ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS is an open-ended collective investment scheme organised as a multi-fund public limited liability company with variable share capital, registered in Malta on 13 June 2011 with registered number SV 188 under the laws of Malta and licensed by the Malta Financial Services Authority in terms of the Investment Services Act (Chapter 370 of the Laws of Malta). The Company qualifies as a 'Maltese UCITS' in terms of the undertakings for Collective Investment in Transferable Securities and Management Companies Regulations (S.L. 370.18).
Contents Directors, Officers and Other Information 1 Page (s) Report of the Directors 2-3 Directors' Responsibilities for the Financial Statements 4 Investment Manager's Report 5 Custodian s Report 6 Independent Auditors Report 7 Statement of Financial Position 8 Statement of Comprehensive Income 9 Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares 10 Statement of Cash Flows 11 Notes to the Financial Statements 12-27 Portfolio Statement 28 Significant Portfolio Changes (unaudited) 29
Directors, officers and other information Definitions: The "Company" The "Sub-Fund" Hospitaller European Optimised Yield Fund Board of Directors Registered Office Investment Manager Custodian Administrator Independent Auditors Legal Advisors Company Secretary Adam de Domenico Raymond Busuttil Stephen Muscat 171, Old Bakery Street Valletta, VLT 1455, Malta Finles N.V Euclideslaan 151,3584, BS Utrecht, Netherlands Deutsche Bank (Malta) Ltd. Level 10, Suite 1&3 Portomaso Business Tower, St. Julians STJ 4010 Malta Deutsche International Corporate Services (Ireland) Limited 3rd Floor, 5 Harbourmaster Place, IFSC, Dublin 1, Ireland Deloitte Audit Limited Deloitte Place, Mriehel Bypass, Mriehel, BKR 3000, Malta GANADO Advocates 171, Old Bakery Street, Valletta, VLT 1455, Malta Ganado Services Limited 171, Old Bakery Street, Valletta, VLT 1455, Malta 1
Principal Activities and Future Developments is a self managed collective investment scheme registered on 13 June 2011 and established as a multi-fund investment company with variable share capital (SICAV) incorporated with limited liability under the laws of Malta and licensed by the Malta Financial Services Authority ("MFSA") under the Investment Services Act (Chapter 370 of the Laws of Malta). The Company qualifies as a 'Maltese UCITS' in terms of the Undertakings for Collective Investment in Transferable Securities (UCITS) and Management Companies Regulations. There is one sub fund at the year-end, Hospitaller European Optimised Yield Fund (the "Sub-Fund") and no other sub-funds of the Company were in existence. The investment objective of the Sub-Fund is to track the performance of a portfolio consisting of equity securities ("the Benchmark index") that are listed and domiciled in Spain, Norway, Poland and Czech Republic, as set out in detail in the Prospectus. The investment objective was changed during the year. Previously the Benchmark index included performance of stocks listed on the Spanish Continuous Market only. Business Review During the year, the Company made a profit of 75,442,352 (2013: 60,673,350). The results for the year are shown in the Statement of Comprehensive Income on page 14 and related notes on pages 12-27. Dividends No dividend was paid or proposed during the year (2013: Nil). Report of the Directors The Board of Directors (the "Directors") present herewith their annual report and audited financial statements of Hospitaller Funds SICAV p.l.c. [the "Company"] and the Sub-Fund for the year ended 31 August 2014. The Company is constituted as a multi-fund public limited liability company. One of the primary implications of a multi-fund company is that it is able to issue one or more classes of shares which together constitute sub-funds of the company. Each sub-fund has an investment strategy which is specific to itself. Events during the year During the year ended 31 August 2014, 224,814 Redeemable Participating Shares amounting to 250,000,000 were subscribed to the Sub-Fund and 132,202 Redeemable Participating Shares amounting to 154,500,000 were redeemed out of the Sub-Fund. Directors and Secretary The Directors and Secretary of the Company are stated on page 1. Directors and Secretary s interests in shares of the Company The directors and secretary who held office on 31 August 2014 did not hold any shares in the Company at that date, or during the year. Standard license conditions and regulatory sanction During the year under review, there were no breaches of standard licence conditions and no other breaches of regulatory requirements which were subject to an administrative penalty or regulatory sanction. Principal risks and uncertainties The principal risks and uncertainties facing the Sub-Fund relate to the financial instruments held by it and are set out in note 13 to the financial statements. Events after the balance sheet date Except for the event disclosed in note 17 to the financial statements, there were no significant events affecting the Company subsequent to the financial period. 2
Report of the Directors (continued) Books of account The Directors are responsible for ensuring that proper books and accounting records as outlined in the Companies Act, 1995 (Chapter 386, Laws of Malta) are kept by the Company. To achieve this, the Directors have appointed Deutsche International Corporate Services (Ireland) Limited, an experienced third party fund administrator, to ensure that the requirements of the Companies Act, 1995 (Chapter 386, Laws of Malta) are complied with. The books and accounting records are maintained at the Administrator s office at 5 Harbourmaster Place, International Financial Services Centre, Dublin 1, Ireland. Independent auditor A resolution to re-appoint Deloitte Audit Limited as auditor of the Company will be proposed at the forthcoming annual general meeting. Approved by the Board of Directors on 18 December 2014 and signed on its behalf by: Stephen Muscat Director Raymond Busuttil Director 3
