DISCOVER ASIA INVESTMENTS AND
DISCOVER EUROPE INVESTMENTS
(SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 2011
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
CONTENTS
MANAGEMENT AND ADMINISTRATION .................................................................................. 1
INVESTMENT MANAGERS REPORT ........................................................................................... 2
- Discover Asia Investments Sub-Fund ......................................................................................... 2
- Discover Europe Investments Sub-Fund ..................................................................................... 7
REPORT OF THE DIRECTORS ..................................................................................................... 10
REPORT OF THE AUDITORS ....................................................................................................... 13
AUDITED FINANCIAL STATEMENTS ....................................................................................... 15
- Discover Asia Investments Sub-Fund
- Discover Europe Investments Sub-Fund
- Statements of comprehensive income ....................................................................................... 15
- Statements of financial position ................................................................................................ 16
- Statements of cash flows ........................................................................................................... 17
- Statements of changes in net assets attributable to holders of redeemable ordinary shares ...... 18
- Notes to the financial statements ............................................................................................... 19
INVESTMENT PORTFOLIOS (UNAUDITED) ............................................................................. 49
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
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MANAGEMENT AND ADMINISTRATION
Registered Office
M&C Corporate Services Ltd.
PO Box 309, Ugland House, South Church Street, George Town
Grand Cayman, Cayman Islands, British West Indies
Board of Directors
James MELLON (Chairman) (British) Anthony BAILLIEU * (British)
Collinson House Le Mondiol
Spaldrick, Port Erin 24170 Doissat
Isle of Man France
Markus WINKLER (Swiss) Dr Peter BIRKENMAIER * (Swiss)
Frohalpstrasse 20 Sonnenbergstrasse 16
CH-8038 Zurich 2 CH-8032 Zurich 7
Switzerland Switzerland
* Independent non-executive directors
Investment Manager Custodian and Registrar
Terra Partners Group Credit Suisse c/o Appleby Corporate Services Paradeplatz 8
75 Fort Street 8000 Zürich
Clifton House Switzerland
P.O. Box 1350 GT
Grand Cayman
Cayman Islands Auditors
BDO
Administrator P.O. Box 31118
2nd
Floor-Building 3
European Fund Administration S.A. Governors Square
2 rue d’Alsace 23 Lime Tree Bay Avenue
P.O. Box 1725 Grand Cayman KY1 1205
L-1017 Luxembourg Cayman Islands
Legal Adviser
In the Cayman Islands
Maples and Calder
PO Box 309
Ugland House
South Church Street
George Town, Grand Cayman
British West Indies
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
- 2 -
INVESTMENT MANAGERS REPORT
Discover Asia Investments
Whilst the 19th century was greatly influenced by Europe and the 20
th century was much influenced by the
USA, it is the Pacific Rim which is the focus of attention in the 21st century. Demography is the major
factor responsible for Asia’s upswing. Approximately half the world’s population lives in Asia and, due
to the enormous pent-up demand, the tiger economies have growth rates that Europe and even the USA
can only dream of. Furthermore, they are free from the debt problems that industrialised countries know
only too well. Below is a table providing the most important economic indicators, together with a
discussion of the most important tiger economies.
Country
GDP per
capita
(USD / PPP)
GDP growth
2011
FDI 2011e
(in %
GDP)
Current
Account
(in %
GDP)
Government
Debt
(in % GDP) PE
Dividend
Yield
China 7'600 8.9% 4% 5.2% 18% 12.9 2.0%
India 3'580 6.1% 3% -2.7% 69% 15.3 1.5%
Indonesia 4'325 6.5% 2% 0.9% 27% 18.8 1.9%
Malaysia 14'730 5.8% 4% 11.8% 54% 15.6 3.0%
Philippines 3'970 3.6% 1% 4.5% 47% 18.9 2.6%
Thailand 8'555 -9.0% 3% 4.6% 44% 15.3 3.8%
Vietnam 3'205 6.1% 10% -3.8% 53% 9.5 4.3%
China is not only Asia’s "power house”, but is also increasingly the world’s economic driving force.
After years with growth rates of 10%, the economy, and particularly the property market, was subject to
the risk of overheating. The Chinese government and central bank therefore adopted a restrictive
monetary and credit policy. As a result, the economic growth slowed to 8.1% in the first quarter of 2012.
As inflation is also gradually declining (due to the so-called statistical effect, since the price of natural
resources and particularly the price of food has stabilised at a high level), the interest rate and credit
controls can be relaxed. The stock exchange, which has suffered from restrictive policies in the last two
years, was the first to react to the change of policy and has gained just under 9% since the beginning of
the year. As the valuations (PE) are lower than the profit growth that can be sustainably achieved (PEG
<1), the Chinese stock exchange may rise further. However, longer-term development depends on
whether China manages to reduce its dependency on exports and stabilise economic development by
stimulating private consumption. Initial successes in this direction seem to be looming. For example,
growth in industrial production and exports has slowed to 11.6% and 8.9% respectively over the last 12
months, whereas retail sales have increased by 15.2%. The increasing social tension (on one hand
between East and West, and between the urban and rural areas, as well as in terms of the significant
differences in income and the difficulties high-school leavers are experiencing in finding suitable jobs)
and the ever increasing demand for more individual freedom, which conflicts with the party’s absolute
claim to power, poses a challenge for the government as well as a risk for the economy’s development.
An open economy without internal liberalisation and democratisation is a permanent and impossible
balancing act.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
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INVESTMENT MANAGERS REPORT (CONTINUED)
Discover Asia Investments (continued)
India will overtake China as the most populous country in a few years’ time, due to the unfettered growth
of its population. However, from an economic point of view, India is increasingly falling behind.
Although there is a growing number of affluent (middle-class) Indians, the vast majority of Indians still
live below the poverty line. The infrastructure built by the British is increasingly falling apart and
preventing the economy from developing, whilst the political system is unable to carry out the reforms
that are desperately needed. The problem of environmental pollution is alarming and water supply in
particular is an ever greater problem. This, together with the problem of climate change, is resulting in
declining agricultural production and driving many impoverished / over-indebted farmers to suicide.
Microfinance loans could help, but populist politicians called for a boycott of loan repayments in the state
of Andhra Pradesh, resulting in microfinance institutes significantly reducing lending, whereby farmers
are finding themselves more than ever at the mercy of private loan sharks. Economic growth is attractive
at 6-7%. However, this is not enough to improve the economic situation of uncontrolled growth of a
population that is growing unchecked (in terms of purchasing power parity, GDP per head and per annum
is less than half that of China!). India has to import food, which leads to a deficit in trade balance and
current account balance, putting the rupee under devaluation pressures. As one of the BRICS, India is
attracting investors. With an average PE of more than 15, shares are well valued, particularly as the level
of interest rates is 9%.
Indonesia has been a positive surprise over the last few years. President Susilo Bambang managed to lead
the economy towards stability and prosperity. Inflation is under control at just under 4%, the trade
balance is positive, the currency reserves are comfortable with USD 110bn, the public debt is very modest
at less than 30% of GDP and the currency is attractive and therefore stable with interest rate at 6%. A
large, young population (approximately 240m), therefore providing a cheap and plentiful labour force,
independence in terms of natural resources (although Indonesia currently has to import oil, it exports coal
and particularly agricultural products) and stable political and economic relations have attracted
increasing numbers of financial investors in recent years. Stock valuations are hefty (PE almost 19) and
the risk of price corrections has increased. Indonesia therefore only suits investors with good nerves, who
are not panicked by price corrections such as those in August/September 2011 (market fell by 25%, but
completely recovered again by March 2012).
Malaysia clearly differs from Indonesia, although the trends of the Kuala Lumpur and Jakarta stock
exchanges are almost congruent. The sudden price falls in autumn 2008 due to the global financial crisis
and in August/September 2011 triggered by the loss of the AAA rating by the USA show that foreign
investors and speculators are greatly responsible for the course of prices. In terms of population, Malaysia
is one of the smallest tiger economies with 28.5m people. However, in terms of purchasing power parity,
the GDP per capita is almost twice that of China with USD 14,730. The major difference can particularly
be attributed to Malaysia's abundance of natural resources (oil, rubber, palm oil, tin). Over the last 20
years, the export share of these natural resources has gradually declined and now amounts to just under
50%, whilst the export of electrical and electronic appliances and components has become increasingly
significant. Malaysia has generated a substantial trade surplus (USD 120bn in 2011) with increasing
currency reserves (currently USD 136bn). Inflation is extremely low with a good 2% and the ringgit is
continually appreciating. Economic growth has levelled out at slightly more than 5% after the slump in
2009. The budget deficit has stabilised at 5.5% after the outlier in 2010 (7.4%) and public debt is still in
the green zone with 54% of GDP. With a PE of just under 16, the valuation is not excessive, although the
remaining price potential is very limited.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
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INVESTMENT MANAGERS REPORT (CONTINUED)
Discover Asia Investments (continued)
Thailand is slowly returning to normality after the flood of the century in autumn 2011. The damage has
not yet been repaired and only half the factories affected are functioning normally again (the operating
rate picked up in February to 62.3%). The flooding of important industrial parks has led to a temporary
decline of 47% in industrial production and, as exports contribute to around 70% of GDP, Thailand
recorded a fall in GDP of 10.7% in the 4th quarter of 2011. However, growth of 5.7% is expected again
for 2012. Inflation is stable at 3.4%. The trade balance and current account balance are positive and the
currency reserves are stable with almost USD 180bn. The baht, which (except for a brief spell during the
global financial crisis) has gradually risen in value against the US dollar, has trended sideways for almost
2 years at THB 31 to the US dollar. The decline in share prices after the USA lost its AAA rating was
even sharper as a result of the flood of the century. But even in October, a recovery had begun that drove
the SET index to a new high. Therefore, shares are no longer cheap (average PE of 15.3), which is why
only selective investments should be made at best.
Vietnam, like China, in 2008 put together a stimulus package to mitigate the feared effects of the global
financial crisis; this package included, among other things, increases in the money supply and credit, as
well as a devaluation of the dong by small increments. The rise in global market prices for food and
energy in 2009-2011, together with a weakening of the currency, led to a sharp increase in consumer
prices, as these commodity groups are weighted at approximately 53% in the consumer basket for the
calculation of consumer price increases. Although an imported inflation can be tackled with a restrictive
monetary and credit policy only to a very limited extent, the State Bank of Vietnam (SBV), being under
heavy public pressure, put on the brakes, raising the deposit rate to 21% and limiting credit growth to
16%. This was the main reason for the disappointing development of the Vietnamese stock exchange over
the last two years (see VN Index below).
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
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INVESTMENT MANAGERS REPORT (CONTINUED)
Discover Asia Investments (continued)
The table below shows the monthly and annual inflation rate for 2010 to 2012. Food and energy prices
remain high, but they are excluded from the calculation of the annual inflation after 12 months. Thus the
latter fell again even more quickly than expected. Inflation was just 0.05% in April compared with 3.32%
in April 2011 and as a result, annual inflation fell to 10.54%. According to first calculations monthly
inflation in May is only 0.18% compared to 2.21% a year earlier. Thus the annual inflation fell further to
8.34%. As economic growth in the first quarter (traditionally weak as a result of Tet) slowed to 4.1%, the
SBV lowered the deposit rate by 1% in mid-March and again in early April to the current rate of 12%.
This means that the maximum lending rate fell from 21% to 18%. In view of the weak economy and the
sharply declining annual inflation, a further fall in interest to 9% or 13.5% (deposit and lending rate
respectively) is to be expected over the next month.
