Net gain from derivative financial instruments OOO ( 000 Net (loss) I gain from derivative financial instruments carried at fair value (including coupon receipts): -Asset swap (22,660) 11,416 - Credit default swap 42,627 16,350 19,967 27,766 Analysed as follows: credit default swap income Net unrealised gain on derivative financial instruments 19,310 11,420 Net realised gain on settlement of derivative financial instruments ,118 19,967 27,766 34

37 fair value through profit and loss (117,701) (106,721) Net finance loss on debt securities designated Net finance loss on debt securities issued Arranger income Audit fee relates to the statutory audit of the financial statements. and has no employees. The Company is administered by Deutsche International Corporate Services (Ireland) Limited (171) (110) Directors fee (15) Audit fee (53) (15) (64) Administration fee (103) (31) 000 ( Other expenses during the year. expenses of the Company. Arranger income is the total expenses incurred by the Company As per the Expense Agreement, Deutsche Bank AG, London Branch as arranger bears all the Other income (117,701) (106,721) Net realised loss on maturities I redemption of debt securities Net unrealised lass on debt securities issued Coupon payments including accruals (34,023) (36,053) (76,725) (34,530) (4,953) (36,138) Analysed as follows:

38 EirIes Three Limited 17 Other expenses (continued) Other operating expenses are after charging the following: Auditors remuneration (excluding VAT) Audit of Company financial statements (43) (52) Other assurance services - - Tax advisory services (6) (6) Other non-audit services - - (49) (58) 18 Incometaxexpense Corporation tax - - Factors affecting tax charge for the period Corporation tax has been calculated based on the profit for the year and the resulting taxation charge is as follows: Profit before tax - Current tax at standard rate of 25% Current tax charge - - The Company will continue to be actively taxed at 25% in accordance with Section 110 of the Taxes Consolidation Act, Deferred tax Any temporary difference arising on the assets will be offset by a corresponding difference in the liabilities. Therefore, the company does not have any exposure to deferred tax. 36

39 The issued shares are held in trust by Matsack Trust Limited, Matsack Nominees Limited and Matheson Services Limited (the Share Trustees ), each of whom own one share under the The Board of Directors has considered the issue as to who is the controlling party of the 19 Ownership of the Company holds an issued share of the company in trust for charity. The Share Trustees have appointed a Board of Directors to oversee the day-to-day activities of the Company. terms of a declaration of trust dated 30 April 2001, under which the relevant Share Trustee 37 Legal fees of EUR 9,508 (2013: EUR 7,682) were paid to Matheson. Liam Quirke as a director of the Company had an interest in this fee in his capacity as partner of Matheson. Deutsche Bank AG, London Branch, Deutsche Bank AG, London Branch, as Arranger for each series and agrees to reimburse the Company against any costs, fees, expenses or out-goings counterpady for all series containing credit default and asset swap agreements. Under a Series Proposal Agreement entered into for each series by the Company and incurred, refer to note 16 for details. Deutsche Bank AG, London Branch is also the Swap Series, will pay the Company a Series Fee of USD 1,000 per Series on commencement of the (2013: EUR 755) relating to administration services provided by Deutsche International Director of Deutsche International Corporate Services (Ireland) Limited. Michael Whelan, as a Director of the Company, had an interest in this fee in his capacity as Corporate Services (Ireland) Limited and by Deutsche Bank AG, London Branch, respectively. During the year the Company incurred a fee of EUR 17,169(2013: EUR 20,686) and EUR 22, Transactions with related parties first charge of the Company s rights, title and interest under the respective swap agreement for purchased in respect of each series of debt securities issued, and by the assignment of a fixed each series. The debt securities issued by the Company are secured by way of mortgage over the collateral 20 Charges June 2014 (2013: 146, 169, 181, 201, 236, 293,and SCL44). as adopted by the EU, has consolidated Series 146, 169, 201, 236, 293, and 5CL44 as at 30 Deutsche Bank AG London Branch, under International Financial Reporting Standards IFRSs administrator of the Company. The remaining two Directors are considered to be independent Deutsche International Corporate Services (Ireland) Limited, being the entity that acts as the with the Board. The Board is composed of three Directors, one of whom is an employee of of the Deutsche Bank Group. company. it has determined that the control of the day-to-day activities of the Company rests EirIes Three Limited

