The Modern Funds. Annual Report (audited) at 31/12/06. Database Publishing System: CO-Reporter by CO-Link, Belgium.

Transcription

1 The Modern Funds Annual Report (audited) at 31/12/06 Database Publishing System: CO-Reporter by CO-Link, Belgium. Page 1

2 The Modern Funds Table of Contents Page Organisation of the SICAV 3 General Information 5 Independent Auditor's Report 6 Manager's Report 8 Financial Statements of the fund Statement of net assets 9 Statement of operations and changes in net assets 9 Key figures relating to the last 3 years 11 Securities portfolio at 31/12/06 The Modern Funds Sweden Top The Modern Funds Short-term Interest Saving 14 The Modern Funds Bond Index Saving 15 The Modern Funds Eurotop The Modern Funds Short-term Euro Interest Saving 18 The Modern Funds Invik Nordic Small Caps 19 Geographical and Economical breakdowns The Modern Funds Sweden Top The Modern Funds Short-term Interest Saving 21 The Modern Funds Bond Index Saving 22 The Modern Funds Eurotop The Modern Funds Short-term Euro Interest Saving 24 The Modern Funds Invik Nordic Small Caps 25 Notes to the financial statements 26 No subscription can be received on the basis of this financial report. Subscriptions are only valid if made on the basis of the current prospectus supplemented by the latest annual report and the most recent semi-annual report, if published thereafter. Page 2

3 The Modern Funds Organisation of the SICAV Board of Directors Ander Fällman Chairman of the Board of Directors, Banque Invik S.A. Stockholm, Sweden Pierre Arens Managing Director of Banque Invik S.A. Luxembourg, Luxembourg Paul-Marie Majerus Deputy Managing Director of Banque Invik S.A. Luxembourg, Luxembourg Mikael Holmberg Deputy Managing Director of Banque Invik S.A. Luxembourg, Luxembourg Registered office The Modern Funds, SICAV 7, avenue J.P. Pescatore L-2324 Luxembourg Luxembourg Legal adviser Loesch & Wolter Avocats 11, rue Goethe B.P L-1011 Luxembourg Luxembourg Domiciliary Agent and Investment adviser Banque Invik S.A. 7, avenue J.P. Pescatore B.P. 285 L-2012 Luxembourg Luxembourg Investment Manager Modern Funds Management Company S.A. (until November 30, 2006) 7, avenue J.P. Pescatore L-2324 Luxembourg Luxembourg Banque Invik S.A. (since December 1, 2006) 7, avenue J.P. Pescatore B.P. 285 L-2012 Luxembourg Luxembourg Page 3

4 The Modern Funds Organisation of the SICAV Custodian, Administrative and Registrar Agent CACEIS Bank Luxembourg 5, Allée Scheffer L-2520 Luxembourg Paying Agent CACEIS Bank Luxembourg 5, Allée Scheffer L-2520 Luxembourg Independent Auditors PricewaterhouseCoopers Réviseur d entreprises 400, route d Esch B.P L Luxembourg Luxembourg Nominees in Sweden and in Luxembourg Banque Invik Luxembourg Filial Skeppsbron 18 Box Stockholm Sweden Banque Invik S.A. 7, avenue J.P. Pescatore B.P. 285 L-2012 Luxembourg Luxembourg Service Level Agent CACEIS Bank Luxembourg 5, Allée Scheffer L-2520 Luxembourg Page 4

5 The Modern Funds General Information The financial year of The Modern Funds (The "Company") ends on 31st December each year. Audited annual reports of the Company are available at the Registered Office. Notices of general meetings are published and available to all shareholders according to the Luxembourg law. The Annual, Semi-Annual and Interim reports contain information on The Modern Funds, its composition and the performance of its assets, as well as the Net Asset Value per share and the share price. These reports as well as the statutes and the prospectus can be obtained free of charge at the Registered Office of the Company, the Custodian and the Nominees. Page 5

6 The Modern Funds Independent Auditor s Report To the Shareholders of The Modern Funds We have audited the accompanying financial statements of The Modern Funds and of each of its sub-funds, which comprise the statement of net assets and the securities portfolio as at December 31, 2006, and the statement of operations and changes in net assets for the year then ended and a summary of significant accounting policies and other explanatory notes to the financial statements. Board of Directors of the SICAV s responsibility for the financial statements The Board of Directors of the SICAV is responsible for the preparation and fair presentation of these financial statements in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the financial statements. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. 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 as adopted by the Institut des Réviseurs d Entreprises. 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 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 the Board of Directors of the SICAV, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Page 6

