OPEN-END INVESTMENT FUND CITADELE STRATEGIC ALLOCATION FUNDS. Sub-fund Citadele Universal Strategy Fund - EUR (5 th financial year)

Transcription

1 OPEN-END INVESTMENT FUND CITADELE STRATEGIC ALLOCATION FUNDS Sub-fund Citadele Universal Strategy Fund - EUR (5 th financial year) ANNUAL REPORT FOR THE YEAR 2012 FCMC REGULATIONS ON ANNUAL ACCOUNTS OF INVESTMENT FUNDS AND INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED IN THE EUROPEAN UNION Translation from Latvian original* *This version financial statements is a translation from original, which was prepared in Latvian. All possible care has been taken to ensure that translation is an accurate representation original. However, in all matters interpretation information, views or opinions, original language version financial statements takes precedence over this translation. Riga, 2013

2 Table contents 2 Information on investment fund 3 Investment management company report 5 Statement responsibility Board investment management company 6 Custodian bank report 7 Financial statements: Statement financial position 9 Statement comprehensive income 10 Statement changes in net assets 11 Statement cash flows Auditors report 25

3 Information on investment fund 3 Name fund: Type fund: Name sub-fund: Registration date fund: Number fund: Name investment management company: Registered fice investment management company: Registration number investment management company: Licence number investment management company: Name custodian bank: Registered fice custodian bank: Registration number custodian bank: Names and positions Council and Board Members investment management company: Citadele Strategic Allocation Funds Open- end investment fund with sub-funds Citadele Universal Strategy Fund EUR 24 August /36 Citadele Asset Management IPAS Republikas laukums 2a, Riga LV-1010, Latvia /285 Citadele banka JSC Republikas laukums 2a, Riga LV-1010, Latvia Council investment management company: Chairman Council Juris Jākobsons appointed on Deputy Chairman Council Vladimirs Ivanovs appointed on Council Member Valters Ābele appointed on , exempted on Council Member Phlip Nigel Allard appointed on Deputy Chairman Council Philip Nigel Allard resigned on Council Member Anatolijs Fridmans resigned on Board investment management company: Chairman Board Uldis Upenieks - appointed on Board Member Zigurds Vaikulis appointed on Board Member Sergejs Zaicevs appointed on Chairman Board - Vladimirs Ivanovs - resigned on Board Member - Raimonds Vesers - resigned on The related rights and obligations management Fund: Names Fund Managers (investment committee members): The related rights and obligations management Fund: All duties Council and Board members stated in legislation Republic Latvia and Statutes investment management company are performed by Council and Board members. Zigurds Vaikulis appointed on Andris Kotāns - appointed on All duties Fund managers stated in legislation Republic Latvia, Statutes investment management company and Fund Prospectus are performed by Fund managers.

4 Information on investment fund 4 Auditors: PricewaterhouseCoopers SIA Certified audit company, licence No. 5 Kr. Valdemāra street LV-1010, Riga Ilandra Lejiņa Certified auditor in charge Certificate No. 168