Month Jan '10 Feb '10 Mar '10 Apr '10 May '10 Jun '10 Jul '10 Aug '10 Sep '10 Oct '10 Nov '10 Dec '10
Monthly
inflation 1.36% 1.96% 0.75% 0.14% 0.27% 0.22% 0.06% 0.23% 1.31% 1.05% 1.86% 1.98%
Annual
inflation 7.62% 8.46% 9.46% 9.23% 9.05% 8.69% 8.19% 8.18% 8.92% 9.66% 11.09% 11.75%
Month Jan '11 Feb '11 Mar '11 Apr '11 May '11 Jun '11 Jul '11 Aug '11 Sep '11 Oct '11 Nov '11 Dec '11
Monthly
inflation 1.74% 2.09% 2.17% 3.32% 2.21% 1.09% 1.17% 0.93% 0.82% 0.36% 0.39% 0.53%
Annual
inflation 12.17% 12.31% 13.89% 17.51% 19.78% 20.82% 22.16% 23.02% 22.42% 21.59% 19.83% 18.13%
Month Jan '12 Feb '12 Mar '12 Apr '12 May '12
Monthly
inflation 1.00%* 1.37%* 0.16% 0.05% 0.18% * influence of Tet and electricity price increases
Annual
inflation 17.27% 16.44% 14.15% 10.54% 8.34%
But, besides inflation and interest rates, there is good news on other fronts too: FDI, which, as a result of
imports of capital goods (e.g. for the production of chip sets by Intel or for the production of mobile
phones by Samsung), led to the trade balance plummeting well into the red, have begun to pay off over
recent years. Exports have grown by 24% in comparison with last year and imports have only increased
by approximately 10%, which, according to initial calculations, has led to a drastic improvement in the
trade balance of almost USD 4.9bn in the first 4 months. If there is no mistake, Vietnam will show a
balanced or even positive trade balance in 2012. As transfers from overseas Vietnamese amount to USD
8-9bn per annum and disbursed FDI amount to around USD 11bn, the devaluation pressure on the dong is
over and the currency reserves are increasing. In 2010 the budget deficit which went completely off
course (7.7%), is falling again and the public debt is in the green zone at 53%.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
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INVESTMENT MANAGERS REPORT (CONTINUED)
Discover Asia Investments (continued)
VN - Index
The rapid decline in inflation and the possibility of monetary and credit policy being further relaxed, as is
conceivable, has reanimated the stock exchange somewhat. The two-year bear trend is clearly broken and
confirms the presence of a new "bull market". The stock market valuations in the foregoing table give a
clear idea of Vietnam's stock price potential. Once the VN-Index breaks the resistance level at 500-530
points, there will be nothing to prevent an increase to 600 points. The rise in stock prices was previously
sustained by local investors. However, it is known that Vietnam has again appeared on the radar screen of
international investors due to the highly favourable valuations. The limited market liquidity, which is
causing excessive price losses in a slump, could now even lead to a sharper rise in prices than expected.
The PE and PEG (<0.4) indicate that there is plenty of room to rise.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
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INVESTMENT MANAGERS REPORT (CONTINUED)
Discover Europe Investments
The table below shows the development of 4 key macroeconomic indicators for assessing the economic
trends. If these are compared with the estimates a year ago, it can be observed that in 2011 economic
growth roughly corresponded to expectations, while the rate of unemployment and the balance on current
account exceeded expectations. Only annual inflation turned out worse than expected (this is due to the
high weighting of energy and food prices in most emerging markets). In terms of growth and
employment, a slight decline is expected for 2012, whilst a significant improvement, however, is
expected for 2013. No major changes are expected with regard to the current account balance for
2012/2013 and consumer price increases should fall again, subject to any unexpected external influences.
The economic trend for central Europe has been shaped by the global financial crisis. Over the previous
years, the region recorded strong growth and thereby attracted many corporate and financial investors.
The level of interest rates, which was much higher than in Western Europe, also attracted a great deal of
“hot money”. The financial crisis stemming from the USA caused a loss of confidence, leading to a
sudden outflow of “hot money” and plunging the Central European countries into a financial and
monetary crisis. With the exception of Poland, all countries had to approach the IMF for help. The latter
prescribed the usual drastic treatment of higher income (taxes) and lower expenditure and higher interest
rates in order to regain investors’ confidence and stop the outflow of capital. This was achieved, but with
an extremely high price to pay: the countries were plunged into a veritable recession with enormous
social problems and costs. On the upside, Central Europe (with the exception of Hungary) is currently
doing much better regarding public finances, productivity and competitiveness than Western Europe and
the peripheral euro countries in particular. As mentioned, the social costs, however, were enormous and
the economic catch-up was interrupted for two years. In this context, it’s really interesting to note the
different yardsticks the IMF (which is dominated by the USA) is using to measure the situation in
emerging markets on the one hand and in the USA on the other hand. A brief discussion of the individual
countries is provided below:
GDP Growth
(%) Unemployment Rate
(%) (annual average) Current Acct. Deficit
in % GDP Annual Inflation
(%)
2011 2012
est.
2013
est.
2011 2012
est.
2013
est.
2011 2012
est.
2013
est.
2011 2012
est.
2013e
st.
Czech
Rep.
1.8 0.5 2.5 6.8 7.0 7.0 2.1 2.0 0.0 2.2 3.2 2.0
Hungary 1.7 -0.5 2.0 10.0 11.0 10.5 +2.0 +2.2 +1.7 3.9 5.0 3.5
Poland 4.3 3.0 4.1 10.0 9.0 8.5 4.1 4.0 4.3 3.9 2.5 2.5
Slovakia 3.3 1.5 3.0 13.4 13.5 13.0 0.0 0.7 1.3 4.1 2.5 3.0
Bulgaria 1.6 0.0 1.3 11.2 12.0 11.0 1.9 1.2 0.0 3.4 3.0 3.0
Romania 2.5 1.0 3.0 7.3 7.5 7.0 4.2 4.6 4.5 5.8 4.0 4.0
Russia 4.3 4.2 4.1 6.6 6.6 6.7 +5.5 +4.0 +3.1 8.5 5.0 6.0
Source: UniCredit Bank Austria, WIIW
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
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INVESTMENT MANAGERS REPORT (CONTINUED)
Discover Europe Investments (continued)
The Czech Republic stands out due to its stable development. Although the Czech Republic recorded
negative economic growth of -4.1% in 2009, its economic growth rapidly picked up to approximately
+2% again. In future, it may fluctuate between 0.5% and 2.5%. The rate of unemployment at just under
7% and the rate of inflation at 2.3% are among the lowest in Central Europe. With a current account
deficit of 2% and a budget deficit of 3-4% of GDP, the entry requirements for the eurozone would be
virtually met. Furthermore, with a public debt of only 42% and a foreign debt of 49%, the Czech Republic
would even be a paragon in the eurozone. However, as it seems, Prague is no longer in any hurry to join
the euro. The Czech crown has recently increased in value against the euro. In view of the stable financial
situation and economic trend, as well as moderate inflation of 3%, 10-year government bonds only yield
2.5%, i.e. the real yield is slightly negative. Already in 2009, the stock exchange had mostly made up the
2008 slump, but since then it’s going sideways at a slightly lower level due to the lack of new stimulus.
Not much will change in the near future as interest rates are low (with an upwards trend) and the
economic trend is stable but not above-average.
Hungary is going through some politically and economically difficult times. A dangerously high foreign
debt (140% of GDP), particularly in Swiss francs, forced Hungary under the protective umbrella and the
thumb of the IMF in 2008. The austerity policy imposed by the IMF led to a sharp recession in 2009
(GDP -6.7%) from which Hungary has not fully recovered up to date. Economic growth fluctuates
between 1% and 2%, but could even fall slightly into negative territory again in 2012. The budget deficit
was significantly reduced through austerity measures (2011 even resulted a surplus) and the current
account balance is slightly positive. The public debt of approximately 80% of GDP, which is comparably
high by Central European standards, and particularly the foreign debt of 140% of GDP are still
unresolved and will hardly improve given the weak economic trend. The IMF’s drastic treatment brought
the nationalist circles great popularity; and, with a number of populist as well as undemocratic decrees,
the head of government, Mr Orban of the Fidesz party, has marginalised himself within the EU. The
future outlook for Hungary is therefore anything but bright and rosy, which is reflected in the wasting
Forint and a rather underwhelming stock market trend.
Poland was the only Visegrad country that was able to master the crisis and avoid a recession without
external help (IMF). Economic growth slowed to 1.6% in 2009, but picked up again to 4% in 2010. The
budget deficit temporarily increased to almost 8% of GDP, but is now continually declining again and
should be less than 4% of GDP this year and less than 3% of GDP in 2013. The public debt of 56.6% of
GDP and the foreign debt of 68% of GDP are in the green zone. 10-year government bonds yield 4.9%,
which, with an expected consumer price increase of 2.5% in 2012, gives a real yield of 2.4%.
Accordingly, it is expected that the development of the zloty will remain stable. The Warsaw stock
exchange made a strong recovery in 2009/2010, but it suffered a downturn again in 2011. The outlook
remains positive.
Slovakia never ceases to amaze. Thanks to a flat tax of 19%, Slovakia was able to attract many foreign
investors and transform itself from the impoverished brother of the former Czechoslovakia to Central
Europe’s model student. Economic growth collapsed from its record of 10.6% (2007) to -4.8% (2009),
but rapidly picked up again to 4% (2010). Accession to the eurozone on 1 January 2009 did not only have
advantages, but “thanks” to a rate of unemployment of around 13%, Slovakia has been able to maintain
competitiveness to date. The current account balance is almost balanced and the budget deficit is not
alarming at 4.6% of GDP. Public debt and foreign debt are reasonable at 44% and 78% of GDP
respectively. As a euro country, Slovakia does not pursue separate monetary and interest-rate policies.
The Bratislava stock exchange virtually made up for the slump in 2007/2008. Due to the limited number
of liquid securities, equity investments in Slovakia are currently not a “must”.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
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INVESTMENT MANAGERS REPORT (CONTINUED)
Discover Europe Investments (continued)
Bulgaria introduced a currency board arrangement with its currency (lev) fixed to the euro years ago,
which, on the one hand, has had a disciplinary effect on the government (public debt <20% GDP), but, on
the other hand, has deprived Bulgaria of the possibility of resorting to fiscal and monetary stimulus.
Although the economic slump in 2009 (GDP -5.5%) was a one-off, economic growth has never since
reached 2% (the forecast for 2012 is between 0 and 1.2%). Accordingly, the rate of unemployment
remains above 11% (however, in Bulgaria, where agriculture plays a key role, the rate may actually be
significantly higher). The budget deficit is extremely modest at 1-2% of GDP and the current account
balance is even positive. Whilst public debt is very low, foreign debt (at approximately 90%) is in the
yellow zone (this may be the result of the currency board). Inflation and interest rates are 3%, which
should act as a slight stimulus. Share prices were unable to recover from the slump in 2007/2008 and are
going sideways since. An interesting territory for a bargain hunter!
Romania was also severely affected by the global financial crisis and, as they have sought help from the
IMF and therefore had to adopt a very restrictive policy (cuts of 25% in the salaries of public-sector
employees, increase in VAT from 19% to 24%, etc.), instead of an expansionary fiscal policy to support
the economy, the recession was unnecessarily made worse (2009 GDP -7.1%). On the upside, the budget
deficit remained under control, public debt remained under 40% of GDP and foreign debt is in the green
zone at approximately 70% of GDP. Although the current account balance shows a deficit of 4.4% of
GDP, the leu is generally stable against the euro. This might be attributed to the reflux of capital due to
interest rates, which are still rather high (reference rate 5.5%). The inflation rate of 4% can be attributed
in particular to high (international) energy and food prices. As these, however, are gradually falling out of
the calculation of the annual inflation, the latter will fall further. This will enable the central bank to
further ease interest rate controls cautiously over the course of the year. This should boost not only the
economy, but also the stock exchange. The latter has trended sideways at a low level for the past 2 years
and has an interesting upside potential, as the company valuations are highly favourable. Romania’s
population of over 20 million, making it the second largest in Central Europe, as well as its enormous
pent-up demand and EU financial support are also in Romania’s favour.
Although the valuations in Central Europe are favourable overall, it is not recommendable to buy the
index. Instead investments should be made very selectively. With an entrepreneurial investment style,
Discover Europe Investments has weathered the global economic crisis rather well (performance: 3 years
+36%, 5 years -14% and 10 years +147%) and is in a good position to benefit from the continued
recovery, particularly in Romania.