7 The Modern Funds Independent Auditor s Report Opinion In our opinion, these financial statements give a true and fair view of the financial position of The Modern Funds and of each of its sub-funds as of December 31, 2006, and of the results of their operations and changes in their net assets for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the financial statements. Other matters Supplementary information included in the annual report has been reviewed in the context of our mandate but has not been subject to specific audit procedures carried out in accordance with the standards described above. Consequently, we express no opinion on such information. However, we have no observation to make concerning such information in the context of the financial statements taken as a whole. PricewaterhouseCoopers S.à r.l. Luxembourg, April 24, 2007 Réviseur d entreprises Represented by Jean-Robert Lentz Page 7

8 The Modern Funds Manager s Report For the forth year in a row the European stock markets gave the shareholders decent returns considering rising but fairly low interest rates. All major European bourses saw healthy rises in stock prices with doubled digit growth all across Europe. Just like last year the Swedish and German markets saw the biggest gains with the German DAX index rising almost 22% and the Swedish OMX index gaining some 20%. The good business climate has continued to support valuations even though interest rates have climbed during the year. A source of concern during the year has been the volatile oil price, which spiked in August reaching almost 80 USD/barrel, and whether the American housing market would crash or not. So far the American economy has been quite resistant to these two factors, proving most pessimistic forecasters wrong. Swedish small cap stocks have like last year continued to outperform blue chips during the year. With good economic growth and high energy/commodity prices European central banks have raised rates to keep inflation in place. Elevated asset prices, mainly real estate and stocks, have also contributed in the decision to raise rates. During the year the European Central Bank, ECB, have raised rates from 2.25% to 3.50%. In Sweden the central bank have raised rates from 1.50% to 3.00%. In this environment, The Modern Funds has performed as follows: The Modern Funds Sweden Top 30 During 2006, the NAV per share for The Modern Funds Sweden Top 30 gained 20.90%, after deduction of the total expense ratio of 0.80% p.a.. The Modern Funds Short-term Interest Saving During 2006, the NAV per share for The Modern Funds Short-term Interest Saving gained 1.71%, after deduction of the total expense ratio of 0.30% p.a.. The Modern Funds Bond Index Saving During 2006, the NAV per share for The Modern Funds Bond Index Saving gained 0.45%, after deduction of the total expense ratio of 0.30% p.a.. The Modern Funds EuroTop 100 During 2006, the NAV per share for The Modern Funds Eurotop 100 gained 13.16%, after deduction of the total expense ratio of 0.80% p.a.. The Modern Funds Short-term Euro Interest Saving During 2006, the NAV per share for The Modern Funds Short-term Euro Interest Saving gained 1.91%, after deduction of the total expense ratio of 0.30% p.a.. The Modern Funds Invik Nordic Small Caps During 2006, the NAV per share for The Modern Funds Invik Nordic Small Caps gained 36.31%. Luxembourg, April 24, 2007 Note: The information stated in this report is historical and not necessarily indicative of future performance. Page 8

9 The Modern Funds Financial Statements at 31/12/06 Consolidated Sweden Top 30 Short-term Interest Saving Bond Index Saving Expressed in Notes Statement of net assets Assets Securities portfolio at cost price Unrealised profit (loss) on portfolio Securities portfolio at market value 2 Unrealized gain on financial instruments 2, 5 Cash at banks and time deposits Other assets Liabilities Bank overdrafts Other liabilities Net asset value Statement of operations and changes in net assets Income on investments and assets Management fees 3 Custodian & sub-custodian fees Bank interest General expenses Taxe d'abonnement 4 Performance fees Brokerage and futures fees Total expenses Net result from investments Net realised result on investment securities Other realised results Net realised result Movement on net unrealised loss/gain on : Investments securities Financial instruments Change in net assets due to operations Net subscriptions (redemptions) Increase/Decrease of net assets during the year Net assets at the beginning of the year Reevaluation of opening consolidated NAV Net assets at the end of the year 967,853, ,645, ,674, ,319, ,028, ,285, ,220, ,410, , ,409, ,443, ,330, ,127, , , ,181, , , , ,298, ,032, ,232, ,586, ,851, ,821, ,861, ,811, ,905, ,717, ,572, ,845, ,443, ,280, ,105, ,790, ,895, ,587,00 87,223, ,573, ,882, ,882, ,397, ,469, ,436, , , , , ,936, ,532, ,673, ,085, ,291, ,907, ,967,45 117,231, ,302, ,533, ,864, ,397, ,659, ,690, ,690, ,549, , , , ,526, ,471, , , , , , ,153, , ,127, ,127, ,830, ,957, ,568, ,526, ,692, ,143, ,202, ,941, ,464, ,287, , , ,485, ,944, , , , , , ,549, , ,897, ,620, , ,924, ,200, ,284, ,485, Page 9

