Fondi Slloveno Kosovar i Pensioneve. Fund 1 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 WITH INDEPENDENT AUDITOR S REPORT THEREON

Transcription

1 Fondi Slloveno Kosovar i Pensioneve Fund 1 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 WITH INDEPENDENT AUDITOR S REPORT THEREON

2 Contents INDEPENDENT AUDITOR S REPORT... 0 STATEMENT OF FUND 1 s NET ASSETS... 1 STATEMENT OF INCOME AND EXPENDITURES... 2 STATEMENT OF CHANGES IN FUND 1 s NET ASSETS... 3 Accounting Unit s Financial Indicators... 4 Statement of accounting unit Background information Summary of Significant Accounting Policies Fund 1 assets and investment strategy Financial instruments by category Cash and cash equivalents Investment held for trading Investments held to maturity Liabilities for profit sharing Interest income Transaction with related parties Financial risk management Fair Value Events after the reporting date... 18

3 Draft INDEPENDENT AUDITOR S REPORT To the Management and members of Fondi Slloveno Kosovar i Pensioneve - Fund 1 We have audited the accompanying financial statements of Fondi Slloveno Kosovar i Pensioneve Fund 1 ( the Fund 1 ) as of and for the year ended 31 December 2013 which comprise the Statement of Fund s Net Assets, Statement of Income and Expenditure, Statement of Changes in Fund 1 s Net Assets, Accounting Unit s Financial Indicators and Statement of Accounting Units, and a summary of significant accounting policies and other explanatory information Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the rules and regulations of the Central Bank of Kosovo applicable to pension funds ( CBK Rules ) in Kosovo as set out in note 2, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. A member firm of Ernst & Young Global Limited

4 Basis for Qualified Opinion As disclosed in note 6 to the financial statements, as at December 31, 2012, the Fund 1 had investments held to maturity amounting to Euro 4,169,523 (2011: Euro 3,882,745) ). Observable market prices of certain securities in this portfolio weree significantly lower than their book value which indicatedd that they might have been impaired. Management did not perform an impairment test on these assets and no impairment was recognised. We were unable to satisfy ourselves as to the recoverability of the book value of these assets. Our opinion was qualified accordingly. Qualified Opinion In our opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraph, the financial statementss of the Fund 1 as at and for the year ended December 31, 2013 are prepared, in all material respects, in accordance with CBK Rules as set out in note 2 to the financial statements. Ernst & Young Certified Auditors ltd, Prishtina Prishtina, March 21, 2014 A member firm of Ernst & Young Global Limited

5 STATEMENT OF FUND 1 s NET ASSETS as at December 31, 2013 (Amounts in Euro, unless otherwise stated) Assets Notes 2013 At 31 December 2012 Cash and cash equivalents Securities held for trading Investmentss held-to-maturity Other receivables Total assets ,286 3,769,613 1,184, ,070, , ,768 4,169, ,467,724 Liabilities and Participants funds Liabilities Liabilities for management fee Liabilities for profit sharing Other liabilities 8 7,386 59,884 1,572 68,842 6,741-10,183 16,924 Participants funds and technical reserve Net assets of the Fund 1 Surplus for the year Total liabilities and Participants funds 4,697, ,054 5,001,595 5,070,437 4,307, ,588 4,450,800 4,467,724 Issued accounting units Value of an accounting unit 36, , These financial statements have been approved by the Managing Board on March 04, 2014 and signed on its behalf by, Mr. Bajram Bajrami, Managing Director The statement of Fund 1 Net Assetss is to be read in conjunction with the notes set on pages 5 to 25, forming an integral part of the financial statements. 1

6 STATEMENT OF INCOME AND EXPENDITURES for the year ended December 31, 2013 (amounts in Euro, unless otherwise stated) Notes 31 December December 2012 Income Interest income 9 168, ,673 Dividend income 8,146 3,190 Income from portfolio converting 199,484 - Other income , ,876 Expenses Management fee (71,163) (63,715) Expenses for profit sharing (59,884) - Realized losses of investments in securities - (50,422) Provision and transaction fees (6,171) (5,575) (137,218) (119,712) Net profit from investments 239,080 34,164 Unrealized gains Unrealized gains from securities held for trading, net 70,951 19,613 Amortization of the discount of securities with fixed maturity - 93,043 Foreign exchange rate differences of investments in securities (5,977) (3,231) 64, ,424 Net surplus of the Fund 1 for the year 304, ,588 The statement of income and expenditures is to be read in conjunction with the notes set on pages 5 to 25 forming an integral part of the financial statements. 2