Terra Partners Group
June 2012
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
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REPORT OF THE DIRECTORS The directors hereby submit their annual report together with the audited financial statements of Discover Asia Investments and Discover Europe Investments (“the Sub-Funds”) together constituting Discover Investment Company (the “Company”) for the year ended 31 December 2011. The company The company is an open-ended investment company, incorporated with limited liability on 27 May 1994 in the Cayman Islands as an umbrella fund, and is empowered under the laws of the Cayman Islands to issue and redeem its issued shares, in separate classes. The different classes of shares will each be linked to a separate investment portfolio (“Sub-Funds”). This structure is designed to ensure that investors have the flexibility to switch from one Sub-Fund to another. As at the date hereof, two classes of shares in two Sub-Funds: Discover Asia Investments and Discover Europe Investments have been issued. With effect from 30 June 2006, the shares of the Sub-Funds have been removed from the official list of the Irish Stock Exchange. The Sub-Funds Discover Asia Investments was launched on 13 June 1994. The investment objective of this Sub-Fund is to achieve capital growth by investing in equity securities in the Asia Pacific region. It may also invest in listed investment companies or funds investing in the region and may use derivative instruments relating to Asia Pacific equities to enhance returns and to reduce volatility. Discover Europe Investments was launched on 16 December 1994. The investment objective of this Sub-Fund is to achieve capital growth by investing in equity securities in emerging European countries, mainly in Central Europe. It may also invest in listed investment companies or in funds which principally invest in emerging European countries and may also use derivative instruments relating to equities in emerging European countries to enhance returns and to reduce volatility. Results and dividends The results of the company for the year ended 31 December 2011 are set out in the Statements of comprehensive income on page 14. The directors do not recommend the payment of a dividend for the year. Share capital Details of changes in the issued share capital of the company during the year are set out in the statement
of changes in net assets attributable to holders of redeemable ordinary shares and in note 7 to the financial
statements.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
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REPORT OF THE DIRECTORS (continued)
Valuations
The directors wish to highlight to the investors that the unlisted investments values of the Sub-Funds have
been estimated by the directors of the company due to the absence of readily ascertainable and liquid
market values. Although the Board uses its judgement in estimating the fair value of these investments,
because of the inherent uncertainty of such valuations, such estimates are not necessarily indicative of the
amount which the company could realize in a current transaction. Those estimated values may differ
significantly from the values that would have been used had a ready market for the investments existed,
and those differences could be material. The Fund's annual financial statements are drawn in accordance
with International Financial Reporting Standards (“IFRS”) and investors should note that the net asset
value as calculated by the directors in accordance with the explanatory memorandum may not necessarily
be the same as the net asset value reported in the annual financial statements.
Directors The directors during the year and up to the date of this report were: James Mellon (Chairman) Markus Winkler Peter Birkenmaier
1
Anthony Baillieu 1
1 Independent non-executive directors
Directors’ and other interests At the Statement of financial position date, Markus Winkler owned 8,000 shares in Discover Asia Investments and 120,000 shares in Discover Europe Investments. Save as disclosed before, none of the directors had any interest during the year in the share capital of the company or any interest in any material contract in relation to the company’s business for the provision of services to which the company was a party. All directors are entitled to an annual fee. No directors’ fees were waived during the year. Further to the company’s annual report for the year ended 31 December 2004, the arrest warrant issued by
the Korean prosecutor’s office on 19 December 2000 against James Mellon was renewed in January 2004.
The arrest warrant was issued against James Mellon pertaining to his alleged involvement in a conspiracy
with Seung-Hyun Jin and Chang-Kon Koh to manipulate the share price of Regent Securities Co., Ltd,
which was merged with Ileun Securities Co., Ltd in January 2002 and subsequently renamed Bridge
Securities Co., Ltd, in Korea in November/December 2000. As far as the Board is aware, no proceedings
have been issued or served against James Mellon since that time and neither have there been any further
developments involving Regent Pacific Group Limited, the investment manager or the company.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
- 12 -
REPORT OF THE DIRECTORS (continued) Directors’ and other interests (continued)
James Mellon has informed the Board that he categorically denies these allegations and has retained
leading Korean counsel to act on his behalf in disproving the Korean prosecutor’s claims. James Mellon
has also informed the Board that on 28 March 2001, he also submitted, via his Korean counsel, a
comprehensive sworn affidavit disproving the alleged share manipulation. The arrest warrant was re-
issued on 14 January 2004 and will remain valid and effective until 12 March 2010 or otherwise such
time as James Mellon returns to South Korea to assist with the investigation. As noted above, as far as
the Board is aware, no proceedings have been issued or served on James Mellon to date. In these
circumstances, the Board considers it entirely appropriate for James Mellon to remain on the Board as a
director. Commission rebate arrangements There was no commission rebate arrangements with brokers in place or entered into by the investment manager during the year. Auditors A resolution for the reappointment of BDO as auditors of the company to hold office until the conclusion of the next annual general meeting will be proposed at the forthcoming annual general meeting. By order of the Board
- 13 -
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF DISCOVER ASIA
INVESTMENTS AND DISCOVER EUROPE INVESTMENTS
We have audited the accompanying statement of financial position of Discover Investment Company
(the “Company”) which comprises Discover Asia Investments and Discover Europe Investments, the
sub-funds of the company as at 31 December 2011 and the related statements of comprehensive
income, statements of changes in net assets attributable to holders of redeemable ordinary shares and
statements of cash flows for the year then ended, and the notes to the financial statements from page
15 to 48.
Management’s Responsibility
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with International Financial Reporting Standards and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatements whether due to fraud or error.
Auditors’ Responsibility
Except as discussed in the penultimate paragraph below, 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, but not absolute, assurance about
whether the financial statements are free of 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 these risk assessments, the auditor considers internal controls relevant to the
Company’s preparation and fair presentation of the financial statements in order to design audit
procedures that are appropriate to the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.
We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a
reasonable basis for our opinion.
Basis of qualified opinion − Limitation of Scope
As discussed in Note 10, we were unable to determine the recoverable value from investments which
are unlisted, for which trading has been halted, that are seldom traded or are currently in
liquidation. Investments which are unlisted, for which trading has been halted or that are seldom
traded have been valued by the directors at $1,753,220 (11.55% of Net Assets) for Discover Asia
Investments and $11,868,317 (50.54% of Net Assets) for Discover Europe Investments. Investments
currently in liquidation for Discover Europe Investments amounted to a cost value of $4,288,611
(18.26% of Net Assets). Due to the nature and timing of the liquidation proceedings of these
investments, the directors have taken a conservative approach and have written these investments
down to $nil.
Tel: +1 (345) 943-8800 Fax: +1 (345) 943-8801 Email: [email protected] www.bdo.ky
PO Box 31118 2nd Floor – Building 3 Governors Square 23 Lime Tree Bay Avenue Grand Cayman KY1-1205 Cayman Islands
BDO Cayman Ltd., a Cayman Islands company, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international
BDO network of independent member firms.
- 14 -
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF DISCOVER ASIA
INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (CONTINUED)
Qualified opinion
In our opinion, except for the effects of such adjustments, if any, as might have been determined
necessary, had we been able to satisfy ourselves as to the recoverable value of investments which are
unlisted, for which trading has been halted, that are seldom traded or are currently in liquidation, the
financial statements present fairly, in all material respects, the financial position of Discover
Investment Company as of 31 December 2011 and of its financial performance for the year then
ended in accordance with International Financial Reporting Standards.
9 August 2012
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
Please see accompanying notes to the financial statements. - 15 -
STATEMENTS OF COMPREHENSIVE INCOME for the year ended 31 December 2011
Discover Asia
Investments
Discover Europe
Investments
Note 2011 2010 2011 2010
US$ US$ US$ US$
Income from investments
Dividend income 72,087 45,047 21,829 2,633
Interest income - 2 - -
Intercompany loan interest - - 47,790 20,000
Net loss on investments and foreign
exchange at fair value through profit or loss 3 (12,320,331) 5,625,297 (2,739,259) 5,407,036
Total income (12,248,244) 5,670,346 (2,669,640) 5,429,669
Expenses
Investment manager fees 4 (b) 259,396 226,721 339,225 273,519
Intercompany loan interest 47,790 20,000 - -
Bank charges 41,525 20,670 20,447 9,172
Custody & registrar fees 4 (a) 34,409 28,066 33,013 36,706
Directors fees 5 30,000 30,000 30,000 30,179
Administration fees 4 (c) 23,905 28,157 24,212 26,537
Other fees 16,383 8,960 21,396 8,892
Professional fees 12,849 16,605 11,042 14,000
Net operating expense 466,257 379,179 479,335 399,005
Withholding tax 6 (c) (15,754) (847) (4,042) (1,338)
Capital gains tax 6 (b) - - 1,049 3,633
(Decrease)/increase in net assets
attributable to the holders of redeemable
ordinary shares from operations (12,730,255) 5,290,320 (3,151,968) 5,032,959
Net Result per Ordinary Share 9 (3.1503) 1.6111 (1.2356) 2.1433
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
Please see accompanying notes to the financial statements. - 16 -
STATEMENTS OF FINANCIAL POSITION
as at 31 December 2011
Discover Asia
Investments
Discover Europe
Investments
2011 2010 2011 2010
Note US$ US$ US$ US$
Assets
Investments at fair value through profit or loss 10 23,037,365 27,009,748 24,672,694 25,540,489
Receivables 226,289 7,531 2,643,982 1,948,833
Total assets 23,263,654 27,017,279 27,316,676 27,489,322
Liabilities
Bank overdraft 5,367,130 175,099 3,695,824 630,893
Accruals and other payables 2,719,523 2,048,060 137,461 156,363
Total liabilities 8,086,653 2,223,159 3,833,285 787,256
Net assets attributable to redeemable ordinary
shareholders 13 15,177,001 24,794,120 23,483,391 26,702,066
Net Asset Value per Redeemable Ordinary Share 8, 13 3.76 6.80 9.83 11.12
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
Please see accompanying notes to the financial statements. - 17 -
STATEMENTS OF CASH FLOWS for the year ended 31 December 2011
Discover Asia
Investments
Discover Europe
Investments
2011 2010 2011 2010
US$ US$ US$ US$
Operating activities
(Decrease)/increase in net assets attributable to holders of
redeemable ordinary shares from operations (12,730,255) 5,290,320 (3,151,968) 5,032,959
Adjustments for:
Interest income - (2) - -
Dividend income (72,087) (45,047) (21,829) (2,633)
Withholding tax 15,754 847 4,042 1,338
Operating loss before working capital changes (12,786,588) 5,246,118 (3,169,755) 5,031,664
Net decrease/(increase) in investments 3,972,383 (8,757,158) 867,795 (6,296,544)
Increase in other receivables (218,758) (7,531) (695,149) (377,407)
Increase/(decrease) in accruals and other payables 671,463 423,300 (18,902) 4,584
Cash used in operations (8,361,500) (3,095,271) (3,016,011) (1,637,703)
Interest received - 2 - -
Dividends received 72,087 45,047 21,829 2,633
Overseas withholding tax paid (15,754) (847) (4,042) (1,338)
Cash outflow used in operating activities (8,305,167) (3,051,069) (2,998,224) (1,636,408)
Financing activities
Proceeds from issue of redeemable ordinary shares 4,354,765 5,215,152 2,983,064 3,163,976
Payments on redemption of redeemable ordinary shares (1,241,629) (2,155,494) (3,049,771) (2,162,297)
Cash inflow from financing activities 3,113,136 3,059,658 (66,707) 1,001,679
Net (decrease)/increase in cash and cash equivalents (5,192,031) 8,589 (3,064,931) (634,729)
Cash and cash equivalents at the beginning of the year (175,099) (183,688) (630,893) 3,836
Cash and cash equivalents at the end of the year (5,367,130) (175,099) (3,695,824) (630,893)
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
Please see accompanying notes to the financial statements. - 18 -
STATEMENTS OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF
REDEEMABLE ORDINARY SHARES
for the year ended 31 December 2011
Discover Asia
Investments
Discover Europe
Investments
2011 2010 2011 2010
US$ US$ US$ US$
Net assets attributable to holders of redeemable ordinary
shares at beginning of year 24,794,120 16,444,142 26,702,066 20,667,428
Proceeds from redeemable ordinary shares issued 4,354,765 5,215,152 2,983,064 3,163,976
Payments on redemption of redeemable ordinary shares (1,241,629) (2,155,494) (3,049,771) (2,162,297)
Net increase/(decrease) from share capital transactions 3,113,136 3,059,658 (66,707) 1,001,679
(Decrease)/increase in net assets attributable to holders
of redeemable ordinary shares from operations (12,730,255) 5,290,320 (3,151,968) 5,032,959
Net assets attributable to holders of redeemable ordinary
shares at end of year 15,177,001 24,794,120 23,483,391 26,702,066
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
31 December 2011
- 19 -
1 GENERAL Discover Investment Company (“the Company”) was incorporated in the Cayman Islands on 27 May 1994 as an umbrella fund and was registered as an exempted company with limited liability under the Companies Law (Revised) of the Cayman Islands. The Company is empowered to issue and redeem its issued shares in separate classes. The different classes of shares are linked to a separate investment portfolio and investors have the flexibility to switch between sub-funds as their investment preferences dictate. To date, two separate Sub-Funds have been launched, namely Discover Asia Investments and Discover Europe Investments (the “sub-funds”), on 13 June 1994 and 16 December 1994 respectively. Further sub-funds may be established as and when considered appropriate by the directors of the Company. The Company has no employees. The investment objective of Discover Asia Investments is to achieve capital growth by investing in equity securities in the Asia Pacific Region. It may also invest in listed investment companies or funds investing in the region and may use derivative instruments relating to Asia Pacific equities to enhance returns and to reduce volatility. The investment objective of Discover Europe Investments is to achieve capital growth by investing in equity securities in emerging European countries, mainly in Central Europe. It may also invest in listed investment companies or in funds which principally invest in emerging European countries and may also use derivative instruments relating to equities in emerging European countries to enhance returns and to reduce volatility.
