OPEN-END INVESTMENT FUND Citadele Ukrainian Equity Fund ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER (5th financial year)

Transcription

1 OPEN-END INVESTMENT FUND Citadele Ukrainian Equity Fund ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2012 (5th financial year) PREPARED IN ACCORDANCE WITH FCMC REGULATIONS ON ANNUAL ACCOUNTS OF INVESTMENT FUNDS AND INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION Translation from Latvian original* *This version of financial statements is a translation from the original, which was prepared in Latvian. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of financial statements takes precedence over this translation. Riga, 2013

2 Table of contents 2 Information on the investment fund 3 Investment Management Company report 5 Statement of responsibility of the Board of the investment management company 7 Custodian bank report 8 Financial statements: Statement of financial position 10 Statement of comprehensive income 11 Statement of changes in net assets 12 Statement of cash flows 13 Notes 14 Auditors report 26

3 Information on the investment fund 3 Name of the fund: Type of fund: Registration date of the fund: Number of the fund: Name of the Investment Management Company: Registered office of the Investment Management company: Registration number of the Investment Management Company: Licence number of the Investment Management Company: Name of the custodian bank: Registered office of the custodian bank: Registration number of the custodian bank: Names and positions of Council Members, Board Members of the Investment Management Company: Citadele Ukrainian Equity Fund Open-end investment fund 19 October /39 Citadele Asset Management IPAS Republikas laukums 2a, Riga, LV-1010, Latvia /285 Citadele banka JSC Republikas laukums 2a, Riga, LV-1010, Latvia Council of the investment management company: Chairman of the Council Juris Jākobsons appointed on Deputy Chairman of the Council Vladimirs Ivanovs appointed on Council Member Valters Ābele appointed on , resigned on Council Member Phlip Nigel Allard appointed on Deputy Chairman of the Council Philip Nigel Allard resigned on Council Member Anatolijs Fridmans resigned on Board of the investment management company: Chairman of the Board Uldis Upenieks - appointed on Board Member Zigurds Vaikulis appointed on Board Member Sergejs Zaicevs appointed on Chairman of the Board - Vladimirs Ivanovs - resigned on Board Member - Raimonds Vesers - resigned on The related rights and obligations of the management of the investment Fund: Names of Fund Managers (investment committee members): All the duties of the Council and Board members stated in the legislation of the Republic of Latvia and Statutes of the investment management company are performed by the Council and Board members Kristiāna Ķiete appointed on Andris Kotāns - appointed on Antons Ļubenko appointed on , resigned on Elchin Jafarov appointed on

4 Information on the investment fund 4 The related rights and obligations of the management of the investment fund: Auditor: All the duties of the Fund managers stated in the legislation of the Republic of Latvia, Statutes of the investment management company and Fund Prospectus are performed by the Fund managers PricewaterhouseCoopers SIA Certified audit company, licence No. 5 Kr. Valdemāra street LV-1010, Riga Ilandra Lejiņa Certified auditor in charge Certificate No. 168