5 OIF "Citadele Unlversal Strategy Fund'EUR" Annual report for Year 2012 Statement responsibility Board investment company The assets sub-fund "Citadele Universat Sfa:eg.r fund,,citadele Strategic Allocation Funds" are managei =,^t - EUR' (hereinafter- Fund) open-end investment [; : e asset management company "Citadele Asset Management" was having its registered fice at Republikas laukums 2a Rga.'" (hereinafter - Company) The Company 098/ No. licence foundld on 1i January 2002 with a registration number 13C;35'7500 The Company holds a authorising it to rendeiasset management services The r:cerce rvas last re-registered on 5 August (shares) and similar securities The Fund aims to achieve long{erm capital growth by invesbng in investment fund certificates for 400/o Fund's may account funds Equity states. member OEbD EU lnd oi ind in Latvia registered that are assets/portfolio. '1 at end 2012, Fund's net asset vatue increased by 23,978 LVL or %, and amounted to 236,1 32 LVL in lats and 6.42% in yield was 6.47% The LVL LVL up to 46 by 0 increased a share year value year. During ln functional currency, euro. by liquidity The beginning year 2012was relatively positive for financial markets. The investors were reassured As result' USA. situation in economical improvements Bank and Ceniral reasu[s cairied ouf by European March situation in However, was observed. risk assets year increase significant montns during first three well as by as debts, manage to countries Eurozone ability in respect- concerns by was ldjusted adjustment The France. downtuin macro environment and uncertain results elections in Greece and following impacted only equity shares, situation in market debt securities remained stable. During policy in respect an aggressive demonstrated banks months reporting year globally leading central about concerns Regarding markets. financial functionality stimulation economital recoveiy and ensuring made ECB Additionally, irreversible. be euro to announced Bank Centrat Luropean future unified currency in an unlimited difficulties financial facing countries bonds io acquire ihe ability an announcement in respect increase loan rates and furr expansion crisis. However, prior ac{uisition amount to reduce should have been requirement participation in financial support programme EC/IMF for countries programme, announcement made a significant submitted. considering fact that none countries applied for year and yield for bonds with end impact - yietd tie 10-year bonds ltaty declined by 2.1% by USA launched anor Reserves Federal System same maturiiy Spain decjined by 2.4%. ln autumn increase assets as furr continuance announcing and campaign in iespeci issuance funds The actions performed by level. satisfactory reach would inflation and reduce long'as- unemployment levelwould was observed in situation economical improvement risks and level reduced ceniral banks significanily markets recovery Due to raised. investors level activity result, As Eurozone. in as USA as well year 2012 with positive investments in second half reporting year, global equity markets concluded for investment rating performance was satisfactory results. The year was successful for debt securities as well - th.e improvement risks, level decreased bonds as wejl as segment elevated risk bonds Considering manager was Fund risk assets, over investors interest overall environment and rndicators increasing funds. in equity gradually implementing additional investments equity funds was During reporting period a number changes were made in structure Fund. The share by '16.98% was increased proportion funds bond increased by'6.67% lo 21.g4ok Fund's net assets. The by 1.35% was decreased funds balanced year share comprising AA.q"to Fund's net assets. During to proportion has decreased cash circumstances se result As amountinj to 4.gg% Fund's net assets. in US dollars year investments end At dollars. position US in open an retained 6.g1%. Fund,s manager has year. All investment comprised 6.37% ihe Fund's net assets, which is by 1.19% more than atlhe.beginning (equal /o) are registered in to funds majority The EU. in registered Fund are portfolio funds and Austria. Luxembourg. The portfolio Fund also includes investmentfunds registered in lreland, Latvia which is 1.48% During reporting period fund management fee 3,703 EUR was paid from Fund's resources Prospectus. in forth 3% set limit maximum not exceed does vllue and uuerule net asset be adjusted The Fund manager will pursue to follow on changes global markets. The structure Fond will 'according to Lvaluation present and expected future situation, mostly by adjusting with share investments position in US dollars in equityiunos. Considering debt crisis in Eurozone, it is planned to maintain an open currency to ensure f " bal4cing function. ' f /l-/t {*.' Uldis ppenieks Chairmar{i Board L" Riga, 26 April 2013 Zigurds Vaikulis Member lnvestment Committee Kotdns Member investment Committee

6 L-,,.:!::' OIF "Citade'le Universal Strategy Fund'EUR" Annual report for Year 2012 statement responsibility Board investment company The Board investment management company,rereinafter - company) is relpgl:jble for preparation financial statements in-vestment funj c;tadele Universal strategy Fund - EUR (hereinafter - Fund)' The financiar statements set out on pages g to 24 are prepared in-accordance with source documents and present fairry tinancliposition oitne Fyno.i,igr becember 2012 and 31 December 2011 and results bf its operations for respective penods n ended' The financial statements are prepared in accordance with lnternational Financial Reporting standards as adopted in European Union on a going.0n..* basis, as provided by Regulations Financial and capital Market commisiion (FCMC) in Rinuat Accounts lnvestment Funds. Appropriate accounting policies have been applied on a consistent basis. prudent and reasonable judgements and estimates have been made by management in preparation financial statements' The Board company is responsible for maintenance proper accounting records, safeguarding assets citadere Universar strategy Fund - EUR and prevention and detection fraud and or irregurarities in Fund. They are arso i.rponiinre for operating Fund in compriance with Law Repubric Latvia on rnvestment Managem.ni co*prnies, reiurations Financial and capital Market Commission,andorlawsandregulationsRepublicLatvia. 6 - /- Riga, 26 April 2013 Uldis UPenieks Chairqan Board t' ; t:

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9 t' ; - OIF "Citadde [Jniversal Strategy Fund'EUR" futnual report for Year 2012 Statemefit financial Position Assets - Demand deposits with credit insttubons 16,072 32,659 Financial assets held for trading lnvestment certificates invesfnent funds and similar securities 220,295 79, Total assets Liabilities Accrued expenses Total liabilities Net assets 236, ,275 (235) (121) (23s) (121) 236J32 112,154 : The accompanying notes set out on pages 13lo 24 form an integral part se financial statements'. t: i t: Riga, 26 April 2013 I t_ t l_ tt l-

