Consolidated Financial Statements and Independent Auditor's Report

“Hayastan” All Armenian Fund

December 31, 2011 “Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011

Contents

Page Independent auditor’s report 1 Consolidated statement of financial position 3 Consolidated statement of comprehensive income 4 Consolidated statement of changes in net assets 5 Consolidated statement of cash flows 6 Notes to the consolidated financial statements 8

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011

“Hayastan” All Armenian Fund Members of the Board of Trustees as of December 31, 2011

1. Serzh Sargsyan RA President, President of the Board of Trustees 2. Robert Kocharyan RA Ex-president 3. Gagik Harutiunyan Chairman of RA Constitutional Court, Vice President of the Board of Trustees 4. Bako Sahakyan NKR President 5. Arkadi Ghukassyan NKR Ex-president, Vice President of the Board of Trustees 6. Samvel Nikoyan Speaker of RA National Assembly 7. Tigran Sargsyan RA Prime Minister 8. Arayik Harutyunyan NKR Prime Minister 9. Eduard Nalbandyan RA Minister of Foreign Affairs 10. Vache Gabrielyan RA Minister of Finance 11. Hranush Hakobyan RA Minister of Diaspora 12. Arthur Djavadyan Chairman of RA Central Bank 13. H.H. Garegin II Catholicos of All Armenians 14. H.H. Aram I Catholicos of the Great House of Cilicia 15. Nerses Petros XIX Tarmouni Catholicos Patriarch of the Armenian Catholic Church 16. Very Rev. Rene Levonian Representative of the Armenian Evangelical Church 17. Mike Kharapian Representative of the Armenian Ramgavar Azadagan Party 18. Vagharsh Ehramdjian Representative of the Armenian Revolutionary Federation 19. Ara Boyajian Representative of the S.D. Hunchakian Party 20. Hirair Hovnanian President of the Armenian Assembly of America, 21. Berge Setrakian President of the Armenian General Benevolent Union 22. Hasmik Terterian Representative of the Armenian Relief Society 23. Arsen Ghazaryan President of the Union of Manufacturers and Businessmen (Employers) of Armenia 24. Charles Aznavour France 25. Albert Boyajian United States of America 26. Vartan Gregorian United States of America 27. Eduardo Eurnekian Argentina 28. Bedros Terzian France 29. Dikran Izmirlian Switzerland 30. Samvel Karapetyan Russia 31. Mark Geragos United States of America 32. Kabriel Ghenberdji Syria 33. Vatche Manoukian Great Britain 34. Albert Boghossian Switzerland 35. Diruhi Burmayan Brazil 36. Eduardo Seferian Argentina

Control committee

37. Vahe Jazmadarian France 38. Gagik Khachatryan Chairman of State Revenues Committee

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To the Board of Trustees of “Hayastan” All Armenian Fund

We have audited the accompanying consolidated financial statements of “Hayastan” All Armenian Fund (the “Fund”), which comprise the consolidated statement of financial position as of December 31, 2011, and the consolidated statement of comprehensive income, the consolidated statement of changes in net assets and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

²áõ¹Çï, гñÏ»ñ, ÊáñÑñ¹³ïíáõÃÛáõÝ Audit, Tax, Advisory ¶ñ³Ýà ÂáñÝÃáÝ ÆÝûñÝ»ßÝÉÇ ³Ý¹³Ù Member of Grant Thornton International Ltd

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of “Hayastan” All Armenian Fund as of December 31, 2011, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

April 20, 2012

Gagik Gyulbudaghyan Emil Vassilyan, FCCA

Managing Partner Engagement Partner

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Consolidated statement of financial position

In thousand drams As of As of Note December 31, 2011 December 31, 2010

Assets

Non-current assets

Property and equipment 4 261,120 72,127

Intangible assets 538 825 Deferred income tax assets 5 2,348 7,812

264,006 80,764

Current assets

Inventories 6 341,519 409,067

Receivables and advances 7 752,392 702,018

Current income tax assets - 6,383

Term deposits 8 595,304 187,105

Cash and bank balances 9 163,157 1,106,352

1,852,372 2,410,925

Non-current assets held for sale 10 - 263,950

Total assets 2,116,378 2,755,639

Liabilities and net assets

Non-current liabilities

Grants related to assets 11 3,384 6,012

3,384 6,012

Current liabilities

Accounts payable 12 836,596 460,050

Current income tax liabilities 56,604 -

Loans and borrowings 13 16,397 395

909,597 460,445

Net assets 1,203,397 2,289,182

Total liabilities and net assets 2,116,378 2,755,639

The consolidated financial statements were approved on April 2, 2012 by:

Ara Vardanyan Ruzanna Aghayan Executive Director Financial Manager

The consolidated statement of financial position is to be read in conjunction with the notes to and forming part of the consolidated financial statements set out on pages 8 to 37.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 4

Consolidated statement of comprehensive income

In thousand drams Year ended Year ended December 31, December 31, Note 2011 2010

Income from operations 15 5,558,488 6,517,740 Other income 577,864 401,288 Operating expenses 16 (6,098,677) (5,499,793) Administrative expenses 17 (416,234) (413,196) Other expenses (272,130) (269,035) Profit/(loss) from operating activities (650,689) 737,004

Finance income 18 23,243 86,883 Finance expense 18 (2,487) (3,578) Other financial items 19 33,309 (122,476) Profit/(loss) before taxes (596,624) 697,833

Income tax expense 20 (80,453) (15,302) Profit/(loss) for the year (677,077) 682,531

Other comprehensive income Net decrease of operating financing (358,275) (1,121,992) Net decrease as a result of revaluation of property and equipment (50,433) -