Directors' responsibilities for the financial statements The Companies Act, 1995 (Chapter 386, Laws of Malta) (the Act ) requires the Directors of (the Company ) to prepare financial statements for each financial period which give a true and fair view of the financial position of the Company as at the end of the financial period and of the profit or loss of the Company for that period in accordance with the requirements of International Financial Reporting Standards as adopted by the EU. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy, at any time, the financial position of the Company and to enable them to ensure that the financial statements have been properly prepared in accordance with the provisions of the Act. The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible to ensure that the Company establishes and maintains internal control to provide reasonable assurance with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations. The Directors are responsible to establish a control environment and maintain policies and procedures to assist in achieving the objective of ensuring, as far as possible, the orderly and efficient conduct of the Company s business. This responsibility includes establishing and maintaining controls pertaining to the Company s objective of preparing financial statements as required by the Act and managing risks that may give rise to material misstatements in those financial statements. In determining which controls to implement to prevent and detect fraud, the Directors consider the risks that the financial statements may be materially misstated as a result of fraud. Signed on behalf of the Board of Directors by: Stephen Muscat Director Raymond Busuttil Director 4
Independent Auditor's Report to the members of We have audited the accompanying financial statements of (the "Company") 2014 set out on pages 8 to 27, which comprise the statement of financial position as at 31 August 2014, and the statement of comprehensive income, statement of changes in net assets attributable to holders of redeemable participating shares and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Directors responsibility for the financial statements As explained more fully in the statement of responsibilities on page 4, the directors of the company are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and the requirements of the Companies Act (Chap. 386), and for such internal control as the directors determine 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 about 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 preparation of financial statements that give a true and fair view 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 internal control of the company. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the director, 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. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Company as at 31 August 2014, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU and have been properly prepared in accordance with the requirements of the Companies Act (Chap. 386). Paul Manduca as Principal in the name and on behalf of Deloitte Audit Limited Registered auditor 18 December 2014 7
Statement of Financial Position as at 31 August 2014 Note Hospitaller European Optimised Yield Fund 31-Aug-14 Hospitaller European Optimised Yield Fund 31-Aug-13 Assets Financial assets at fair value through profit or loss 3 2,950,796 93,541,404 Cash and cash equivalents 4 266,916,996 103,119,875 Other receivables 5 1,844,887 17,506,261 Total assets 271,712,679 214,167,540 Liabilities Financial liabilities at fair value through profit or loss 6 2,727,554 7,828,870 Investment management fee payable 9 45,535 13,829 Redemption payable 516,726 2,836,726 Other payables 7 219,438 106,227,041 Total liabilities (excluding net assets attributable to holders of Redeemable Participating Shares) 3,509,253 116,906,466 Net assets attributable to holders of Redeemable Participating Shares 15 268,203,426 97,261,074 Redeemable Participating Shares in issue Class A - 203,834.38 111,321.81 Net asset value per Redeemable Participating Share in issue Class A - 1,315.79 873.69 The financial statements were approved by the Board of Directors on 18 December 2014 and signed on its behalf by: Stephen Muscat Director Raymond Busuttil Director The notes on pages 12 to 27 are an integral part of these financial statements. 8
Statement of Comprehensive Income Note Hospitaller European Optimised Yield Fund Year ended 31-Aug-14 Hospitaller European Optimised Yield Fund Year ended 31-Aug-13 Dividend income 2 50,820,043 38,259,419 Other income 2-682 Other exchange losses (518,612) (100,461) Net gain from financial assets and liabilities at fair value through profit or loss 8 26,765,603 25,329,864 Total investment income 77,067,034 63,489,504 Investment management fees 9 554,128 1,152,386 Administration fees 9 199,872 187,311 Index fee 9 114,510 250,806 Interest expense 87,920 4,265 Transaction costs 2 72,668 494,780 Professional fees 70,182 146,613 Custodian fees 9 67,582 68,370 Directors' fees 9 45,078 40,714 Audit fees 9 16,166 22,136 Insurance fees 9 6,884 16,517 Other operating expenses 11,799 18,698 Total operating expenses 1,246,789 2,402,596 Increase in net assets attributable to holders of Redeemable Participating Shares before tax 75,820,245 61,086,908 Taxation 11 - - Dividend withholding tax expense (377,893) (413,558) Increase in net assets from operations attributable to holders of Redeemable Participating Shares 75,442,352 60,673,350 The results of the Company arise from continuing operations. The financial statements were approved by the Board of Directors on 18 December 2014 and signed on its behalf by: Stephen Muscat Director Raymond Busuttil Director The notes on pages 12 to 27 are an integral part of these financial statements. 9
Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares Hospitaller European Optimised Yield Fund Year ended 31-Aug-14 Hospitaller European Optimised Yield Fund Year ended 31-Aug-13 Balance at 1 September 2013/ 1 September 2012 97,261,074 565,389,639 Increase in net assets attributable to holders of Redeemable Participating Shares 75,442,352 60,673,350 Subscriptions and redemptions by holders of Redeemable Participating Shares: Issue of Redeemable Participating Shares during the year 250,000,000 255,500,000 Redemption of Redeemable Participating Shares during the year (154,500,000) (784,301,915) Total net subscriptions and redemptions by holders of Redeemable Participating Shares 95,500,000 (528,801,915) Balance at 31 August 2014 / 31 August 2013 268,203,426 97,261,074 The notes on pages 12 to 27 are an integral part of these financial statements. 10
Statement of Cash Flows Note Hospitaller European Optimised Yield Fund Year ended 31-Aug-14 Hospitaller European Optimised Yield Fund Year ended 31-Aug-13 Operating profit after taxation 75,442,352 60,673,350 Adjustments for: - Net gain from financial assets at fair value through profit or loss (26,754,483) (24,835,084) Operating cash flow before movement in working capital 48,687,869 35,838,266 Decrease in other receivables 15,661,374 1,858,340 Increase / (decrease) in Investment Management fee payable 31,706 (223,208) Decrease in other payables (106,007,603) (169,159) Net settlement on derivative transactions 57,255,054 545,214,585 Net cash provided by operating activities 15,628,400 582,518,824 Cash flows from investing activities Payments for purchase of investments (1,672,700,555) (2,685,755,173) Proceeds from disposal of investments 1,727,689,276 2,674,901,888 Net cash from / (used in) investing activities 54,988,721 (10,853,285) Cash flows from financing activities Proceeds from issue of Redeemable Participating Shares 250,000,000 255,500,000 Payments on redemption of Redeemable Participating Shares (156,820,000) (781,465,189) Net cash provided by / (used in) financing activities 93,180,000 (525,965,189) Net increase in cash and cash equivalents 163,797,121 45,700,350 Cash and cash equivalents at beginning of the year 103,119,875 57,419,525 Cash and cash equivalents at end of the year 4 266,916,996 103,119,875 Supplementary information: Dividends received 51,420,935 37,047,663 Interest paid 87,920 4,265 The notes on pages 12 to 27 are an integral part of these financial statements. 11
1. GENERAL INFORMATION On 14 August 2013, the Company changed its name from AVC Funds SICAV p.l.c. to (the "Company") is a self managed collective investment scheme registered on 13 June 2011 and established as a multi-fund investment company with variable share capital (SICAV) incorporated with limited liability under the laws of Malta and licensed by the Malta Financial Services Authority ("MFSA") under the Investment Services Act (Chapter 370 of the Laws of Malta). The Company qualifies as a 'Maltese UCITS' in terms of the Undertakings for Collective Investment in Transferable Securities (UCITS) and Management Companies Regulations. The registered office of the Company and Hospitaller European Optimised Yield Fund (the "Sub-Fund") is located at 171, Old Bakery Street, Valletta VLT 1455, Malta. The Sub-Fund's investment activities for the year ended 31 August 2014 are managed by Finles N.V, (the "investment manager"). The Company comprises of just one sub fund. The financial statements therefore relate to both Hospitaller Funds SICAV p.l.c and Hospitaller European Optimised Yield Fund. The Company also changed its investment objective. The Benchmark Index now includes performance of equity securities that are listed and domiciled in Spain, Norway, Poland and Czech Republic whereas previously it included performance of stocks listed on the Spanish Continuous Market only. During the year ended 31 August 2014, the shares of the Sub-Fund were offered for issue and sale. The base currency of the Sub-Fund is Euro (). As of 31 August 2014, no other Sub-Funds of the Company were in existence. 2. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation (i) Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("the applicable framework"). All the references in these financial statements to IAS, IFRS or SIC/IFRIC interpretations refer to those adopted by the EU. These financial statements have also been prepared and presented in accordance with the provision of the Companies Act 1995, (Chapter 386, Laws of Malta). (ii) Use of estimates and judgements The preparation of the Company's financial statements in conformity with the applicable framework requires Directors to make judgements, estimates and assumptions that affect both the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In the opinion of directors, the accounting estimates and judgements made in the course of preparing these financial statements are not difficult, subjective or complex to a degree which would warrant their descriptions as significant and critical in terms of the requirements of IAS 1 (revised). (iii) Functional and presentation currency These financial statements are presented in the currency of the primary economic environment in which the Company and the Sub-Fund operates. The functional and presentation currency of the Company and the Sub-Fund is the Euro (). is the currency noted in the Prospectus and is relevant to the stated investment strategy. (iv) Basis of measurement The financial statements of the Company have been prepared on a historical cost basis except for financial assets and financial liabilities at fair value through profit or loss, which are measured at fair value. 12