2 SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the financial statements are set
out below:
Basis of preparation
The financial statements have been prepared in accordance with and comply with International
Financial Reporting Standards (“IFRS”) and interpretations adopted by the International
Accounting Standards Board (“IASB”). The financial statements are prepared under the
historical cost convention as modified by the revaluation of investments. The financial
statements are expressed in United States (U.S.) dollars.
The preparation of financial statements in accordance with IFRS requires the use of accounting
estimates. It also requires management to exercise its judgement in the process of applying the
Company’s accounting policies.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 20 -
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(a) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are effective for
annual periods beginning after 1 January 2011, and have not been applied in preparing these
financial statements.
(a) IFRS 9 Financial Instruments
This standard introduces new requirements for the classification and measurement of financial
assets and liabilities, including some hybrid contracts. The standard is effective for annual
periods beginning on after 1 January 2015 with early adoption permitted. Upon adoption of
IFRS 9, modified prior period disclosures may be required. IFRS 9 represents the completion
of the first part of a three-part project to replace IAS 39 Financial Instruments: Recognition
and Measurement. IFRS 9 uses business model and contractual cash flow characteristics to
determine whether a financial asset is measured at amortized cost or fair value, replacing the
four category classification in IAS 39. The approach is also based on how an entity manages
its financial instruments (its business model) and the contractual cash flow characteristics of
the financial assets. The new standard is not expected to have a significant impact on the
financial statements since the Sub-Funds’ financial assets are designated at fair value through
profit or loss.
(b) IFRS 12 Disclosure of Interest in other Entities
This standard is effective for annual periods beginning on or after 1 January 2013, and
includes the disclosure requirements for all forms of interests in other entities, including joint
arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The
new standard is not expected to have any impact on the Sub-Funds’ financial position or
performance.
(c) IFRS 13 Fair Value Measurement
This standard is effective for annual periods beginning on or after 1 January 2013, with early
adoption permitted. The standard improves consistency and reduces complexity by providing a
precise definition of fair value and a single source of fair value measurement and disclosure
requirements for use across IFRSs. The requirements do not extend the use of fair value
accounting but provide guidance on how it should be applied where its use is already required
or permitted by other standards within IFRS. If an asset or a liability measured at fair value has
a bid price and an ask price, the standard requires valuation to be based on a price within the
bid-ask spread that is most representative of fair value and allows the use of mid-market
pricing or other pricing conventions that are used by market participants as a practical
expedient for fair value measurement within a bid-ask spread. In the prior years, the Sub-
Funds utilised bid and ask prices for its listed financial assets and liabilities in accordance with
IAS 39. The use of last traded prices is recognized as a standard pricing convention within the
industry. Upon adoption of the standard, the Sub-Funds may need to change its valuation
inputs for listed financial assets and liabilities to last traded / mid-market prices. A change in
valuation inputs would be considered to be a change in estimate in accordance with IAS 8,
Accounting Policies, changes in Accounting estimates and errors. The new standard is not
expected to have a material impact on the Sub-Funds’ financial position or performance.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 21 -
2 SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Revenue recognition
Dividend income from listed securities is recognised gross of withholding tax when the shares are declared ex-dividend. Dividend income from other securities is recognised when the investee companies declare the dividends payable. Interest income is recognised on an effective interest method. All other income and expenses are accounted for on an accruals basis.
(c) Expenses
The Sub-Funds are responsible for all normal operating expenses including audit fees and legal
fees amongst others. All expenses are recognised in the statements of comprehensive income on
an accruals basis.
(d) Investments at fair value through profit or loss
(i) Classification
A financial asset or financial liability at fair value through profit or loss is a financial asset or
liability that is classified as held-for-trading or designated at fair value through profit or loss.
All investments are designated as at fair value through profit or loss. Fair values for listed
investments are based on the prices quoted on the relevant stock exchanges or over-the-counter
markets on which they are traded and translated into US dollars at the exchange rate ruling at
the Statement of financial position date.
(ii) Recognition and Derecognition
The Sub-Funds recognise financial assets and financial liabilities on the date it becomes a
party to the contractual provisions of the instrument. Purchases and sales of financial assets
and financial liabilities are recognised using trade date accounting.
From trade date, any gains and losses arising from changes in fair value of the financial assets
or financial liabilities are recorded in the statements of comprehensive income.
The Sub-Funds derecognise financial assets and liabilities when all risks and rewards incident
to ownership are transferred to the counterparty.
Realised and unrealised gains and losses arising from changes in the fair value of investments
are recognised in the statements of comprehensive income as they arise.
All purchases and sales of investments securities that require delivery within the time frame
established by regulation or market convention (“regular way” purchases and sales) are
recognised on trade date, which is the date on which the Sub-Funds commit to purchase or sell
the asset. In cases which are not within the time frame established by regulation or market
convention, such transactions are recognised on settlement date. Any change in fair value of
the asset to be received is recognised between the trade date and settlement date.
Transaction costs on purchases and sales of investments are accounted for in the statements of
comprehensive income.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 22 -
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) Investments at fair value through profit or loss (continued)
(iii) Measurement
Financial instruments are measured initially at fair value (transaction price) plus, in the case of
financial assets or financial liabilities not at fair value through profit or loss, transaction costs
that are directly attributable to the acquisition or issue of the financial liability. Transaction
costs on financial assets and financial liabilities at fair value through profit or loss are
expensed immediately, while on other financial instruments they are amortised over the life of
the asset 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. Financial liabilities arising from the redeemable
ordinary shares issued by the Sub-Fund are carried at the redemption amount representing the
investor’s right to a residual interest in the Sub-Funds’ assets.
(iv) Fair Value Measurement Principles
The fair value of investments in quoted equities is based upon quoted market prices at the
period end date without any deduction for estimated future selling costs. Financial assets are
priced at bid prices while financial liabilities are priced at ask prices.
For unlisted investments and investments in investment funds, the Sub-Fund’s Board of
Directors (the “Board”) may, in its sole and absolute discretion, value such security at fair
value. In establishing the fair value of the Sub-Funds’ unlisted investment securities, the Board
evaluates each investment by considering some or all of the following factors: the financial
condition and operating results of the Sub-Fund, industry and economic data, the type of
investment held, the valuation of comparable private and public companies, brokers’ quotes
and other relevant factors such as actual or pending transactions in the investment held or
significant events as defined by the Board. In establishing the fair valuation of the Sub-Funds’
investment in investment funds, the Board may use the net asset value per share as provided by
the underlying investment funds’ administrators but at its discretion may make further
adjustment. Although the Board uses its judgement in estimating the fair value of these
investments, because of the inherent uncertainty of such valuations, such estimates are not
necessarily indicative of the amount which the Sub-Funds could realize in a current transaction.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 23 -
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) Derivative financial instruments
Derivative financial instruments including foreign exchange contracts, stockmarket index
futures and other derivative financial instruments are initially recognised in the statement of
financial position at fair value and subsequently are remeasured at their fair value. Fair values
are obtained from quoted market prices, discounted cash flow models and option pricing
models as appropriate. All derivatives are carried in assets when amounts are receivable by the
Sub-Funds and in liabilities when amounts are payable by the Sub-Funds. Changes in fair
values of derivatives are included in the statements of comprehensive income.
(f) Translation of foreign currencies
Foreign currency transactions during the year are translated into US dollars at the exchange
rates ruling at the transaction dates. All assets and liabilities in foreign currencies are translated
into US dollars at the exchange rates ruling at the statement of financial position date.
Translation differences arising there from and foreign exchange gains / losses resulting from
the settlement of such transactions are recognised in the statements of comprehensive income.
(g) Cash and cash equivalents
Cash and cash equivalents comprise of bank balances. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant changes in value.
(h) Redeemable ordinary shares
Redeemable ordinary shares are redeemable at the shareholder’s option and are classified as
financial liabilities. The ordinary shares can be put back to the Sub-Funds at any time for cash
equal to a proportionate share of the Sub-Funds’ net asset value. The ordinary share is carried
at the redemption amount that would be payable at the Statement of financial position date if
the shareholder exercised its right to put the shares back to the Sub-Funds.
(i) Related parties
For the purposes of these financial statements, parties are considered to be related to the Sub-
Funds if they have the ability, directly or indirectly, to control or exercise significant influence
over the Sub-Funds in making financial and operating decisions. Related parties may be
individuals or other entities.
(j) Use of estimates
The preparation of financial statements in accordance with IFRS requires management to
make estimates and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 24 -
3 NET GAINS/(LOSSES) ON INVESTMENTS AT FAIR VALUE THROUGH PROFIT
OR LOSS AND FOREIGN EXCHANGE
Discover Asia
Investments
Discover Europe
Investments
2011 2010 2011 2010
US$ US$ US$ US$
Net realised gain on investments at fair
value through profit or loss
513,376 85,944 529,809 2,273,211
Net realised (loss)/gain on foreign
exchange (481,935) 72,332 (714,300) (182,260)
Net change in unrealised (loss)/gain on
investments at fair value through profit
or loss
(11,856,031) 5,348,044 (1,458,175) 3,849,094
Net change in unrealised (loss)/gain on
foreign exchange
(495,741) 118,977 (1,096,593) (533,009)
Net (loss)/gain on investments and
foreign exchange at fair value
through profit or loss
(12,320,331) 5,625,297 (2,739,259) 5,407,036
4 FEES (a) Custodian’s fees
Credit Suisse (the “Custodian”), receives a fee at the rate of 0.15% per annum up to an aggregate net asset value of each Sub-Fund of EUR 25 million. The fee is accrued monthly and payable on a quarterly basis.
The total custodian fee charged for the year for Discover Asia Investments amounted to US$34,409 (2010: US$28,066), and the total amount charged for the year for Discover Europe Investments amounted to US$33,013 (2010: US$36,706). The total amount of these fees outstanding at the Statement of financial position date for Discover Asia Investments and Discover Europe Investments amounted to US$ 1,681 (2010: US$391) and US$1,669 (2010: US$5,318) respectively.