Total comprehensive loss for the year (1,085,785) (439,461)

The consolidated statement of comprehensive income is to be read in conjunction with the notes to and forming part of the consolidated financial statements set out on pages 8 to 37.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 5

Consolidated statement of changes in net assets

In thousand drams Financing for operations (refer to Revaluation Accumulated note 14) reserve loss Total as of January 1, 2010 4,040,422 114,675 (1,426,454) 2,728,643

Profit for the year - - 682,531 682,531 Other comprehensive loss for the year (1,121,992) - - (1,121,992) Total comprehensive income/(loss) for the year (1,121,992) - 682,531 (439,461) as of December 31, 2010 2,918,430 114,675 (743,923) 2,289,182

Loss for the year - - (677,077) (677,077) Other comprehensive loss for the year (358,275) (50,433) - (408,708) Total comprehensive loss for the year (358,275) (50,433) (677,077) (1,085,785) as of December 31, 2011 2,560,155 64,242 (1,421,000) 1,203,397

The consolidated statement of changes in net assets is to be read in conjunction with the notes to and forming part of the consolidated financial statements set out on pages 8 to 37.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 6

Consolidated statement of cash flows

In thousand drams Year ended Year ended December 31, December 31, 2011 2010 Cash flows from operating activities Profit/(loss) for the year (677,077) 682,531 Adjustments for: Depreciation and amortization 33,737 39,510 Loss on disposal of property and equipment 124 272 Loss on donation of property and equipment 6,357 - Income from grants (5,558,488) (6,350,537) Income tax expense 80,453 15,302 Interest income (23,243) (86,883) Finance income 2,487 3,578 Movement of the allowance for doubtful receivables 3,060 2,622 Foreign exchange (gain)/loss (33,309) 122,476 Operating loss before working capital changes (6,165,899) (5,571,129)

Change in advances and receivables 239,416 (309,180) Change in inventories 156,327 234,817 Change in payables 388,094 69,552 Cash used in operating activities (5,382,062) (5,575,940)

Donations received 4,805,072 4,905,909 Interest paid (2,332) 2,842 Income tax paid (12,002) (63,620)

Net cash used in operating activities (591,324) (730,809)

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 7

Consolidated statement of cash flows (continued)

In thousand drams Year ended Year ended December 31, December 31, 2011 2010 Cash flows from investing activities Acquisition of property and equipment and intangible assets (15,204) (8,978) Interest received 23,004 94,291

Net cash from investing activities 7,800 85,313

Cash flows from financing activities Borrowings received, net 14,415 - Net cash received for/(used in) financing activities 14,415 -

Net decrease in cash and cash equivalents (569,109) (645,496) Foreign exchange effect on cash 33,874 (125,164) Cash and cash equivalents at the beginning of the year 1,290,157 2,060,817 Cash and cash equivalents at the end of the year (refer to note 24) 754,922 1,290,157

The consolidated statement of cash flows is to be read in conjunction with the notes to and forming part of the consolidated financial statements set out on pages 8 to 37.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 8

Notes to the consolidated financial statements

1 Nature of operations and general information

“Hayastan” All Armenian Fund (the “Fund”) was founded on March 3, 1992, in accordance with the decree of the President of the Republic of Armenia.

The Fund is humanitarian, non-political organization acting in accordance with the Constitution of the Republic of Armenia, its charter and decisions of the Board of Trustees.

The objectives of the Fund are to:

· support to the social – economic development and reform processes in the Republic of Armenia;

· support to improvement and development of science, education, culture, social and healthcare sectors;

· support to the implementation of projects of high significance, etc.

The projects are implemented by the Fund’s Executive Board. The Fund has affiliate offices worldwide that work closely with the local Armenian communities. Each community contributes to realizing the Fund’s projects via their local affiliate offices.

Since 1996, each November the Fund holds annual telethons in Los Angeles. Funds collected during the marathon are directed to the implementation of large scaled strategic projects defined in the annual meeting of the Executive Board. Along with telethons, the Fund organizes annual phoneathons that are held in European countries.

The Fund implemented different projects such as the Earthquake Relief Initiative, Winter 92-94 Humanitarian Project, construction of Goris-Stepanakert and North-South highways as well as the revitalization of hundreds of schools, hospitals, massive water and gas supply networks and other key elements of infrastructure.

Today, the Fund’s focus is on breathing a new life into the rural areas of Armenia and Artsakh.

The average number of employees of the Fund during 2011 was 61 (2010: 66).

The Fund’s registered office is located at 3 Government House, Yerevan, Republic of Armenia.

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2 Basis of preparation

2.1 Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Currently, IFRS do not contain specific guidance for non-profit organizations and non- governmental organizations concerning the accounting treatment and presentation of financial statements. Where IFRS do not give guidance on how to treat transactions specific to not for profit sector, accounting policies have been based on the general principles of IFRS, as detailed in the International Accounting Standards Board (“IASB”) “Framework for Preparation and Presentation Financial Statements”

The management of the Fund applied the “net assets” basis for presentation of the financial statements. The net asset is the difference between the Fund’s assets and liabilities and includes the accumulated profit or loss of the Fund, the revaluation reserve as well as the unused balance of financing.

2.2 Basis of measurement The consolidated financial statements have been prepared on the historical cost basis, with the exception of the Fund’s building, which is presented at fair value.

2.3 Functional and presentation currency The national currency of Armenia is the Armenian dram (“dram”), which is the Fund’s functional currency, since this currency best reflects the economic substance of the underlying events and transactions of the Fund.

These consolidated financial statements are presented in Armenian drams, since management believes that this currency is more useful for the users of these consolidated financial statements. All financial information presented in Armenian drams has been rounded to the nearest thousand.