40 OOO 000 The carrying amount of financial assets represents their maximum credit exposure. The maximum exposure to the credit risk at the reporting date was: (a) Credit risk 22 Financial instruments 38 Bank AG, London Branch. The Company has sold credit protection on a number of reference entities in exchange for the receipt of premium income for the relevant series. The Company also entered into a number of Credit Default Swap Agreements with Deutsche Derivative financial instruments: The Company has entered into asset swap transactions with the Swap Counterparty to eliminate the mismatch between the amount payable in respect of the debt securities issued and the return from the investments securities and total return swaps held as collateral. The Company s cash and cash collateral are held with the Deutsche Bank AG, London Branch which is rated Aby Standard and Poor s (S&P) in 2014 and Cash and cash equivalents and cash collateral At the reporting date the credit quaility of the Company s financial assets was as follows: ultimately be borne by the Company s swap counterparty and I or the Company s holders of its exposure to credit risk by issuing notes that are linked to its investment securities. if a credit contractual obligation and arises principally from investment securities. The Company limits event were to occur with respect to any of the investment securities, any such losses would debt securities issued. The credit risk is the risk of financial loss to the Company if the counterparty fails to meet its ,906 Investment securities and total return swaps 979, ,886 Other assets 12, Derivative assets 234, ,099 Cash and cash equivalents Cash collateral 41,388 29,491

41 Class of debt securities issued Derivative types Financial instruments (continued) notes: The table below shows a breakdown by derivative financial instruments for each class of (a) Credit risk (continued) 39 series during the year. carrying amount in statement of financial position. None of the investments held were past due or defaulted during the year. Significant movement in ratings from last year are due to partiallfull unwind and maturities of investment securities and total return swaps was as shown in the table below based on At the reporting date, the credit quality and the assets concentration of the Company s Investment securities and total return svps: Derivative financial instruments are always settled net and therefore the above table reflects 2013: Aas rated by S&P. based on carrying amount in the statement of financial postion as at 30 June 2014 and June payments due under the derivatives. This risk is borne by the holders of debt securities who the reporting date, the credit rating of the Company s investment securities was as follows the reference obligations under the Total Return Swaps (TRS) and Credit Default Swaps. N The Company is exposed to the credit risk of the derivative counterparty with respect to the net position of the derivative financial instruments at the year end. are subject to the risk of defaults by the Swap Counterparty as well as to the risk of default of 100% 100% Instalment notes Cross Currency Swap 6.05% 13.14% Instalment notes Default Swap 2.91% 5.20% Inflation linked debt securities Cross Currency Swap 42.94% 31.76% Inflation linked debt securities Default Swap 0.48% 0.87% Inflation linked debt securities Asset Swap 5,29% 8.26% Alternative investments Asset Swap 0.56% 2.53% Alternative investments Cross currency Swap 3.86% 11.65% Credit linked debt securities Asset Swap 0.05% 0.06% Credit linked debt securities Cross Currency Swap 4.06% 4.59% Credit linked debt securities Default Swap 20.43% 8.62% Instalment notes Asset Swap 6.48% 13.32% Credit linked debt securities Deposit 6.89% 0.00%

42 Credit linked debt securities Corporate Bonds France NA NR Baa2 0.00% 12.09% Alternatie inestrnents Corporate Bonds Great Britain NR NR NA % % securities issued issuance Agency Class of debt Collateral type Country of Rating Rating. Rating (a) Credit risk (continued) 22 Financial instruments (continued) % % % % % % % % securities Corporate Bonds Cayman Islands S&P A+ NA 14.05% 10.38% Inflation linked debt Total return swap Great Britain NA NA NA 648% 1.73% S&P A P2 2.64% 2.75% S&P BBS BaaZ 1.54% 141% Total return swap Great Britain NA NA NA 0.58% 0.64% Mortgage Bonds Portugal NR NA NR 6.62% 4.76% Germany S&P Aal Aal 7.85% 8,16% Fund units Hong Kong NA NA NA 4.83% 5.83% Loans Switzerland NA NA NA 87.94% 86.32% Instalment notes Corporate Bonds Austria S&P AA- Aa3 0.13% 0.13% Cayman Islands NA NA A2 0.00% 1.73% Spain SaP BBB Baa3 1.38% 1.48% NA NA Aa3 0.00% 0.79% Goemment Bonds Italy Moody Baa2 Baa2 36,02% 22.16% Jersey NA NA NA 2.67% 2.44% United States SaP A- AZ 8.95% 6.29% Ireland NA NA NA 0.00% 0.45% Zero Coupon notes Corporate Bonds Great Britain NA NA NA % % Ireland NA NA NA 2.12% 2.47% Asset backed securities Corporate Bonds Cayman Islands S&P BBS- Bal 3.15% 3.26% Sal A- AZ 0.39% 0.35% Sal BBB- Ba2 3.23% 3.13% NA NA Baal 0.00% 0.50% NA NA Baa2 0.00% 0.48% Great Britain Moody Baaa Baa3 0.27% 0.22% Guernsey S&P A- A2 1.28% 1.25% NA NA NR 0.96% 0.92% SaP BAB Baa3 0.85% 0.79% SaP NA 5.91% 6.04% SaP AA- Aa2 1.48% 1.49% NA NA Baal 0.00% 31.05% NR NA A3 0.00% 0.16% Goernrnent Bonds United States NA NA Aa2 0.00% 33.31% United States NA NR Ba3 0.00% 15.66% S&P BBS NA 13.79% 6.85% S&P AA- A % 9.30% S&P Aaa Aaa 5.32% 4,13% United States NA NA Al 0.00% 0.49% S&P A A2 8.75% 8.21% S&P A AZ 6.36% 6.62% S&P A- A3 3.71% 3.81% S&P A- Baal 2.80% 2.67% S&P A- Baa2 3.82% 3.97% S&P A+ A? 6.73% 6.74% S&P AA+ Al 8.16% 9.38% Germany Moody Al Aa % 30.14% Spain Moody Ba2 Bal 1.59% 1.07% Great Britain NA NA NA 16.26% 11.76% Netherlands Sap A A? 0.50% 0.51% Gouemment Bonds Italy Moody Baa2 Baa % 15.82% Spain S&P BBB BaaZ 9.30% 7.66%