10 1r!= llll I i I a OIF "Citadele Universal Strategy Fund'EUR" Annual report for Year2012 Comprehensive income statement 10 t lncome lnterest income Dividends income zot 100 t Totalincome 568 t t t t t Expenses Remuneration to investment managemeni c0mpany Remuneration to custodian bank Or fund management expenses Total expenses lncrease / (decrease) in investment value Realised increase / (decrease) in tnvestment value Unrealised increase / (decrease) in investment value Total increase / (decrease) in investment value Foreign currency revaluation (loss) (1,755) (307) {547) (1,108) (1 e4) (58e) (2,609) (1,891) 854 (4,310) 12,136 12p90 (7,2921 (682) (1,063) Total comprehensive income I (expense) 10,26? p'885) t_ t r The accompanying notes set out on pages 13 ro 24 form an.integrar part se financiar statements. Riga, 26 April 2013

11 Statement changes in net assets Net assets as at beginning period 112, ,018 Total comprehensive income / (expense) 10,267 (9,885) Transactions with investment certificates: Inflow from sale investment certificates 119,926 20,522 Outflow on redemption investment certificates (6,215) (6,501) Increase in net assets from transactions with investment certificates 113,711 14,021 Increase in net assets for period 123,978 4,136 Net assets as at end period 236, ,154 Issued investment certificates as at beginning period 15,813 13,922 Issued investment certificates as at end period 31,287 15,813 Net asset value per investment certificate as at beginning period Net asset value per investment certificate as at end period

12 Statement cash flows Interest income Dividend income Investment management expenses (2,496) (1,903) Acquisition financial assets (138,328) (128,444) Disposal financial assets 9, ,189 Foreign currency conversion result (71) 18 (Decrease) / increase in cash from operating activities (130,737) 15,262 Inflow from sale investment certificates 119,926 20,522 Outflow on redemption investment certificates (6,215) (6,501) Increase in cash from financing activities 113,711 14,021 (Decrease) / increase in cash (17,026) 29,283 Cash as at beginning period 32,659 2,972 Result revaluation cash denominated in foreign currencies Cash as at end period 16,072 32,659

13 1. General information Name fund: Type fund: Citadele Strategic Allocation Funds Open-end investment fund with sub-funds 13 Fund s business activity: Name sub-fund: Sub-fund s business activity: Name investment management company: Investments mainly in investment certificates (shares) open-end investment funds registered in Latvia, or EU Member States and OECD Member countries and similar securities. Citadele Universal Strategy Fund - EUR Under normal market conditions, up to 40% Sub-fund s assets may be invested, directly or indirectly, in equity or similar securities, while or assets - mainly in debt securities and money market instruments. Citadele Asset Management IPAS Republikas laukums 2a, Riga LV-1010, Latvia 2. Summary significant accounting policies Basis preparation The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted in European Union as provided by Regulations Financial and Capital Market Commission (hereinafter - FCMC) laws On Annual Accounts Investment Funds. The financial statements are prepared on a historical cost basis, as modified for measurement at fair value financial instruments held for trading. The monetary unit used in financial statements is lats (LVL), monetary unit Republic Latvia. The financial statements cover period 1 January 2012 to 31 December Critical accounting estimates and judgements The preparation financial statements in conformity with IFRS requires use certain critical accounting estimates. It also requires investment management company`s management to make assumptions and exercise its judgement in process applying Fund s accounting policies. IFRS requires that in preparing financial statements, management makes estimates and assumptions that affect reported amounts assets and liabilities and required disclosure at date financial statements and reported amounts revenues and expenses during reporting period. Income and expense recognition Interest income and expense items are recognised on an accruals basis. Interest income and expense are recognized in statement comprehensive income by taking into account effective interest rate assets/liabilities. Interest income and expense include amortization discount or premium or or differences between accounting amount an initial interest bearing instrument and its amount at moment redemption, calculated by effective interest rate method. Dividend income is recognised at moment receipt. In some situations dividend income can be recognized when share price decreases after issuer's announcement on payment dividends. Remuneration to investment management company Fund and custodian bank is calculated at a fixed rate Fund s assets and is accrued daily, but paid out once a month.

