SKANDIA GLOBAL FUNDS PLC - Fidelity Investments

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Skandia Global Funds plc Annual Report and Audited Financial Statements for the year ended 31 December 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December 2011 (continued) 17. Derivatives and other Financial Instruments (continued) (b) Liquidity risk (continued) Inflows and Outflows from Foreign Currency Exchange Contracts are detailed as follows: Skandia Japanese Skandia Global Bond Skandia Total Return USD Bond Equity Fund Fund Fund USD USD USD Derivative Financial Liabilities, settled gross At 31 December 2011 Outflows (3,800,145) (277,162) (1,912,039) Inflows - 116,350 3,539,964 Total (3,800,145) (160,812) 1,627,925 At 31 December 2010 Outflows - (458,925) (106,056) Inflows 268,270 524,900 1,323,935 Total 268,270 65,975 1,217,879 Skandia Investment Skandia Local Currency Skandia Emerging Grade Corporate Emerging Market Market Debt Fund Bond Fund Debt Fund USD USD USD Derivative Financial Liabilities, settled gross At 31 December 2011 Outflows (17,561) (204,176) (390,667) Inflows 362,304 1,385,078 6,064 Total 344,743 1,180,902 (384,603) At 31 December 2010 Outflows (369,634) (389,551) - Inflows 1,070,843 2,012,740 - Total 701,209 1,623,189 - Skandia Global Futures Fund USD Derivative Financial Liabilities, settled gross At 31 December 2011 Outflows - Inflows 73,137 Total 73,137 At 31 December 2010 Outflows - Inflows - Total - 314
Skandia Global Funds plc Annual Report and Audited Financial Statements for the year ended 31 December 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December 2011 (continued) 17. Derivatives and other Financial Instruments (continued) (c) Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with a Fund. Credit risk is monitored in accordance with the UCITS Regulations. The purpose of imposing counterparty limits on a UCITS is to ensure that the UCITS is not exposed to a single counterparty disproportionately. In the event of a counterparty failure, the risk of material loss will be reduced due to risk diversification. OTC derivative transactions give rise to counterparty risk exposure as they are bi-lateral contracts for non-exchange traded FDI. Moreover, the counterparty exposure related to OTC derivatives must be added to other non- FDI exposures that the UCITS may have to the counterparty in order to ensure that overall counterparty exposure limits are not breached, i.e. the total exposure to a single counterparty arising from all activities should be captured in the risk management systems. FDI transactions that are traded on exchanges where daily mark-to-market valuations and margining occur are deemed to be free of counterparty risk (i.e. exchange-traded derivatives). Paragraph 6 of UCITS Notice 9 limits exposure to OTC derivative counterparties to a maximum of 5% of NAV. This limit is raised to 10% in the case of credit institutions as defined by paragraph 1.4 of UCITS Notice 9. A UCITS may not invest more than 10% of its assets in transferable securities or money market instruments issued by the same body. A UCITS may not invest more than 20% of its assets in deposits made with the same body. A UCITS may only enter into transaction with a counterparty when:- � The counterparty is a credit institution listed in sub-paragraphs 1.4(i), (ii), or (iii) of notice UCITS 9 or an investment firm, authorised in accordance with the Investment Services Directive, in an EEA Member State; � In the case of a counterparty which is not a credit institution, the counterparty has a minimum credit rating of A2 or equivalent, or is deemed by the UCITS to have an implied rating of A2. Alternatively, an unrated counterparty will be acceptable where the UCITS is indemnified against losses suffered as a result of a failure of the counterparty, by an entity which has and maintains a rating of A2. The Investment Adviser ensures that the ratings and limits for counterparties are adhered to. Paragraph 5 of UCITS Notice 10 states that the risk exposure to an OTC derivative counterparty may be reduced where the counterparty will provide the UCITS with collateral, subject to certain conditions. The Investment Adviser is responsible for ensuring this collateral meets the relevant criteria set out in UCITS Notice 10. Credit risk also arises on transactions with brokers where transactions are awaiting settlement. Risk relating to unsettled transactions is considered small due to the short settlement period involved and the high credit quality of the brokers used. The Company monitors the credit rating and financial positions of the brokers used to further mitigate this risk. Substantially all of the assets of the Company are held by Citibank International plc, Ireland Branch (the “Custodian”). Bankruptcy or insolvency of the Custodian may cause a Fund‟s rights with respect to securities held by the Custodian to be delayed or limited. The Company monitors this risk by monitoring the credit quality and financial position of the Custodian. 315
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SKANDIA GLOBAL FUNDS PLC - Fidelity Investments

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