43 22 Financial instruments (continued) (a) credit risk (continued) Significant movement in ratings from last year are due to partial/full unwind and maturities during the year. For those investment securities in which ratings were not available on any market sources, management assessed the associated credit risk based on the coupon received on the investments and historical performance of the investment in terms of default. During the year, no defaults occured in respect of the bonds held and interests were received when paid, accordingly. Other assets: The other assets mainly include income receivable from bonds and other securities held by the Company as at the year end. The credit rating and concentration of the investments securities and TRS at the year end are disclosed under investment securities and TRS in the previous table. (b) Liquidity risk The following are the contractual maturities of financial assets and liabilities including undiscounted interest payments and excluding the impact of netting agreements: 2014 Gross carrying contractual Less than One to five More than amounts cash flows one year years five years Cash and cash equivalents Cash collateral 41,388 41,388 41,388 Derivative assets 234, , ,768 73,170 3,864 Investment securities and total return swaps 979,529 1,229,833 52, , ,851 Other assets 12,681 12,681 12, Derivative liabilities (171,557) (231,416) (32,037) (78,211) (121,168) Debt securities issued (1,089,572) (1,280,017) (225,280) (328,350) (726,387) Other liabilities (7,592) (7592) (7,592)

44 22 Financial instruments (continued) anounts cash flows one year years five years Carrying contractual Less than One to five More than Gross 2013 (b) Liquidity risk (continued) equivalents Derivative liabilities (182,349) (230,210) (164,537) (188,556) Derivative liabilities represent asset swaps and credit default swaps. on a series by series basis. The above table reflects derivative liability cash flows as being the 42 The asset swaps and credit default swaps have been entered into to hedge the liquidity exposure Company s assets match the undiscounted cash flows arising on the Company s liabilities. cash flows required to ensure that the contractual undiscounted cash flows arising on the securities, total return swaps and debt securities issued. Refer to Note 6, 7 and 9 for maturity profile of derivative financial instruments, investment Other liabilities (10,199) (10,199) (10,199) - and total return swaps 1,083,886 1,415, , , ,356 Debt securities issued (1, ) (1,335,751) (40,230) (471,313) (824,208) Investment securities Other assets 16,944 16,944 16, Derivativeassets 114, , ,170 40,568 Cash and cash Cash collateral 29,491 29,491 29,

45 22 Financial instruments (continued) (c) Market risk Market risk embodies the potential for both losses and gains and includes currency risk, interest rate risk and price risk. (i) Currency risk The Company is exposed to movements in exchange rates between its functional currency - Euro and foreign currency denominated financial instruments. At the reporting date, the Company had the following exposure to foreign currency risk: 2014 USD CHF Other Total Monetary assets cash and cash equivalents Cash collateral Derivative assets Investment securities and total return swaps Other assets - 20,966-47, ,966 99, , , ,294 72, , ,948 2,378 5, , , , ,794 Monetary liabilities Derivative liabilities Debt securities issued Other liabilities - 21,186 24,650 45,836 85, , , , ,877 2,307 85, , , ,481 Net exposure The net exposure is mitigated by the hedge the currency risk. 162,956 91,688 (113,331) 141,313 Company entering into asset swap agreements to 43

46 2013 (c) Market risk (continued) (I) Currency risk (continued) 22 Financial instruments (continued) These have been classified under Other in the above table. denominated in GBP, JPY and ZAR and has issued debt securities denominated in BRL and 30 June 2013 have been classified under Other. The Company holds assets hedge the currency risk. The net exposure is mitigated by the Other liabilities issued Debt securities 90,768 Monetary liabilities 277,103 77, ,166 35, ,556 securities and total equivalents Investment 35,194 45,040-15,883 Derivative liabilities 2,264 Net exposure Any holding by currency which consists of less than 10% of the total assets as at 30 June Other assets Derivative assets return swaps Cash collateral 15, Monetary assets Cash and cash ,767 USD GBP CHF Other Total ,659 2, , ,452 30,274-5, company entering into asset swap agreements to 183,886 (99,899) 96,480 (78,326) 102,221 93, , , , ,417 38, , , , , ,119 3, ,545 7,043 45