(b) Investment manager’s fees
Terra Partners Limited (the “Investment Manager”), receives a management fee equivalent to 1.2% per annum of the average monthly net asset value of each Sub-Fund, which is accrued monthly and payable on a quarterly basis.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 25 -
4 FEES (continued) (b) Investment manager’s fees (continued)
The Investment Manager is also entitled to a performance fee of 17.5% of any increase in net asset value per share of each Sub-Fund at each year end in excess of the benchmark net asset value per share of the respective Sub-Fund as at the last valuation date in the relevant financial year of the Company, multiplied by the average number of shares in issue during the year. The fee is calculated, accrued and payable on an annual basis. The total Investment Management fee charged for the year for Discover Asia Investments amounted to US$259,396 (2010: US$226,721), and the total amount charged for the year for Discover Europe Investments amounted to US$339,225 (2010: US$273,519). The total amount of these fees outstanding at the statement of financial position date for Discover Asia Investments and Discover Europe Investments amounted to US$49,634.78 (2010: US$69,870) and US$75,923.94 (2010: US$78,198) respectively.
(c) Administrator’s fees
European Fund Administration S.A. (the “Administrator”), receives a fee at the rate of 0.0491% per annum up to an aggregated net asset value of each Sub-Fund of EUR 25 million. Annual administration fee is subject to a minimum fee of EUR12,500 which is equivalent to US$16,233 as at year end in respect of each Sub-Fund. The fee is accrued monthly and payable on a quarterly basis. The total Administration fee charged for the year for Discover Asia Investments amounted to US$ 23,905 (2010: US$28,157), and the total amount charged for the year for Discover Europe Investments amounted to US$ 24,212 (2010: US$26,537). The total amount of these fees outstanding at the statement of financial position date for Discover Asia Investments and Discover Europe Investments amounted to US$ 2,648 (2010: US$2,739) and US$ 2,625 (2010: US$2,739) respectively.
5 DIRECTORSHIPS, SHAREHOLDINGS AND OTHER RELATED PARTY
TRANSACTIONS
Each director is entitled to an annual fee of US$7,500 (2010: US$7,500) for each Sub-Fund. No directors’ fees were waived during the year. At the statement of financial position date, Markus Winkler owned 8,000 shares (2010: 8,000) in Discover Asia Investments and 120,000 shares (2010: 120,000 shares) in Discover Europe Investments. Save as disclosed before, none of the directors had any interest during the year in the share capital of the Company or any interest in any material contract in relation to the Company’s business for the provision of services to which the Company was a party. The Founder Shares of the Company are held by the Investment Manager. Therefore, the Investment Manager is also considered to be a related party. During the year, the transactions with the Investment Manager are listed above in note 4 (b).
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 26 -
6 TAXATION (a) Cayman Islands
Under current laws of the Cayman Islands, there are no income, estate, corporation, capital gains or other taxes payable by the Sub-Funds. As a result, no provision for income taxes has been made in the accounts.
(b) Romania
The Sub-Funds are subject to Romanian capital gains tax on the sales of the Romanian securities at a current rate of 16%.
(c) Dividend withholding taxes
The Sub-Funds are subject to withholding tax on certain dividends earned from its investments.
7 FOUNDER SHARES AND REDEEMABLE ORDINARY SHARES
Number of shares
2011 2010
Discover Asia Investments
Authorised, issued and fully paid:
Founder shares of US$1 each 100 100
Issued and fully paid:
Redeemable ordinary shares of
US$0.01 each
At the beginning of the year 3,646,869 3,083,603
Subscribed during the year 679,651 974,001
Redeemed during the year (288,094) (410,735)
At the end of the year 4,038,426 3,646,869
Discover Europe Investments
Issued and fully paid:
Redeemable ordinary shares of
US$0.01 each
At the beginning of the year 2,401,375 2,297,286
Subscribed during the year 267,270 335,989
Redeemed during the year (280,285) (231,900)
At the end of the year 2,388,360 2,401,375
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 27 -
7 FOUNDER SHARES AND REDEEMABLE ORDINARY SHARES (continued)
Each redeemable ordinary share participates rateably in the net assets attributable to the Sub-
Fund in which the share is issued. However, although the activities attributable to each Sub-
Fund will be accounted for separately, in the event of the insolvency of any one Sub-Fund
resulting in the assets attributable to that Sub-Fund being insufficient to meet the liabilities
attributable to that Sub-Fund, all of the assets of the Company, regardless of the Sub-Fund to
which they are attributable may be applied against such excess liabilities.
Founder shares confer upon the holders thereof rights in a winding up or repayment of capital
in accordance with the articles of association of the Company but confer no other rights to
participate in the profits or assets of the Company. The holder of a Founder share has no right
to receive notice of or attend at and vote as a shareholder of the Company at any general
meeting of the Company. The Founder shares are held by the Investment Manager.
Subscriptions
For the purpose of subscriptions and redemptions of shares, each Sub-Fund will be valued
monthly on each fifteenth day of each month (or if that is not a Business Day, then the next
Business Day), and in the case of shares in Discover Europe Investments commencing with the
month subsequent to the month in which dealings in Shares in Discover Europe Investments
commence on the Irish Stock Exchange (“Dealing day”). The valuation is calculated as at the
respective closes of business in those countries and on those markets in which the relevant
Sub-Fund invests, on the Business Day immediately preceding the Dealing Day.
An initial charge of up to 5 per cent of the issue price may be added upon the issue of Shares.
The initial charge is payable to the Investment Manager.
Share Redemptions
A shareholder may redeem shares by serving a redemption notice on either Bank of Bermuda
(Luxembourg) in the case of shares in Discover Europe Investments or by serving a
redemption notice on Bermuda Trust (Far East) in the case of shares in Discover Asia
Investments. A redemption notice takes effect after the expiry of not less than 30 days from the
date of its receipt by the European sub-registrar or principal sub-registrar as appropriate.
Shares will be redeemed on the dealing day following the expiry of the redemption notice at
the redemption price then ruling.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 28 -
7 FOUNDER SHARES AND REDEEMABLE ORDINARY SHARES (continued)
The Directors may, at their discretion, permit a shareholder to redeem shares subject to a
shorter notice period for redemption and otherwise than on a dealing day. In these
circumstances the redemption price will be as agreed with the Directors by reference to the
most recently published net asset value per share of the relevant Sub-Fund, but will, in any
event, be less than the most recently published net asset value per share of that Sub-Fund.
Shareholders wishing to redeem on this basis should contact the European sub-registrar or
principal sub-registrar as appropriate. If no agreement is reached as to the redemption price in
these circumstances the shareholder are not deemed to have given a redemption notice
Once given, a redemption notice may not be revoked by the shareholder save where
determination of the redemption price is suspended as a result of the Directors suspending the
calculation of the net asset value per Share of the relevant Sub-Fund.
Subsequent Capital Transactions
For the period from 1 January 2012 to the date of this report, Discover Asia had received
subscriptions amounting to US$6,672,875 and paid redemptions amounting to US$1,629,850
and Discover Europe had received subscriptions amounting to US$4,432,400 and paid
redemptions amounting to US$5,227,098.
8 NET ASSET VALUE PER REDEEMABLE ORDINARY SHARE
Discover Asia Investments
The calculation of net asset value per ordinary share is based on the net asset value attributable
to ordinary shareholders of US$15,177,001 (2010: US$24,794,120) and on the total number of
4,038,426 (2010: 3,646,869) ordinary shares in issue at the Statement of financial position date.
Discover Europe Investments
The calculation of net asset value per ordinary share is based on the net asset value attributable
to ordinary shareholders of US$23,483,391 (2010: US$26,702,066) and on the total number of
2,388,360 (2010: 2,401,375) ordinary shares in issue at the Statement of financial position date.
9 NET RESULT PER ORDINARY SHARE
Discover Asia Investments
The calculation of the net result per ordinary share is based on the decrease in net assets
attributable to holders of redeemable ordinary shares from operations for the year of US$ --
12,730,255 (2010: increase of US$5,290,320) and the weighted average number of ordinary
shares in issue of 4,041,005 (2010: 3,283,616).
Discover Europe Investments
The calculation of the net result per ordinary share is based on the decrease in net assets
attributable to holders of redeemable ordinary shares from operations for the year of
US$3,151,968 (2010: increase of US$5,032,959) and the weighted average number of ordinary
shares in issue of 2,550,956 (2010: 2,348,178).
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 29 -
10 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
As at 31 December 2011, the Sub-Funds invested in equities, investment funds, warrants and
debt securities.
Analysis of investment type by geographical location:
Discover Asia
Investments
Discover Europe
Investments
2011 2010 2011 2010
US$ US$ US$ US$
Listed investments
Bonds
Luxembourg - - 437,200 570,175
Equities
Australia 2,732,279 2,522,560 - -
British Virgin Islands 18,910 59,904 - -
Canada 4,782,770 5,125,435 8,573,857 8,669,806
Cayman Islands 2,639,634 527,419 - -
Germany - - 1,010,502 1,054,901
Great Britain - - 31,877 48,434
Hong Kong 373,146 1,075,260 - -
Hungary - - 53,778 51,989
Netherland - - 448,796 300,586
Poland - - 487,884 557,332
Romania - - 829,989 595,205
South Korea 62,333 302,817 - -
Investment funds
Cayman Islands 10,675,073 13,551,094 921,790 1,215,462
British Virgin Islands - - 8,704 87,095
Rights
Canada - 82,296 - -
Total listed investments 21,284,145 23,246,785 12,804,377 13,150,985
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 30 -
10 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
Unlisted investments, trading halted and
seldom traded investments:
Discover Asia
Investments
Discover Europe
Investments
2011 2010 2011 2010
US$ US$ US$ US$
Bonds
Luxembourg 653,489 858,175 - -
Equities
Cyprus - - 1,918,690 1,982,666
Great Britain - - 6,639,457 6,958,578
Investment funds
Cayman Islands 1,099,731 2,904,788 3,310,170 3,448,260
Total unlisted investments 1,753,220 3,762,963 11,868,317 12,389,504
Total Investments 23,037,365 27,009,748 24,672,694 25,540,489
Note:
These investments represent investments, which are unlisted, trading has been halted or are
seldom traded. Their values have been estimated by the directors of the Company due to the
absence of readily ascertainable and liquid market values. Those estimated values may differ
significantly from the values that would have been used had a ready market for the
investments existed, and those differences could be material.
Discover Asia
At the end of the year 2011 and 2010 there were no unlisted investments in liquidation
proceedings.
Discover Europe
At the end of the year unlisted investments with a cost value of US$4,288,611 (18.26% of Net
Assets) (2010: US$5,045,847 (18.90% of Net Assets)) were in reorganization or liquidation
proceedings. Due to recoverability of the investment being uncertain, the directors have
determined that the fair value would be $nil until such time as the reorganization is completed
and courts determine a final shareholders distribution to the underlying investors respectively.