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of Preparation (continued) (v) New standard and interpretations in issue, early adoption IFRS 7- Financial instruments: Disclosures on Offsetting financial assets and financial liabilities (effective from 1 January 2013) The amendment contains new disclosure requirements for financial assets and financial liabilities that are offset in the statement of financial position or subject to master netting arrangements or similar agreements. There has been no material impact on the financial statements of the Fund. (vi) New standards and interpretations in issue, not yet adopted A brief outline of the likely impact on future financial statements of IFRS which are issued by the IASB but not yet effective and have not been adopted in the financial statements are as follows: IFRS 9 - Financial Instruments (effective from 1 January 2018) This Standard introduces new requirements for the classification and measurement of financial assets and is effective from 1 January 2018 with early adoption permitted. New requirements for classification and measurement of financial liabilities were added during 2010 but have not yet been adopted by the European Union. New requirements for derecognition of financial instruments, impairment and hedge accounting were added to IFRS 9 in 2011. As a result, IFRS 9 will eventually be a complete replacement for IAS 39. An early adopter of IFRS 9 continues to apply IAS 39 for other accounting requirements for financial instruments within its scope that are not covered by IFRS 9. Amendments to IAS 32 - Financial instruments: Presentation on Offsetting financial assets and financial liabilities (effective periods beginning on or after periods from 1 January 2014). These amendments are to the application guidance in IAS 32, Financial instruments: Presentation, that clarify some of the requirements for offsetting financial assets and inancial liabilities on the statement of financial position. This will have no material impact on the financial statements of the Company. The directors are assessing the impact that the adoption of these IFRS will have on the financial statements of the Company in the period of initial application. The directors anticipate that the adoption of other IFRS that were in issue at the date of authorisation of these financial statements but are not effective will have no material impact on the financial statements of the Company in the period of initial application. (b) Financial Assets and Liabilities at Fair Value through Profit or Loss Accounting for investments The Sub-Fund records investment transactions on a trade date basis, matching the cost of investments for the purpose of calculating realised gains and losses on a first-in, first-out basis. The Sub-Fund records an unrealised gain or loss to the extent of the difference between the cost and the fair value of the position at any particular point in time. The Sub-Fund records a realised gain or loss when the position is sold or closed. Realised gains and losses and the movement in unrealised gains and losses are recorded in the statement of comprehensive income within Net gain on financial assets and liabilities at fair value through profit or loss. 13
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial Assets and Liabilities at Fair Value through Profit or Loss (continued) Accounting for investments (continued) The Sub-Fund designates its financial assets and financial liabilities into the categories below in accordance with IAS 39; Financial assets designated at fair value through profit or loss. These include debt and equity instruments. Financial assets or financial liabilities held for trading are those acquired or incurred principally for the purposes of selling or repurchasing in the short term. Financial instruments designated at fair value through profit or loss upon initial recognition includes financial assets that are not held for trading purposes and which may be sold. Derivatives, including options, future contracts and forward contracts, are categorised as financial assets or financial liabilities held for trading. Recognition The Sub-Fund recognises financial assets and financial liabilities when all significant rights and access to the benefits from the assets and the exposure to the risks inherent in those benefits are transferred to the Sub-Fund on the trade date. Derecognition The Sub-Fund derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39. The Sub-Fund derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or expires. Measurement Financial instruments are measured initially at fair value (transactions price) plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial assets or liability. Subsequent to initial recognition, all instruments classified at fair value through profit or loss are measured at fair value with changes in their fair value recognised in the statement of comprehensive income. Financial liabilities, other than those at fair value through profit or loss, are measured at amortised cost using the effective interest rate. Valuation of investments The Fund has adopted IFRS 13 from 1 September 2012 and changed its valuation input for financial assets and liabilities measured at fair value, based on a quoted price in an active market, to last traded prices in cases where the last traded price falls within the bid-ask spread (last traded price cannot be used in cases where it falls outside the bid-ask spread). Where prices are not available, investments are valued on the basis of the probable realisation value, estimated by the Directors following a consultation with the Investment Committee and the investment manager. Derivatives Derivative financial instruments ( derivatives ) may include total return swap contracts, forward foreign currency contracts, futures, options and swap contracts, which are recorded at fair value. In the normal course of business, the Sub-Fund enters into derivative contracts for trading. Typically, derivative contracts serve as components of the Sub-Fund s investment strategies and are utilized primarily to structure investments to economically match the investment objectives of the Sub-Fund. 14