2.4 Use of estimates and judgment The preparation of consolidated financial statements in conformity with IFRS requires management to make critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates and the original estimates and assumptions will be modified as appropriate in the year in which circumstances change.

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2.5 Adoption of new and revised standards In the current year the Fund has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the “IASB”) and International Financial Reporting Interpretations Committee (the “IFRIC”) of the IASB that are relevant to its operations and effective for annual reporting periods beginning on January 1, 2011.

Standards affecting presentation and disclosure

IAS 24 Related Party Disclosures (as revised in 2009)

In accordance of IAS 24 Related Party Disclosures (revised in 2009), the following modification was added to the definitions of related parties: “A government-related entity is an entity that is controlled, jointly controlled or significantly influenced by a government”.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Fund

At the date of authorization of these consolidated financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Fund.

Management anticipates that all of the relevant pronouncements will be adopted in the Fund’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Fund’s consolidated financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Fund’s financial statements.

IFRS 9 Financial Instruments

This Standard issued in November 2009 and amended in October 2010 introduces new requirements for the classification and measurement of financial assets and financial liabilities and for derecognition. IFRS 9 requires all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortized cost or fair value. Specifically, debt instruments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other debt instruments and equity instruments are measured at their fair values at the end of subsequent accounting periods.

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The most significant effect of IFRS 9 regarding the classification and measurement of financial liabilities relates to the accounting for changes in fair value of a financial liability (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the effects of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was recognized in profit or loss.

IFRS 9 is effective for annual periods beginning on or after January 1, 2015, with earlier application permitted. The management anticipate that IFRS 9 will be adopted in the Fund's consolidated financial statements for the annual period beginning January 1, 2015 and that the application of the new Standard will not have a significant impact on amounts reported in respect of the Fund’s financial assets and financial liabilities.

IFRS 13 Fair Value Measurement

IFRS 13 does not affect which items are required to be fair-valued, but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. IFRS 13 is applicable for annual periods beginning on or after January 1, 2013. The Fund’s management has yet to assess the impact of this new standard.

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Amendments to IAS 1 Presentation of Financial Statements

The Amendments to IAS 1 require an entity to group items presented in other comprehensive income into those that, in accordance with other IFRSs:

(a) will not be reclassified subsequently to profit or loss and

(b) will be reclassified subsequently to profit or loss when specific conditions are met.

This amendment is applicable for annual periods beginning on or after July 1, 2012.

The Fund’s management expects this will change the current presentation of items in other comprehensive income; however, it will not affect the measurement or recognition of such items.

2.6 Subsidiaries The consolidated financial statements include the following subsidiaries:

December 31, 2011 Ownership Date of Year of Subsidiary % Country incorporation Industry acquisition Production and sale of furniture and Republic of woodworks “HATM” LLC 100% Armenia May 14, 1999 and other 1999

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3 Significant accounting policies

3.1 Basis of consolidation

Subsidiaries

Subsidiaries is the company, which is controlled by the Fund. Control exists when the Fund has the power, directly or indirectly, to govern the financial and operating policies of the company so as to obtain benefits from its activities. The financial statements of the subsidiaries are included in the consolidated financial statements from the date when control effectively commences until the date that control effectively ceases.

The financial statements of “HATM” LLC are included in the consolidated financial statements of the Fund. The Fund is 100% owner of “HATM” LLC.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized gains arising from intra-group transactions, are eliminated in presenting the consolidated financial statements. Unrealized gains arising from transactions with associates are eliminated against the investment in the associate.

3.2 Foreign currencies

Foreign currency transactions

In preparing the consolidated financial statements, transactions in currencies other than the functional currency are recorded at the rates of exchange defined by the Central Bank of Armenia prevailing on the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates defined by the Central Bank of Armenia prevailing on the reporting date, which is 385.77 drams for 1 US dollar as of December 31, 2011 (December 31, 2010: 363.44 drams for 1 US dollar). Non-monetary items that are measured in terms of historic cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement and retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period.

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3.3 Property and equipment

Property and equipment stated at a revalued amount

Building of the Fund is stated in the statement of financial position at revalued amount, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the reporting date.

Any revaluation increase arising on the revaluation of such property and equipment is recognized in other comprehensive income (except to the extent that it reverses a revaluation decrease for the same asset previously recognized in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously charged) and shows as revaluation reserve in shareholder’s equity. A decrease in the carrying amount arising on the revaluation of such property and equipment is charged to profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset.

The revaluation surplus is transferred to the accumulated profit as the asset is used by the Fund. The amount of the surplus transferred is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the properties revaluation reserve is transferred directly to accumulated profit.

Property and equipment stated at cost

Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost comprises purchase price including import duties and non-refundable purchase taxes and other directly attributable costs. When an item of property and equipment comprises major components having different useful lives, they are accounted for as separate items of property and equipment.

The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Expenditure to replace a component of an item of property and equipment that is accounted for separately is capitalized with the carrying amount of the component being written off. Other subsequent expenditure is capitalized if future economic benefits will arise from the expenditure. All other expenditure, including repair and maintenance, is recognized in the consolidated statement of comprehensive income as incurred.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 15

Depreciation is charged to the consolidated statement of comprehensive income on a straight line basis over the estimated useful lives of the individual assets. Depreciation commences when assets are available for use. The estimated useful lives are as follows:

Buildings 10-20 years Computers and accessories 1-5 years Vehicles 5-10 years Other property and equipment 5-10 years.

3.4 Intangible assets Intangible assets, which are acquired by the Fund and which have finite useful lives, are stated at cost less accumulated amortization and impairment losses.