5 Investment management company report 5 The assets of the open-end fund Citadele Ukrainian Equity Fund (hereinafter the Fund) are managed by the asset management company Citadele Asset Management having its registered office at Republikas laukums 2a, Riga, LV-1010 (hereinafter - the Company). It was founded on 11 January of 2002 with registration number The Company holds a licence No /285 authorising it to render investment management services. The licence was last re-registered on 5 August The Fund aims to achieve long-term capital appreciation by investing principally in shares of issuers that are registered or operate in the Ukraine. The Fund derives income in the form of share appreciation and dividends. The functional currency of the Fund is euro. The Fund was registered on 19 October 2007, and the first issue of A class investment certificates took place on 7 November At the end of the reporting period the Fund's net asset value amounted to 268,090 LVL. At the end of the reporting period the value of the Fund s share was 0.89 LVL or 1.27 EUR, showing a decline by 30.40% in lats and by 29.77% in the functional currency during the reporting period. In 2012 Ukraine was significantly affected by major political events, as well as a number of relevant changes were implemented in the local investment markets. The events in the local and global investment markets did not provide any positive impact on the equity shares of Ukraine and as the result the investment market of Ukraine is considered to be one of the weakest performers among the global markets during the reporting period. The events relevant for Eurozone as well as the concerns about a significant decrease in the expenses of USA and the unsatisfying economical situation of Eurozone resulted in the reduced investors activity. The Ukraine s investment environment was negatively impacted by a number of internal factors, including reduced number of the issuers to 10 excluding in total 5 issuers from the UX index of the equity shares of Ukriane, parliament elections, inconsistencies in the recently introduced regulations of the Ukrainian depositary, as well as the introduction of excise tax on direct transactions. Additional concerns for the investors were caused by the negotiations with the International Monetary Fund (IMF) in respect of the continuance of the financial support and the national currency devaluation risk. As the result of such events, Ukraine equity shares index UX declined by 35% (in euro) during the reporting period, reaching the level of 2009, in addition, the daily sales volume of Ukraine stock exchange has dropped three times, resulting into the critically low level. The negative impact on the local demand for the equity shares was caused by the low liquidity in banking sector as well. During the year the main tendency for investors was to avoid holding the local equity shares in the portfolio and replacing these by the equity shares of the Ukrainian issuers quoted in the foreign stock exchange. As the result, the transactions in Ukrainian stock exchange comprised only 9% from total, but the major part of transactions were performed in London (62%) and Warsaw (29%) stock exchange.the situation of the equity shares of Ukraine quoted in the foreign markets was more successful, which is proven by Warsaw Ukranian equity shares index WIG Ukraine, which result was close to 2011 year end.. Due to the above reasons, the Fund s exposition of the locally quoted Ukrainian equity shares was reduced in 2012 the proportion of the equity shares of the Ukrainian companies quoted in foreign countries increased from 22% to 36% from the Fund s assets. In general the changes in the allocation of the Fund s investments are explained by this decision as well as by the fluctuations of the equity share prices in the market. As the result of the changes in the relative prices during the reporting year the share of the food, beverages and tobacco industry in the Fund s portfolio increased significantly; similar increase is observed also in public utilities sector. Energy resources industry share increase was mainly caused by the investments in the Ukrainian thermal coal companies Coal Energy and Sadovaya Group quoted in Poland. The most significant share decrease in the Fund s portfolio was shown by the durable goods industry due to the sales of the locally quoted equity shares of the Krykov Carriage Works as well as the rapid decline in capitalization of the industry companies. Decrease was also observed for raw materials industry mainly due to the decline in the equity shares prices and sale of the equity shares of Azovstal and partial sale of North Ore Mining. As the result of price fluctuations, a decrease occurred also in telecommunication services and cars and parts production industries share in total assets of the Fund. During the reporting period the equity shares of the real estate company XXI Century were sold, therefore the exposition of the industry resulted in zero balance at the end of year. There were no other significant changes in the investment shares of the other industries during the reporting period. Considering low level of the liquidity of the equity shares of Ukraine, free cash level was increased during the reporting period and resulted in 14.3% from total assets at year end. None of the investment industries of the Fund had shown any positive yield for the reporting year. The most significant negative impact on the Fund s yield was caused by raw material industry investments. The Fund s asset value decrease was also impacted by decline in telecommunication, durable goods, public utilities and cars and parts production industries share prices.

6 Annual report for the year ended 31 Decernber lnvestment management company report 6 During the repoftng period fund management fee of EUR 17,347 was paid fcm $e Fr.rnd's resources which is 3% of the average net asset value and does not exceed the limit of 5% set forth in the Prospectus. The Fund manager considers that the demand on local Ukrainian equity shares would remain low and the investors would concentrate on the equity shares quoted in foreign countries during next year. No positive changes are expected to occur in the situation as long as the clarity on the decisions in respect of the local cunency will be reached. Despite that fact, a number of local companies could maintain the focus of the investors due to individual positive factors, e g. high yield dividend policy. The manager of the Fund will maintain monitoring of Ukrainian companies quoted in London and Warsaw from which the major part is already included in the portfolio of the Fund. The Fund manager does not have intentions to make any additional investments in the locally quoted equity shares and the exposition of the equity shares with the low level of the liquidity will be reduced as well. The further downturn is expected for the economy of Ukraine and the concern on the fiscal situation of the country would remain, however the situation could be also affected by the progress in negotiations with the lmf. Upenieks Andris Kotdns Committee 'sti6na Kiete Mern6er of the lnvestment Committee 2 Elchin Jafarov Member of the lnvestment Committee Riga, 26 April 2013