7 STATEMENT OF CHANGES IN FUND 1 s NET ASSETS for the year ended December 31, 2013 (amounts in Euro, unless otherwise stated) Notes 31 December December 2012 Net profit from investments 239,080 33,637 Unrealized gains 64, ,424 Net surplus of the Fund 1 for the year 304, ,588 Participant's contributions received 375, ,791 Pension paid out (128,447) (108,129) Increase from billing control units 246, ,662 Total increase of net assets 550, ,250 Net assets as of 01 January 4,450,800 4,045,550 Net assets as of 31 December 5,001,595 4,450,800 1, , The Statement of Changes in Fund 1 Net assets is to be read in conjunction with the notes set on pages 5 to 25, forming an integral part of the financial statements. 3

8 Accounting Unit s Financial Indicators for the year ended December 31, 2013 (amounts in Euro, unless otherwise stated) 31 December December 2012 Accounting units at the beginning of year 34, , Value of accounting units at the beginning of year Net assets of pension fund at the end of the year 5,001,595 4,450,800 Number of accounting units at the end of the year 36, , Value of accounting unit at the end of the year

9 Statement of accounting unit for the year ended December 31, 2013 (amounts in Euro, unless otherwise stated) Description Number of accounting units Value of net assets Accounting units at the beginning of the year 34, ,450,800 Issued accounting units during the year-contributions 2, ,188 Issued accounting units during the year-transfers to other funds - - Reduction of accounting units due to transfers to Fund 2 ( ) (78,267) Reduction of accounting units due to payment of benefits ( )) (50,180) Reduction of accounting units due to payment of fee from net assets of the Fund Net increase (decrease) from operations 304,054 Total number of accounting units at end of the year 36, ,001,595 Value of accounting unit At the beginning of the year At the end of year

10 1. Background information Fondi Slloveno Kosovar i Pensioneve Sh.a. (hereinafter the Company or FSKP ) was constituted as a joint-stock company as of 29 August 2006 with business registration number The Company started its operations as of 04 September The Company is located at Rr.UCK, nr.50/2, Prishtina, Republic of Kosovo. During the year ended 31 December 2008, the Company signed Agreements with KEK Supplementary pension insurance fund in liquidation (further referred to as KEK ) and PTK Supplementary pension fund in liquidation (further referred to as PTK ) for managing their assets and payment of monthly annuities according to the predetermined pension plans provided by KEK and PTK. KEK Supplementary pension insurance fund in liquidation ). As of 31 December 2013 KEK fund is liquidated The assets of PTK comprise the second pension fund under management of FSKP (further referred to as Fund 2 and also contributors transferred from Fund 1 after retirement age. At 31 December 2013, the Company performed its business activities with 4 employees (2012: 4 employees). The Fund 2 is administered and managed by the Company - FSKP, located at Qyteza Pejton, Rr. UÇK nr.50/2, Prishtina, Republic of Kosovo. The principal shareholders of the Company are Prva Group PLC, Slovenia and Corporation Dukagjini, Republic of Kosovo. 2. Summary of Significant Accounting Policies The principal accounting policies that were adopted in the preparation of these financial statements are set out bellow. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Statement of compliance These financial statements have been prepared in accordance with the rules and regulations of the Central Bank of the Republic of Kosovo applicable to pension companies ( CBK Rules ), wich are based on the recognition and measurement criteria of International Financial Reporting Standards ( IFRS ). 2.2 Basis of preparation These financial statements have been prepared using the significant accounting policies and measurement basis summarized below that are in accordance with CBK Rules. These policies have been consistently applied to all the years presented, unless otherwise stated. These financial statements should be read as prepared in accordance with the accounting standards and regulations prevailing in Kosovo, with a reference to the accounting policies as below, and should not be read or considered as financial statements prepared in accordance with IFRS These financial statements are presented in Euro, the European Union currency. 2.3 Cash and cash equivalents Cash and cash equivalents, comprising balances with banks for pension contributions payments and for investments purposes, are carried at cost. 6

