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CERN/3066 CERN/FC/5742 Original: English 26 April 2013 ORGANISATION EUROPÉENNE POUR LA RECHERCHE NUCLÉAIRE CERN EUROPEAN ORGANIZATION FOR NUCLEAR RESEARCH Action to be taken Voting procedures FOR RECOMMENDATION FINANCE COMMITTEE 344 th Meeting 19 June 2013 Simple majority of Member States represented and voting and 51% of the contributions of all Member States FOR APPROVAL COUNCIL 167 th Session 20-21 June 2013 Simple majority of Member States represented and voting The Finance Committee is invited to recommend to the Council and the Council is invited to approve the financial statements of CERN Pension Fund for the Financial year 2012 and to grant discharge to the Pension Fund Governing Board. PENSION FUND Financial Statements 2012 Audited by two representatives of the ITALIAN COURT OF AUDIT CORTE DEI CONTI

Transcript of ORGANISATION EUROPÉENNE POUR LA RECHERCHE NUCLÉAIRE … · Sundry Debtors 6 2,922 2,685 Other...

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CERN/3066 CERN/FC/5742 Original: English 26 April 2013

ORGANISATION EUROPÉENNE POUR LA RECHERCHE NUCLÉAIRE

CERN EUROPEAN ORGANIZATION FOR NUCLEAR RESEARCH

Action to be taken Voting procedures

FOR RECOMMENDATION

FINANCE COMMITTEE

344th Meeting 19 June 2013

Simple majority of Member

States represented and voting and 51% of the contributions

of all Member States

FOR APPROVAL

COUNCIL

167th Session 20-21 June 2013

Simple majority of Member

States represented and voting

The Finance Committee is invited to recommend to the Council and the Council is invited to approve the financial statements of CERN Pension Fund for the Financial year 2012 and to grant discharge to the Pension Fund Governing Board.

PENSION FUND

Financial Statements

2012

Audited by two representatives of the ITALIAN COURT OF AUDIT

CORTE DEI CONTI

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ORGANISATION EUROPÉENNE POUR LA RECHERCHE NUCLÉAIRE

CERN EUROPEAN ORGANIZATION FOR NUCLEAR RESEARCH

PENSION FUND

Financial Statements

2012

This Report is published in accordance with International Public Sector Accounting Standards (IPSAS) and the Rules and Regulations of the Pension Fund.

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CHAIRMAN’S LETTER 6

I. Financial Statements ...................................................................................................................... 8

1. Statement of Financial Position ................................................................................................. 8

2. Statement of Financial Performance ......................................................................................... 9

3. Cash Flow Statement ............................................................................................................... 10

4. Statement of Changes in Net Assets Available for Benefits ................................................... 10

II. Notes to the Financial Statements............................................................................................... 11

1. General Information ................................................................................................................ 11

2. Summary of Significant Accounting Policies ......................................................................... 14

3. Financial Risks ........................................................................................................................ 21

4. Critical Accounting Estimates and Judgements ...................................................................... 30

5. Cash and Cash Equivalents ..................................................................................................... 33

6. Sundry Debtors ........................................................................................................................ 33

7. Other Receivables.................................................................................................................... 33

8. Derivatives .............................................................................................................................. 33

9. Investment Property ................................................................................................................ 35

10. Sundry Creditors...................................................................................................................... 35

11. Other Payables ......................................................................................................................... 35

12. Provisions ................................................................................................................................ 36

13. Interest Income ........................................................................................................................ 36

14. Investment Property Income ................................................................................................... 36

15. Unrealised Gains/(Losses) on Financial Assets at Fair Value through Profit &Loss .............. 37

16. Realised Gains/(Losses) on Financial Assets .......................................................................... 37

17. Foreign Exchange Gains/Losses ............................................................................................. 37

18. Investment Management Fees ................................................................................................. 37

19. Investment Related Expenditure.............................................................................................. 37

20. Investment Property Expenditure ............................................................................................ 38

21. Membership Activities ............................................................................................................ 38

22. Related-Party Transactions ...................................................................................................... 38

23. Investment Return by Asset Class ........................................................................................... 39

24. Events after the Balance Sheet Date ........................................................................................ 39

III. Budget of the Pension Fund 2013 ............................................................................................... 40

IV. Audit Certificate........................................................................................................................... 41

ANNEXES .................................................................................................................................................................. 44

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CHAIRMAN’S LETTER

Dear Members and Beneficiaries of the CERN Pension Fund:

In 2012 significant progress was made on a number of issues concerning both the governance and the

asset management of the Pension Fund. An important milestone was the approval by the Governing

Board of the Financial Regulations, which govern the financial administration of the Fund. The

Governing Board, which under the new governance is a body of Council, also approved the Rules of

Procedure for the governing bodies of the Fund. In addition, the Fund completed a major overhaul of the

structure of its investment governance. As a consequence the Fund now has a set of appropriate

investment principles, which incorporate risk control and risk management processes. These are

documented in the Internal Control System, and are aligned with the objectives and risk tolerance that are

set by the Governing Board. The investment governance has been further strengthened by the

implementation of comprehensive independent reporting of asset performance, a process, which

completed its first full calendar year of operation in 2012.