7 Annual repoft forthe year ended 31 December 2012 Statement of responsibility of the Board of the investment management company 7 The Board of the investment management company (hereinafter - the Company) is responsible for the preparation of the financial statements of the investment fund Citadele Ukrainian Equity Fund (hereinafter - the Fund). The financialstatements set out on pages 10 to 25 are prepared in accordance with the source documents and presentfairlythefinancial positionof thefundasat3'l December2012and31 December2011 andtheresults of its operations for the respective periods then ended. The financial statements are prepared in accordance with lnternational Financial Reporting Standards as adopted by the European Union, as set out in the Regulations of the Financial and Capital Market Commission (FCMC) on the Preparation of Annual Reports of lnvestment Funds, on a going concern basis. Appropriate accounting policies have been applied on a consistent basis. Prudent and reasonable judgments and estimates have been made by the management in the preparation of the financial statements. The Board of the Company is responsible for the maintenance of proper accounting records, the safeguarding of the assets of Citadele Ukrainian Equity Fund and the prevention and detection of fraud and other irregularities in the Fund. They are also responsible for operating the Fund in compliance with the Law of the Republic of Latvia on lnvestment Management Companies, regulations of the Financial and Capital Market Commission, and other laws and regulations of the Republic of Latvia.,/ d.r ;.0 " - w(/ v, Riga, 26 April2013 Clpi;:man of the Board lr' Ii

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10 Statement of financial position 10 Note 31, Assets Demand deposits with credit institutions 39, ,082 Financial assets held for trading Shares 229, ,018 Total assets 268, ,100 Liabilities Accrued liabilities Total liabilities Net assets (646) (1,134\ (646) (1,134) 268, ,966 The accompanying notes from page 14 to 25 form an integral part of these financial statements. 'Upenieks Riga, 26 April2013

11 Statement of comprehensive income 11 Note lncome lnterest income Dividends ,756 1,160 3,752 Totalincome 13,149 4,912 Expenses Remuneration to investment management company Remuneration to custodian bank Otherfund management expenses (9,390) (65e) (1,808) (18,933) (1,325) (2,282) Total expenses (11,857) (22,5401 (Decrease) in investment value Realised (decrease) jn investment value Unrealised (decrease) in investment value (15,373) (112,418) (39,416) (329,920) Total {decrease) in investment value Foreign currency revaluation (loss) Total comprehensive (expense) (127,791) (369,336) (10,225) (29,918) (136,724) (416,884 Upenieks Riga, 26 April 2013

12 Statement of changes in net assets Net assets as at the beginning of the period 459,966 1,009,525 Total comprehensive (expense) (136,724) (416,882) Transactions with investment certificates: Proceeds from sale of investment certificates 78, ,899 Outflow on redemption of investment certificates (133,166) (501,576) (Decrease) in net assets from transactions with investment certificates (55,152) (132,677) (Decrease) in net assets during the reporting period (191,876) (549,559) Net assets as at the end of the reporting period 268, ,966 Issued investment certificates as at the beginning of the reporting period 360, ,323 Issued investment certificates as at the end of the reporting period 301, ,547 Net asset value per investment certificate as at the beginning of the reporting period Net asset value per investment certificate as at the end of the reporting period

13 Statement of cash flows Interest income 393 1,160 Dividend income 12,756 3,752 Investment management expenses (12,345) (23,692) Acquisition of financial assets (56,063) (477,440) Disposal of financial assets 87, ,064 Result of foreign currency translation (245) (3,311) Increase in cash from operating activities 31, ,533 Proceeds from sale of investment certificates 78, ,899 Outflow on redemption of investment certificates (133,166) (501,576) (Decrease) in cash from financing activities (55,152) (132,677) (Decrease) in cash during the reporting period (23,216) (16,144) Cash as at the beginning of the reporting period 62,082 75,697 Result of revaluation of cash denominated in foreign currencies 239 2,529 Cash as at the end of the reporting period 39,105 62,082

14 Notes General information Name of the fund: Type of the fund: Fund s business activity: Name of the Investment Management Company: Citadele Ukrainian Equity Fund Open-end investment fund Investments mainly in equity shares of corporate entities incorporated or mainly operating in the Ukraine. Citadele Asset Management IPAS Republikas laukums 2a, Riga, LV-1010, Latvia 2. Summary of significant accounting policies Basis of preparation The financial statements of OIF Citadele Ukrainian Equity Fund have been prepared in accordance with International Financial Reporting Standards as adopted in the European Union, as set out in the Regulations of the Financial and Capital Market Commission (hereinafter - FCMC) No. 99 "Regulations on the Preparation of Annual Reports of. Investment Funds. The financial statements are prepared on a historical cost basis, as modified for the measurement at fair value of securities held for trading. The monetary unit used in the financial statements is Lats, the monetary unit of the Republic of Latvia. The financial statements cover the period 1 January 2012 to 31 December Critical accounting estimates and judgements The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires investment management company s management to make assumptions and exercise its judgement in the process of applying the Fund s accounting policies. IFRS requires that in preparing the financial statements, the management makes estimates and assumptions that affect the reported amounts of assets and liabilities and required disclosure at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Income and expense recognition Interest income and expense items are recognised on an accruals basis. Interest income and expense are recognized in the statement of comprehensive income by taking into account the effective interest rate of assets/liabilities. Interest income and expense include amortization of discount or premium or other differences between the initial accounting amount of an interest bearing instrument and its amount at the moment of its redemption, calculated by the effective interest rate method. Dividend income is recognised at the moment of receipt. In some situations dividend income can be recognized when share price decreases after the issuer's announcement on payment of dividends. Remuneration to investment management company of the Fund and the custodian bank are calculated as a fixed rate of the Fund s assets and are recognized daily on an accruals basis. The fee is paid out once a month. Foreign currency translation The Fund s functional currency is euro but, according to the FCMC requirements, the Fund ensures accounting also in Latvian lats. These financial statements are prepared based on transaction accounting in Latvian lats, which is the presentation currency of the Fund. Transactions denominated in foreign currencies are recorded in Latvian lats at the official exchange rate established by the Bank of Latvia at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Latvian lats at the official exchange rate established by the Bank of Latvia at the last day of the reporting period. Any gain or loss resulting from a change in exchange rates is included in the statement of comprehensive income as gain or loss from the revaluation of foreign currency positions.