Amortization is charged to the consolidated statement of comprehensive income on a straight line basis over the estimated useful lives of the intangible assets, which is estimated at 5-10 years.

3.5 Inventories Inventories include valuable items and other material values to be donated by the Fund or maintained for other purposes, construction materials and finished goods of the subsidiary, as well as other items to be distributed through various projects.

Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

At each reporting date the Fund assesses the net realizable value of available inventories. The Fund management uses judgment to determine their net realizable value derived from the characteristics of those inventories. In valuating certain items the Fund invites external assessors.

If, as a result of valuation, it becomes evident that the net realizable value is lower than the cost of inventories, this difference is expensed in the consolidated statement of comprehensive income.

3.6 Financial instruments Financial assets and financial liabilities are recognized when the Fund becomes a part to the contractual provisions of the financial instrument.

Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred.

Financial liabilities are derecognized when they are extinguished, discharged, cancelled or expire.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 16

Financial assets and financial liabilities are measured initially at fair value plus transaction costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value.

Financial assets and financial liabilities are measured subsequently as described below.

Financial assets

Financial assets other than hedging instruments are divided into the following categories:

· loans and receivables · financial assets at fair value through profit or loss · available-for-sale financial assets · held-to-maturity investments.

Financial assets are assigned to different categories on initial recognition, depending on the characteristics of the instrument and its purpose. A financial instrument's category is relevant for the way it is measured and whether any resulting income and expenses are recognized in profit or loss or directly in other comprehensive income. Refer to note 21.2 for a summary of the Fund's financial assets by category.

Generally, the Fund recognizes all financial assets using settlement date accounting. An assessment of whether a financial asset is impaired is made at least at each reporting date. All income and expense relating to financial assets are recognized in the consolidated statement of comprehensive income line item "finance costs" or "finance income", respectively.

i. Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity and include deposits at commercial banks. Investments are classified as held-to-maturity if it is the intention of the Fund's management to hold them until maturity.

Deposits are subsequently measured at amortized cost using the effective interest method. In addition, if there is objective evidence that the investment has been impaired, the financial asset is measured at the present value of estimated cash flows. Any changes to the carrying amount of the investment are recognized in the consolidated statement of comprehensive income.

ii. Borrowings and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and include trade and other receivables as well as cash and bank balances.

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Trade and other receivables

Current accounts receivable are initially recognized at fair value. Subsequently they are measured at amortized cost less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Fund will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor and default and delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate.

The balance of the allowance is adjusted by recording a charge or income to the statement of comprehensive income of the reporting period. Any amount written-off with respect to customer account balances is charged against the existing allowance for doubtful accounts. All accounts receivable for which collection is not considered probable are written-off.

Cash and bank balances

The Fund’s cash and bank balances comprise cash in hand, bank accounts and cash in transit

Financial liabilities

The Fund's financial liabilities include borrowings and trade and other payables (including finance lease liabilities). A summary of Fund's financial liabilities by category is given in note 21.2.

i Loans and borrowings

Loans and borrowings are recognized initially at fair value, net of issuance costs associated with the borrowing. Subsequent to initial recognition, loans and borrowings are stated at amortized cost with any difference between cost and redemption value recognized in the consolidated statement of comprehensive income over the period of the borrowings on an effective interest basis. Interest and other costs incurred in connection with borrowings are expensed as incurred as part of finance expenses, except for the borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, which are capitalized as part of that asset.

ii Payables

Payables are stated at fair value and subsequently stated at amortized cost.

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3.7 Impairment

Impairment of property and equipment and intangible assets

Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.

Recoverable amount is the higher of net selling price and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash- generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a revalued amount, in which case any reversal of impairment loss is treated as a revaluation increase.

Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account.

With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

In respect of available-for-sale equity securities, any increase in fair value subsequent to an impairment loss is recognized directly in equity.

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3.8 Non-current assets classified as held for sale If the Fund intends to sell non-current assets or groups of assets, and if the sale is highly probable to be carried out within 12 months, the asset or group of assets is classified as held for sale and presented as such in the statement of financial position.

Assets classified as held for sale are measured at the lower of their carrying amounts, immediately prior to their classification as held for sale and their fair value less costs to sell. They are not subject to depreciation or amortization. Held for sale assets, however, such as financial assets or deferred tax assets, are measured as usual.

Any profit or loss arising from the sale or revaluation of held for sale assets is included in "other income" or "other expense", respectively, in the consolidated statement of comprehensive income. Any revaluation surplus remaining in equity on disposal of the asset is transferred to the accumulated profit.

3.9 Grants Government grants are not recognized until there is reasonable assurance that the Fund will comply with the conditions attaching to them and the grants will be received.

Grants whose primary condition is that the Fund should purchase, construct or otherwise acquire non-current assets are recognized as deferred income in the statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Other grants are recognized as income over the periods necessary to match them with the cost for which they are intended to compensate, on a systematic basis. Grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Fund with no future related costs are recognized in profit or loss in the period in which they become receivable.

3.10 Provisions A provision is recognized in the statement of financial position when the Fund has a legal or constructive obligation as a result of past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 20

3.11 Financing for operations Donations received within the framework of the Fund’s activities as well as financing received for the projects implemented through different funds are recognized in the consolidated statement of changes in the net assets.

Donations received from Telethon and other sources Donations received from annual telethon and other sources (including paid donations and the part of promised donations on which some expenses have already been incurred at the reporting year) are recognized in the consolidated statement of changes in net assets.

Donations, which have been received for the projects that are not directly implemented by the Fund, are not included in these consolidated financial statements.

Projects co-financed by the Fund are reflected in these financial statements only at the amount of co-financing, since the remaining amounts are not controlled by the Fund. Refer to note 14 for disclosure of these amounts.