47 22 Financial instruments (continued) (c) Market risk (continued) (I) Currency risk (continued) The following significant exchange rates applied during the year: Average rate Closing rate USD CHF GOP JPY BRL CAD ZAR Sensitivity analysis The impact of any change in the exchange rates on the investment securities and total return swaps relating to any series issued is offset by entering into asset swap agreements (including cross currency swaps) for each series. Any difference is borne by the swap counterparty and thus the exchange rate changes have no net impact on the equity or the statement of comprehensive income of the Company. 45

48 22 Financial instruments (continued) (c) Market risk (continued) (H) Interest rate risk At the reporting date, the interest rate risk profile of the Company s non derivative interest bearing financial instruments by class of debt security issued was: Investment securities and total return swaps Class of debt securities issued Currency Fixed rate instruments: Asset backed securities EUR 4,523 4,501 Asset backed securities USD 22,754 17,772 Credit linked debt securities EUR 33,129 35,675 Credit linked debt securities USD Inflation linked debt securities EUR 85, ,069 Inflation linked debt securities USD 14,757 14,332 Instalment notes EUR 101,492 88,669 Instalment notes GBP 1,147 3,432 Instalmentnotes USD 104, , , ,628 Investment securities and total return swaps Class of debt securities issued Currency Floating rate instruments: Aternative investments GBP 44,393 44,407 Asset backed securities USD 1,946 1,937 Credit linked debt securities EUR 2,693 16,361 Credit linked debt securities USD 5,729 26,903 Inflation linked debt securities EUR 12,312 12,643 Inflation linked debt securities GBP 26,811 26,819 Instalment notes EUR 26,758 22,842 Instalment notes USD 30,594 31, , ,010 46

49 22 Financial instruments (continued) (c) Market risk (continued) (U) Interest rate risk (continued) Investments securities and total return swaps Class of debt securities issued Currency OOO Variable rate instruments: Asset backed securities CHF 288, ,119 Asset backed securities EUR 10,329 9,951 Inflation linked debt securities EUR 25,784 26,106 Instalment notes EUR 29,862 36, , ,089 Refer to Note 7 and 9 for maturity profile for investment securities, total return swaps and debt securities respectively. The company manages its interest rate risk by entering into swap agreements. Sensitivity analysis A 100 basis point increase or decrease represents management s assessment of a reasonably possible change in interest rates. A 100 basis point increase in interest rates (assuming all other variables are held constant) would have resulted in an increase of coupon expenditure payable on the debt securities issued of EUR 3.8m for the year (2013: EUR 13.2m). Under the same conditions, the coupon income receivable from investment securities would have increase by EUR 7.6m for the same period (2013: EUR 12.6m). A similar 100 basis point decrease in interest rates would have resulted in an equal, but opposite effect on coupon expenditure and coupon income respectively. The Company does not bear any interest rate risk as the interest rate risk associated with the debt securities issued by the Company is neutralised by entering into swap agreements whereby the swap counterparty pays the Company amounts equal to the interest payable to the holders of the debt securities issued by the Company in return for the interest earned by the Company on its investment securities and total return swaps. Therefore any change in the interest rates would not affect the equity or the statement of comprehensive income of the Company. 47

50 changes in market prices (other than those arising from interest rate risk or currency Other price risk is the risk that value of the instruments will fluctuate as a result of (iii) Other price risk (c) Market risk (continued) 22 Financial instruments (continued) 48 swaps at the reporting date. The table above also shows the listing status of the investment securities and total return 979, ,886 Zero Coupon notes Listed 102,869 89,609 Instalment notes Unlisted 2, Instalment notes Listed 295, ,250 Inflation linked debt securities Unlisted 44,759 40,103 Inflation linked debt securities Listed 120, ,867 Credit linked debt securities Listed 33, ,308 Credit linked debt securities Unlisted 8, Asset backed securities Listed 14,852 14,452 Asset backed securities Unlisted 312, ,377 Aiternative investments Unlisted 44,393 44,407 Class of debt securities issued Unlisted Listed! swaps by class of debt securities issued at the reporting date: The following is the breakdown of the Company s investment securities and total return and total return swaps held by the Company is borne by the holders of debt securities. prespective of the company itself, as any fluctuation in the value of investment securities to prepayment risk, the Directors do not consider this to be significant risk from the is not subject to equity price risk, commodity price risk and residual value risk. In relation In relation to the Company s portfolio of investment securities and total return swaps, this because the other party repays earlier or later than expected), and residual value risk. repayment risk (i.e. the risk that one party to a financial asset will incur a financial loss Other price risk may include risks such as equity price risk, commodity price risk, factors affecting all instruments traded in the market. risk), whether caused by factors specific to an individual investment, its issuer or all