15 Notes Summary of significant accounting policies (continued) The exchange rates established by the Bank of Latvia (LVL to 1 foreign currency unit) and mainly applied when preparing the statement of assets and liabilities of the Fund can be specified as follows: Currency USD GBP PLN UAH Since 1 January 2005, the Bank of Latvia has stated a fixed official exchange rate for the Latvian lat against the euro, i.e From that moment the Bank of Latvia will also ensure that the market rate will not differ from the official rate by more than 1%. Therefore, the Fund s future profit or loss due to fluctuations of the euro exchange rate will not be material as long as the Bank of Latvia maintains the above mentioned fixed exchange rate. Cash Cash comprises Fund s demand deposits with credit institutions. Financial instruments Financial instruments are classified in the following categories: financial assets at fair value through profit or loss and loans and receivables. The classification depends on the purpose of financial instrument acquisition. The management determines classification of financial instruments at their original recognition. Financial assets and liabilities at fair value through profit or loss Financial instruments at fair value through profit or loss include financial assets held for trading. All financial assets at fair value through profit or loss, belonging to the Fund, are classified as financial assets held for trading. 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 there is an objective evidence that the Fund will not be able to collect all amounts due according to the original terms of receivables. The amount of provisions for impairment is the difference between the amortised cost and the recoverable amount. Investments in securities All investments in securities are classified as securities held for trading, i.e. securities are acquired for generating a profit from short-term price fluctuations or dealer s margin. Held-for-trading securities are recognised at fair value based on available market prices. The revaluation result of securities held for trading at fair value is included in the statement of comprehensive income as increase / (decrease) in investment value. Securities are revaluated on the basis of Bloomberg s financial information on the bid prices of securities. Fair values of financial assets and liabilities The fair value of financial assets and liabilities represents the amount at which an asset could be exchanged or a liability settled on an arm s length principle. IFRS 7 states the hierarchy of valuation techniques based on if the technique employs market data that can be monitored or market data that cannot be monitored. The Company classifies all financial assets using valuation techniques listed in the 1 st category of this hierarchy. Prices quoted in active market (unadjusted) are used in the valuation technique. This level includes shares quoted in stock exchange as well as debt securities and other financial instruments sold in the stock exchange.

16 Notes Summary of significant accounting policies (continued) Taxes The Fund s income is subject to income tax in the country of its origin. Basically, the 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 the law On personal income tax, stating that from 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 of investment certificates. In accordance with transition norms of the law On personal income tax, in order to calculate income from sale of investment certificates purchased before endorsement of the law (before ) one has to apportion the difference between the selling and purchase value to the number of months investment has been held and multiply this by the number of months investment was held from until the settlement date. Changes in the law are applicable only to private individuals being residents of the Republic of Latvia. Adoption of new or revised standards and interpretations The following new and amended IFRSs and interpretations became effective in 2012, but are not relevant for the Fund s operations and did not have an impact on these financial statements. Amendments to IFRS 7 Financial instruments: Disclosures on transfers of 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 the accounting periods beginning on or after 1 January 2013 or later periods and which are not relevant to the Fund or are not yet endorsed by the 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 other comprehensive income (effective for annual periods beginning on or after 1 January 2012, endorsed by the 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 the EU). Amendments to IAS 19 Employee benefits (effective for annual periods beginning on or after 1 July 2012; not yet endorsed by the EU). IFRS 10 Consolidated financial statements (effective for annual periods beginning on or after 1 January 2013, endorsed by the 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 the EU in December 2012 for annual periods starting on or after 1 January 2014). IFRS 12 Disclosures of interests in other entities (effective for annual periods beginning on or after 1 January 2013, endorsed by the 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 the EU in December 2012 for annual periods starting on or after 1 January 2013). IFRS 13 Fair value measurement (effective for annual periods beginning on or after 1 January 2013, endorsed by the EU in December 2012). IAS 27 (revised 2011) Separate financial statements (effective for annual periods beginning on or after 1 January 2013, endorsed by the 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 the EU in December 2012 for annual periods starting on or after 1 January 2014). Amendments to IFRS 7 Financial instruments: Disclosures on offsetting financial assets and financial liabilities (effective for annual periods beginning on or after 1 January 2013, endorsed by the EU on December 2012). Amendments to IAS 32 Financial instruments: Presentation on offsetting financial assets and financial liabilities (effective for annual periods beginning on or after 1 January 2014, endorsed by the EU on December 2012).