Executive Committee funds Amounts for this fund are received from “Financing for operations” and are used to cover administrative expenses.

Special funds Consolidated statement of changes in net assets includes the amounts for the special funds, which are deposited in commercial banks and interests earned on these funds are used to deliver pensions to the children of died soldiers and students.

3.12 Income tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 21

3.13 Income recognition The income of the Fund arises from the use of donations received, business operations of the Fund, operations of the subsidiary, investments of free funds, etc.

Income from donation

This income is recognized when there is a reasonable assurance that the donation will be received or when the donation is factually received. This income is included in “Income from operations” caption.

Income from business operation

This income includes rendering of services and sale of goods and is recognized when the service has been delivered and goods are actually transferred, which is evidenced by the documents signed by the parties received the service. This income is included in “Other income” caption.

Income from operations of subsidiary

This income includes sale of goods and recognized when the goods have been actually transferred to the buyer, which is the point when the risks related to the damage of these goods, are transferred to the buyer. This income is included in “Other income” caption.

Income from investment

This income includes deposited funds and is recognized using settlement date accounting. This income is included in “Finance income” caption.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 22

4 Property and equipment

In thousand drams

Land, buildings and Computers and constructions Vehicles accessories Total Cost as of January 1, 2010 285,950 73,936 343,349 703,235 Additions - - 9,060 9,060 Disposals - - (16,790) (16,790) Reclassification to available-for-sale assets (263,950) - - (263,950) as of December 31, 2010 22,000 73,936 335,619 431,555 Additions - 1,786 13,142 14,928 Disposals - (969) (16,279) (17,248) Reclassification from available-for-sale assets 207,160 - - 207,160 as of December 31, 2010 229,160 74,753 332,482 636,395

Accumulated depreciation as of January 1, 2010 10,403 35,479 290,851 336,733 Charge for the year 1,275 11,215 26,724 39,214 Eliminated on disposal - - (16,519) (16,519) as of December 31, 2010 11,678 46,694 301,056 359,428 Charge for the year 5,568 14,126 13,277 32,971 Eliminated on disposal - (969) (16,155) (17,124) as of December 31, 2011 17,246 59,851 298,178 375,275

Carrying amount as of December 31, 2010 10,322 27,242 34,563 72,127 as of December 31, 2011 211,914 14,902 34,304 261,120

As of December 31, 2011, the Fund’s subsidiary “HATM” LLC pledged property and equipment with the cost of drams 123,884 thousand (December 31, 2010: drams 122,968 thousand) as a security for credit line.

As of December 31, 2011 the cost of the assets with a carrying amount of nil is drams 162,822 thousand (December 31, 2010: drams 287,793 thousand).

Depreciation expense at the amount of drams 32,971 thousand (2010: drams 39,214 thousand) has been capitalized to the production within the framework of operations of the Fund’s subsidiary at the amount of drams 339 thousand (2010: drams 1,216 thousand), drams 23,619 thousand (2010: drams 15,549 thousand) has been charged to the administrative expenses and drams 9,013 thousand (2010: drams 22,449 thousand) to the other expenses.

The Fund’s land and building located at 28 Arshakunyats avenue, Yerevan were reclassified to the class of “Lands, buildings and construction”, since management changed its’ intention to classify those assets as “non-current assets held-for-sale” (refer to note 10).

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 23

The movement of the Fund’s lands and buildings is disclosed below:

In thousand drams 2011 2010 Balance at the beginning of year 263,950 263,950 Decrease of the carrying amount as a result of revaluation (50,433) - Partial donations (6,357) - Balance at the end of year 207,160 263,950

5 Deferred income taxes The movement of deferred income taxes is disclosed below:

In thousand drams 2011 2010 Balance at the beginning of year 7,812 2,265 Credited /(charged) to consolidated statement of comprehensive income (5,464) 5,547 Balance at the end of year 2, 348 7,812

Deferred income taxes for the year ended December 31, 2011 can be summarized as follows:

In thousand drams Recognized in statement of January 1, comprehensive December 31, 2011 income 2011 Deferred income tax assets Accumulated tax losses brought forward 5,660 (5,660) - Accounts payable 990 196 1,186 Accounts receivable 357 - 357 Inventories 189 - 189 Property and equipment 616 - 616 Net position – deferred income tax assets 7,812 (5,464) 2,348

Deferred income taxes for the year ended December 31, 2010 can be summarized as follows:

In thousand drams Recognized in statement of January 1, comprehensive December 31, 2010 income 2010 Deferred income tax assets Accumulated tax losses brought forward - 5,660 5,660 Accounts payable 1,239 (249) 990 Accounts receivable 1,026 (669) 357 Inventories - 189 189 Property and equipment - 616 616 Net position – deferred income tax assets 2,265 5,547 7,812

Deferred tax assets will be reimbursed within 12 months.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 24

6 Inventories

In thousand drams As of As of December 31, December 31, 2011 2010 Jewelry and other items 247,602 278,942 Construction materials 20,631 10,467 Finished goods for sale 58,868 36,867 Other 14,418 82,791 341,519 409,067

Construction materials and finished goods for sale relate to the operation of the Fund’s subsidiary.

Other inventories include goods that are to be donated to different projects, but are not yet distributed and are transferred under the custody.

The cost of inventories recognized as an expense during the year is drams 377,791 thousand (2010: drams 1,002,502 thousand).

Jewelry and other items are presented at net realizable value as follows:

In thousand drams As of As of December 31, December 31, 2011 2010 Cost 341,275 412,847 Impairment (93,673) (133,905) Net realizable value 247,602 278,942

Impairment of inventories

At each reporting date the Fund estimates the recoverability of inventories by calculating for them the net realizable value. The Fund’s management makes judgment to determine the net realizable value for those inventories based on their characteristics. As of December 31, 2011 the impairment loss of inventories amounts to drams 93,673 thousand (2010: drams 133,905 thousand).