10 The Modern Funds Financial Statements at 31/12/06 Expressed in Notes Eurotop 100 Statement of net assets Assets 5,567, Securities portfolio at cost price 4,940, Unrealised profit (loss) on portfolio -42, Securities portfolio at market value 2 4,897, Unrealized gain on financial instruments 2, 5 48,80 Cash at banks and time deposits 588, Other assets 32, Liabilities 9, Bank overdrafts Other liabilities 9, Net asset value 5,557, Statement of operations and changes in net assets Income on investments and assets 110, Management fees 3 20, Custodian & sub-custodian fees 5, Bank interest General expenses 11, Taxe d'abonnement 4 2, Performance fees Brokerage and futures fees 2, Total expenses 42, Net result from investments 68, Net realised result on investment securities -2, Other realised results 497, Net realised result 563, Movement on net unrealised loss/gain on : Investments securities 48, Financial instruments 11,70 Change in net assets due to operations 624, Net subscriptions (redemptions) 394, Increase/Decrease of net assets during the year 1,018, Net assets at the beginning of the year 4,538, Reevaluation of opening consolidated NAV Net assets at the end of the year 5,557, Short-term Euro Interest Saving 995, , , , , , , , , , , , , , , , , , , Invik Nordic Small Caps 9,896, ,413, ,473, ,886, , , , , ,799, , , , , , , , , , ,271, ,243, ,093, ,336, ,607, ,270, ,070, ,799, Page 10

11 The Modern Funds Key figures relating to the last 3 years Sweden Top 30 Short-term Interest Saving Bond Index Saving Eurotop /12/04 31/12/05 31/12/06 31/12/04 31/12/05 31/12/06 31/12/04 31/12/05 31/12/06 31/12/04 31/12/05 31/12/06 Shares "B" Number of shares Net asset value per share Net assets 373,029, ,545, ,864, ,868, ,397, ,315, ,947, , ,568, , ,526, , ,054, , ,284, , ,485, , ,175, , ,538, , ,557, , Page 11

12 The Modern Funds Key figures relating to the last 3 years Short-term Euro Interest Saving Invik Nordic Small Caps 31/12/04 31/12/05 31/12/06 31/12/04 31/12/05 31/12/06 Shares "B" Number of shares Net asset value per share Net assets 659, , , , , , ,070, , ,799, , Page 12