17 Notes Summary of significant accounting policies (continued) 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 the EU). Improvements to IFRS (issued in May 2012; most of the amendments are effective for annual periods beginning on or after 1 January 2013, not yet endorsed by the 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 the EU). IFRIC 20, `Stripping costs in the production phase of a surface mine` (effective for annual periods beginning on or after 1 January 2013, endorsed by the EU on December 2012). 4. Demand deposits with credit institutions % of Fund s net assets as at Demand deposits with credit institutions, JSC Citadele banka 39,105 62, % Total demand deposits with credit institutions 39,105 62, % The Fund receives interest on demand deposits at fixed rates. 5. Shares % of Fund s net assets as at Equity shares: 229, , % Non-OECD region equity shares 229, , % Total shares 229, , % All shares are classified as securities held for trading. All shares are listed on stock exchanges. The table below presents shares by the issuer s country of residence: Financial instrument ISIN code Currency Amount Acquisition value Carrying amount as at % of Fund s net assets as at Financial instruments traded on regulated markets 1,176, , % Ukrainian issuers: 1,176, , % FERREXPO GB00B1XH2C03 GBP 11,900 29,060 25, % CENTERENERGO UA USD 60,000 46,758 24, % MOTOR SICH UA USD ,615 24, % MHP US55302T2042 USD 2,100 15,842 16, % KERNEL LU PLN 1,163 15,603 13, % ASTARTA HOLDING NL PLN 1,099 12,588 10, % UKRTELECOM UA USD 900,000 30,225 9, %

18 Notes Shares (continued) % of Fund s Carrying net assets Acquisition amount as at as at Financial instrument ISIN code Currency Amount value ALCHEVSK METALLURGICAL PLANT UA USD 2,200,000 29,611 7, % ZHYTOMYROBLENERGO UA USD 150,000 18,324 7, % NORTH ORE MINING AND PROCESSING PLANT UA USD 15,000 16,476 7, % AGROTON CY PLN 4,269 22,397 7, % AVDIIVKA COKERY PLANT UA USD 32,000 26,637 7, % ALCHEVSK COKERY PLANT UA USD 1,230, ,258 6, % STAHANOV CAR PRODUCTION FACILITY UA USD 60,000 23,282 6, % STIROL UA USD 7,700 36,624 6, % SADOVAYA GROUP LU PLN 17,000 20,007 6, % PES-ENERGOUGOL UA USD 15, ,850 5, % JKX OIL & GAS GB GBP 8,368 21,903 5, % UKRPRODUCT GROUP GB00B03HK741 GBP 76,500 7,561 5, % COAL ENERGY SA LU PLN 3,000 8,770 4, % KOMSOMOLETS DONBASA COAL MINE UA USD 55,000 60,118 4, % INSURANCE COMPANY UNIVERSALNA UA USD 140, ,491 3, % ENAKIEVO METALLURGICAL PLANT UA USD 1,250 22,857 3, % YASYNOVKA COKERY PLANT UA USD 62,056 20,776 2, % WESTA ISIC LU PLN 20,000 25,589 2, % COAL MINE CHERVONOARMIYSKA ZAHIDNA 1 UA USD 46,500 62,604 1, % KREMENCHUK WHEEL PLANT UA USD 23,000 79, % DAKOR WEST UA USD 1,700 9, % RODOVID BANK UA USD % MKS GROUP UA USD 2, , % Total shares 1,176, , % 6. Accrued liabilities Accrued commission fees payable to investment management company (523) (951) Accrued commission fees payable to custodian bank (38) (67) Accrued fees payable for professional services (85) (116) Total accrued liabilities (646) (1,134) 7. Interest income Interest income from demand deposits with credit institutions 393 1,160 Total interest income 393 1,160