14 14 2. Summary significant accounting policies (continued) Foreign currency translation The Fund s functional currency is euro but, according to FCMC requirements, Fund ensures accounting also in Latvian lats. These financial statements are prepared based on transaction accounting in Latvian lats, which is Fund s presentation currency. Transactions denominated in foreign currencies are recorded in Latvian lats (LVL) at ficial exchange rate established by Bank Latvia at date transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Latvian lats (LVL) at ficial exchange rate established by Bank Latvia at last day reporting period. Any gain or loss resulting from a change in exchange rates is included in statement comprehensive income as gain or loss from revaluation foreign currency positions. The exchange rates established by Bank Latvia (LVL to 1 foreign currency unit) and mainly applied when preparing statement financial position Fund can be specified as follows: Currency USD Since 1 January 2005, Bank Latvia has stated a fixed currency exchange rate for Latvian lat against euro, i.e From this moment Bank Latvia will also ensure that market rate will not differ from ficial rate by more than 1%. Therefore, Fund s future prit or loss due to fluctuations euro exchange rate will not be material as long as Bank Latvia maintains above mentioned fixed rate. Cash and cash equivalents Cash and cash equivalents include Fund s balances current accounts with banks and or short- term highly liquid investments with original maturities up to 90 days. Term deposits Term deposits are accounted for at amortised cost, which is determined on basis amount deposited funds plus capitalised and accrued interest income. Interest income from term deposits is recognised on an accrual basis, i.e. according to time period from moment depositing till end reporting period. Financial instruments Financial instruments are classified in following categories: financial assets at fair value through prit or loss and loans and receivables. The classification depends on purpose financial asset acquisition. The management determines classification financial assets at ir original recognition. Financial assets at fair value through prit or loss Financial instruments at fair value through prit or loss include financial assets held for trading. All financial assets at fair value through prit and loss, belonging to Fund, are classified as financial assets held for trading. IFRS determines hierarchy evaluation methods, which is based on wher in evaluation method obeservable or non-observable market data are used. Company classifies all its financial assets in 1st level category this hierarchy. In evaluation method Company re are used unadjusted prices that are listed in active markets. This level includes listed equities, securities and or financial instruments quoted on stock exchange. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in active markets. Loans and receivables include deposits with credit institutions. Deposits with credit institutions are carried at amortised cost, using effective interest rate less provisions for impairment, if applicable. Impairment provisions are created when re is an objective evidence that Fund will not be able to collect all amounts due according to original terms receivables. The amount provisions for impairment is difference between amortised cost and recoverable amount. Investments in securities All investments in securities are classified as held-for-trading securities.

15 15 2. Summary significant accounting policies (continued) Held-for-trading securities are recognised at fair value based on available market prices. The result re-measuring held-for-trading securities at fair value is included in statement comprehensive income as increase/ (decrease) in nvestment value. Securities are revaluated on basis Bloomberg s and NASDAQ OMX Riga available financial information on bid prices respective securities. Securities purchase and sale transactions are recognised on date settlement. The cost securities sold is defined using FIFO (first in, first out) basis. Fair values financial assets and liabilities The fair value financial assets and liabilities represents amount at which an asset could be exchanged or a liability settled on an arm s length basis. Taxes The Fund s income is subject to income tax in country its origin. Basically, Fund s income is exempt from income taxes. The Fund is not a Latvian corporate income tax payer. On 1 December 2009 Saeima has approved changes to law On personal income tax, stating that starting with 1 January 2010 capital gains are subject to 15% tax charge. For investment funds capital gain is a difference between selling price and purchase price investment certificates. In accordance with transition norms law On personal income tax, in order to calculate income from sale investment certificates purchased before endorsement law (before ) one has to apportion difference between selling and purchase value to number months investment held and multiply this by number months investment held from until settlement date. Changes in law are applicable only to private persons being residents Republic Latvia. Adoption new or revised standards and interpretations The following new and amended IFRS and interpretations became effective in 2012, but are not relevant for Company s operations and did not have an impact on se financial statements: Amendments to IFRS 7 Financial instruments: Disclosures on transfers assets (effective for annual periods beginning on or after 1 July 2011). Amendments to IFRS 1 First time adoption on fixed dates and hyperinflation (effective for annual periods beginning on or after 1 July 2011). Amendments to IAS 12 Income taxes on deferred tax (effective for annual periods beginning on or after 1 January 2012). Certain new standards and interpretations have been published that become effective for accounting periods beginning on or after 1 January 2013 or later periods and which are not relevant to Company or are not yet endorsed by EU. Amendments to IAS 19 Employee benefits (effective for annual periods beginning on or after 1 January 2013). Amendments to IAS 1 Financial statement presentation regarding or comprehensive income (effective for annual periods beginning on or after 1 January 2012, endorsed by EU on June 2012). IFRS 9 Financial Instruments Part 1: Classification and Measurement (effective for annual periods beginning on or after 1 January 2015; not yet endorsed by EU). Amendments to IAS 19 Employee benefits (effective for annual periods beginning on or after 1 July 2012; not yet endorsed by EU). IFRS 10 Consolidated financial statements (effective for annual periods beginning on or after 1 January 2013, endorsed by EU in December 2012 for annual periods starting on or after 1 January 2014). IFRS 11 Joint arrangements (effective for annual periods beginning on or after 1 January 2013, endorsed by EU in December 2012 for annual periods starting on or after 1 January 2014). IFRS 12 Disclosures interests in or entities (effective for annual periods beginning on or after 1 January 2013, endorsed by EU in December 2012 for annual periods starting on or after 1 January 2014). Amendments to IFRS 10, 11 and 12 on transition guidance (effective for annual periods beginning on or after 1 January 2013, endorsed by EU in December 2012 for annual periods starting on or after 1 January 2013).