11 2. Summary of Significant Accounting Policies (continued) 2.4 Financial assets Valuation and classification policies The Fund has established its accounting policies in accordance with CBK regulations. Rule N. 6 On Pension Asset and Valuation of Pension Assets establish general classification and valuation guidelines of assets held by pension companies. Regarding financial instruments, article 4.2 of Rule No. 6 establishes the following principles and guidelines. Investment in equity securities are measured at fair value. Short term securities at net realizable value while medium or long term debt at amortized cost. Government securities are measured at amortized cost Securities purchased in active markets are valued based valued based on respective realizable values on the valuation date. CBK may allow other bases of valuation which are consistent with international best practices for pension assets that are established by OECD or EU Countries or acceptable by IFRS. Management of Fund 1 has determined that measurement at fair value is the widely used methodology for valuation of pension assets, when the fair value can be measured reliably, as is the case of quoted equity and debt securities. Consequently in the current year, Fund 1 has reclassified its quoted debt securities from an amortized cost valuation to market value valuation, The difference of the fair value to the carrying amount on the reclassification date, has been recognised in income of the year. Classification and reclassification of financial instruments Upon Initial recognition, the Fund 1 classifies its financial assets in the following categories: at fair value through profit or loss that includes held for trading securities, loans and receivables, held to maturity and available for sale. The classification depends on the purpose for which the financial assets were acquired. The regulations of CBK do not have any reclassification rules; however, management follows widely accepted principles that the classification should be generally consistent over time, and reclassifications are made with the purpose of improving the reliability of the financial statements. For example the reclassification of debt securities to available for trading has eliminated impairment uncertainties of the held to maturity portfolio. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term or if so designated by management. Assets in this category are classified as current assets. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. The Fund 1 s loans and receivables comprise trade and other receivables, placements with banks and cash and cash equivalents in the balance sheet. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. The Fund 1 has no assets classified in this category. Held to - maturity financial assets Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Fund 1 s management has the positive intention and ability to hold to maturity. Were the Fund 1 to sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as held for trading. 7

12 2. Summary of Significant Accounting Policies (continued) 2.4 Financial assets (continued) Initial recognition, measurement and de-recognition Regular purchases and sales of financial assets are recognized on the trade date the date on which the Fund 1 commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss, are initially recognized at fair value and transaction costs are expensed in the statement of income and expenditures. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Fund 1 has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets (if held) and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and Held-to-Maturity investments are carried at amortized cost using the effective interest method. Unrealized interest income and amortization of the discount/ (premium) are recognized as income and expenses for the period. Dividend income and gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are recognized as income in the statement of income and expenditures in the period in which they arise. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale (if held) are recognized in equity. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the statement of income and expenditures as gains and losses from investment securities. Interest on available-for-sale securities calculated using the effective interest method is recognized in the statement of income and expenditures as part of other income. Dividends on available-for-sale equity instruments are recognized in the statement of income and expenditures as part of other income when the Fund 1 s right to receive payments is established. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Fund 1 establishes fair value by using valuation techniques. Impairment of financial assets The Fund 1 assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss is removed from equity and recognized in the statement of income and expenditures. Impairment losses recognized in the statement of income and expenditures on equity instruments are not reversed through the statement of income and expenditures. Impairment testing of trade receivables is described further in this note. 2.5 Receivables and payables related with investment securities Receivables and payables arise from the acquisition and sale of securities and are recognized as assets and/or liabilities at the date of the transaction made. 8

13 2. Summary of Significant Accounting Policies (continued) 2.6 Net assets of the Fund 1 The Fund s net asset value equals total assets minus total liabilities of the Fund Value of accounting unit The value of the accounting unit equals the value of Fund s net assets divided by the total number of accounting units as of the date of calculation. This formula does not apply as of the first day of operations when the value of the accounting unit equals Euro 100 in accordance with Fund s policy. 2.8 Interest income Interest income includes income from bond s coupon rates and interest on term deposits. The interest income is recorded on an accrual basis. 2.9 Management fee The Fund 1 is obliged to pay management fee to the Company on daily basis. The annual management fee is 1.5% of the total Fund s assets Expenses for transaction fee These expenses relate to the fees paid to financial intermediaries (banks and brokerage houses) who are acquiring investments securities for the Fund Realized gains/losses Realized gains/losses arise from the sale of securities, leveling of prices when securities are acquired and matured principals and interest on securities acquired at premium or discount. These gains/losses are recorded as revenues or expenses at the moment when they occur Amortization of discount/premium of the security Amortization of the discount/premium of the security is recorded through deferred revenues/expenses and accrued expenses/revenues. At the moment when the security matures or is sold, the amount of amortization is transferred as realized capital gain or loss Foreign exchange gains/losses Transactions in foreign currencies are recorded in accordance with the valid exchange rate as of the date of the transaction. The differences are recorded in the statement of income and expenditures as gains/losses Transaction with related parties Related parties are defined as those parties which have control over each other or have an influence on the financial and operational decisions of each other. The Fund related parties are Prva Group PLC from Ljubljana, Slovenia and Corporation Dukagjini from Peja, Republic of Kosovo, which are managing and administering the Fund 1 and Company. 9