The fair value adjustment for these uncertain investments, are included as a loss in the income
statements under net gain on investments at fair value through profit or loss.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 31 -
11 FINANCIAL INSTRUMENTS BY CATEGORY
Discover Asia Investments
31 December 2011 (expressed in US$)
Loans and
receivables
Assets at fair
value through
profit or loss Total
Assets as per statement of financial
position
Investments at fair value through
profit or loss - 23,037,365 23,037,365
Receivables 226,289 - 226,289
Total 226,289 23,037,365 23,263,654
31 December 2010 (expressed in US$)
Loans and
receivables
Assets at fair
value through
profit or loss Total
Assets as per statement of financial
position
Investments at fair value through
profit or loss - 27,009,748 27,009,748
Receivables 7,531 - 7,531
Total 7,531 27,009,748 27,017,279
31 December 2011 (expressed in US$)
Liabilities at fair
value through
profit or loss
Other financial
liabilities Total
Liabilities as per statement of financial
position
Bank overdraft - 5,367,130 5,367,130
Net assets attributable to holders of
redeemable ordinary shares - 15,177,001 15,177,001
Total - 20,544,131 20,544,131
31 December 2010 (expressed in US$)
Liabilities at fair
value through
profit or loss
Other financial
liabilities Total
Liabilities as per statement of financial
position
Bank overdraft - 175,099 175,099
Net assets attributable to holders of
redeemable ordinary shares - 24,794,120 24,794,120
Total - 24,969,219 24,969,219
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 32 -
11 FINANCIAL INSTRUMENTS BY CATEGORY (continued)
Discover Europe Investments
31 December 2011 (expressed in US$)
Loans and
receivables
Assets at fair
value through
profit or loss Total
Assets as per statement of financial
position
Investments at fair value through
profit or loss - 24,672,694 24,672,694
Receivables 2,643,982 - 2,643,982
Total 2,643,982 24,672,694 27,316,676
31 December 2010 (expressed in US$)
Loans and
receivables
Assets at fair
value through
profit or loss Total
Assets as per statement of financial
position
Investments at fair value through
profit or loss - 25,540,489 25,540,489
Receivables 1,948,833 - 1,948,833
Total 1,948,833 25,540,489 27,489,322
31 December 2011 (expressed in US$)
Liabilities at fair
value through
profit or loss
Other financial
liabilities Total
Liabilities as per statement of financial
position
Bank overdraft - 3,695,824 3,695,824
Net assets attributable to holders of
redeemable ordinary shares - 23,483,391 23,483,391
Total - 27,179,215 27,179,215
31 December 2010 (expressed in US$)
Liabilities at fair
value through
profit or loss
Other financial
liabilities Total
Liabilities as per statement of financial
position
Bank overdraft - 630,893 630,893
Net assets attributable to holders of
redeemable ordinary shares - 26,702,066 26,702,066
Total - 27,332,959 27,332,959
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 33 -
12 FINANCIAL INSTRUMENTS
(a) Market risk
Market risk is the risk that the value of a financial instrument will fluctuate as a result of
changes in market prices, whether those changes are caused by factors specific to the
individual instrument or factors affecting all instruments in the market.
The Sub-Funds’ activities expose it to effects of fluctuations in financial markets. As the Sub-
Funds invest in investment funds, it is possible that the investment activities of the investment
funds may result in the Sub-Funds being exposed to significant concentration of investments in
markets and/or individual investments, which may be both volatile and illiquid. Unlisted
funds are subject to specific restrictions on transfer and disposal. Consequently, risks exist that
the Sub-Funds might not be able to readily dispose of its holdings in such investments when it
chooses and also that the price attained on a disposal is below the amount at which such
investments are included in the Statement of financial position.
The table below outlines the effect of a 10% change in market prices at the Statement of
financial position date to net assets attributable to holders of redeemable ordinary shares.
Discover Asia
Investments
Discover Europe
Investments
2011 2010 2011 2010
US$ US$ US$ US$
Net assets attributable to holders of
redeemable ordinary shares 15,177,001 24,794,120 23,483,391 26,702,066
Securities held for trading 23,037,365 27,009,748 24,672,694 25,540,489
Effect of a 10% change in prices 2,303,737 2,700,975 2,467,269 2,554,049
Net assets attributable to holders of
redeemable ordinary shares resulting
from a 10% increase in prices 17,480,738 27,495,095 25,950,660 29,256,115
Net assets attributable to holders of
redeemable ordinary shares resulting
from a 10% decrease in prices 12,873,265 22,093,145 21,016,122 24,148,017
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 34 -
12 FINANCIAL INSTRUMENTS (continued)
(a) Market risk (continued)
The Sub-Funds also invest in equity securities and funds that invest in developing countries.
Investments in countries with developing capital markets may have greater risks than
investments in more developed markets and the prices of such investments may be volatile due
to, among other things, perceived credit risk. The consequences of political, social or
economic changes in these countries may have disruptive effects on the market prices of the
investments and the income they generate.
The Sub-Funds’ investment activities expose them to the various types of market risks which
are associated with the markets in which they invest and to the extent of the amount invested
in securities which amounted to US$23,037,365 (2010: US$27,009,748) for Discover Asia
Investments and US$24,672,694 (2010: US$25,540,489) for Discover Europe Investments as
at year end.
Analysis of investments by market:
Discover Asia
Investments Discover Europe
Investments
2011 2010 2011 2010
% of
NAV
% of
NAV
% of
NAV
% of
NAV
Listed investments
- Australia 18.00 10.17 - -
- British Virgin Islands 0.13 0.24 0.04 0.33
- Canada 31.51 21.01 36.51 32.47
- Cayman Islands 87.73 56.78 3.92 4.55
- Germany - - 4.30 3.95
- Great Britain - - 0.14 0.18
- Hong Kong 2.46 4.34 - -
- Hungary - - 0.23 0.19
- Luxembourg - - 1.86 2.14
- Netherland - - 1.91 1.13
- Poland - - 2.08 2.09
- Romania - - 3.54 2.23
- South Korea 0.41 1.22 - -
140.24 93.76 54.53 49.26
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 35 -
12 FINANCIAL INSTRUMENTS (continued)
(a) Market risk (continued):
Analysis of investments by market (continued):
Discover Asia
Investments Discover Europe
Investments
2011 2010 2011 2010
% of
NAV
% of
NAV % of
NAV
% of
NAV
Unlisted investments
- Cayman Islands 7.25 11.72 14.09 12.91
- Cyprus - - 8.17 7.43
- Great Britain - - 28.27 26.06
- Luxembourg 4.30 3.46 - -
11.55 15.18 50.53 46.40
151.79 108.94 105.06 95.66
Market risk is also affected by uncertainty about future prices of financial instruments held. It
represents the potential loss the Sub-Funds might suffer through holding market positions in
the face of price movements. The Investment Manager considers the asset allocation of each
portfolio in order to minimise the risk associated with particular countries or industry sectors
whilst continuing to follow each Sub-Funds’ investment objective.
(b) Foreign exchange risk
The Sub-Funds may invest in securities denominated in currencies other than its reporting
currency. Consequently the Sub-Funds are exposed to risks that the exchange rate of its
currency relative to other currencies may change in a manner that has an adverse effect on the
value of that portion of the Sub-Funds’ assets, which are denominated in currencies other than
its own currency.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 36 -
12 FINANCIAL INSTRUMENTS (continued)
(b) Foreign exchange risk (continued)
The following table sets out the total exposure of the Sub-Funds to foreign currency risk as at
31 December 2011.
Discover Asia Investments Discover Europe Investments
2011 2010 2011 2010
US$ US$ US$ US$
Currency
AUD 2,074,830 2,522,560 - -
CAD 3,829,388 2,154,152 9,999,981 9,981,758
CHF (1,794,098) - (878,910) -
EUR 2,298,733 5,118,649 5,391,273 5,112,862
GBP - - 31,877 48,434
HKD 701,483 1,602,680 - -
HUF - - 53,778 51,989
KRW 62,333 302,816 - -
PLN - - 487,884 557,332
RON - - 830,033 564,217
7,172,669 11,700,857 15,915,916 16,316,592
Discover Asia Investments
As at the Statement of financial position date, had the US$ strengthened/weakened by 5%
against the above currencies, the net assets attributable to holders of redeemable ordinary
shares would have increased/decreased by approximately US$358,633 (2010: US$585,043).
Discover Europe Investments
As at the Statement of financial position date, had the US$ strengthened/weakened by 5%
against the above currencies, the net assets attributable to holders of redeemable ordinary
shares would have increased/decreased by approximately US$795,796 (2010: US$815,830).
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 37 -
12 FINANCIAL INSTRUMENTS (continued)
(b) Foreign exchange risk (continued)
The exchange rates in use at the Statement of financial position dates are as follows:
31 December 2011 31 December 2010
US$ US$
AUD 1.0251500 1.0249500
CAD 0.9823183 1.0067959
CHF 1.0694043 1.0719837
CZK 0.0509411 0.0534731
EUR 1.2986000 1.3419000
GBP 1.5543500 1.5651500
HKD 0.1287598 0.1286389
HUF 0.0041265 0.0048209
KRW 0.0008627 0.0008929
PLN 0.2909514 0.3387591
RON 0.3003003 0.3134600
(c) Interest rate risk
The following table sets out the interest rate risk of Discover Asia Investments.
As at 31 December 2011
Interest bearing Interest bearing Non interest
bearing Less than 1 year From 3 to 5 years
US$ US$ US$
Financial assets at fair value
through profit or loss
- 653,489 22,383,876
Receivables and prepayments - - 226,289
Total assets - 653,489 22,610,165
Bank overdraft (5,367,130) - -
Accrued expenses - - (2,719,523)
Total liabilities (5,367,130) - (2,719,523)
Total interest sensitivity gap (5,367,130) 653,489
Effect of a 25 basis point
increase in interest rates (13,418) 1,634
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 38 -
12 FINANCIAL INSTRUMENTS (continued)
(c) Interest rate risk (continued)
As at 31 December 2010
Interest bearing Interest bearing Non interest
bearing Less than 1 year From 3 to 5 years
US$ US$ US$
Financial assets at fair value
through profit or loss
- 858,175 26,151,573
Receivables and prepayments - - 7,531
Total assets - 858,175 26,159,104
Bank overdraft (175,099) - -
Accrued expenses - - (2,048,060)
Total liabilities (175,099) - (2,048,060)
Total interest sensitivity gap (175,099) 858,175
Effect of a 25 basis point
increase in interest rates (438) 2,145
An increase of 25 basis points in interest rates as at the reporting date would have decreased
the net assets attributable to holders of redeemable ordinary shares by approximately
US$11,784 (2010: US$1,707). A decrease of 25 basis points would have an equal but opposite
effect.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 39 -
12 FINANCIAL INSTRUMENTS (continued)
(c) Interest rate risk (continued)
The following table sets out the interest rate risk of Discover Europe Investments.
As at 31 December 2011
Interest bearing Interest bearing Non interest
bearing Less than 1 year From 3 to 5 years
US$ US$ US$
Financial assets at fair value
through profit or loss
- 437,200 24,235,494
Receivables and prepayments - - 2,643,982
Total assets - 437,200 26,879,476
Bank overdraft (3,695,824) -
Accrued expenses - - (137,461)
Total liabilities (3,695,824) - (137,461)
Total interest sensitivity gap (3,695,824) 437,200
Effect of a 25 basis point
increase in interest rates (9,240) 1,093
As at 31 December 2010
Interest bearing Interest bearing Non interest
bearing Less than 1 year From 3 to 5 years
US$ US$ US$
Financial assets at fair value
through profit or loss
- 570,175 24,970,314
Receivables and prepayments - - 1,948,833
Total assets - 570,175 26,919,147
Bank overdraft (630,893) - -
Accrued expenses - - (156,363)
Total liabilities (630,893) - (156,363)
Total interest sensitivity gap (630,893) 570,175
Effect of a 25 basis point
increase in interest rates (1,577) 1,425
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 40 -
12 FINANCIAL INSTRUMENTS (continued)
(c) Interest rate risk (continued)
An increase of 25 basis points in interest rates as at the reporting date would have decreased
the net assets attributable to holders of redeemable shares by approximately US$8,147
(2010:US$152). A decrease of 25 basis points would have an equal but opposite effect.
(d) Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge its
obligation and cause the other party to incur a financial loss.
The Sub-Funds limit exposure to credit risk by transacting the majority of its investment
securities, debt securities and contractual commitment activity with broker-dealers, banks and
regulated exchanges with high credit ratings that the group considers to be well established.
The Sub-Funds holds investments and cash balances with Credit Suisse which provides
depositary services. Credit Suisse has a current credit ratings issued by S&P of A+ (2010: A+).
Each Sub-Fund’s maximum exposure to credit risk (not taking into account the value of any
collateral or other security held) in the event that counterparties fail to perform their
obligations as of 31 December 2011 in relation to each class of recognized financial assets,
other than derivatives, is the carrying amount of those assets as indicated in the Statement of
financial position.
(e) Liquidity risk
Liquidity risk is the risk that an enterprise will encounter difficulty in selling a financial asset
quickly at close to its fair value.
The table below analyses the Company’s financial liabilities into relevant maturity groupings
based on the remaining period at the statement of financial position date to the contractual
maturity date. The amounts in the table are the contractual undiscounted cash flows.