19 Notes Realised (decrease) in investment value Income from sale of investments 79, ,387 Decrease in value of investments sold, recognised in the prior reporting periods 185,280 13,228 Acquisition value of investments sold (280,342) (666,031) Total realised (decrease) in investment value (15,373) (39,416) 9. Unrealised (decrease) in investment value From shares (112,418) (329,920) Total unrealised (decrease) in investment value (112,418) (329,920) 10. Change in investments during the reporting period Increase during the reporting period Decrease during the reporting period Foreign currency revaluation result Fair value revaluation result Financial assets held for trading Shares 399,018 56,063 (87,440) (10,219) (127,791) 229,631 Total investments 399,018 56,063 (87,440) (10,219) (127,791) 229, Pledged assets During the reporting period, no guarantees or collaterals have been issued by the Fund, neither has it pledged or otherwise caused any encumbrance or lien on its assets. 12. Fair values of financial assets and liabilities According to the estimates of the Company, the carrying amounts of demand deposits with credit institutions and financial assets held for trading approximate their fair values. The fair value is determined according to the market quotation method, based on available quotes of stock exchanges and information published by brokers. 13. Risk management Risks are inherent in the investment process. The risk management process includes risk identification, risk measurement, and directly risk management. The Fund is exposed to market risk (i.e. currency risk, interest rate risk, and price risk), credit risk, liquidity risk and other risks (including operational risk). The investment strategy of the Fund is aimed at minimising the aforementioned risks; however, the Company cannot guarantee that these risks can be completely avoided in the future. Risk management structure Risk identification and measurement are the responsibility of an independent unit the Risk Management Division which prepares and presents information about risks to the Fund Manager who decides specifically whether it would be necessary to minimise risks. The risk measurement process employs several models based on historical data and adjusted to consider for the current economic situation. Specific models are used to forecast changes in risk factors in ordinary and extraordinary market situations.

20 Notes Risk management (continued) Risk management structure (continued) To mitigate the investment risks, the Fund Manager follows the risk diversification and hedging principles. The Fund Manager acquires sufficient information on potential or current investment objects, as well as supervises the financial and economic position of issuers of the securities in which the Fund s property has been or is to be invested. The Company, when developing the Fund s investment strategy and stating limits, performs an analysis of the Fund s investments by maturity, geographic and currency profile, as well as assesses the risks inherent to each of the above factors. The Fund Manager acts in strict compliance with the Fund Prospectus, Fund Management Regulations, as well as regulations and restrictions imposed by legislation of the Republic of Latvia. Market risk Market risk is a risk that the Fund s value will reduce as a result of changes in any of the following market factors: interest rates (interest rate risks), securities prices (price change risks), exchange rates (exchange rate risks), interest rates (interest rate risks) or other market risk factors. Evaluated below are the sources of market risk, however they cannot be eliminated completely. Equity price risk Changes in equity prices depend on the following two groups of factors: changes in stock indexes of a respective country (for instance, in Ukraine these are the changes in UX index) and the financial position of the issuer (prospects of earnings profit), where the first factor is usually referred to as systematic risk and the second as specific risk. Systematic risk is managed on the basis of forecasts of the overall economic development in specific geographic regions and industries. Specific risk management is performed by conducting a detailed analysis of the issuer s financial position and profitability, as well as other factors affecting the equity price, based on the published issuer s reports and mass media information. Equity price deviations and correlations are also a matter of particular focus, making it possible to calculate the total risk exposure for all shares of the portfolio only on the basis of equity price history. Equity price risk is measured using beta coefficient, while the changes in market index are calculated as annualised standard deviation for the same period. As at the end of the reporting period, the beta (a ratio showing the change in the Fund s performance relative to the overall market) was The beta was calculated on the basis of the data for the year For market index UX (Ukrainian equity market index, in EUR) has been selected. The changes of the market index are calculated as annualised standard deviation. Market changes Changes in the Fund s value 34.52% 17.95% At the end of 2011, the beta (a ratio showing the change in the Fund s performance relative to the overall market) was The beta was calculated on the basis of the data for the year For market index UX (Ukrainian equity market index, in EUR) has been selected. The changes of the market index are calculated as annualised standard deviation. Market changes Changes in the Fund s value 34.37% 19.71% Currency risk Currency risk arises when the nominal value of Fund s securities or other instruments differs from the Fund s currency (euro). Exchange rate fluctuations may result in a gain or loss, depending on the trend of the fluctuations and the currency position in the Fund. Currency risk is minimised by the diversification effect, which arises in situations when the Fund has several currencies, and changes in exchange rates of those currencies are not closely interrelated.