51 22 Financial instruments (continued) (c) Market risk (continued) (Bi) Other price risk (continued) Sensitivity analysis The market price of the investment securities will generally fluctuate with, among other things, the liquidity and volatility of the financial markets, general economic conditions, political events, developments or trends in a particular industry and the financial conditions of the securities issuer Credit Linked/Inflation Linked/Fixed Rated/floating rated debt securities If the market value of the collateral increases the Swap Counterparty is entitled to the resultant gains and if the market value of the collateral decreases the Swap Counterparty and I or the holders of debt securities bear the losses. This split is dependant on who has priority of payment in these circumstances as disclosed in the agreements. Any changes in the quoted prices or unquoted prices of the investment securities held by the Company would not have any effect on the equity or profit or loss of the Company as any fair value fluctuations are ultimately borne by either the Swap Counterparty andlor the holders of the debt securities issued by the Company. If the market prices of the investment securities and total return swaps at 30 June 2014 and 30 June 2013 held by the Company had increased or decreased by 10% with all other variables held constant, this would have increased or reduced the carrying value of the debt securities issued by the Company EUR 98m (201 3:EUR 108m) (d) Specific instruments (i) Receivable under total return swap and asset backed investment securities As part of certain series programmes the Company has entered into a number of asset swap, credit default swap and total return swaps with embedded credit default swap agreements with Deutsche Bank AG, London Branch. In exchange for the receipt of premium income for the relevant series, the Company has sold credit protection on a number of reference entities, the Obligations. 49

52 22 Financial instruments (continued) (d) Specific instruments (continued) (I) Receivable under total return swap and asset backed investment securities (continued) In the event of an issuance of a credit event notice with respect to the Reference Portfolio, the Company will pay an amount as defined in the Credit Default Swap Agreements from the assets of that series to which the Credit Default Swap Agreement relates. The aggregate liability of the Company under the Credit Default Swap Agreements for individual series shall not exceed the aggregate of the eligible investment securities and total return swaps for those series. No payment calls under the credit default swaps were made during the year. In various series, as detailed below, the Company has issued Fixed or Floating Rate Secured debt securities, linked to a pool of reference entities. If defaults in Credit Default Swap reference obligations arise, the nominal is proportionally reduced by the relevant defaults. Headroom. Payment Credit Tranche held in Description of required Nominal of. Event occur Series CCY by existence reference under Credit Notes ( CaD) ances to 30 Noteholder as at 30 obligations Default Swap June 2014 June 2014 agreement? 267 EUR 2,000 N/a N/a Set of named N N reference entities 284 BRL 8,705 N/a N/a Portfolio of N N Precatorios The ultimate amount repaid to the holders of debt securities will depend on the proceeds from the investments securities and total return swaps held as collateral less any protection payments under the credit default swaps. (N) Credit-linked investment securities In certain series, the underlying investment securities and TRS (held as collateral) may itself be credit-linked to a selection of reference entities. In the event of the issuance of a credit event notice with respect to one of the reference entities the nominal of the collateral may be reduced proportionally, with a corresponding reduction in the note nominal of the relevant series. No payment calls were made on the credit linked investment securities during the year, or since the year end. 50

53 22 Financial instruments (continued) (d) Specific instruments (iii) credit Default Swaps (continued) As part of certain series programmes the Company has entered into a number of Credit Default Swap Agreements with Deutsche Bank AG, London Branch. In exchange for the receipt of premium income for the relevant series, the Company has sold credit protection on a number of reference entities, the Reference Obligations. In the event of an issuance of a credit event notice with respect to the Reference Portfolio, the Company will pay an amount as defined in the Credit Default Swap Agreements from the assets of that series to which the Credit Default Swap Agreement relates. The aggregate liability of the Company under the Credit Default Swap Agreements for individual series shall not exceed the aggregate of the Eligible investment securities and total return swaps for those Series, No payment calls under the Credit Default Swaps were made during the year. In various series, as detailed below, the Company has issued Fixed and Floating Rate Secured debt securities, linked to a pool of reference entities. As a consequence of defaults in reference obligations, the nominal is proportionally reduced by the relevant debt securities issued. However, this will only occur when subordinate tranches within the corresponding portfolio have been fully reduced. The Reference Obligations for each series under Credit Default Swaps were as follows: Headroom Credit Payment. Series CCV Tranche held in Description of Event required Nominal of by existence reference occurances under Credit N 0 es ( 000) Noteholder as at 3D obligations to 30 June Default Swap June agreement? 116 EUR 37,000 N/a N/a Set of named V N reference entities (FtD) 196 EUR 31,880 N/a N/a Banco Espirito N N Santo Sub 201 EUR 31,300 N/a N/a Republic of N N Croati a 240 EUR 29,335 N/a N/a Dexia Credit N N Local Snr A credit event occurred on May 23, 2014 relating to Series 116. No reductions in nominal of the debt security of Series 116 during the year. Series 196 was partially redeemed during the year resulting in reduction of nominal (2013: EUR 33,700,000). The debt security relating to series 232 matured on 20 December