13 The Modern Funds Sweden Top 30 Securities portfolio at 31/12/06 Expressed in Quantity/ Nominal Denomination Quotation currency Market value% of net assets Transferable securities admitted to an official stock exchange listing 445,470, Shares 445,470, ,269 ABB REG.SHS 8,502, ,399 ALFA LAVAL 5,376, ,025 ASSA ABLOY -B- 8,049, ,369 ASTRAZENECA 20,715, ,391 ATLAS COPCO -A- FREE 15,039, ,583 ATLAS COPCO -B- FREE 7,233, ,695 AUTOLIV SWEDISH DEPOSIT RECEIPS 1,527, ,860 BOLIDEN AB 8,423, ,176 ELECTROLUX -B- FREE 6,463, ,111 ENIRO AB 2,363, ,292 HENNES & MAURITZ AB -B- FREE 39,891, ,231 HOLMEN -B- 2,750, ,967 INVESTOR -B- FREE 11,922, ,488 NOKIA SWEDISH DEPOSITORY RECEIPT 2,872, ,984 NORDEA BANK 43,675, ,932 SANDVIK AB 19,395, ,949 SECURITAS -B- FREE 5,732, ,315 SKANDINAVISKA ENSKILDA BANKEN -A- 22,688, ,371 SKANSKA -B- FREE 8,150, ,821 SKF -B- FREE 7,946, ,152 STORA ENSO -R- 1,528, ,994 SVENSKA CELLULOSA SCA AB-SHS-B- 10,722, ,467 SVENSKA HANDELSBANK -A- FREE 20,796, ,391 SWEDBANK -A- 20,474, ,766 SWEDISH MATCH 5,730, ,363,165 TELEFON AB L.M.ERICSSON -SHS-B- 65,341, ,005 TELE2 AB 6,000, ,585 TELIASONERA AB 40,251, ,904 VOLVO -B- FREE 22,115, ,969 VOSTOK NAFTA INVEST SWEDISH DEPOSIT REC. 3,789, Transferable securities dealt in on another regulated market 177,424, Bonds 177,424, ,000,000 SWEDEN TREASURY BILLS /01U 49,662, ,000,000 SWEDEN TREASURY BILLS /09U 19,528, ,000,000 SWEDEN TREASURY BILLS /09U 9,695, ,000,000 SWEDEN TREASURY BILLS /12U 9,652, ,000,000 SWEDEN TREASURY BILLS /06U 19,700, ,000,000 SWEDEN TREASURY BILLS /06U 9,736, ,000,000 SWEDEN TREASURY BILLS /03U 9,867, ,000,000 SWEDEN TREASURY BILLS /02U 29,833, ,000,000 SWEDEN TREASURY BILLS /03U 9,931, ,000,000 SWEDEN TREASURY BILLS /03U 9,815, Total securities portfolio 622,895, Page 13

14 The Modern Funds Short-term Interest Saving Securities portfolio at 31/12/06 Expressed in Quantity/ Nominal Denomination Quotation currency Market value% of net assets Transferable securities dealt in on another regulated market 69,690, Bonds 69,690, ,000,000 SWEDEN TREASURY BILLS /01U 9,977, ,000,000 SWEDEN TREASURY BILLS /01U 4,966, ,000,000 SWEDEN TREASURY BILLS /09U 8,725, ,000,000 SWEDEN TREASURY BILLS /12U 2,895, ,000,000 SWEDEN TREASURY BILLS /06U 9,739, ,000,000 SWEDEN TREASURY BILLS /06U 2,946, ,000,000 SWEDEN TREASURY BILLS /03U 4,950, ,000,000 SWEDEN TREASURY BILLS /03U 3,910, ,000,000 SWEDEN TREASURY BILLS /12U 8,646, ,000,000 SWEDEN TREASURY BILLS /02U 9,949, ,000,000 SWEDEN TREASURY BILLS /02U 2,983, Total securities portfolio 69,690, Page 14

15 The Modern Funds Bond Index Saving Securities portfolio at 31/12/06 Expressed in Quantity/ Nominal Denomination Quotation currency Market value% of net assets Transferable securities admitted to an official stock exchange listing 94,960, Bonds 94,960, ,000,000 SWEDEN /12A 7,503, ,000,000 SWEDEN /12A 10,060, ,000,000 SWEDEN (1040) /05A 11,403, ,000,000 SWEDEN /05A 10,670, ,000,000 SWEDEN /01A 13,326, ,000,000 SWEDEN /03A 15,826, ,000,000 SWEDEN /10A 8,682, ,000,000 SWEDEN /12A 9,078, ,000,000 SWEDEN /08A 8,408, Transferable securities dealt in on another regulated market 6,980, Bonds 6,980, ,000,000 SWEDEN /08A 6,980, Total securities portfolio 101,941, Page 15