Another important development for the Fund during 2012 was the approval by CERN Council of the third

- and last - part of the set of measures to secure full funding of the Pension Fund over the coming 30-year

period. This last part concerned the contribution rate for new staff, beginning service on 1 January 2012.

In 2012 the Fund reached and exceeded its investment mandate. This mandate is for the Fund to meet its

actuarial return target (3% above Geneva inflation), with the lowest possible estimated level of risk at all

times. The Fund maintained a prudent risk level throughout the year, in compliance with the set risk

tolerance. The Fund achieved annual gains and income of 251 MCHF, which resulted in a net increase in

assets of 165 MCHF by the end of the year. The return on assets of 6.89% exceeded the Fund’s return

target by 3.89 percentage points, as inflation was effectively null1 in Geneva in calendar year 2012. This

performance, in combination with the special contributions made in 2012 by CERN and ESO, increased

the Fund’s funding ratio by 2.6 percentage points, from 63.5% to 66.1%, at the end of 2012.

The Fund also expanded its communication program with stakeholders. The CERN Bulletin now includes

a quarterly letter by the chairman of the Governing Board, as well as regular feature articles on the

Pension Fund’s activities.

In early 2012, the Governing Board appointed Mr. Pierre Sauvagnat as a professional member of its

Investment Committee. Mr. Sauvagnat’s professional experience, which spans several decades at major

1 The “Geneva CVI”, as defined in the Annex C of the Rules (with regard to the method for the annual adjustment of pensions) was -0.2%.

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banking institutions, along with his deep knowledge of investment products, and his experience in

asset/liability management will be very valuable to the committee.

At the beginning of April, Dr. Alessandro Raimondo joined the Governing Board after being appointed

by the CERN Staff Association to replace Ms Dorothée Duret, who had served the Fund with dedication

for 5 years as Vice-Chair.

Another important appointment in 2012 was the selection of Buck Consultants Limited as the Fund’s

actuary. Buck Consultants is one of the leading benefit consulting and actuarial firms in the world, and

counts several intergovernmental organizations as its clients, including the United Nations, the World

Bank, and the International Monetary Fund. The Fund looks forward to benefiting from Buck

Consultants’ extensive experience and expertise, particularly in view of the full actuarial study to be

performed in 2013. I want to take this opportunity to thank the outgoing actuaries, Pittet Associés, for

their work and dedication to the Fund over the past three decades.

The Fund is now well on track to complete the restructuring of its governance, investments, and funding

policy. This is an effort that started several years ago under the leadership of CERN Council. It was in

this regard most rewarding that in late 2012 the Fund’s achievements were recognized with two

international awards for its advanced risk management policy.

The Fund will continue to face an extremely challenging international investment environment

characterized by unpredictability and volatility. Given the progress summarized above, the Fund should

now be in a much stronger position compared with just a few years ago to face these challenges and best

serve the interests of all its stakeholders. This result could not have been accomplished without the

commitment and dedication of the Pension Fund Management Unit’s staff, and of all Governing Board

members, whom I want to sincerely thank for their service and support.

Dan-Olof Riska,

Chairman, Pension Fund Governing Board

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I. FINANCIAL STATEMENTS

1. Statement of Financial Position

(in kCHF) Note 2012 2011AssetsCash and Cash Equivalents 5 1,009,313 1,232,696 Settlements receivable 19,461 2,029 Sundry Debtors 6 2,922 2,685 Other Receivables 7 15,266 12,617 Derivatives 8 54,473 32,487 Bonds 707,624 757,055 Equities 440,014 339,717 Investment Funds 1,099,421 904,439 Total Financial assets 3,348,494 3,283,725 Investment Property 9 517,907 463,697 Total Non-Financial assets 517,907 463,697 Total assets 3,866,401 3,747,422 LiabilitiesSettlements Payable 49 218 Sundry Creditors 10 10,081 10,439 Other Payables 11 2,449 3,845 Provisions 12 1,510 1,519 Derivatives 8 5,739 50,278 Total liabilities 19,828 66,299 Net assets available for benefits 3,846,573 3,681,123

(in kCHF) Note 2012 2011Vested pension capital and technical provisions (CP)

Transfer values of active members or current value of deferred pensions (without future adjustment) 4,102,240 3,894,060 Mathematical reserves of the beneficiaries 5,489,072 5,544,157 Vested pension capital 9,591,312 9,438,217 Technical deficit (5,744,739) (5,757,094) Funding Ratio 40.1% 39.0%

As at 31 December

As at 31 December

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2. Statement of Financial Performance