Discover Asia Investments
At 31 December 2011 (expressed in US$) Less than 1 month 1 to 3 months
Bank overdraft 5,367,130 -
Accruals and other payables 2,719,523 -
Net assets attributable to holders of redeemable
participating shares - 15,177,001
At 31 December 2010(expressed in US$) Less than 1 month 1 to 3 months
Bank overdraft 175,099 -
Accruals and other payables 2,048,060 -
Net assets attributable to holders of redeemable
participating shares - 24,794,120
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 41 -
12 FINANCIAL INSTRUMENTS (continued)
(e) Liquidity risk (continued)
Discover Europe Investments
At 31 December 2011 (expressed in US$) Less than 1 month 1 to 3 month
Bank overdraft 3,695,824 -
Accruals and other payables 137,461 -
Net assets attributable to holders of redeemable
ordinary shares - 23,483,391
At 31 December 2010 (expressed in US$) Less than 1 month 1 to 3 month
Bank overdraft 630,893 -
Accruals and other payables 156,363 -
Net assets attributable to holders of redeemable
ordinary shares - 26,702,066
The Company is exposed to monthly redemptions of redeemable ordinary shares. The Sub-
Funds therefore invest the majority of their assets in listed investments that can be readily
disposed of. The Sub-Funds are exposed to liquidity risk on their unlisted investments which
are not readily marketable.
The Sub-Funds attempt to mitigate the above risks during the selection and management of its
assets.
The Company manages its liquidity risk by investing predominantly in securities that it expects
to be able to liquidate within a certain period. The following table illustrates the expected
liquidity of assets held:
Discover Asia Investments
At 31 December 2011
(expressed in US$)
Less than 1
year
From 1 to 3
years
From 3 to 5
years
More than 5
years
Total assets 22,610,165 - 653,489 -
At 31 December 2010
(expressed in US$)
Less than 1
year
From 1 to 3
years
From 3 to 5
years
More than 5
years
Total assets 26,159,104 - 858,175 -
Discover Europe Investments
At 31 December 2011
(expressed in US$)
Less than 1
year
From 1 to 3
years
From 3 to 5
years
More than 5
years
Total assets 26,879,476 - 437,200 -
At 31 December 2010
(expressed in US$)
Less than 1
year
From 1 to 3
years
From 3 to 5
years
More than 5
years
Total assets 26,919,147 - 570,175 -
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 42 -
12 FINANCIAL INSTRUMENTS (continued)
(e) Liquidity risk (continued)
The Company also has the ability in extraordinary situations to impose discretionary
redemption restrictions, which include the ability to suspend redemptions or withhold varying
amounts of any redemption requested. It is the intention of the Company to exercise this ability
only in instances where the payment of redemptions would put the remaining shareholders in a
disadvantageous position, or if the Company is unable to liquidate its investments or source
acceptable financing that would allow the Company to pay redemptions as they fall due.
(f) Fair values of financial instruments
The Company adopted the amendment to IFRS 7, effective January 1, 2009. This requires the
Company to classify fair value measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The fair value hierarchy has the
following levels:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
• Inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly or indirectly (Level 2).
• Inputs for the assets or liabilities that are not based on observable market data (Level 3).
The following table analyses within the fair value hierarchy the Company’s financial assets
and liabilities measured at fair value:
Discover Asia Investments
As at 31 December 2011 Assets
(expressed in US$) Level 1 Level 2 Level 3
Total
balance
Financial assets held for
trading:
- Equity securities 10,609,072 - - 10,609,072
- Debt securities - 653,489 - 653,489
- Investment funds - 10,675,073 1,099,731 11,774,804
Total assets 10,609,072 11,328,562 1,099,731 23,037,365
As at 31 December 2010 Assets
(expressed in US$) Level 1 Level 2 Level 3
Total
balance
Financial assets held for
trading:
- Equity securities 9,613,395 - - 9,613,395
- Debt securities - - 858,175 858,175
- Investment funds - 13,551,094 2,904,788 16,455,882
- Rights 82,296 - - 82,296
Total assets 9,695,691 13,551,094 3,762,963 27,009,748
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 43 -
12 FINANCIAL INSTRUMENTS (continued)
(f) Fair values of financial instruments (continued)
Discover Europe Investments
As at 31 December 2011 Assets
(expressed in US$) Level 1 Level 2 Level 3
Total
balance
Financial assets held for trading:
- Equity securities 11,077,424 359,259 8,558,147 19,994,830
- Debt securities - 437,200 - 437,200
- Investment funds 921,790 - 3,318,874 4,240,664
Total assets 11,999,214 796,459 11,877,021 24,672,694
As at 31 December 2010 Assets
(expressed in US$) Level 1 Level 2 Level 3
Total
balance
Financial assets held for trading:
- Equity securities 11,278,253 - 8,941,244 20,219,497
- Debt securities - 570,175 - 570,175
- Investment funds 1,215,462 87,095 3,448,260 4,750,817
Total assets 12,493,715 657,270 12,389,504 25,540,489
Investments whose values are based on quoted market prices in active markets are classified
within Level 1.
The investments classified in Level 2 are Investment Funds fair valued using the net asset
value of the underlying investments as reported by the respective fund administrator and over-
the-counter traded securities are valued by dealer quotations or alternative pricing sources.
In Level 3 are investments valued by the Directors because no market prices are available or
the market is illiquid. In the case of Investment Funds or similar instruments, the Directors
have decided to use the latest NAV. In the absence of an active market or an actual NAV,
positions are valued at cost. If the value is in doubt, the position is written down to zero.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 44 -
12 FINANCIAL INSTRUMENTS (continued)
(f) Fair values of financial instruments (continued)
The following table presents the transfers between levels for the year ended
31 December.
Discover Asia Investments
As at 31 December 2011 (expressed in US$) Level 1 Level 2 Level 3
Transfers between Levels 1 and 2:
– Equity securities - - - – Debt securities - - - – Investment funds - - -
Transfers between Levels 2 and 3:
– Equity securities - - -
– Debt securities - 653,489 (653,489)
– Investment funds - - -
As at 31 December 2010 (expressed in US$) Level 1 Level 2 Level 3
Transfers between Levels 1 and 2:
– Equity securities - - - – Debt securities - - - – Investment funds - - -
Transfers between Levels 2 and 3:
– Equity securities - - -
– Debt securities - - -
– Investment funds - - -
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 45 -
12 FINANCIAL INSTRUMENTS (continued)
(f) Fair values of financial instruments (continued)
Discover Europe Investments
As at 31 December 2011 (expressed in US$) Level 1 Level 2 Level 3
Transfers between Levels 1 and 2:
– Equity securities - - - – Debt securities - - - – Investment funds - - -
Transfers between Levels 2 and 3:
– Equity securities - - -
– Debt securities - - -
– Investment funds - (8,704) 8,704
As at 31 December 2010 (expressed in US$) Level 1 Level 2 Level 3
Transfers between Levels 1 and 2:
– Equity securities - - - – Debt securities - - - – Investment funds - - -
Transfers between Levels 2 and 3:
– Equity securities - - -
– Debt securities - - -
– Investment funds - - -
No transfer between Levels 1 and 2 has been made during the year 2011 for the Sub-Funds.
The transfer between Level 2 and 3 are related to investments which are unlisted; trading has
been halted or are seldom traded. Their values have been estimated by the directors of the
Company due to the absence of readily ascertainable and liquid market values. Those
estimated values may differ significantly from the values that would have been used had a
ready market for the investments existed, and those differences could be material.
No transfer between Levels 1 and 2 and between Levels 2 and 3 have been made during the
year 2010 for the Sub-Funds.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 46 -
12 FINANCIAL INSTRUMENTS (continued)
(f) Fair values of financial instruments (continued)
The following table presents the movement in Level 3 instruments by class of financial
instrument.
Discover Asia Investments
As at 31 December 2011 Debt
securities
Investment
funds
Total
Opening balance 858,175 2,904,788 3,762,963
Purchases - - -
Sales - (1,672,565) (1,672,565)
Transfers out of Level 3 (653,489) - (653,489)
Gains and losses recognized in profit
and loss (204,686) (132,492) (337,178)
Closing balance - 1,099,731 1,099,731
Total gains or losses for the year included
in the statement of comprehensive income
for assets held at the end of the year
(49,214) (474,459) (523,674)
As at 31 December 2010 Debt
securities
Equity
securities
Investment
funds
Total
Opening balance 774,657 - 2,084,347 2,859,004
Purchases - - - -
Sales - - - -
Transfers into Level 3 - - - -
Gains and losses recognized in profit and
loss 83,518 - 820,441 903,959
Closing balance 858,175 - 2,904,788 3,762,963
Total gains or losses for the year included
in the statement of comprehensive income
for assets held at the end of the year
83,518 405,000 820,441 1,308,958
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 47 -
12 FINANCIAL INSTRUMENTS (continued)
(f) Fair values of financial instruments (continued)
Discover Europe Investments
As at 31 December 2011 Equity
securities
Investment
funds
Total
Opening balance 8,941,244 3,448,260 12,389,504
Purchases - - -
Sales - - -
Transfers into Level 3 - 8,704 8,704
Gains and losses recognized in profit and
loss (383,097) (138,090) (521,187)
Closing balance 8,558,147 3,318,874 11,877,021
Total gains or losses for the year included
in the statement of comprehensive income
for assets held at the end of the year
344,903 (2,096,411) (1,751,508)
As at 31 December 2010 Equity
securities
Investment
funds
Total
Opening balance 7,043,091 3,508,618 10,551,709
Purchases 1,933,134 - 1,933,134
Sales - (25,743) (25,743)
Transfers into Level 3 - - -
Gains and losses recognized in profit and
loss (34,981) (34,615) (69,596)
Closing balance 8,941,244 3,448,260 12,389,504
Total gains or losses for the year included
in the statement of comprehensive income
for assets held at the end of the year
35,997 (46,900) (10,902)
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (continued)
31 December 2011
- 48 -
13 IFRS ADJUSTMENT
The reconciliation between the Net assets attributable to redeemable ordinary shareholders
under IFRS and the Net assets attributable to redeemable ordinary shareholders in accordance
with Offering Memorandum is provided below:
Discover Asia Investments December 31,
2011
US$
Net assets attributable to redeemable ordinary
shareholders in accordance with IFRS (bid/ask price) 15,177,001
Adjustment relating to valuation of portfolio
to bid/ask price 329,576
Net assets attributable to redeemable
ordinary shareholders in accordance
with Offering Memorandum (mid price)
15,506,577
Net Asset Value per Redeemable Ordinary Share
(bid/ask price) 3.76
Adjustment relating to valuation of portfolio to
bid/ask price 0.08
Net Asset Value per Redeemable
Ordinary Share in accordance
with Offering Memorandum (mid price)
3.84
14 SUBSEQUENT EVENTS
There has been no significant event after the statement of financial position date which in the
opinion of the Board of Directors requires disclosure in the financial statements.