16 16 2. Summary significant accounting policies (continued) IFRS 13 Fair value measurement (effective for annual periods beginning on or after 1 January 2013, endorsed by EU in December 2012). IAS 27 (revised 2011) Separate financial statements (effective for annual periods beginning on or after 1 January 2013, endorsed by EU in December 2012 for annual periods starting on or after 1 January 2014). IAS 28 (revised 2011) Associates and joint ventures (effective for annual periods beginning on or after 1 January 2013, endorsed by EU in December 2012 for annual periods starting on or after 1 January 2014). Amendments to IFRS 7 Financial instruments: Disclosures on fsetting financial assets and financial liabilities (effective for annual periods beginning on or after 1 January 2013, endorsed by EU on December 2012). Amendments to IAS 32 Financial instruments: Presentation on fsetting financial assets and financial liabilities (effective for annual periods beginning on or after 1 January 2014, endorsed by EU on December 2012). Amendments to IFRS 1 First time adoption on government loans (effective for annual periods beginning on or after 1 January 2013, not yet endorsed by EU). Improvements to IFRS (issued in May 2012; most amendments are effective for annual periods beginning on or after 1 January 2013, not yet endorsed by EU): IFRS 1 First time adoption ; IAS 1 Financial statement presentation ; IAS 16 Property, plant and equipment ; IAS 32 Financial instruments: Presentation ; IAS 34 Interim financial reporting. Amendments to IFRS 10, IFRS 12 and IAS 27 on investment entities (effective for annual periods beginning on or after 1 January 2014, not yet endorsed by EU). IFRIC 20, `Stripping costs in production phase a surface mine` (effective for annual periods beginning on or after 1 January 2013, endorsed by EU on December 2012). 3. Demand deposits with credit institutions % total Fund s net assets as at Demand deposits with credit institutions JSC Citadele banka 16,072 32, % Total demand deposits with credit institutions 16,072 32, % The Fund receives interest on demand deposits at fixed interest rates. 4. Investment certificates investment funds and similar securities % total Fund s net assets as at Investment certificates investment funds 220,295 79, % OECD region investment funds 201,502 72, % Latvian investment funds 18,793 7, % Total investment certificates investment funds and similar securities 220,295 79, % All investment certificates investment funds and similar securities are classified as held-for-trading securities. All Fund s investment certificates investment funds and similar securities are traded on regulated markets, except for securities with book value LVL 155,892 (31 December 2011 LVL 44,290)

17 17 The table below presents investment certificates investment funds and similar securities by issuer s country residence: Carrying amount as Financial instrument ISIN code Investment currency Amount Acquisition value at % total Fund s net assets as at Financial instruments traded on regulated markets 58,378 64, % Investment certificates Luxembourg investment funds 25,323 28, % BLUEBAY INVESTMENT GRADE BOND FUND LU EUR ,179 18, % BLUEBAY HIGH YIELD BOND FUND LU EUR 76 9,144 10, % Investment certificates Latvian investment funds 16,848 18, % CITADELE EASTERN EUROPEAN BOND FUND - EUR LV EUR 1,651 16,848 18, % Investment certificates Irish investment funds , % PIMCO TOTAL RETURN BOND FUND IE00B11XZB05 EUR 1, , % Financial instruments not traded on regulated markets 152, , % Investment certificates Luxembourg investment funds 86,696 87, % SCHRODER US DOLLAR BOND FUND LU EUR ,748 17, % VONTOBEL EMERGING MARKETS EQUITY FUND LU EUR ,318 16, % MORGAN STANLEY GLOBAL BRANDS FUND LU USD ,423 15, % JPMORGAN EMERGING MARKETS CORPORATE BOND FUND LU EUR ,868 11, % MORGAN STANLEY GLOBAL INFRASTRUCTURE FUND LU EUR ,860 11, % TEMPLETON GLOBAL BOND FUND LU EUR ,765 11, % BLACKROCK WORLD GOLD FUND LU EUR 600 4,714 3, % Investment certificates Irish investment funds 32,900 34, % PIMCO GLOBAL INVESTMENT GRADE CREDIT FUND IE00B11XZ434 EUR 1,671 16,165 17, % GLG EUROPEAN EQUITY ALTERNATIVE IE00B5429P46 EUR , % Investment certificates Austrian investment funds 32,556 34, % PIONEER EURO CORPORATE BOND FUND AT EUR ,111 17, % ESPA BOND MORTGAGE FUND AT EUR ,445 16, % Total investment certificates investment funds 210, , %