54 22 Financial instruments (continued) (d) Specific instruments (continued) (Ni) Profile of the series of debt securities issued by the Company The following are the broad categories as at 30 June 2014: T88eof Hurter Debt CasOr aid Cash Invntnfl Deñvahee Dgdvalte Other Oier ransadion ol securtes cash coltieral secudties assets Ib1es assets Iiab1ihes e*ierfl Z % C6C % (166 % (660 % (166 % (966 4C% 1532% DC% CTh -11% 122% 63 he deseccites % 258, % % % 1M$ 4871% 114, % % 1,672 3t23% 1371 CredO Irksd debt securtes 4 11,04% 5,41% % 6, % 41, % 73,818.83% % % 884 4ssaked 1IPt asse1s*s % Th, % % 2Q % 327,846 C66% 2662% 4242% 5: % 1,663 &ahert ro1e % 258, 4053% % % 268, % % 88M % k Zero 6% C75 146% 9% 12 C% 292% 5A 883% - 26% 5 a rrosreeos 24: % 3C -45k4Al%133X% -65% 3478% I.F th5t % i22 23L 1k >, X% 7 The following are the broad categories as at 30 June 2013: Ipe so hurter Debt Cashxrd Cash mmmi DesOvative Deñvtve Other Other Pansadon of securities cash collierat seweilies assets IiahTtiies assets IithlOies series eqt1vetis % tote % (Ott % 0000 % 0800 % ocee % Pass ttn strucües IS 283% % 066% 083% latoni& % t t 4401 flc, %5 1779% fl% 2683% 2 &nsjt s 5l234%l2674l% 96083% -td83%us 3%Et832i7% 7.SC11r:73 assa.z: S Th3I32% itreies I 11% 2G % 1 2th F5 226% 7I lie 1! la73%7s7523t%3 20% 2417% roles 17,26%76,412[23% 68W4 82m5S66683% -7Th, 13, % CZ 6 Iaeats 2 572% 00, % % 4.10% % 16J % 0.74% % 537 Tc % I.O52j98183% 426 l88yr % 1,663, % 114, % % 16, % 10j83 52

55 22 Financial instruments (continued) (e) Fair values The Company s investment securities and total return swaps, derivative financial instruments and debt securities issued are carried at fair value on the statement of financial position. Usually the fair value of the financial instruments can be reliably determined within a reasonable range of estimates. The carrying amounts of all the Company s financial assets and financial liabilities carried at amortised cost at the reporting date approximated their fair values. Their fair values together with carrying amounts shown in the statement of financial position are disclosed in note 12. These disclosures supplement the commentary on financial risk management (see note 4). Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy 3(a) under the sub heading Fair value measurement principles. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. The Company s accounting policy on fair value measurements is discussed under note 3(a) under the sub heading Fair value measurement principles. Critical accounting judgements made in applying the company s accounting policies in relation to valuation of financial instruments are as follows: Valuation of financial instruments The Company measures fair values using the following hierarchy of methods: Level 1 Quoted market price (unadjusted) in an active market for an identical instrument. Level 2 Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived by prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Level 3 Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant effect on the instrument s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. 53

56 The following is an explanation of the valuation techniques used in establishing the fair value of the different types of financial instruments of the Company. 22 Financial instruments (continued) (e) Fair values (continued) Valuation Techniques 54 does not calibrate to a relevant market reference then valuation adjustments are made to sources of information such as historical data, fundamental analysis of the economics of management judgment is required to determine fair values by assessing other relevant modelling techniques may also include those based on earnings multiples. Derivative Financial Instruments: Market standard transactions in liquid trading markets, inputs. Parameter inputs are obtained from pricing services, consensus pricing services value is determined by adjusting the proxy value for differences in the risk profile of the complex modelling techniques. These techniques include discounted cash flow models using current market rates for credit, interest, liquidity and other risks. For equity securities Investment securities: Where there are no recent transactions then fair value may be determined from the last market price adjusted for all changes in risks and information since that date. Where a close proxy instrument is quoted in an active market then fair such as interest rate swaps, foreign exchange forward and option contracts on listed instruments. Where close proxies are not available then fair value is estimated using more and recently occurring transactions in active markets wherever possible. More complex instrument and are calibrated to available market prices. Where the model output value securities or indices are valued using market standard models and quoted parameter instruments are modelled using more sophisticated modelling techniques specific for the the model output value to adjust for any difference. In less active markets, data is and interpolation techniques. Where observable prices or inputs are not available, obtained from less frequent market transactions, broker quotes and through extrapolation issued at fair value through profit and loss is dependent upon the fair value of investment counter derivatives and certain securities for which there is no active market. Debt securities issued at fair value through profit and loss; The fair value of debt securities valuation have direct impact to the fair value of debt securities issued. include correlations, prepayments speeds, default rates and loss severity, certain over the For more complex Level 3 instruments, more sophisticated modelling techniques are the transaction and proxy information from similar transactions. securities, total return swaps, and derivative financial instruments. Any changes in the required which usually are developed from recognised valuation models. Some or all of the significant inputs into these models may not be observable in the market, and are derived from market prices or rates or are estimated based on assumptions or more complex parameters. Examples of instruments involving significant unobservable inputs