14 3. Fund 1 assets and investment strategy The Fund 1 is obliged to follow CBK rules with regard to investments in different types of financial assets and the amount of investments in those assets. As prescribed by Rule 9 on Investment of Pension Assets, pursuant to the provisions of the Law no. 03/L-084 amending UNMIK regulation no. 2005/20, the Fund 1 must comply with the following common conditions: a. The Fund must invest their assets only in the classes of permitted (eligible) investments prescribed under this Rule or in cash in the course of deposit to the custodian or for cash and bank deposits representing amounts as are reasonably necessary to conduct its pension operations. b. The eligibility of investment is determined at the time of its making or acquisition. If the determination of eligibility is based on amount, the limitation is based on the amount of total investment assets as of the last asset valuation date, as reported to the CBK. c. Investment of pension assets must be in accordance with the statement of investment principles and in conformity with investment directives adopted and issued by the pension entity consistent with the requirements of the Pensions Regulation and these Rules. d. Investments made in breach or violation of the investment principles and directives must be corrected and rectified immediately. Breaches and deviations, of previously conforming investments, arising from cause or causes beyond the control of the board of directors or asset manager of the pension entity may be rectified or corrected within such time and manner that is least detrimental to the interests of the participants which period of time is not greater than 6 months from the date of such breach or deviation. e. The governing bodies of pension entities providing pensions shall submit to the CBK, together with quarterly and yearly reports, a statement certified by a duly authorized officer, attesting that all investment assets of the entity are in compliance with the conditions, restrictions and limitations prescribed in the Pensions Regulation and this Rule and in conformity with the statement of investment principles and investment directives adopted by the entity; provided that, if otherwise, the certified statement must clearly indicate the nature of the violation, breach or deviation, identifying the particular non-complying investment asset and describing the manner and the time frame for rectification and/or correction. As prescribed by Rule 9, the Fund 1 should comply with the following specific conditions: a. At any one time, investment of pension assets is subject to the following specific conditions: Stocks or equity shares shall not be greater than 5% of the total shares issued by one issuer. Bonds shall not be greater than 30% of any single bond issue. Total investments in any one entity, including its affiliate entities, shall not be greater than 5% of the total pension assets. b. For the further protection of the quality of pension assets, the CBK may, from time to time, prescribe minimum investment grades or ratings of securities in the determination of eligibility of the investment. Investment grade or rating conditions shall form part and parcel of this Rule on the date set by written directive of the BPK prescribing such requirement(s). The investments securities which are eligible (permitted) are as follows: A Securities Issued and/or Located Outside of Kosovo Pension assets may be invested only in the following international types and classes: Monetary funds, including bank accounts and deposits with banks that are licensed by a bank regulatory authority of a member state of the OECD, and whose license remains in force and in good standing. Securities issued by any member state of the OECD. Securities issued by local governments in member states of the OECD to the extent guaranteed by the respective state. 10