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial Assets and Liabilities at Fair Value through Profit or Loss (Continued) Derivatives (continued) The techniques and instruments utilised for the purposes of efficient portfolio management are those that are reasonably believed by the investment manager to be economically appropriate to the efficient management of the Sub-Fund. The main financial instruments include exchange traded and over-the-counter derivatives such as futures and options on individual stocks. The Sub-Fund uses derivative financial instruments to moderate or at times, enhance certain risk exposures within the investment portfolios. Futures contracts Futures contracts obligate the buyer or seller to buy or sell a standard quantity of a specific asset (or, in some cases, receive or pay cash based on the performance of an underlying asset, instrument or index) at a pre-determined future date and at a price agreed through a transaction undertaken on an exchange. For open futures contracts, changes in the value of the contract are recognised as unrealised gains or losses by marking-tomarket the value of the contract at the reporting date. When the contract is closed, the difference between the proceeds from (or cost of) the closing transactions and the original transaction is recorded as a realised gain or loss. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Realised and unrealised gains and losses on futures contracts are recognised in the statement of comprehensive income. Options Options give the buyer or seller the right, but not the obligation, to buy or sell a specific quantity of a specific asset at a fixed price at or before a specified future date. There are two forms of options: put or call options. Put options are contracts sold for a premium that give to the buyer the right to sell to the seller a specified quantity of a particular asset (or financial instrument) at a specified price. Call options are similar contracts sold for a premium that give the buyer the right to buy from the seller a specified quantity of a particular asset (or financial instrument) at a specified price. Realised and unrealised gains and losses on total options are recognised in the statement of comprehensive income. (c) (d) (e) (f) (g) Foreign Currency Transactions during the year denominated in foreign currencies have been translated at the rates of exchange ruling at the dates of the transactions. Assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the statement of financial position date. For foreign currency investment transactions and for foreign currency investments held at the year end, the resulting profits or losses are shown as other exchange losses in the statement of comprehensive income. Income Recognition Income arising on investments, as well as deposit interest, is accounted for on an effective interest basis. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or shorter period where appropriate, to the net carrying amount of the financial assets or financial liabilities. Dividends are recognised on the ex-dividend date. Expenses The fees and expenses relating to a Sub-Fund will be paid by the Company out of the assets of the relevant Sub-Fund. All expenses are recognised in the statement of comprehensive income on the accrual basis. Other receivables Other receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Other payables Other payables are not interest-bearing and are stated at their nominal value. 15
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) (i) (j) Transaction Costs In order to achieve its investment objective, the Sub-Fund incurs transaction costs in relation to trading activity on its portfolio. An amount of 72,668 are separately indentifiable transactions costs incurred by the Sub-Fund during the year ended 31 August 2014 (2013: 494,780). These include brokerage commissions, settlement fees, stamp duties and broker fee charges on equities, exchange traded futures contracts and options. Not all transactions costs are separately identifiable. Cash and Cash Equivalents Cash and cash equivalents comprises current deposits with banks. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Redeemable participating shares Redeemable participating shares are participating shares of no par value, which may be divided into different classes and which may include fractions of a whole share. Redeemable participating Shares are issued in relation to a particular Sub-Fund. The NAV per share for a Sub-Fund which is constituted by one class of redeemable participating shares shall be determined by dividing the net assets by the number of redeemable participating shares outstanding. The NAV per share for a Sub-Fund which is constituted by more than one class of redeemable participating shares, shall be determined by dividing the net assets attributable to that class of redeemable participating shares by the number of redeemable participating shares outstanding in that class. Under IAS 32, redeemable participating shares are required to be classified as liabilities, as the redeemable participating shareholders have the option to redeem these shares. 3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 31-Aug-14 31-Aug-13 Designated at fair value through profit or loss upon initial recognition Equity instruments 5,010 92,555,796 Held for trading Derivatives Equity Futures 2,945,786 985,608 2,950,796 93,541,404 Total financial assets at fair value through profit or loss 2,950,796 93,541,404 Refer to Page 28 for Portfolio Statement. 4. CASH AND CASH EQUIVALENTS 31-Aug-14 31-Aug-13 As at 31 August 2014 and 2013, cash and cash equivalents comprised of the following: Cash at bank 120,221 18,184,600 Amount held at broker 266,796,775 84,935,275 266,916,996 103,119,875 The majority of the cash balances are held with the broker, ED&F Man Capital Markets Ltd. 5. OTHER RECEIVABLES 31-Aug-14 31-Aug-13 Prepaid expenses 32,239 16,505 Dividend witholding tax reclaimable 1,812,648 1,211,756 Receivable for unsettled trades - 16,278,000 1,844,887 17,506,261 16
6. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 31-Aug-14 31-Aug-13 Held for trading Derivatives Equity Futures 2,727,554 7,828,870 2,727,554 7,828,870 Total financial liabilities at fair value through profit or loss 2,727,554 7,828,870 Refer to Page 28 for Portfolio Statement. 7. OTHER PAYABLES 31-Aug-14 31-Aug-13 Administration fee payable 114,281 26,261 Index fee payable 69,075 4,565 Custodian fees payable - 1,594 Audit fees payable 15,930 15,930 Professional fees payable 10,000 5,409 Payable for unsettled trades - 106,167,141 Other payables 10,152 6,141 219,438 106,227,041 8. NET GAIN FROM FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 31-Aug-14 31-Aug-13 Net gain/(loss) from financial assets at fair value through profit or loss: Derivative financial instruments Equity futures 64,327,667 (5,368,827) Equity options - 43,407,512 OTC options - (968,583) Equity investments (37,562,064) (20,020,454) Equity rights - 8,280,216 26,765,603 25,329,864 Net gain/(loss) from financial assets at fair value though profit or loss: Realised 22,169,894 42,211,826 Unrealised 4,595,709 (16,881,962) 26,765,603 25,329,864 9. FEES investment management fee Under the terms of the investment management Agreement, each Sub-Fund is bound to pay an investment management fee as specified in the related Offering Supplement of each Sub-Fund. The Company may apply different fees to different Sub-Funds and to different class of redeemable participating shares in any Sub-Fund of the Company. The investment manager will also be entitled to recover from the Company all properly incurred and approved out-of pocket expenses. 17
9. FEES (CONTINUED) investment management fee (continued) Finles N.V charges a fee of 0.2% per annum, pro-rated for the period for which the fee is due, and on the net asset value of the Sub-Fund as at the end of such period; subject to a minimum fee of 20,000 per calendar month which shall be reduced to 5,000 per calendar month for any period in which the net asset value of the Sub-Fund is at or below 3,000,000. The fee will be payable monthly in arrears. During the year ended 31 August 2014, investment management fees amounted to 554,128 (2013: 1,152,386), of which 45,535 was payable at 31 August 2014 (31 August 2013: 13,829). Administration Fees The administrator shall be entitled to receive out of the net assets of the Sub-Fund an administrative fee at an annual rate which will not exceed 0.08% of the net asset value of the Sub-Fund. The administrative fee is subject to a minimum of 80,000 per annum. The administrator will be reimbursed for all properly incurred and approved out-of-pocket expenses. During the year ended 31 August 2014, administration fees amounted to 199,872 (2013: 187,311), of which 114,281 was payable at 31 August 2014 (2013: 26,261). Director's and Officer's Fees The Directors will be paid annual fees for acting as Directors of the Company. The fees payable to the Directors on an aggregate basis will be in the region of 60,000 per annum. The Company will meet all travel, accommodation and other reasonable expenses incurred by the Directors in holding Board meetings and in relation to the business of the Company and will also be reimbursed for any justifiably incurred out-of-pocket expenses. During the year ended 31 August 2014, Director's Fees amounted to 45,078 (2013: 40,714), of which 14,775 was prepaid at 31 August 2014 (2013: prepaid of 7,217). Director's Indemnity Insurance During the year ended 31 August 2014, an amount of 6,884 (2013: 16,517) was paid in respect to director indemnity insurance. Custodian Fees The custodian shall be entitled to receive out of the net assets of the Sub-Fund a custody fee at an annual rate which will not exceed 0.025% of the net asset value of the Sub-Fund. The custodian fee is subject to a minimum of 20,000 per annum. The custodian will be reimbursed for all properly incurred and approved out-of-pocket expenses. During the year ended 31 August 2014, custodian fees amounted to 67,582 (2013: 68,370), of which 4,213 was prepaid at 31 August 2014 (2013: payable of 1,594). Audit Fees 31-Aug-14 31-Aug-13 Auditors' remuneration (excluding VAT) consists of: Auditors' Remuneration 16,166 22,136 Tax advisory services 7,599 932 23,765 23,068 Index Fee The Sub-Fund is subject to the payment of an Index Fee. A one time Initial fee of 15,000 and each calendar quarter the Company paid a fee to Markit, the Index Sponsor until 13 August 2013, in arrears, an amount equal to the greater of 30,000 in the first year, 5 basis points of the net asset value of the Sub-Fund during the previous quarter and from the second year, 7 basis points of the net asset value of the Sub-Fund during the previous quarter. The Sub-Fund appointed DeltaOne Solutions Ltd as the new Index Sponsor on 14 August 2013. The Company will pay the greater of 20,000 per quarter or 6 basis points based on the average physical assets under management (AUM) reported to DeltaOne Solutions Ltd on a quarterly basis in arrears. 18
9. FEES (CONTINUED) Soft Commissions The investment manager may make use of soft commission arrangements to enable it to obtain specialist services which assist in the provision of investment services to the Sub-Fund. Under such arrangements, no direct payment is made for such services or benefits, but instead the investment manager undertakes to place business with that party. There were no soft commissions paid during the year (2013: Nil). 10. RELATED PARTY DISCLOSURES The Company's related parties include key management and the investment managers as described below. The Company operated under an investment management agreement with Finles N.V. All investment management fees paid to the investment manager are disclosed separately in the statement of comprehensive income. Amounts payable at 31 August 2014 are included in the statement of financial position. During the year, only Stephen Muscat, Martin Scicluna and Raymond Busuttil acted as members of the Investment Committee. Adam de Domenico, a Director in the Company, also serves as the Company s compliance officer and his firm, Zodiac Advisory Services Limited ( ZAS ), has been retained to provide certain compliance related services to the Company. The annual fee payable by the Company to ZAS for these compliance services as well as to Mr. de Domenico for his services as compliance officer is 2,400 per year, excluding VAT and any applicable out-of-pocket expenses incurred. Related party Nature of relationship Transaction Transactions during the year ended 31-Aug-14 Balance at 31-Aug-14 Directors Board of Directors Director Fees 45,078 14,775 investment Finles N.V investment manager management Fees 554,128 (45,535) Zodiac Advisory Services Limited Compliance Officer Compliance 2,400 - Related party Nature of relationship Transaction Transactions during the year ended 31-Aug-13 Balance at 31-Aug-13 Directors Board of Directors Director Fees 40,714 7,217 investment manager (until 13 investment Arunvill Capital UK Limited August 2013) management Fees 1,140,773 (2,216) investment manager (from 14 investment Finles N.V August 2013) management Fees 11,613 (11,613) Zodiac Advisory Services Limited Compliance Officer Compliance 2,400 (1,200) 19