57 22 Financial instruments (continued) (e) Fair values (continued) Valuation Techniques (continued) historic data, economic fundamentals, and research information, with appropriate are based on other relevant sources of information such as prices for similar transactions, Where no observable information is available to support the valuation models then they 55 3 valuations are reviewed quarterly and disclosed yearly in the financial statements. valuation technique makes the least adjustment to the inputs used, analyse the range of being valued, determination of probability of counterparty default and discount rates. Level valuation model to be used based on the provisions indicated in the swap agreements. for the differences in value under different techniques. Depending on the circumstances, values indicated by the techniques used and whether they overlap and check the reasons degree of management judgement and estimation in the determination of fair value. When conditions. Valuation models that employ significant unobservable inputs require a higher conditions, the type of investment, expected future cash flows on the financial instrument determining the appropriate valuation model to be used, Management selects which one valuation model might be more appropriate than another. Management decides the adjustment to reflect the terms of the actual instrument being valued and current market Some factors that are considered include information that is reasonably available, market

58 22 Financial instruments (continued) using valuation techniques are as follows: determined directly, in full or in part, by reference to published price quotations and determined financial instruments and debt securities issued by the Company which fair values were At the reporting date, the carrying amounts of investment securities, total return swaps, derivative (e) Fair values (continued) 56 Derivative financial instruments classified as Level 3 involves credit default swap, collateralised similar instruments, measurements were based on unobservable inputs and no active market data available for debt obligations, and other over the counter derivative instruments where the fair value obligations and cash collateral were classified as Level 3. The instruments are valued using a valuation technique that involves significant unobservable inputs and no active market available. Total return swaps which consist of underlying asset backed financial instruments, credit debt 115, ,604 (313,423) 377,195 (169,760) (243,997) liabilities - assets - 209,332 (64,436) Derivative financial Derivative financial swaps 115, , , , , ,347 return Debt securities Investment (107,121) - (108,549) (73,800) and total securities 25,470-88,662 25,437 issued - (437,685) (651,887) - (457,217) (594,981) OOO 000 OOO OOO OOO 000 Level I Level 2 Level 3 Level I Level 2 Level

59 on the relevant investment securities and derivative financial instruments. Notwithstanding that a not actively traded due to the limited liquidity that exists in the market. Debt securities issued are traded in the institutional market and the prices at year end are based (e) Fair values (continued) quoted market price exists for these, the Directors have concluded that the debt securities are 22 Financial instruments (continued) 57 Closing balance 420, ,347 Fair value movements 33,167 (2,901) Transfers in 28,320 44,155 Transfers out (12,104) (67,755) Opening balance 399, ,283 Disposal (21,397) (97,718) Fturities (7,218) (3,717) swaps classified under valuation techniques using unobservable parameters (Level 3): The table below shows the roll-forward movements for investment securities and total return active. These requires little management judgement and estimation. active markets and quoted prices for similar instruments in markets that are considered less securities involved for these series used a valuation model based on quoted market prices in 131, 156, 167, 196, SCL44, 5CL78, 220, 221, and 240 were transferred into Level 2. The During the year, Level 1 investment securities for series 36, 40, 41, 43, 48, 55, 56, 77, 81, 110, Debt securities issued - - Derivaitve financial assets - - Derivative financial liabilities - - Transfer between Level 1 and Level OOO Investment securities and total return swaps (147,501) 147,501 Levell Level2 Tranfers from Level I and Level 2 The table below discloses the transfer between Level 1 and Level 2: either Level 2 or Level 3. series basis. As no derivatives are classified as Level 1, debt securities have been classified as securities are classified in the lowest level observed of the assets and derivatives on a series by securities, total return swaps, cash and cash collateral and derivative financial instruments. Debt As a result, the levelling of debt securities is dependent on the levelling of the investment EirIes Three Limited