15 3. Fund 1 assets and investment strategy (continued) Securities registered with the capital markets regulator of any member state of the OECD and placed for public offering and actively listed or traded in the Stock Exchange that is appropriately regulated and supervised in such state(s). Mutual funds and other investment funds (open-end entities) subject to the approval in the OECD member state of their establishment and for which compliance requirements are prescribed by the appropriate regulatory or supervisory authority within such member state relating to the conduct of business activities of such open-end entities. All other types of international securities as may be authorized, from time to time, by effective laws, statutes, regulations and rules issued by competent authorities in Republic of Kosovo. B Securities Issued and/or Located within Republic of Kosovo Monetary funds, including bank accounts and deposits with banks that are licensed by the CBK and conducting banking business in Republic of Kosovo in good standing with the regulatory requirements of the CBK. Securities issued by competent authority in Republic of Kosovo, to the extent guaranteed by such authority. Securities issued by public and/or private enterprises that are registered with the capital markets regulator in Republic of Kosovo provided that such securities are listed and traded in securities exchange(s) licensed in Republic of Kosovo or in a member state of the OECD and subject to regulation and supervision of the applicable capital market authority in such state. Mutual funds and other investment funds (open-end entities) subject to the approval in Republic of Kosovo and for which compliance requirements are prescribed by the appropriate regulatory or supervisory authority in Republic of Kosovo relating to the conduct of business activities of such open-end entities. All other types and classes of domestic securities as may be authorized, from time to time, by effective laws, statutes, regulations and rules issued by competent authorities in Republic of Kosovo. The Fund 1 should also comply with the rule on prohibited investments which are defined as follows: Pension assets cannot be invested in the following types of classes: Securities that is either unlisted or not publicly traded. Assets that cannot be legally conveyed, sold, disposed of or otherwise alienated. Derivatives securities, options, futures, forward and other agreements with respect to securities and other financial assets. Real or physical assets not listed on organized markets and for which valuation is uncertain such as, precious objects, works of arts, antiques, coins, collections, and motor vehicles. Securities issued by proscribed parties as defined under this Rule. Securities that are not of the types or classes permitted under the Pensions Regulation, and/or securities acquired not in accordance with the investment principles and directives of the pension entity at the time of their acquisition. Pension Funds and Pension Providers shall be deemed to have complied with the rules on diversification of investments if the following conditions are fulfilled: The investments made are in accordance with the terms and stipulations contained in their Statements of Investment Principles approved by the CBK. The assets of the Pension Fund, or when applicable the Pension Provider, are kept and safeguarded by an independent Custodian in accordance an asset custodial agreement. The amount of the assets does not exceed Five Hundred Thousand (500,000) Euro. The Pension Fund or Pension Provider has submitted to the CBK an acceptable plan for increasing the diversification of its investments. 11

16 4. Financial instruments by category The carrying amounts of the Fund s financial assets and liabilities as recognized at the date of the statement of financial position under review may also be categorized as follows: At fair value through profit or loss Loans and receivables Held - to - maturity Total 31 December 2013 Assets Cash and cash equivalents - 116, ,286 Securities held for trading 3,769, ,769,613 Securities held-to-maturity - 1,184,293-1,184,293 Other receivable ,769,613 1,300,824-5,070,437 Other financial liabilities at amortized cost Total Liabilities Liabilities for management fee - - 7,386 7,386 Liabilities for profit sharing ,884 59,884 Other liabilities - - 1,572 1, ,842 68,842 At fair value through profit and loss Loans and receivables Held - to - maturity Total 31 December 2012 Assets Cash and cash equivalents - 101, ,046 Securities held for trading 196, ,768 Securities held-to-maturity - 1,046,881 3,122,642 4,169,523 Other receivable ,768 1,148,314 3,122,642 4,467,724 Other financial liabilities at amortized cost Total Liabilities Liabilities toward company - - 6,741 6,741 Payables to pension participant Other liabilities ,182 10, ,923 16, Cash and cash equivalents 31 December December 2012 Custodian account-nova Ljubljanska Banka d.d, NLB 103,126 35,856 Saving account - Raiffeisen Bank 1,910 39,124 Contribution account NLB Kasabank ,332 Cash account Raiffeisen bank 515 4,889 BKT current account 805 4,547 TEB cash account 799 2,574 Banka Ekonomike 380 1,142 Contribution account Pro Credit Bank 5, Pension Payment account Banka Ekonomike Contribution account Banka Ekonomike 2, , ,046 12