11. TAXATION In terms of current legislation in Malta, collective investment schemes are classified as either "prescribed" or "non-prescribed funds". The Company and the Sub-Fund is classified under Maltese law as a "non-prescribed fund" being a fund which has less than 85% of its assets situated in Malta and which has made a declaration to that effect. As a non-prescribed fund: (i) Income receivable by the Company and Sub-Fund (except from immovable property in Malta) is exempt from tax in Malta; (ii) (iii) Dividends receivable by the Company and the Sub-Fund from its investments are not subject to further tax in Malta; and The Company and the Sub-Fund is exempt from capital gains tax in Malta arising on disposals of securities or other assets. The Company (and dealings in its redeemable participating shares) is exempt from duty on transfer or stamp duty in Malta. Capital gains and dividends and interest on securities or other instruments issued in other countries may, however, be subject to withholding or capital gains taxes imposed by such countries and such taxes may not be recoverable by the Company or by investors. The Company and the Sub-Fund may incur value added tax on certain services which are not exempt. If any VAT is charged, this will not be recoverable by the Company. 12. SHARE CAPITAL Company The share capital of the Company shall be equal at any time to the value of the issued share capital of the Company. The Company may issue up to a maximum of 10,000,002,000 Shares without any nominal value assigned to them. Founder Shares The Company has issued 2,000 Founder Shares with no nominal value, which Founder Shares constitute a separate Class of Shares of the Company but does not constitute a sub-fund. The Founder Shares are ordinary shares which participate in the net assets of the Company on dissolution and liquidation after all the Redeemable participating shares have been repurchased. Sub-Fund Redeemable participating shares Redeemable participating shares are issued in relation to a particular Sub-Fund. Each Sub-Fund can be constituted by multiple classes of redeemable participating shares. Each class represents an interest in the Sub-Fund's portfolio, but may have its own characteristics, such as fee structure, minimum investment, minimum holding, dividend policy or base currency. Redeemable participating shares in issue must be fully paid-up. Redeemable participating shares have no par value and carry no preferential or pre-emptive rights. Unless otherwise provided in the Offering Supplement in respect of a Sub-Fund, each redeemable participating share, regardless of class, is entitled to one vote in all matters brought before a general meeting of shareholders. The Sub-Fund has currently issued Class A redeemable participating shares, with a limit of 1,000,000 Class A redeemable participating shares in issue. The Company may create further classes within the Sub-Fund in future. At the launch of the Sub- Fund, the initial investor subscribed for 550 Class A redeemable participating shares in the Sub-Fund at a value of 550,000 at the initial offering price of 1,000. As at 31 August 2014, 203,834.38 (2013: 111,321.81) Class A redeemable participating shares were in issue. 31-Aug-14 31-Aug-13 Shares Shares Opening balance 111,322 (28,789,155) 511,282 500,012,760 Subscriptions 224,814 250,000,000 228,698 255,500,000 Redemptions (132,302) (154,500,000) (628,658) (784,301,915) Closing balance 203,834 66,710,845 111,322 (28,789,155) 20
12. SHARE CAPITAL (CONTINUED) In order to subscribe for redeemable participating shares, the completed Subscription Application, supporting documentation and subscription amount in cleared funds should be received by the Company by 15:00 hours Malta time (CE1), three (3) business days prior to the intended subscription day, failing which, the application will be processed on the next subscription day after that. Redeemable participating shares purchased during the Initial Offering Period will normally be issued at the initial offering price and, thereafter at the Offering Price (the NAV per Share on the last Valuation Day) prevailing on the applicable subscription day, each increased by the relevant subscription fee which can be waived at the Board of Directors' discretion. The minimum initial investment and holding is 250,000 and the minimum additional investment is 100,000. In order to redeem redeemable participating shares, The redemption notice should be received by 15:00 hours Malta time (CET), five (5) business days prior to the intended redemption day, failing which, the application will be processed on the next redemption day after that. Redeemable participating shares are normally redeemed at the redemption price (the NAV per Share on the last Valuation Day) prevailing on the applicable redemption day. Shareholders redeeming will receive the redemption proceeds net of any applicable redemption fee, charges or amounts retained with respect to future contingent liabilities that are difficult for the Company to value. 13. