DISCOVER ASIA INVESTMENTS AND DISCOVER EUROPE … · India has to import food, which leads to a deficit in trade balance and ... be attributed to Malaysia's abundance of natural resources

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


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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


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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.


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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.


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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).


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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%.


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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.


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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


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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”.


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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


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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.


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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.


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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


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



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



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)



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


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.


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.



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.



31 December 2011

- 22 -


(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.



31 December 2011

- 23 -


(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.



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.



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).



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


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


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



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.



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


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.


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


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).


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).



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



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.



31 December 2011

- 31 -

11 FINANCIAL INSTRUMENTS BY CATEGORY


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


Loans and

receivables

Assets at fair

value through



position


profit or loss - 27,009,748 27,009,748

Receivables 7,531 - 7,531

Total 7,531 27,009,748 27,017,279


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


Liabilities at fair

value through

profit or loss

Other financial

liabilities Total


position

Bank overdraft - 175,099 175,099



Total - 24,969,219 24,969,219



31 December 2011

- 32 -

11 FINANCIAL INSTRUMENTS BY CATEGORY (continued)



Loans and

receivables

Assets at fair

value through



position


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


Loans and

receivables

Assets at fair

value through



position


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


Liabilities at fair

value through

profit or loss

Other financial

liabilities Total


position

Bank overdraft - 3,695,824 3,695,824



Total - 27,179,215 27,179,215


Liabilities at fair

value through

profit or loss

Other financial

liabilities Total


position

Bank overdraft - 630,893 630,893



Total - 27,332,959 27,332,959



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$


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


redeemable ordinary shares resulting

from a 10% increase in prices 17,480,738 27,495,095 25,950,660 29,256,115


redeemable ordinary shares resulting

from a 10% decrease in prices 12,873,265 22,093,145 21,016,122 24,148,017



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



31 December 2011

- 35 -


(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.



31 December 2011

- 36 -


(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


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).


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).



31 December 2011

- 37 -


(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


- 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



31 December 2011

- 38 -


(c) Interest rate risk (continued)




US$ US$ US$



- 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


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.



31 December 2011

- 39 -



The following table sets out the interest rate risk of Discover Europe Investments.




US$ US$ US$



- 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






US$ US$ US$



- 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





31 December 2011

- 40 -



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.


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 -


participating shares - 24,794,120



31 December 2011

- 41 -


(e) Liquidity risk (continued)


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 -


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 -


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:


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 -


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 -



31 December 2011

- 42 -


(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:


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



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



31 December 2011

- 43 -


(f) Fair values of financial instruments (continued)




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



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.



31 December 2011

- 44 -



The following table presents the transfers between levels for the year ended

31 December.


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 - - -


– Equity securities - - -

– Debt securities - 653,489 (653,489)

– Investment funds - - -






– Debt securities - - -




31 December 2011

- 45 -










– Investment funds - (8,704) 8,704








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.



31 December 2011

- 46 -



The following table presents the movement in Level 3 instruments by class of financial

instrument.


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




83,518 405,000 820,441 1,308,958



31 December 2011

- 47 -




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


loss (383,097) (138,090) (521,187)

Closing balance 8,558,147 3,318,874 11,877,021




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 - - -


loss (34,981) (34,615) (69,596)

Closing balance 8,941,244 3,448,260 12,389,504




35,997 (46,900) (10,902)



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.


INVESTMENT PORTFOLIOS (UNAUDITED)



- 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


INVESTMENT PORTFOLIOS (UNAUDITED) (continued)



- 50 -

Asset description Holdings Valuation %TNA

US$

Investment fund – Listed (70.25%)


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


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





- 51 -


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%





- 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 - -


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%)


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%)



INVESTMENT PORTFOLIOS (UNAUDITED)



- 53 -


US$

Investments (108.94%)


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


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





- 54 -

Asset description Holdings Valuation %TNA

US$

Investment fund – Listed (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


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%)


KOMODO FUND 35,893 1,042,844 4.21

TERRA BANGLADESH FUND 13,306 1,861,944 7.51



Other Net Liabilities (2,215,628) (8.94)






- 55 -


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


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


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 - -





- 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


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 - -


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%)


ROMANIAN INVESTMENT FUND LTD 3,000 3,448,260 12.91


Other Net Assets 1,161,577 4.34


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