18 18 4. Investment certificates investment funds and similar securities (continued) Due to fact that Company does not possess enough detailed specification about assets se investment funds, which are managed on behalf investors by financial institutions, such assets are not analysed by ir ultimate issuer. In 2012 amount fee withheld from funds in which investments are made is 0.00%. The below table presents Fund s securities portfolio breakdown by investment objects: Carrying amount as at Carrying amount as at % total Fund s net assets as at Equity funds 156,948 55, % Bond funds 51,576 17, % Balanced funds 11,771 7, % 220,295 79, % 5. Accrued expenses Accrued commission fees payable to investment management company (180) (93) Accrued commission fees payable to custodian bank (31) (16) Accrued fees payable for pressional services (24) (12) Total accrued expenses (235) (121) 6. Interest income Interest income from demand deposits with credit institutions Interest income from deposits with credit institutions - 25 Total interest income Realised increase / (decrease) in investment value Income from sale investments 9, ,144 Acquisition value investments sold (9,186) (136,071) Decrease / (increase) in value investments sold, recognised in prior reporting years 450 (8,383) Total realised increase / (decrease) in investment value 854 (4,310) 8. Unrealised increase / (decrease) in investment value From investment certificates investment funds and similar securities 12,136 (2,982) Total unrealised increase / (decrease) in investment value 12,136 (2,982)

19 19 9. Change in investments during reporting period Increase during reporting period Decrease during reporting period Foreign currency revaluation result Fair value revaluation result Financial assets held for trading Investment certificates investment funds and similar securities 79, ,328 (9,590) (1,049) (12,990) 220,295 Total investments 79, ,328 (9,590) (1,049) (12,990) 220, Pledged assets During reporting period, no guarantees or collaterals have been issued by Fund, neir has it pledged or orwise caused any encumbrance or lien on its assets. 11. Fair values financial assets and liabilities Management investment management company believes that carrying amounts financial assets and liabilities approximate to ir fair values. The fair value is determined according to market quotation method, based on available quotes stock exchanges and brokers. 12. Risk management Risks are inherent in investment process. The risk management process includes risk identification, risk measurement and directly risk management. The investment process is exposed to currency risk, interest rate risk and price risk, credit risk, liquidity risk and or risks (including operational risk). The investment strategy Fund is aimed at minimising above mentioned risks, however, Fund cannot guarantee that se risks can be completely avoided in future. Risk management structure Risk identification and measurement are responsibility an independent unit Risk Management Division which prepares and presents information about risks to Fund Manager who decides specifically wher it would be necessary to minimise risks. The risk measurement process employs several models based on historical data and adjusted to consider for current economic situation. Specific models are used to forecast changes in risk factors in ordinary and extraordinary market situations. To mitigate investment risks, Fund Manager follows risk diversification and hedging principles. The Fund Manager acquires sufficient information on potential or current investment objects, as well as supervises financial and economic position issuers securities in which Fund s property has been or is to be invested. The Company, when developing Fund s investment strategy and stating limits, performs an analysis Fund s investments by maturity, geographic and currency prile, as well as assesses risks inherent to each above factors. The Fund Manager acts in strict compliance with Fund Prospectus, Fund Management Regulations, as well as regulations and restrictions imposed by legislation Republic Latvia. Market risk Market risk is a risk that Fund s value will reduce as a result changes in any following market factors: interest rates (interest rate risk), securities prices (price risk), exchange rates, interest rates, etc. Evaluated below are sources market risk, however y cannot be eliminated completely. Interest rate risk The price risk related to fixed income securities (bonds) is to a great extent dependent on fluctuations market interest rates and changes in issuer s credit quality. Market interest rate fluctuations affect attractiveness securities, as,

20 12. Risk management (continued) 20 Assets in fact, it is an alternative source interest income. With market interest rates growing, prices fixed income securities are decreasing, and vice versa. Meanwhile, increase (decrease) in market interest rates produces a positive (negative) effect on coupon rates fixed income securities bearing interest at floating rates (when coupon is fixed as a base rate, like Euribor or Libor, plus a margin). After revaluation (i.e. when a new interest rate is adopted), coupon rate such securities increases (decreases), which results in a respective increase (decrease) in interest income. In selecting funds, Fund Manager considers duration as key index, based on forecasts made on fixed income market development. It is impossible to define accurate duration funds because information on duration components is not published simultaneously ( difference may be three months and more). Equity price risk Changes in equity prices depend on following two groups factors: changes in stock indices respective country (for instance, RIGSE Latvian companies stock index) and financial position issuer (prospects earnings prit), where first factor is usually referred to as systematic risk and second as specific risk. Systematic risk is managed on basis forecasts overall economic development in specific geographic regions and industries. Specific risk management is performed by conducting a detailed analysis issuer s financial position and pritability, as well as or factors affecting equity price, based on published issuer s reports and mass media information. Equity price deviations and correlations are also a matter particular focus, making it possible to calculate total price risk exposure for all shares in portfolio only based on equity price history. In selecting funds, Fund Manager chooses most appropriate funds in line with Fund s strategy, based on forecasts made on development specific geographic regions and industries. It is impossible to calculate accurate Fund sensitivity to changes in certain market indices; because respective component information is not published simultaneously ( difference may be three months and more). The table below shows Fund s assets and liabilities by geographic prile as at 31 December 2012, based on country incorporation: Latvia OECD region countries Demand deposits with credit institutions 16,072-16,072 Financial assets held for trading Investment certificates investment funds and similar securities 18, , ,295 Total assets 34, , ,367 Liabilities Accrued expense (235) - (235) Total liabilites (235) - (235) Net assets 34, , ,132 Assets The table below shows Fund s assets and liabilities by geographic prile as at 31 December 2011, based on country incorporation: OECD region Latvia countries Total Demand deposits with credit institutions 32,659-32,659 Financial assets held for trading Investment certificates investment funds and similar securities 7,099 72,517 79,616 Total assets 39,758 72, ,275 Total