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS The Company is exposed to a variety of financial risks as a result of its activities. The Company employs an investment committee that meets regularly to review the Sub-funds investment strategy and performance, as well as risk reports to ensure, amongst other things, that the investment management has been conducted in line with the applicable limits and restrictions. The Company also has appointed the investment manager who is responsible for developing the Company's investment strategies, executing the trading strategies and monitoring and reporting the results of the trading to both the Investment Committee and the Board of Directors. The Company has appointed both a compliance officer and a risk officer to monitor the Sub-Funds activities. The Company has set procedures for escalating deviations from approved trading strategies or limits. In addition, the compliance officer makes a quarterly report to the Board of Directors highlighting any issues of from the previous quarter or stating that there were no issues to report. The Company employs robust risk management techniques and risk management is an integral part of the investment management process. In the first instance, there is an agreed procedure to escalate deviations from the investment policies or strategies directly to the Board of Directors. These would include, for example, breaching any of the investment limits imposed by the UCITS IV Directive. In addition, the risk officer prepares a detailed monthly report reviewing the Sub-Funds performance for the period, highlighting its exposures and providing various risk management statistics. The main risks the fund is exposed to include market, liquidity and credit risk. The Sub-Fund manages these financial risks on an aggregate basis along with other risks associated with its investing activities. (a) Market Risk Market risk is the risk that changes in market prices will affect the Sub-Fund's income or its value of its holdings of financial instruments. The Investors are exposed to the market risk of the assets portfolio. Market risk embodies the potential for both gains and losses. Global Exposure The investment manager shall, in relation to Sub-Funds which follow plain vanilla investment strategies, assess leverage on the basis of the commitment approach. The investment manager shall convert a Sub-Fund s FDI positions into the equivalent positions of the underlying assets embedded in those derivatives based on the market value of the underlying assets and on the basis of the conversion rules set out below. The aggregate value of these notional positions shall not exceed 100 per cent of NAV of that Sub-Fund. Where the portfolio of a Sub-Fund includes transferable securities or money market Instruments that embed an FDI, the investment manager shall separate the embedded FDI from the host instrument and apply the commitment approach on such embedded FDI. 21
13. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED) (a) Market Risk (continued) The investment manager shall calculate the global exposure as an absolute positive number and in arriving at that figure it shall also take into account the netting and hedging rules described below. The commitment approach does not allow for the calculation of negative commitments. In calculating a Sub-Fund s global exposure, the investment manager shall net FDI positions with the corresponding security positions provided that: i. The FDI relates to the same underlying as the reference asset, rate or index and exhibits a high negative correlation; and/or ii. The overall risk profile of the Sub-Fund is reduced by the hedging transaction. The investment manager shall follow the conversion rules set out in the MFSA Rules applicable to the Company. Price risk Price risk is the risk that the value of an instrument will fluctuate as a result of changes in market prices, other than those arising from interest rate risk or currency risk, whether caused by factors specific to an individual investment, its issuer or all factors affecting all investments traded in the market. As the Sub-Fund's financial instruments are carried at fair value with fair value changes recognised in the statement of comprehensive income, all changes in market conditions will directly affect net investment income or loss. The Sub-Fund s investment objective is to track the Benchmark Index, which is an index comprised of equity securities that are listed and domiciled in Spain, Norway, Poland and Czech Republic. The investment manager attempts to track the Benchmark Index by purchasing the constituents of the Benchmark Index or by purchasing derivative contracts that replicate the Benchmark Index synthetically. The derivative contracts can be exchange traded futures contracts or over-the-counter options contracts, including fully funded option contracts. The Benchmark Index may rise or fall during any given week, and it is not within the investment manager s discretion to manage price risk other than by tracking the Benchmark Index. Because the Benchmark Index rebalances weekly, the investment manager is obliged to track the Benchmark Index. Foreign Currency and Exchange Rate Risk Currency risk is the risk which arises due to the assets and liabilities of the Sub-Fund held in foreign currencies, which will be affected by fluctuations in foreign exchange rates. Prospective investors whose assets and liabilities are predominantly in currencies other than the base currency of the Sub-Fund, should take into account the potential risk of loss arising from fluctuations in value between the currency of investment and such other currencies. Sensitivity analysis To the extent the Sub-Fund trades in currencies other than its functional currency, it manages the resulting currency risk through hedging such that it would not have a material amount of currency risk. Interest Rate Risk Interest rate risk is the risk borne by an interest-bearing asset due to variability of interest rates. The Sub-Fund invests in listed equity securities and derivatives with respect to listed equity securities. The derivative contracts are very short dated derivative securities and, therefore, do not contain a material amount of interest rate risk for the Sub-Fund. 22