Page 74 - Annual Report 2010

Monetary items, which include all other assets and liabili-ties expressed in a currency other than EUR are reported using the closing exchange rate prevailing at the reporting date of the financial statements, as issued by the Euro-pean Central Bank. Exchange differences are recognised in the profit or loss in the year in which they arise.

Except for investment in joint ventures (see note 2.3.4), the Fund classifies its investments in the Available-For-Sale category (hereafter “AFS”). The classification of the invest-ments is determined at initial recognition.

Purchases and sales are initially recognised on trade date. They are initially recognised at fair value plus transaction costs. Fair value consideration is explained in the section below.

Financial assets are derecognised when the right to re-ceive cash flows from the financial assets has expired or when EIF has substantially transferred all risks and re-wards of ownership.

The Fund enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion thereof. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with retention of all or substantially all risks and rewards include securities lending.

The financial assets are subsequently measured at fair value, and any changes in fair value are directly recognised in the fair value reserve in equity, until the financial asset is derecognised or impaired. At this time, the cumulative gain or loss previously recognised in equity is recognised in the profit or loss.

Interest on AFS debt securities and other fixed income securities is calculated using the effective interest method and is recognised in the profit or loss. Dividends on equity investments are recognised in the profit or loss when the Fund’s right to receive payment is established.

EIF assesses at each statement of financial position date whether there is objective evidence that a financial as-set or a group of financial assets is impaired. For equity securities, a significant and/or prolonged decline in the fair value of the security below its cost is considered in de-termining whether the securities are impaired. If any such evidence exists for financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the profit or loss – is removed from equity and recognised in the profit or loss. Impairment losses on equity instruments previously recognised in the profit or loss are not reversed through the profit or loss. In contrast, if in a subsequent year, the fair value of a debt instrument classified as AFS increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the profit or loss.

Investments in private equity funds are included in “Shares and other variable income securities”. They are acquired for a long term in the normal course of the Fund’s activities.

Under the valuation technique, the fair value of private equity (PE) funds is achieved by applying the aggregated Net Asset Value (NAV) method. This valuation method implicitly assumes that if the NAVs of underlying funds can be considered as equivalent to the fair value as