16 The Modern Funds Eurotop 100 Securities portfolio at 31/12/06 Expressed in Quantity/ Nominal Denomination Quotation currency Market value% of net assets Transferable securities admitted to an official stock exchange listing 2,908, Shares 520, ABN AMRO HOLDING 6, AEGON NV 3, ALLIANZ AG NAMEN VINKULIERT 7, ASSICURAZIONI GENERALI SPA 6, ASTRAZENECA 10, AVIVA PLC 4, AXA 7, BANCO BILBAO VIZCAYA ARGENTARIA SA BBVA 7, BANCO SANTANDER CENTRAL HISPANO REG. 8, BASF AG 6, BAYER AG 4, BG GROUP 5, BNP PARIBAS 11, ,609 BP PLC 30, ,426 BT GROUP PLC 6, CARREFOUR 4, CIE SUISSE REASSURANCE REG CHF 2, CS GROUP NAMEN-AKT CHF 8, DAIMLERCHRYSLER REG. 6, DEUTSCHE BANK NAMEN 8, DEUTSCHE TELEKOM NAMEN 2, DIAGEO PLC 8, ENI AZ 12, EON AKTIENGESELLSCHAFT 10, FRANCE TELECOM 1, GLAXOSMITHKLINE PLC 19, ,594 HSBC HOLDINGS PLC (USD 0.5) 22, ING GROEP NV CERT OF SHS 10, ,014 LLOYDS TSB GROUP PLC 8, L'OREAL SA 7, LVMH MOET HENN.LOUIS VUIT. 5, MUENCHENER RUECKVERSICHERUNGS NAMEN 4, NESTLE SA REG.SHS CHF 13, NOKIA CORP 10, NOVARTIS SA REG.SHS CHF 17, PHILIPS ELECTRONICS, KONINKLIJKE 5, PRUDENTIAL PLC 3, ROCHE HOLDING GENUSSSCHEIN CHF 13, ROYAL BANK OF SCOTLAND GROUP PLC 12, ROYAL DUTCH SHELL PLC -A- 16, ROYAL DUTCH SHELL -SHS.B- 12, RWE -A- 6, SANOFI-AVENTIS 13, SANPAOLO IMI 3, SIEMENS NAM. AKT REG 9, SOCIETE GENERALE PARIS -A- 7, SUEZ (EX SUEZ LYONNAISE DES EAUX) 6, TELECOM ITALIA SPA ,020 TELEFON AB L.M.ERICSSON -SHS-B- 6, TELEFONICA SA 10, ,078 TESCO ORD PLC 6, TOTAL SA 22, UBS NAM.AKT CHF 17, UNILEVER CERT. SHS 5, VIVENDI 4, ,883 VODAFONE GROUP PLC 18, ,784 VODAFONE GROUP RED.NOM.CUM.PREF. 2, ZURICH FINANCIAL SERVICES NAMEN-AKT CHF 4, Bonds 2,387, ,000 FRANCE BTF /02U 795, ,000 ITALY BOT (12MESI) /01U 895, Page 16

17 The Modern Funds Eurotop 100 Securities portfolio at 31/12/06 Quantity/ Nominal Denomination Expressed in Quotation currency Market value% of net assets 700,000 ITALY BOT (3 MESI) /02U 696, Transferable securities dealt in on another regulated market 1,989, Bonds 1,989, ,000 BELGIAN TREASURY BILLS /02U 697, ,300,000 GERMANY T-BILL /02U 1,292, Total securities portfolio 4,897, Page 17

18 The Modern Funds Short-term Euro Interest Saving Securities portfolio at 31/12/06 Expressed in Quantity/ Nominal Denomination Quotation currency Market value% of net assets Transferable securities admitted to an official stock exchange listing 954, Bonds 954, ,000 ITALY BOT /06U 243, ,000 ITALY BOT (12 MESI) /09U 58, ,000 ITALY BOT (12 MESI) /12U 135, ,000 ITALY BOT (12 MESI) /11U 135, ,000 ITALY BOT (12MESI) /03U 97, ,000 ITALY BOT (12MESI) /02U 245, ,000 ITALY BOT (12MESI) /10U 38, Total securities portfolio 954, Page 18

19 The Modern Funds Invik Nordic Small Caps Securities portfolio at 31/12/06 Expressed in Quantity/ Nominal Denomination Quotation currency Market value% of net assets Transferable securities admitted to an official stock exchange listing 8,886, Shares 8,886, ,200 AARHUSKARLSHAMN AB 442, ,000 AB SAGAX 460, ,500 ALFA LAVAL 772, ,000 AXFOOD AB 283, ,000 BE GROUP AB 423, ,000 BEIJER ALMA INDUSTRI HANDEL -B- 404, ,000 FEELGOOD SVENSKA 358, ,200 GETINGE -B- 491, ,500 INVESTMENT AB KINNEVIK -B- 402, ,000 KAPPAHL HOLDING AB 430, ,000 LATOUR INVESTMENT -B- 561, ,000 LUNDIN PETROL 397, ,540 METRO INTERNATIONAL -B- SDR 14, METRO INTL -A- SWEDISH DEPOSIT.RECEIPT 6, ,100 MODERN TIMES GROUP -B- 495, ,000 NEFAB -B- 408, ,000 NIBE INDUSTRIER -B- 460, ,000 PROFFICE -B- 486, ,000 PROFILGRUPPEN-SHS-B- 455, ,500 RATOS AB -B- FREE 406, ,500 SECO TOOLS -B- 728, Total securities portfolio 8,886, Page 19