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
INVESTMENT PORTFOLIOS (UNAUDITED)
as at 31 December 2011
Discover Asia Investments
- 49 -
Asset description Holdings Valuation % TNA
US$
Investments (150.69%)
Equities – Listed (68.86%)
Australia (17.62 %)
INTREPID MINES LTD 600,000 666,012 4.39
NEWCREST MINING LTD 46,810 1,420,423 9.36
SIHAYO GOLD LTD 6,000,000 645,844 4.25
Total Australia 2,732,279 18.00
British Virgin Islands (0.12 %)
ORSU METALS CORP 175,000 18,910 0.13
Canada (31.22 %)
ASIAN MINERAL RESOURCES LTD 415,000 20,383 0.13
BARISAN GOLD CORP 295,000 98,527 0.65
EAST ASIA MINERALS CORP 380,000 175,442 1.16
INTEROIL CORP 30,000 1,534,200 10.11
IVANHOE MINES LTD 70,150 1,243,130 8.19
NAUTILUS MINERALS INC 280,000 495,088 3.26
SILVERCORP METALS INC 190,000 1,216,000 8.01
Total Canada 4,782,770 31.51
Cayman Islands (2.16%)
COASTAL ENERGY CO 155,000 2,311,297 15.23
REGENT PACIFIC GROUP LTD 10,000,000 328,337 2.16
Total Cayman Islands 2,639,634 17.39
Hong Kong (2.41 %)
APOLLO SOLAR ENERGY TECHNOLOGY HOLDINGS 8,000,000 293,572 1.94
CHINA ASEAN RESOURCES LTD 6,000,000 74,938 0.49
CHINA FORTUNE HOLDINGS 250,000 4,636 0.03
Total Hong Kong 373,146 2.46
South Korea (0.40%)
GOLDEN BRIDGE INVESTMENT & SECURITIES CO LTD 37,580 36,797 0.24
HANWHA NON-LIFE INSURANCE CO LTD 4,000 25,536 0.17
Total South Korea 62,333 0.41
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
INVESTMENT PORTFOLIOS (UNAUDITED) (continued)
as at 31 December 2011
Discover Asia Investments (continued)
- 50 -
Asset description Holdings Valuation %TNA
US$
Investment fund – Listed (70.25%)
Cayman Islands (69.87%)
PXP VIETNAM FUND LTD 386,000 1,148,350 7.57
VIETNAM EQUITY HOLDING 1,847,000 2,302,574 15.17
VIETNAM HOLDING LIMITED 2,135,000 1,592,206 10.49
VIETNAM INFRASTRUCTURE LTD 3,215,000 620,495 4.09
VIETNAM PROPERTY HOLDING 1,083,000 1,420,448 9.36
VINALAND LTD 5,400,000 3,591,000 23.66
Total Cayman Islands 10,675,073 70.34
Bonds – Unlisted (4.21%)
Luxembourg (4.21%)
0% EUR-NOTE NOMURA 2009-21.07.14
LINKED TO J-REIT BASKET 540,000 653,489 4.30
Investment funds – Unlisted (7.09%)
Cayman Islands (7.09 %)
KOMODO FD RED P SHARES USD SER 1 35,893 1,099,731 7.25
Warrants (0.00%)
Canada (0.00%)
BARISAN GOLD CORP CALL WTS 26.09.13 100,000 - -
Total Investments 23,037,365 151.79
Other Net Liabilities (7,860,364) (51.79)
Total Net Assets 15,177,001 100.00
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
INVESTMENT PORTFOLIOS (UNAUDITED) (continued)
as at 31 December 2011
Discover Europe Investments
- 51 -
Asset description Holdings Valuation % TNA
US$
Bonds – Listed (1.86 %)
Luxembourg (1.86 %)
0% USD-NOTE MERRILL LYNCH 2009-16.12.14
LINKED TO PLATINUM 500,000 437,200 1.86%
Equities – Listed (48.71 %)
Canada (36.51 %)
ALACER GOLD CORP 225,000 2,318,517 9.87%
BANKERS PETROLEUM LTD 310,000 1,352,063 5.76%
ELDORADO GOLD CORP 55,000 757,466 3.23%
EUROPEAN GOLDFIELDS LTD 200,000 2,333,988 9.94%
GABRIEL RESOURCES LTD 293,700 1,811,823 7.71%
Total Canada 8,573,857 36.51%
Germany (4.30%)
HYDROTEC AG 200,000 324,650 1.38%
PEACHES AG 13,500 685,852 2.92%
Total Germany 1,010,502 4.30%
Great Britain (0.14%)
ENQUEST PLC 22,183 31,877 0.14%
Hungary (0.23%)
CSEPEL HOLDING 41,637 53,778 0.23%
Netherland (1.91%)
LBI INTERNATIONAL NV 200,000 448,796 1.91%
Poland (2.08%)
NETIA SA 316,388 487,884 2.08%
Romania (3.54%)
ANTIBIOTICE SA 2,865,357 335,582 1.43%
ARMATURA SA 464,200 13,940 0.06%
OLTCHIM SA 1,090,550 359,259 1.53%
TURBOMECANICA SA 8,661,400 121,208 0.52%
Total Romania 829,989 3.54%
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
INVESTMENT PORTFOLIOS (UNAUDITED) (continued)
as at 31 December 2011
Discover Europe Investments (continued)
- 52 -
Asset description Holdings Valuation TNA
US$
Slovakia
VAHOSTAV AS 14,123 - -
Investments Funds – Listed (3.96 %)
Bristish Virgin Islands (0.04 %)
TRANS BALKAN INVESTMENTS LTD A 140,000 8,704 0.04%
Cayman Islands (3.92 %)
RECONSTRUCTION CAPITAL II LTD 1,478,820 921,790 3.92%
Equities – Unlisted (36.44 %)
Cyprus (8.17%)
NEARMEDIC LTD 1,000,000 - -
TIDAL WAVE TRADING LTD 155,527 1,918,690 8.17%
Total Cyprus 1,918,690 8.17%
Czech Republic (0.00%)
HARVARDSKY PRUMYSLOVY HOLDING 50,000 - -
TREND M 126,216 - -
Total Czech Republic - -
Great Britain (28.27%)
RECONSTRUCTION CAPITAL PLC 1,100 6,639,457 28.27%
Romania (0.00%)
ELVILA SA 87,611 - -
Slovakia (0.00%)
EUROCAPITAL AS 76,447 - -
Investments Funds – Unlisted (14.09%)
Cayman Islands (14.09%)
ROMANIAN INVESTMENT FUND LTD 3,000 3,310,170 14.09%
Total Investments 24,672,694 105.06%
Other Net Liabilities (1,189,303) (5.06%)
Total Net Assets 23,483,391 100.00
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
INVESTMENT PORTFOLIOS (UNAUDITED)
as at 31 December 2010
Discover Asia Investments
- 53 -
Asset description Holdings Valuation % TNA
US$
Investments (108.94%)
Equities – Listed (38.78%)
Australia (10.17%)
INTREPID MINES LTD 290,000 598,540 2.41
NEWCREST MINING LTD 46,419 1,924,020 7.76
Total Australia 2,522,560 10.17
British Virgin Islands (0.24%)
ORSU METALS CORP 175,000 59,904 0.24
Canada (20.68%)
ASIAN MINERAL RESOURCES LTD 415,000 62,673 0.25
EAST ASIA MINERALS CORP 155,000 1,279,637 5.16
INTEROIL CORP 25,000 1,801,750 7.27
IVANHOE MINES LTD 61,000 1,412,535 5.70
NAUTILUS MINERALS INC 250,000 568,840 2.30
Total Canada 5,125,435 20.68
Cayman Islands (2.13%)
REGENT PACIFIC GROUP LTD 10,000,000 527,419 2.13
Hong Kong (4.34%)
APOLLO SOLAR ENERGY TECHNOLOGY HOLDINGS 8,000,000 617,467 2.49
CHINA ASEAN RESOURCES LTD 6,000,000 447,663 1.81
CHINA FORTUNE HOLDINGS 250,000 10,130 0.04
Total Hong Kong 1,075,260 4.34
South Korea (1.22%)
GOLDEN BRIDGE INVESTMENT & SECURITIES CO LTD 37,580 81,539 0.33
HANWHA NON-LIFE INSURANCE CO LTD 5,633 51,806 0.21
SAMSUNG ELECTRONICS CO LTD 200 169,472 0.68
Total South Korea 302,817 1.22
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
INVESTMENT PORTFOLIOS (UNAUDITED) (continued)
as at 31 December 2010
Discover Asia Investments (continued)
- 54 -
Asset description Holdings Valuation %TNA
US$
Investment fund – Listed (54.65%)
Cayman Islands (54.65%)
PXP VIETNAM FUND LTD 386,000 1,424,340 5.74
VIETNAM EQUITY HOLDING 1,100,000 2,804,571 11.31
VIETNAM HOLDING LIMITED 2,000,000 2,315,000 9.34
VIETNAM INFRASTRUCTURE LTD 3,215,000 1,197,588 4.83
VIETNAM PROPERTY HOLDING 1,030,000 2,335,845 9.42
VINALAND LTD 3,500,000 3,473,750 14.01
Total Cayman Islands 13,551,094 54.65
Rights - Listed (0.33%)
Canada (0.33%)
IVANHOE MINES LTD RIGHTS 26.01.11 61,000 82,296 0.33
Bonds – Unlisted (3.46%)
Luxembourg (3.46%)
0% EUR-NOTE NOMURA 2009-21.07.14
LINKED TO J-REIT BASKET 540,000 858,175 3.46
Investment funds – Unlisted (11.72%)
Cayman Islands (11.72%)
KOMODO FUND 35,893 1,042,844 4.21
TERRA BANGLADESH FUND 13,306 1,861,944 7.51
Total Cayman Islands 2,904,788 11.72
Total Investments 27,009,748 108.94
Other Net Liabilities (2,215,628) (8.94)
Total Net Assets 24,794,120 100.00
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
INVESTMENT PORTFOLIOS (UNAUDITED) (continued)
as at 31 December 2010
Discover Europe Investments
- 55 -
Asset description Holdings Valuation % TNA
US$
Bonds – Listed (2.14%)
Luxembourg (2.14%)
0% USD-NOTE MERRILL LYNCH 2009-16.12.14
LINKED TO PLATINUM 500,000 570,175 2.14
Equities – Listed (42.24%)
Canada (32.47%)
ANATOLIA MINERALS DEVELOPMENT 360,000 2,794,463 10.47
ELDORADO GOLD CORP 55,000 1,024,415 3.84
EUROPEAN GOLDFIELDS LTD 164,000 2,300,045 8.61
GABRIEL RESOURCES LTD 318,700 2,550,883 9.55
Total Canada 8,669,806 32.47
Germany (3.95%)
HYDROTEC AG 250,000 633,712 2.37
PEACHES AG 13,500 421,189 1.58
Total Germany 1,054,901 3.95
Great Britain (0.18%)
ENQUEST PLC 22,183 48,434 0.18
Hungary (0.19%)
CSEPEL HOLDING 41,637 51,989 0.19
Netherland (1.13%)
LBI INTERNATIONAL NV 140,000 300,586 1.13
Poland (2.09%)
NETIA SA 316,388 557,332 2.09
Romania (2.23%)
ANTIBIOTICE SA 2,294,765 445,977 1.67
ARMATURA SA 464,200 18,872 0.07
NAVLOMAR SA 21,546 - -
OLTCHIM SA 1,090,550 69,394 0.26
TURBOMECANICA SA 2,058,000 60,962 0.23
Total Romania 595,205 2.23
Slovakia (0.00%)
VAHOSTAV AS 14,123 - -
DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE INVESTMENTS (SUB-FUNDS OF DISCOVER INVESTMENT COMPANY)
INVESTMENT PORTFOLIOS (UNAUDITED) (continued)
as at 31 December 2010
Discover Europe Investments (continued)
- 56 -
Asset description Holdings Valuation TNA
US$
Investments Funds – Listed (4.88%)
Bristish Virgin Islands (0.33%)
TRANS BALKAN INVESTMENTS LTD A 140,000 87,095 0.33
Cayman Islands (4.55%)
RECONSTRUCTION CAPITAL II LTD 1,478,820 1,215,462 4.55
Equities – Unlisted (33.49%)
Cyprus (7.43%)
NEARMEDIC LTD 1,000,000 - -
TIDAL WAVE TRADING LTD 155,527 1,982,666 7.43
Total Cyprus 1,982,666 7.43
Czech Republic (0.00%)
HARVARDSKY PRUMYSLOVY HOLDING 50,000 - -
SG-INDUSTRY AS 180 - -
TREND M 126,216 - -
Total Czech Republic - -
Great Britain (26.06%)
BRX RESEARCH & DEVELOPMENT COMPANY LTD 200,000 - -
RECONSTRUCTION CAPITAL PLC 1,100 6,958,578 26.06
Total Great Britain 6,958,578 26.06
Romania (0.00%)
ELVILA SA 87,611 - -
Slovakia (0.00%)
EUROCAPITAL AS 76,447 - -
Investments Funds – Unlisted (12.91%)
Cayman Islands (12.91%)
ROMANIAN INVESTMENT FUND LTD 3,000 3,448,260 12.91
Total Investments 25,540,489 95.66
Other Net Assets 1,161,577 4.34
Total Net Assets 26,702,066 100.00