17 6. Investment held for trading Other receivables in the statements of financial positions are as follows: 31 December December 2012 Corporate bonds 2,471,528 - Government bonds 819,409 20,485 Equity securities 379, ,283 Commercial bills 99,513-3,769, ,768 The following table provides for the movement of securities held for trading during 2013 and 2012: Corporate bonds Government bonds Commercial bills Equity securities At 31 December , , ,768 Additions 185, , ,822 Reclassified 2,476, , ,272,463 Disposal (10,054) (89,360) - (99,414) Net exchange rate (5,977) (5,977) Unrealized gain/(loss) (5,391) 13,434 3,636 59,272 70,951 At 31 December ,471, ,409 99, ,163 3,769,613 Total At 31 December , , ,263 Additions 20,497 54,776 75,273 Disposal (12,145) - (12,145) Net exchange rate - (3,231) (3,231) Unrealized gain/(loss) (12) 19,620 19,608 At 31 December , , ,768 On 11 November 2013 management has made decision to convert its portfolio of corporate bonds and Commercial bills quoted in active markets from Held to maturity carried at amortised cost to Available for Trading measured at fair value, as also described in Note 2.4. The difference between the carrying amount and the fair value on reclassification date amounting to Eur 199,484 was recognised in income of the year. 7. Investments held to maturity Securities held-to-maturity consists entirely of bonds and other debt securities issued by foreign companies and banks 31 December December 2012 Placement with banks 1,077, ,600 Accrued interest 106,792 84,281 Securities held to maturity - 3,122,642 1,184,293 4,169,523 13

18 7. Investments held to maturity (continued) Following table provides for the movement of securities held-to-maturity during 2013 and 2012: January 3,122,642 3,077,129 Additions - 17,998 Matured - (65,528) Amortization of the discount of securities with fixed maturity - 93,043 Reclassified to available for trade (see note 5) (3,122,642) - At 31 December - 3,122,642 The placements in banks earn interest from 4% to 6.7% on annual basis. Their maturity period ranges from 1 till 4 years. 8. Liabilities for profit sharing Company has reward asset manager based on pension plan In the event that fund is performing better than benchmark set out in internal act then Asset manager is entitled to reward of up to 20% of yield above that benchmark. Return of the Fund is established annually on 30 November, accounting period is of one year. The pension plan of the Company for the return of funds is approved by the Central Bank. 9. Interest income 31 December December 2012 Interest income from securities 107,844 99,840 Interest income from deposits 60,312 48,937 Interest income from bank accounts 513 1, , , Transaction with related parties Related parties are considered to include major shareholders, affiliates and entities under common ownership, control and management with the Fund, or whose activities the Fund has an ability to control. All Funds transactions with related parties arise in the normal course of business and their value is not materially different from the terms and conditions that would prevail in arms-length transactions. All related party transactions and balances refer to the Company FSKP and asset manager as follows: 31 December December 2012 Expenses for management fee to Company 71,163 63,715 Liabilities for management fee to Company 7,386 6,741 Expenses for profit sharing to Asset manager 59,884 - Liabilities for profit sharing to Asset manager 59,884-14

19 11. Financial risk management The Fund s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of risks. The Fund s aim is to achieve an appropriate balance between risk and return and minimize potential adverse effects on the Fund s financial performance. The Fund s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Fund s Management regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. Risk management is carried out by Risk Management Department under policies approved by the Company. This department identifies and evaluates financial risks in close co-operation with the Fund s operating units. The Fund provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk Credit risk The Fund takes on exposure to credit risk, which is the risk that a counter party will cause a financial loss for the Fund by failing to discharge an obligation. Credit risk is the most important risk for the Fund s business activities. Therefore, the Fund s management carefully manages its exposure to credit risk. Fund must be in accordance with CBK rules with regard of types, amounts of investment on financial assets Maximum exposure to credit risk Securities held for trading Corporate bonds 2,471,528 - Government bonds 819,409 20,485 Equity securities 379,163 - Commercial bills 99, ,283 3,769, ,768 Securities held to maturity Placement on banks 1,077, ,600 Government bonds - 632,607 Corporate bonds - 2,490,035 Accrued interest 106,792 84,281 1,184,293 4,169,523 Other receivables ,954,151 4,366,678 15