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 25

7 Receivables and advances

In thousand drams As of December As of December 31, 2011 31, 2010 Advances for construction works 307,670 482,265 Advances for goods 11,880 39,011 Accounts receivable for project implementation 435,155 167,203 Other 53,006 65,798 807,711 754,277

Allowances for doubtful receivables (55,319) (52,259) - Net receivables and advances 752,392 702,018

Financing receivable relates to the receipt for the amounts for the expenses incurred in the framework of the Fund’s operations that the Fund management expects to be recovered. In determining this amount management of the Fund estimates the recoverability of the amounts expensed. Management considers historical experience, presence of the specific donator’s promise, capability to complete the project and other circumstances while making such estimates.

Movement of the allowance for doubtful receivables is presented below:

In thousand drams 2011 2010 Balance at beginning of year 52,259 49,637 Allowance adjustments - (5,101) Increase in the allowance during the year 3,060 7,723 Balance at end of year 55,319 52,259

Management believes that there is no further credit provision required in excess of the allowance for doubtful debts.

Refer to note 22.1 for the currency in which accounts receivable are denominated.

8 Term deposits

In thousand drams As of As of December 31, December 31, Currency 2011 2010 Euro 489,161 50,707 US dollar 34,557 120,034 Armenian dram 71,586 16,364 595,304 187,105

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 26

Time deposits were invested with different maturity periods, from 31 to 365 days and with the following rates:

· Armenian dram 6.5-12%, average effective interest rate – 9.15% · US dollar 3.5-9%, average effective interest rate – 7% · Euro 2.5-5.5 %, average effective interest rate – 4 %.

9 Cash and bank balances

In thousand drams As of December As of December 31, 2011 31, 2010 Cash in hand 1,487 1,433 Bank accounts 161,670 1,104,919 163,157 1,106,352

10 Non-current assets classified as held for sale During the prior reporting period the management decided to dispose its land and building located at 28 Arshakunyats avenue, Yerevan and hence were classified as non-current assets available -for- sale. However, as of December 31, 2011 the management of the Fund changed this estimate and reclassified them under the class of “lands, buildings and construction”.

11 Grants related to assets

In thousand drams

2011 2010 Balance at beginning of year 6,012 25,772 Additions 449 - Realized to income (recognized in “Income from operations”) (3,077) (19,760) Balance at end of year 3,384 6,012

12 Accounts payable

In thousand drams As of As of December 31, December 31, 2011 2010 Payables to contractors 740,613 338,241 Trade payables 2,046 11,387 Advances received 674 42,100 Employee benefits payable 43,922 42,531 Other 49,341 25,791 836,596 460,050

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 27

13 Loans and borrowings

In thousand drams Current As of December As of December 31, 2011 31, 2010 Secured bank borrowings 16,197 395 Unsecured borrowings from related parties 200 - 16,397 395

Secured bank loans refer to credit line with the upper limit of US dollars 100,000 received from “Inecobank” CJSC by the Fund’s subsidiary “HATM” LLC, which has an annual interest rate of 16% and maturity date before April 2012. During 2011, the total amount received and redeemed from the credit line made up US dollars 241,000 (2010: US dollars 100,000). As of December 31, 2011, the used amount of credit line was drams 15,646 thousand (as of December 31, 2010: nil). The credit line is secured by the property and equipment of the Fund’s subsidiary.

The fair values of current loans and borrowings equal their carrying amount, as the impact of discounting is not significant.

Refer to note 22.1 for the currencies in which the loans and borrowings are denominated.

14 Financing for operations and other items of net assets As of the reporting date the balance of financing for operations includes the unused portion of donations received from annual telethons and other sources, as well as special and executive committee fund balances.

Movement of this financing is presented below:

In thousand drams 2011 2010 Balance at beginning of year 2,918,430 4,040,422 Funds received 5,225,067 5,451,190 Funds used (5,555,411) (6,497,980) Other movements (27,931) (75,202) Balance at end of year 2,560,155 2,918,430

Donations received from Telethons and other sources Donations received in the annual telethon in November 2011 made up US dollar 12,286,478, which includes actually received and promised donations.

As presented in the note 0, the Fund’s consolidated financial statements include only those projects, which were financed or co-financed by the Fund.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 28

In case of co-financing, the part of projects, which are not controlled by the Fund are not included in these financial statements. during 2011, for the implementation of the Fund’s projects drams 315,672 thousand of co-financing was used by the Government of the Nagorno-Karabakh Republic (2010: drams 631,930 thousand), which were not included in the financial statements of the Fund due to the above mentioned reason.

In addition, the financial statements of the Fund do not include expenses incurred within the framework of “Himnatavush” development project. These expenses were made and controlled by the Fund and during the year ended December 31, 2011 amounted to drams 116,413 thousand. These financial statements do not also include some other expenses at drams 18,804 thousand, which were also made and controlled by the Fund.