21 Notes Risk Management (continued) The table below shows the Fund s assets and liabilities by currency profile as at 31 December Assets EUR USD GBP PLN LVL UAH Total Demand deposits with credit institutions 5,415 23,395 4, ,313 39,105 Financial assets held for trading Shares - 149,210 36,231 44, ,631 Total assets 5, ,605 41,213 44,190-5, ,736 Liabilities Accrued liabilities (561) (85) - (646) Total liabilities (561) (85) - (646) Net assets 4, ,605 41,213 44,190 (85) 5, ,090 Net long / (short) position 1.81% 64.38% 15.37% 16.49% (0.03)% 1.98% % Assets The table below shows the Fund s assets and liabilities by currency profile as at 31 December EUR USD GBP PLN Total Demand deposits with credit institutions 17,337 17,787 26, ,082 Financial assets held for trading Shares - 319,761 29,611 49, ,018 Total assets 17, ,548 56,567 49, ,100 Liabilities Accrued liabilities (1,134) (1,134) Total liabilities (1,134) (1,134) Net assets 16, ,548 56,567 49, ,966 Net long / (short) position 3.52% 73.39% 12.30% 10.79% % The effect of changes in currency exchange rates on the Fund s value is shown in the table below. Changes in currency exchange rates represent annualised standard deviation of the respective exchange rate. The effect of changes in currency exchange rate (2012) Share in Fund (% of net assets) Change in currency rate against EUR Effect on the Fund s value Currency EUR 1.81% 0.00% 0.00% USD 64.38% 8.27% 5.32% GBP 15.37% 5.94% 0.91% PLN 16.48% 8.64% 1.42% LVL -0.03% 1.22% 0.00% UAH 1.98% 8.52% 0.17% Total % 7.83%

22 Notes Risk Management (continued) Comperatives for 2011 were as follows: The effect of changes in currency exchange rate (2011) Share in Fund (% of net assets) Change in currency rate against EUR Effect on the Fund s value Currency EUR 3.52% 0.00% 0.00% GBP 12.30% 8.82% 1.09% USD 73.39% 11.92% 8.75% PLN 10.79% 10.85% 1.16% Total % 11.00% Concentration risk The issuer s industry and geographic position are additional risk factors, which can affect the price of the issuer s securities or the issuer s solvency. Therefore, it is vital to identify concentration risk, i.e. to which extent the Fund s value depends on changes in specific regions or industries. Risk concentration by geographic profile (based on the country most affecting the issuer s solvency) and industry profile is presented in the table below. The table below shows the Fund s assets and liabilities by geographic profile as at 31 December Assets Latvia Other non- OECD region countries Demand deposits with credit institutions 39,105-39,105 Financial assets held for trading Shares - 229, ,631 Total assets 39, , ,736 Liabilities Accrued liabilities (646) - (646) Total liabilities (646) - (646) Net assets 38, , ,090 Total The table below shows the Fund s assets and liabilities by geographic profile as at 31 December Latvia Other non- OECD region countries Total Assets Demand deposits with credit institutions 62,082-62,082 Financial assets held for trading Shares - 399, ,018 Total assets 62, , ,100 Liabilities Accrued liabilities (1,134) - (1,134) Total liabilities (1,134) - (1,134) Net assets 60, , ,966

23 Notes Risk Management (continued) The table below shows the Fund s assets and liabilities by country profile (based on the issuer s country of incorporation). Country Carrying amount as at Carrying amount as at % of Fund s net assets as at Ukraine 229, , % Latvia 38,459 60, % Total 268, , % The table below shows the Fund s securities portfolio by industry profile. Industry % of Fund s net assets as at Raw materials 57, , % Food, beverages, tobacco 53,025 60, % Public utilities 38,133 55, % Energy resources 32,082 38, % Durable goods 31,389 81, % Telecommunication services 9,499 27, % Insurance 3,650 5, % Production of cars and car spare parts 3,426 16, % Logistics % Commercial banks % Real estate % Total 229, , % Liquidity risk Liquidity risk is a risk that the Fund will have difficulties in meeting is financial obligations. The Fund Manager strives to maintain such asset structure which would ensure a possibility of selling securities in due time and with no significant losses. Investments in the market of the Ukrainian region are associated with an increased risk that various assets may have a temporarily illiquid market. This may give rise to a situation that financial instruments or other assets cannot be sold at all or can be sold at a lower value. The table below shows the Fund s assets and liabilities by maturity profile as at 31 December Assets Within 1 month 1-6 months No maturity Total Demand deposits with credit institutions 39, ,105 Financial assets held for trading Shares , ,631 Total assets 39, , ,736 Liabilities Accrued liabilities (561) (85) - (646) Total liabilities (561) (85) - (646) Net assets 38,544 (85) 229, ,090 % from net assets 14.38% -0.03% 85.65% %