20 Geographical breakdown The Modern Funds Sweden Top 30 Breakdown per country % of net assets Sweden United Kingdom 2.89 Switzerland 1.19 Finland 0.61 Bermuda 0.53 Germany 0.21 Other assets Economical breakdown Breakdown per sector % of net assets Countries and central government Communications Banks and credit institutions Machine and apparatus construction 7.67 Miscellaneous trading companies 5.56 Road vehicles 3.08 Pharmaceuticals and cosmetics 2.89 Holding and finance companies 2.19 Paper and forest products 2.09 Miscellaneous sectors 1.34 Electrical engineering and electronics 1.19 Coal mining and steel industry 1.17 Building materials and trade 1.14 Miscellaneous consumer goods 0.90 Miscellaneous services 0.80 Tobacco and alcoholic drinks 0.80 Graphic art and publishing 0.33 Other assets Page 20

21 Geographical breakdown The Modern Funds Short-term Interest Saving Breakdown per country % of net assets Sweden Other assets Economical breakdown Breakdown per sector % of net assets Countries and central government Other assets Page 21

22 Geographical breakdown The Modern Funds Bond Index Saving Breakdown per country % of net assets Sweden Other assets Economical breakdown Breakdown per sector % of net assets Countries and central government Other assets Page 22

23 The Modern Funds Eurotop 100 Geographical breakdown Breakdown per country % of net assets Italy Germany France Belgium United Kingdom 3.39 Switzerland 1.40 The Netherlands 0.55 Spain 0.48 Finland 0.18 Sweden 0.11 Other assets Economical breakdown Breakdown per sector % of net assets Countries and central government Banks and credit institutions 2.40 Petroleum 1.79 Pharmaceuticals and cosmetics 1.34 Communications 1.14 Insurance 0.81 Utilities 0.42 Foods and non alcoholic drinks 0.33 Tobacco and alcoholic drinks 0.25 Retail trade, department stores 0.20 Chemicals 0.19 Various capital goods 0.17 Miscellaneous consumer goods 0.13 Road vehicles 0.12 Electronics and semiconductors 0.09 Other assets Page 23

24 Geographical breakdown The Modern Funds Short-term Euro Interest Saving Breakdown per country % of net assets Italy Other assets Economical breakdown Breakdown per sector % of net assets Countries and central government Other assets Page 24

25 Geographical breakdown The Modern Funds Invik Nordic Small Caps Breakdown per country % of net assets Sweden Luxembourg 0.21 Other assets Economical breakdown Breakdown per sector % of net assets Machine and apparatus construction Holding and finance companies Communications 9.75 Miscellaneous services 8.62 Pharmaceuticals and cosmetics 5.01 Foods and non alcoholic drinks 4.51 Textiles and garments 4.39 Coal mining and steel industry 4.32 Packaging industries 4.17 Electronics and semiconductors 4.12 Petroleum 4.06 Retail trade, department stores 2.89 Graphic art and publishing 0.21 Other assets Page 25