The movement of the donations from telethon and other sources is presented below:

In thousand drams

2011 2010 Balance at beginning of year 2,652,556 3,501,297 Funds received 5,200,099 5,443,414 Funds used (recognized in “Income from operations”) (5,209,452) (6,149,509) Inflows from special funds 89,426 221,155 Outflows to Executive Committee fund (255,993) (363,801) Balance at end of year 2,476,636 2,652,556

Special fund Movement of the special funds is presented below:

In thousand drams

2011 2010 Balance at beginning of year 187,334 492,330 Funds received 24,968 7,776 Outflows to donations received from telethon and other sources (89,426) (221,155) Revaluation (27,931) (75,202) Funds used (recognized in “Income from operations”) (11,426) (16,415) Balance at end of year 83,519 187,334

Executive Committee fund Movement of the special funds is presented below:

In thousand drams

2011 2010 Balance at beginning of year 78,540 46,795

Inflows from telethon donations and other sources 255,993 363,801

Funds used (recognized in “Income from operations”) (334,533) (332,056)

Balance at end of year - 78,540

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 29

14.1 Revaluation reserve The revaluation reserve includes the difference between the amount paid for the acquisition and revalued amount of land and building located at 28 Arshakunyats avenue. As a result of another revaluation of land and building performed by an independent valuation expert the cost of land and building was decreased by drams 47,575 thousand. During 2011 part of land and building was disposed at the amount of drams 2,858 thousand.

15 Income from operations

In thousand drams Year ended Year ended December 31, December 31, 2011 2010 Income from projects 5,555,411 6,497,980 Income from grants related to assets 3,077 19,760 5,558,488 6,517,740

16 Operating expenses

In thousand drams Year ended Year ended December 31, December 31, 2011 2010 Construction works 4,568,412 4,231,160 Presidential prizes 54,157 35,359 Donation of equipment 838,672 627,467 Annual expenses of the Board of Trustees 43,063 46,928 Telethon organization expenses 300,273 343,195 Other projects 294,100 215,684 6,098,677 5,499,793

The construction works for 2011 performed in Armenia and Nagorno-Karabakh include the following: - water pipelines renovation, - gas utility works, - construction and renovation of medical institutions, - roads construction, - school construction and other.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 30

17 Administrative expenses

In thousand drams Year ended Year ended December 31, December 31, 2011 2010 Employee benefits 275,871 277,713 Communication expenses 13,204 15,544 Trip expenses 21,853 22,564 Promotion expenses 16,401 17,182 Office expenses 27,295 26,006 Depreciation and amortization expenses 26,003 15,966 Other 35,607 38,221 416,234 413,196

18 Finance income and costs

In thousand drams Year ended Year ended December 31, December 31, 2011 2010 Interest expenses on bank borrowings (2,487) (3,578) Total finance costs (2,487) (3,578)

Interest income on short-term bank deposits 23,243 86,883 Total finance income 23,243 86,883

Net finance income 20,756 83,305

19 Other financial items

In thousand drams Year ended Year ended December 31, December 31, 2011 2010

Gain/(loss) from exchange differences on:

Financial liabilities measured at amortized costs (1,202) 3,865 Loans and receivables 34,511 (126,341) 33,309 (122,476)

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 31

20 Income tax expense

In thousand drams Year ended Year ended December 31, December 31, 2011 2010 Current tax 74,989 20,849 Deferred tax (refer to note 5) 5,464 (5,547) 80,453 15,302

Reconciliation of effective tax rate is as follows:

In thousand drams Year ended Year ended December Effective tax December 31, Effective tax 31, 2011 rate (%) 2010 rate (%) Profit /(loss) before taxation (under IFRS) (596,624) 697,833 Tax calculated at a tax rate of 20% (2010: 20%) (119,325) 20.0 139,567 20.0 Income tax losses (5,660) 0.95 5,660 0.8 Non-taxable)/non-deductible items, net 205,438 (34.4) (129,925) (18.6) Income tax expense/(recovery) 80,453 (13.45) 15,302 2.2

21 Financial instruments

21.1 Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition and the basis on which income and expenses are recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3.6.

21.2 Categories of financial instruments The carrying amounts presented in the consolidated statement of financial position relate to the following categories of assets and liabilities:

Financial assets

In thousand drams As of December As of December 31, 2011 31, 2010 Held-to-maturity investments: 595,304 187,105 Loans and receivables: Accounts receivable 455,137 188,706 Cash and bank balances 163,157 1,106,352 1,213,598 1,482,163

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 32

Financial liabilities

In thousand drams As of December As of December 31, 2011 31, 2010 Financial liabilities measured at amortized costs: Loans and borrowings 16,397 395 Accounts payable 784,815 383,483 801,212 383,878

22 Financial risk management The Fund is exposed to various risks in relation to financial instruments. The main types of risks are market risk, credit risk and liquidity risk.

22.1 Financial risk factors a) Market risk The Fund is exposed to market risk through its use of financial instruments and specifically to currency risk.

Foreign currency risk

Most of the Fund’s transactions are carried out in Armenian drams. Exposures to currency exchange rates arise from the Fund’s term deposits, receivables, cash and loans, which are primarily denominated in US dollars and Euro. The Fund also has a US dollar loan, which has been used to fund the purchase.

Foreign currency denominated financial assets and liabilities which expose the Fund to currency risk are disclosed below. The amounts shown are those reported to key management translated into Armenian drams at the closing rate:

Item

As of December 31, 2011 US dollar Euro Other Financial assets Held-to-maturity investments 33,037 488,728 - Loans and receivables: Receivables 435,155 - - Cash and bank balances 47,256 25,844 22,685 515,448 514,572 22,685 Financial liabilities Financial liabilities measured at amortized costs: Loans 15,755 - -

15,755 - - Net position 499,693 514,572 22,685

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 33

Item

As of December 31, 2010 US dollar Euro Other Financial assets Held-to-maturity investments 120,035 50,707 - Loans and receivables: Receivables 167,203 - - Cash and bank balances 346,210 291,939 - 633,448 342,646 -

Financial liabilities Financial liabilities measured at amortized costs: Trade and other payables 775 391 -

775 391 - Net position 632,673 342,255 -

The following table details the Fund’s sensitivity to a 10% (2010: 10%) increase and decrease in dram against US dollar. 10% (2010: 10%) represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% (2010: 10%) change in foreign currency rates.