21 Risk management (continued) Liabilities Latvia OECD region countries Accrued expense (121) - (121) Total liabilites (121) - (121) Net assets 39,637 72, ,154 Total Assets Currency risk The table below shows Fund s assets and liabilities by currency prile as at 31 December 2012, based on Fund s functional currencies: EUR USD LVL Total Demand deposits with credit institutions 16, ,072 Financial assets held for trading Investment certificates investment funds and similar securities 205,244 15, ,295 Total assets 221,314 15, ,367 EUR USD LVL Total Liabilities Accrued expense (211) - (24) (235) Total liabilities (211) - (24) (235) Net assets 221,103 15,053 (24) 236,132 Net long position 93.64% 6.37% (0.01)% % Assets The table below shows Fund s assets and liabilities by currency prile as at 31 December 2011, based on Fund s functional currencies: EUR USD Total Demand deposits with credit institutions 26,851 5,808 32,659 Financial assets held for trading Investment certificates investment funds and similar securities 79,616-79,616 Total assets 106,467 5, ,275 Liabilities Accrued expense (121) - (121) Total liabilities (121) - (121) Net assets 106,346 5, ,154 Net long position 94.82% 5.18% %

22 Risk management (continued) The effect changes in currency exchange rates on Fund s value in 2012 is shown in table below. Changes in currency exchange rates represent annualised standard deviation respective exchange rate. Currency Share in Fund Change in currency (% net assets) rate against USD Effect on Fund s value EUR 93.64% 0.00% 0.00% USD 6.37% 8.27% 0.53% LVL (0.01)% 1.24% 0.00% Total % 0.53% Assets The effect changes in currency exchange rates on Fund s value 2011 is shown in table below: Currency Share in Fund Change in currency (% net assets) rate against USD Effect on Fund s value EUR 94.82% 0.00% 0.00% USD 5.18% 11.92% 0.62% Total % 0.62% Credit risk Credit risk is a risk that Fund s value will decrease from counterparty s or issuer s non-performance or default. Only safe and reliable counterparties are selected for transactions involving Fund s assets. The Fund Manager monitors solvency position counterparties on a regular basis, analyses ir credit rating and financial position, as well as mass media information. Credit quality Fund s assets is managed on basis credit ratings granted by international rating agencies Standard & Poor's, Moody s, and Fitch. In addition, a detailed analysis is performed on issuer s financial statements, financial position and future prospects. Liquidity risk Liquidity risk is a risk that Fund will have difficulties in meeting its financial obligations. The Fund Manager maintains such asset structure Fund which would ensure a possibility selling securities in due time and with no significant losses. The maturity prile Fund s assets and liabilities is provided below. For liquidity assessment purposes, balances assets and liabilities are stated according to ir remaining maturities. The table below shows Fund s assets and liabilities by maturity prile as at 31 December 2012: Within 1 month 1-6 months No maturity Total Demand deposits with credit institutions 16, ,072 Financial assets held for trading Investment certificates investment funds and similar securities , ,295 Total assets 16, , ,367 Liabilities Accrued liabilities (211) (24) - (235) Total liabilities (211) (24) - (235) Net assets 15,861 (24) 220, ,367 Net position % 6.72% (0.01%) 93.29% %