20 11. Financial risk management (continued) Interest rate risk The table below analyses assets and liabilities of the Fund into relevant maturity groupings based on the remaining period at balance sheet date to the contractual maturity date as of 31 December 2013 and 2012 (in Euro). 31 December 2013 Interest-bearing From 1 From 3 to Less than 1 to 3 12 month months months From 1 to 5 years Over 5 years Noninterest bearing Total Assets Cash and cash equivalents 116, ,286 Securities held for trading 3,769, ,769,613 Investments heldto-maturity - 100, , ,463 1,184,293 Other receivable ,885, , , , ,070,437 Liabilities Liabilities for management fee ,386 7,386 Liabilities for profit sharing ,884 59,884 Other liabilities ,572 1,572 68,842 68,842 Net interest risk gap 3,885, , , ,463-68,597 5,001, December 2012 Assets 121, , ,505 2,847, , ,951 4,467,724 Liabilities 16,924 16,923 Net interest risk gap 121, , ,505 2,847, , ,028 4,450,800 Foreign currency risk At 31 December 2012 and 2011, the Fund 1 is exposed to risk considering the effects from the flows of the exchange rate level. The following tables summarize the foreign currency position of the monetary assets and liabilities of the Fund on 31 December 2013 and 2012 (in Euro): 31 December 2013 In EUR in USD Other Total Assets Cash and cash equivalents 115,087 1, ,286 Securities held for trading 3,593, ,835-3,769,613 Securities held-to-maturity 1,184, ,184,293 Other receivables Total assets 4,893, ,034-5,070,437 Liabilities Liabilities for management fee 7, ,386 Liabilities for profit sharing 59, ,884 Other liabilities 1, ,572 Total liabilities 68, ,842 Net foreign currency risk 4,824, ,034-5,001, December 2012 Total assets 4,347, ,959 4,467,724 Total liabilities 16, ,924 Net foreign currency risk 4,330, ,959-4,450,800 16

21 11. Financial risk management (continued) Liquidity risk The Fund 1 policy is to invest the assets in highly liquid financial instruments on different capital markets in compliance with the prescribed limits by the Law and regulations. In the process of creating the Fund s portfolio, aiming to provide a higher liquidity, the Fund s assets were invested in securities characterized with possibility of quick conversion into cash and cash equivalents. The tables below analyse assets and liabilities of the Fund into relevant maturity based on the remaining period at balance sheet date to the contractual maturity date (in Euro). 31 December 2013 Less than 1 month From 1 to 3 months From 3 to 12 months From 1 to 5 years Over 5 years Total Cash and cash equivalents 116, ,286 Securities held-for-trading 3,288, ,115 3,769,613 Securities held-to-maturity - 100, , ,463-1,184,293 Other receivable ,405, , , , ,115 5,070,437 Liabilities Liabilities for management fee 7, ,386 Liabilities for profit sharing 59, ,884 Other liabilities 1, ,572 68, ,842 Net liquidity gap 3,336, , , , ,115 5,001, December 2012 Total assets 382, , ,505 2,847, ,772 4,467,724 Total liabilities 16, ,924 Net liquidity gap 365, , ,505 2,847, ,772 4,450, Fair Value Fair value represents the amount at which an asset could be replaced or a liability settled on an arm s length basis. Fair values have been based on management assumptions according to the profile of the asset and liability base. Financial instruments presented at fair value The financial assets measured according to the fair value in the statement of financial position in accordance with the hierarchy of the fair value are shown in the next table. This hierarchy groups the financial assets and liabilities into three levels that are based on the significance of the incoming data used during the measurement of the fair value of the financial assets: Level 1: quoted prices (not adjusted) on the active markets for identical assets or liabilities; Level 2: other incoming data, aside from the quoted prices, included in Level 1 which are available for asset or liability observing, directly (i.e. prices), or indirectly (i.e. made of prices) Level 3: incoming data on the asset or liability that are not based on data available for market observing. The financial assets that are registered according to their fair values in The Statement of Fund 1 s Net Assets are grouped according to the hierarchy level of the fair value, as follows (in Euro). Level 1 Level 2 Level 3 Total Assets Securities held for trading 3,769, ,769,613 Securities held to maturity 1,184, ,184,293 17

22 12. Fair Value (continued) Financial instruments that are not presented at fair value The following table summarizes the carrying amounts and fair values to those financial assets and liabilities that are not presented on balance sheet at their fair value. Carrying amount Fair value Assets Cash and cash equivalents 116, , , ,046 Securities held-to-maturity 1,184,293 4,169,523 1,184,293 4,169,523 Other receivables Total assets 1,300,824 4,270,956 1,300,824 4,270,956 Liabilities Liabilities for management fee and other liabilities 68,842 16,924 68,842 16,924 Total liabilities 68,842 16,924 68,842 16,924 The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Fund is the current bid price. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The carrying value less impairment provision of trade receivables and the carrying value of payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Fund for similar financial instruments. 13. Events after the reporting date After 31 December the reporting date until the approval of these financial reports, there are no adjusting events reflected in the financial statements or events that are materially significant for disclosure in these financial statements. 18