If Armenian dram had strengthened against US dollar and Euro by 10% (2010: 10%) then this would have had the following impact:

In thousand drams US dollar impact Euro impact 2011 2010 2011 2010 Consolidated statement of comprehensive income 49,969 70,297 51,457 38,028 49,969 70,297 51,457 38,028

Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Fund’s exposure to currency risk.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 34

b) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Fund. The effect of this risk for the Fund arises from different financial instruments, such as accounts receivable, term deposits, etc. The maximum exposure to credit risk is represented by the carrying amounts of the following financial instruments:

In thousand drams As of December As of December 31, 2011 31, 2010 Financial assets at carrying amounts Term deposits 595,304 187,105 Accounts receivable 455,137 188,706 Cash and bank balances 163,157 1,106,352 1,213,598 1,482,163

At the reporting date there was no significant concentration of credit risk in respect of trade and other receivables. The Fund has made provisions of drams 55,319 thousand as of December 31, 2011 (December 31, 2010: drams 52,259 thousand) for overdue receivables.

The credit risk for cash and cash equivalents is small, since the counterparties are reputable banks. c) Liquidity risk Liquidity risk is the risk that the Fund will be unable to meet its obligations.

The Fund’s policy is to run a prudent liquidity management policy by means of holding sufficient cash and bank balances, as well as highly liquid assets for making all operational and debt service related payments when those become due.

The following table details the Fund’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Fund can be required to pay. The table includes both interest and principal cash flows.

2011 Non-interest Fixed interest rate bearing instruments Total Weighted average effective interest rate (%) 16% Less than 6 months 784,815 - 784,815 6 months to 1 year 200 16,197 16,397 785,015 16,197 801,212

2010 Non-interest Fixed interest rate bearing instruments Total Weighted average effective interest rate (%) Less than 6 months 383,483 395 383,878 383,483 395 383,878

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 35

The Fund considers expected cash flows from financial assets in assessing and managing liquidity risk, particularly its cash resources and trade receivables. The Fund’s cash resources and trade receivables do not exceed the current cash outflow requirements. Cash flows from trade and other receivables are all contractually due within one year.

22.2 Fair values The fair value has been determined either by reference to the market value at the reporting date or by discounting the relevant cash flows using market interest rates for similar instruments. As a result of this exercise, management believes that the fair value of its financial assets and liabilities approximates their carrying amounts.

23 Contingencies

23.1 Business environment Armenia continues to undergo political and economic changes. As an emerging market, Armenia does not possess a developed business and regulatory infrastructure that generally exists in a more mature free market economy. In addition, economic conditions continue to limit the volume of activity in the financial markets, which may not be reflective of the values for financial instruments. The main obstacle to further economic development is a low level of economic and institutional development, along with a centralized economic base, regional instability and international economic crisis.

The possible effects of these factors on the Fund may include the inability to pay creditors when they become due, impaired reputation, difficulties in selling the goods and services, difficulties in obtaining funds, etc. All these problems may lead to the lessened liquidity of the Fund and, accordingly, to going concern problems. Also, there are still uncertainties about the economic situation of countries, collaborating with Armenia, due to the forecasted slowdown in the world economy, which may lead to the shortage of money transfers from abroad, as well as to the decline in the prices of mining products, upon which the economy of Armenia is significantly dependant. In times of more severe market stress the situation of Armenian economy and of the Fund may be exposed to deterioration. However, as the number of variables and assumptions involved in these uncertainties is big, management cannot make a reliable estimate of the amounts by which the carrying amounts of assets and liabilities of the Fund may be affected.

The financial statements of the Fund do not include the effects of adjustments, if any, which might have been considered necessary, had the effects of the factors described above become observable and reliably measurable in Armenia.

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 36

23.2 Insurance The Armenian insurance industry is in its development stage and many forms of insurance protection common in other parts of the world are not yet generally available in Armenia. The Fund does not have full coverage for its plant facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on the Fund property or relating to the Fund operations. Until the Fund obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets or environmental damage could have a materially adverse affect on the Fund’s operations and financial position.

23.3 Taxes The taxation system in Armenia is relatively new and is characterized by frequently changing legislation, which is often subject to interpretation. Often differing interpretations exist among various taxation authorities and jurisdictions. Taxes are subject to review and investigations by tax authorities, which are enabled by law to impose severe fines and penalties.

These facts may create tax risks in Armenia substantially more than in other developed countries. Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation. However, the relevant authorities may have differing interpretations and the effects could be significant.

24 Cash and cash equivalents For the purpose of the consolidated statement of cash flows, cash and cash equivalents include cash on hand and in banks and short-term investments with a maturity period of less than 3 months, net of outstanding bank overdrafts. Cash and bank balances at the end of the financial year as shown in the consolidated statement of cash flows can be reconciled to the related items in the [consolidated] statement of financial position, as follows:

In thousand drams As of December As of December 31, 2011 31, 2010 Cash and bank balances 163,157 1,106,352 Short-term investments 591,765 183,805 754,922 1,290,157

“Hayastan” All Armenian Fund Consolidated financial statements December 31, 2011 37

25 Related party transactions The Fund's related parties includes subsidiary for separate financial statements and key management and others as described below.

25.1 Transactions with management and close family members Management of the Fund and their close family members as of December 31, 2011 and December 31, 2010 had no significant shares in the charter capital.

Key management received the following remuneration during the year, which is included in payroll and employee benefits.

In thousand drams Year ended Year ended December 31, December 31, 2011 2010 Salaries and bonuses 15,283 16,085

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