60 long date option volatilities, which were previously unobservable became observable. 22 Financial instruments (continued) (e) Fair values (continued) when significant inputs used in their fair value measurements such as certain credit spreads and During the year, Series SCL 78 were transferred out of Level 3 at the opening fair value hierarchy 58 Closing balance (107,121) (73,800) Fair value movements (6,266) 15,503 Transfers in (27,215) (31,426) Transfers out Opening balance (73,800) (57,952) Sum of settlements under valuation techniques using unobservable parameters (Level 3): The below table shows the roll-forward movements for derivative financial liabilities classified transferred out to level 2 as certain over the counter derivatives and certain securities that observable market data with similar exchange traded derivatives and credit spreads. Closing balance 25,470 25,437 derivative financial asset was fully settled with the swap counterparty. Series 181 and 240 were previously involved significant unobservable inputs were now valued using inputs based on During the year, the debt securities issued for Series 232 matured and the corresponding Fair value movements 21,902 1,747 Transfers in - 9, Transfers out (21,508) Opening balance 25,437 14,425 Sum of settlements (361) - valuation techniques unobservable parameter (Level 3): The below table shows the roll-forward movements for derivative financial assets classified under swaps in the statement of comprehensive income. in Series 129, 195 and 244 matured during the year. there were unobservable inputs used in the fair value measurement. Also, investment securities Meanwhile, investment securities in Series 195 and 264 were disposed at the opening fair value during the year. Series 201, 282 and 293 investment securities were tranfered in to Level 3 as Fair value movements are recognised under net gain from investment securities and total return

61 EirIes Three Limited 22 Financial instruments (continued) (e) Fair values (continued) During the year, the derivative liability in relation to Series 184 were transferred from level 2 to level 3 due to lack of observable inputs and unavailability of market data for similar instruments. The asset swap of series 185 were transferred out to level 2 due to changes in the availabilty of observable inputs and market data. Fair value movements are recognised under net gain from derivative financial instruments in the statement of comprehensive income. Transfers in and out of Level 3 are recorded at the beginning of the year. For instruments transferred in and out of Level 3, the table shows no gains and losses and cash flows on the instruments as they have been transferred at the beginning of the year. The below table shows the roll-forward movements for debt securities issued classified under valuation techniques unobservable parameter (Level 3): turiues Opening balance (594981) (541,571) Issuances - - 6,024 3,716 Redemption 20,250 97,116 Transfers in (43,488) (210,967) Transfers out 31,275 71,337 Fair value movements (70,967) (14,612) Closing balance (651,887) (594,981) Any change in the classification of the investment and total return swaps, derivative assets and derivative liabilities will have a direct impact on the classification of the debt securities issued. if any of these are classified as using unobservable parameters (Level 3). the related debt security will be classifed as Level 3 also. Fair value movements are recognised under net finance loss on debt securities issued in the statement of comprehensive income. Sensitivity Analysis Where the value of financial instruments is dependent on unobservable valuation models, appropriate models and inputs are chosen so that they are consistent with prevailing market evidences. A 10% change in the price of the financial assets under Level 3 held by the Company would increase or decrease the fair value as at 30 June 2014 by EUR 65.2M (2013: EUR 59.5M). 59

62 22 Financial instruments (continued) The total amount of realised / unrealised loss estimated using a valuation technique based on significant unobservable data (Level 3) that was recognised in the statement of comprehensive income for the year is as follows: (e) Fair values (continued) 60 For recognised fair values measured using significant unobservable inputs, changing one or more assumptions used to reasonably possible alternative assumptions would not have any Company. debts securities issued due to the limited recourse nature of debt securities issued by the effect on the profit or loss or on equity as any change in fair value will be borne by the holders of about the financial instrument. These estimates are subjective in nature and involve uncertainties been noted above and therefore their associated fair value cannot be determined with precision. value estimates are made at a specific point in time, based on market conditions and information different methodologies or assumptions could lead to different measurement of fair value as fair and matters of significant judgement. Details in relation to the unobservable inputs used have Although the Directors believe that their estimates of fair value are appropriate, the use of (20,913) (20,105) Debt securities issued (63,727) (29,119) Derivative financial instruments , Investment securities and total return swaps 27,177 (9,209) of the reporting period: The total amount of unrealised loss in fair value estimated using valuation techniques based on (22,164) (263) significant unobservable data (Level 3) for financial assets and financial liabilities held at the end Debt securities issued (70,967) (14,612) Derivative financial instruments 15,636 17,250 Investment securities and total return swaps 33,167 (2,901) OOO OOO

63 dates: Series August 2014 EUR 4, Since the end of the reporting period, the Company has not issued any new debt securities and the following series were partially repurchased after 30 June 2014 on the respective 23 Subsequent events Qckor2oi% The financial statements were approved and authorised for issue by the Board of Directors on 24 Approval of the financial statements up to the date of signing the report. There were no other subsequent events that require disclosure in these financial statements Supplemental Program Memorandum. The downgrade has no impact on the outstanding AG, London Branch is the custodian and a minimum prescribed rating is required per Company is assessing the transfer of custodian for certain collaterals in which Deutsche Bank London Branch, was downgraded to A3 from A2 by rating agency Moody s. As a result, the nominal of debt securities issued. On July 29, 2014, the long term credit rating of the swap counterpady, Deutsche Bank AG, The holders of the respective debt securities have been paid the net proceeds following the disposal of the investments and the termination of the swap. These redemptions took place at par vakie. Series August 2014 EUR 266,000 Series October 2014 EUR 17,050,000 Series July2014 EUR 500,000