24 Notes Risk Management (continued) The table below shows the Fund s assets and liabilities by maturity profile as at 31 December Assets Within 1 month 1-3 months No maturity Total Demand deposits with credit institutions 62, ,082 Financial assets held for trading Shares , ,018 Total assets 62, , ,100 Liabilities Accrued liabilities (1,018) (116) - (1,134) Total liabilities (1,018) (116) - (1,134) Net assets 61,064 (116) 399, ,966 % from net assets 13.28% (0.03)% 86.75% % 14. Information on holders of investment certificates On 29 March 2010 all B type investment certificates were redeemed. The table below specifies the proportion of investment certificates held by related parties out of total investment certificates issued: % of total certificates as at Investment certificates held by related parties % Investment certificates held by other persons 301, , % Investment certificates in issue as at the end of reporting period 301, , % 15. Related party disclosures The majority of the Fund s investments are acquired with the mediation of the custodian bank JSC Citadele banka. JSC Citadele banka receives remuneration as the custodian bank, as disclosed in the statement of comprehensive income (see also Note 5) and the Fund s cash resources are held with JSC Citadele banka (see Note 3). The remuneration paid to the investment management company during the reporting period is disclosed in the statement of comprehensive income (see Note 5). Since the amount of remuneration paid to the investment management company was changed, it was set at 0.18%. From the moment an amendment has entered into force in accordance with LR law regulations and Directive 2009/65/EK, the remuneration fee is calculated as a share of the fund's net asset value to two decimal places. During the reporting period related parties did not make any transactions with Fund s investment certificates. (2011: ). During the reporting period and 2011 related parties have not performed the Fund s investment certificates sale back transactions. The Fund s investment certificates purchase transactions are calculated taking into account only the investment certificates held by those related parties, who have been classified as the Fund s related parties both as of 31 December 2012 and 31 December 2011.

25 Notes Dynamics of the Fund s performance Fund s net assets 268, ,966 1,009,525 Number of Fund s investment certificates 301, , ,323 Value of Fund s investment certificates Performance of Fund s investment certificates** (30.40)% (43.36)% 50.67% Fund s net assets (EUR)* 382, ,943 1,427,820 Number of Fund s investment certificates 301, , ,323 Value of Fund s investment certificates Performance of Fund s investment certificates** (29.77)% (43.26)% 49.07% ** Performance is calculated supposing that a year consists of 365 days. ** The net asset value in euro is determined, based on exchange rates fixed at financial markets at the end of each day.

26 trwc INDEPENDENT AUDITOR'S REPORT Translation from Latvian original" To the Shareholders of AIF Citadele Ukrainian Equrty Fund Report on the Financial Statements We have audited the accompanfng financial statements of AIF Citadele Ukrainian Equity Fund set out on pages ro to z5 of the accompan)'lng annual report, which comprise the statement of financial position as of 3r December zorz and the statements of comprehensive income, changes in net assets and cash flows for the year then ended and a summary of significant accounting policies and other explanatory information. M anag ement's Responslbility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the International Financial Reporting Standards as adopted by the European Union, 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. Audit o r' s Re sp o n sib ility l 1 i 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 pian 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 auditor's 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 in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit eridence \re have obtained is sufficient and appropriate to provide a basis for our audit opinion. PricewqterhouseCoopers Sl{. Kr. \'aldemaraiela zt-zt, Riga LV-toto, Latuia T: +37t 67o9 44oo, F:-3-t 6-83 oo55,wwu;.ptuc.iu

27 I wc g- E- Opinion In our opinion, the financial statements give a true and fair view of the financial position of AIF Citadele Ukrainian Equity Fund as of 3r December 2or2, and of its financial performance and its cash flows for the year then ended in accordance with the International Financial Reporting Standards as adopted by the European Union. Report on Other Legal and RegulatoryRequirements We have read the Management Report for zotz set out on pages 5 to 6 of the accompanying annual report for zotz and did not identifii material inconsistencies between the financial information contained in the Management Report and that contained in the financial statements for zotz. PricewaterhouseCoopers SIA Certified audit company Licence No. 5 il;$-{ Ilandra Lbji4a Certified auditor in charge Certificate No. 168 Member of the Board Riga, LaMa z6 April zor3 " This version of our report is a translation from the original, which was prepared in LaMan. A1l possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation. zofz