26 Notes to the financial statements Page 26

27 The Modern Funds Notes to the financial statements 1. General The Modern Funds (the "Company") was established on 16th December 1998 under Luxembourg law as a "Société d'investissement à Capital Variable à Compartiments Multiples". The Company complies with Part I of the law of March 30, 1998 and since February 07, 2006 with Part I of the law of December 20, 2002 of the Grand Duchy of Luxembourg and is organised in accordance with the Luxembourg law of 10th August 1915 with later amendments concerning commercial companies. Since December 2006, the Company is a self-managed SICAV in accordance with article 27 of the Law of The main objective of The Modern Funds is to supply a selection of sub-funds which satisfy the targeted investors different market expectations. 2. Principal accounting policies a) The financial statements are prepared in accordance with Luxembourg regulations relating to undertakings for collective investment. b) The value of any cash on hand or on deposit, bills and demand notes and accounts receivable, prepaid expenses, cash dividends and interest declared or accrued and not yet received is deemed to be the full amount thereof, unless in any case the same is unlikely to be paid or received in full in which case the value thereof is arrived at after making such discount as the Company may consider appropriate in such case to reflect the true value thereof. c) Securities listed on a recognised stock exchange or any other regulated market are valued at the last available price, unless such quotation is not representative. d) Securities not so listed as well as those for which the quotation as described in (c) above is not representative are valued by the Board of Directors on the basis of the probable sales price determined prudently and in good faith. e) Money market instruments are carried at amortised cost. The difference between cost and nominal value is prorated over the life of the securities. This difference is recorded under Other assets in the statement of net assets and credited to " Income on investments and assets" in the statement of operations and changes in net assets. f) The realised profits on futures are determined with FIFO method. The unrealised result on futures contracts are included in the statement of net assets. Realised and unrealised profits or losses are included in the statement of operations and changes in net assets. Futures are valued at their liquidating value based upon the settlement price on the stock exchange on which the particular future is traded. g) Dividends are credited to income on the date upon which the relevant securities are first listed on "ex-dividend". Interest income is accrued on a daily basis. h) The accounts for the different sub-funds stated in various currencies have been converted into for consolidation purposes at the following rate: 1 = Page 27

28 The Modern Funds Notes to the financial statements 3. Management, investment advisory and administration fees On December 1, 2006, the Board of Directors of the Company signed an Investment Management Agreement with Banque Invik S.A. (the "Investment Manager"). By way of remuneration for its services, the Investment Manager is entitled to receive from The Modern Funds a yearly fee of up to 2 percent of the Net Asset Value of the subfunds for which it has acted as manager. The fee calculation is based on the Net Asset Value of the sub-funds on every Valuation Date, and is payable at the end of each quarter. The Investment Manager in addition to the management fee may be entitled to a performance fee according to the calculation method described in the prospectus dated December On 25 October 2005, the Company signed a Custodian, Administrative, Registrar and Paying agent's Agreement with CACEIS Bank Luxembourg (CACEIS BL). Prior consent of the Company has been given in respect of the delegation of the Central Administration duties laid down in the Custodian and Central Administration Agreement to Fastnet Luxembourg S.A. The Company, CACEIS BL and Modern Funds Management Company (the Management Company ) signed a remuneration agreement as at October 25, Pursuant to this agreement the Management Company pays out of its management fee all fees and expenses charged by the Bank for the services rendered to the Company. In addition to the management fee, a performance fee is calculated for the sub-fund Invik Nordic Small Caps and is equal to 20% of the positive difference between the performance of the Net Asset Value per share and CSX-Carnegie Small Cap Sweden Index during the reference period according to the rules determinated in the last updated prospectus. 4. Taxation (Subscription duty) The Company is governed by Luxembourg tax law. Pursuant to the legislation and regulations which are prevailing, the Company is subject to an annual subscription duty ( taxe d abonnement ) of 0.05% which is payable quarterly and calculated on the basis of the Net Assets of each sub-fund on the last day of each quarter. However for sub-funds whose exclusive purpose is to invest in money market instruments and the placing of deposits with Credit institutions as referred to in the Grand-Ducal decree of April 14, 2003, taken in execution of article 129(1) of the Law of 2002, the yearly tax rate is 0.01%. Page 28

29 5. Commitment on futures The Modern Funds Notes to the financial statements At the date of the report, the Company had open commitments on futures as follows: The Modern Funds Sweden Top 30 Description - Future on indices Currency Quantity Market value Unrealised Gain in in Long OMX SWEDEN OPTIONS 2, ,305,000 1,587,000 MARKET INDEX FUT 01/07 OM-S The Modern Funds Eurotop 100 Description - Future on indices Currency Quantity Market value Unrealised Gain in in Long FTSE OTOP ,960,000 48,800 INDEX FUT 03/07 LIFFE 6. Changes in investment portfolio Changes in the investment portfolio for the year referring to the report can be obtained, on request, from the Registered Office and the Custodian. Page 29