23 12. Risk management (continued) The table below shows Fund s assets and liabilities by maturity prile as at 31 December 2011: 23 Assets Within 1 month 1-6 months No maturity Total Demand deposits with credit institutions 32, ,659 Financial assets held for trading Investment certificates investment funds and similar securities ,616 79,616 Total assets 32,659-79, ,275 Liabilities Accrued liabilities (109) (12) - (121) Total liabilities (109) (12) - (121) Net assets 32,550 (12) 79, ,154 Net position % 29.02% (0.01%) 70.99% % 13. Information on holders investment certificates The below table specifies proportion investment certificates held by related parties out total investment certificates issued: % total amount as at Investment certificates held by JSC Citadele banka 8,005 8, % Investment certificates held by or persons 23,282 7, % Investment certificates issued as at end reporting year 31,287 15, % 14. Related party disclosures The majority Fund s investments are acquired with mediation custodian bank JSC Citadele banka. JSC Citadele banka receives remuneration as custodian bank, as disclosed in statement comprehensive income (see also Note 5). In addition, Fund s cash resources are held in JSC Citadele banka (see also Note 3). The remuneration paid to investment management company during reporting period is disclosed in statement comprehensive income (see also Note 5). During reporting period, Fund had investments in investment fund managed by a related investment management company in amount LVL 18,793 (31 December 2011 LVL 7,099). During reporting period and in 2011 related parties have not carried out any transactions with Fund s investment certificates. The Fund s investment certificates purchase and sale back transactions are calculated taking into account only investment certificates held by those related parties, who have been classified as Fund s related parties both as 31 December 2012 and 31 December 2011.

24 15. Dynamics Fund s performance Fund s net assets (LVL) 236, , ,018 Number Fund s shares 31,287 15,813 13,922 Value Fund s shares Performance on Fund s shares** 6.47% (8.63%) 8.68% Fund s net assets (EUR)* 336, , ,383 Number Fund s shares 31,287 15,813 13,922 Value Fund s shares Performance on Fund s shares** 6.42% (8.44%) 8.36% * The net asset value in EUR is determined, based on exchange rates fixed at financial markets at end each day. ** Performance is calculated supposing that a year consists 365 days.

25 we INDEPENDENT AUDITOR'S REPORT Translation from Latvian original* To Shareholders AIF Citadele StrategicAllocation Funds sub-fond Citadele Universal Strategy Fund - EIIR Report on Financial Statements We have audited accompanylng financial statements AIF Citadele Strategic Allocation Funds sub-fond Citadele Universal Strategy Fund - EUR set out on pages 9 Io z4 accompanying annual report, which comprise statement financial position as 3r December zotz and statements comprehensive income, changes in net assets and cash flows for year n ended and a summary significant accounting poliiies and or explanatory information. Manag ement's Responsibility for Finencial Statements Management is responsible for preparation and fair presentation se financial statements in accordance with International Financial Reporting Standards as adopted by European Union, and for such internal control as management determines is necessary to enable preparation financial statements that are free from material misstatement, wher due to fraud or error. Audit or' s Re s p o nsibility Our responsibility is to express an opinion on We conducted our audit in accordance with Standards require that we comply with ethical to obtain reasonable assurance wher misstatement. se financial statements based on our audit. International Standards on Auditing. Those requirements and plan and perform audit financial statements are free from material An audit involves performing procedures to obtain audit evidence about amounts and disclosures in financial statements. The procedures selected depend on auditor's judgment, including assessment risks material misstatement financial statements, wher due to fraud or error. In making those risk assessments, auditor considers internal control relevant to entity's preparation and fair presentation fiirancial statements in order to design audit procedures that are appropriate in circumstances, but not for purpose expressing an opinion on effectiveness entity's internal control. An audit also includes evaluating appropriateness accounting policies used and reasonableness accounting estimates made by management, as well as evaluating overall presentation financial statements. PricewaterhouseCoopers SIA, Kr. Valdemara iela zt-zt, Riga LV-toto, Latuia T: +g7t 67o9 44oo, F:+g7t 6789 oo55,

26 -K* wc We beiieve that aud.it eridence \\'e have obtained is sufficient and appropriate to provide a basis for our audit opinion' Opinion In our opinion, financial statements give-a true- andjair view financial position AIF Citadele Sirategic Allocation Funds sub-fond Citadele Universal Strategy Fund - EUR as 3r Dece-b". zoiz, and its financial performance and its cash flows for ye-ar n enjed in accordance with InternationaiFinancial Reporting Standards as adopted by European Union. Report on Or Legal and Regulatory Requirements We have read Management Report for zo'tzset out on page 5 accompanying annual report for 2or2 and "did not identifii material inconsistencies between financial iniormation contained in Management Report and that contained in financial statements fot zotz. PricewaterhouseCooPers SIA Certified audit company Licence No. 5 Certified auditor in charge Certificate No. 168 Member Board Riga, LaMa z6 April zor3 * This version our report is a translation from original, which was_prepared in Latvian. A1l possible care has been taken to ensure that translation is"an,".uiui"."p..sentation" original. Ho*"o'"., in all matters interpretation information, original language veriion our report takes precedence over this translation. "i"*, ". "pr"l"ns, zz