(in kCHF) Note 2012 2011Investment IncomeDividend Income 26,299 27,721 Interest Income 13 31,464 44,807 Investment Property Income 14 43,257 35,857 Unrealised Gains/(Losses) on Financial Assets at Fair Value Through Profit & Loss 15 135,754 79,252 Realised Gains/(Losses) on Financial Assets 16 50,664 (212,466) Foreign Exchange Gains/(Losses) 17 (10,406) (40,401) Total Investment Income/(Loss) 277,032 (65,230) Investment ExpensesInvestment Management Fees 18 8,162 3,430 Custody Fees and Administration of Securities 1,259 1,115 Investment Related Expenditure 19 718 534 Transaction Costs 1,549 2,740 Investment Property Coordinators Management Fees 145 154 Investment Property Expenditure 20 8,731 7,258 Taxation 67 79 Total Investment Expenses 20,631 15,310 Net Investment Income/(Loss) 256,401 (80,540) Other Income 80 118 Total Income/(Loss) 256,481 (80,422) Other ExpensesBank Charges 86 64 Administration Costs 4,943 5,367 Total Other Expenses 5,029 5,431 Change in Net Assets before Membership Activities 251,452 (85,853) Membership Activities 21ContributionsMember Contributions 53,249 50,396 Employer Contributions 105,400 101,214 Employer Special Contributions 61,300 61,300 Purchase of additional years of membership 1,789 1,877 Indemnities received from third parties 99 916 Compensations 2,699 5,238 Procurement of entitlement to pension for surviving spouse 80 21 Total Contributions 224,616 220,962 Benefits and Payments Retirement pensions 252,395 249,308 Disability pensions 2,144 2,235 Surviving spouse pensions 33,259 31,719 Orphans pensions 1,303 1,310 Family allowances 15,443 15,523 Ex gratia payments granted 86 86 Transfer values paid to members 6,187 9,866 Transfer values paid to other schemes (510) 1,128 Contributions paid to other schemes 311 446 Total Benefits and Payments 310,618 311,621 Net Membership Activities Cost (86,002) (90,659) Net Increase/(Decrease) in Net Assets During Year 165,450 (176,512) Net Assets Available for Benefits at Beginning of Year 3,681,123 3,857,635 Net Assets Available for Benefits at End of Year 3,846,573 3,681,123

Year ended 31 December

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3. Cash Flow Statement

(in kCHF) Note 2012 2011Cash flows from membership activitiesContributions and other receipts 224,136 220,255 Benefits and other payments (313,053) (308,718) Net cash flows from membership activities (88,917) (88,463) Cash flows from investing activities Payments Financial Assets (2,019,687) (2,547,431) Investment Property payments (14,802) (15,138) Investment Property purchases (38,302) - Proceeds from sale of financial assets 1,943,425 2,183,852Proceeds from sale of investment property 196 - Investment property receipts 35,408 34,221Dividends received 24,709 25,170Interest received 26,066 42,451Tax (payments)/reimbursements 853 1,870 Management and Custody Fees (5,510) (4,159) Administrative and other Operating expenses paid (4,961) (5,716) Net cash flows from investing activities (52,605) (284,880) Net (decrease) increase in cash and cash equivalents (141,522) (373,343) Cash at beginning of the year 1,232,696 1,532,091 Exchange gains /(losses) on cash and cash equivalents (81,861) 73,948 Cash at end of the year 1,009,313 1,232,696

Year ended 31 December

4. Statement of Changes in Net Assets Available for Benefits

(in kCHF) Note 2012 2011Balance as at 1 January 3,681,123 3,857,635Employer Contributions 105,400 101,214 Member Contributions 53,249 50,396 Employer Special Contributions 61,300 61,300 Purchase of additional years 1,789 1,877 Indemnities and Compensations 2,798 6,154 Procurement of Entitlement to pension for surviving spouse 80 21 Benefits paid (304,630) (300,181) Transfer values and contributions paid (5,988) (11,440) Investment Income/(Loss) 277,032 (65,230) Other Income 80 118 Investment Expenses (20,631) (14,776) Other Expenses (5,029) (5,965) Balance as at 31 December 3,846,573 3,681,123

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II. NOTES TO THE FINANCIAL STATEMENTS

1. General Information

1.1. Fund description

Under Articles S IV 2.01, 02, 03 and 04 of the CERN Staff Rules and Regulations, the Organization, which has its seat in Geneva, is responsible for the social insurance coverage of its staff. Thus it created in 1955 a capitalized pension fund which constitutes the CERN personnel’s only social protection.

The members of the personnel of the European Southern Observatory (ESO), which has its seat in Munich, are also members of the CERN Pension Fund.

The CERN Pension Fund does not have a separate legal status and forms an integral part of CERN. As the Pension Fund does not fall under any national legislation, the CERN Council has provided a legal framework for the independent operations of the Pension Fund within CERN. The assets of the Fund are held separately from those of CERN and ESO, the two Fund sponsors. They must be totally and exclusively used for the purpose of the benefits provided for by the Fund Rules.

Article I 3.03 of the Pension Fund Rules states that “CERN and ESO guarantee the benefits acquired under the provisions of these Rules by the members of their own personnel until the cessation of the rights of the last beneficiary”. In the event of mergers, reconstitution or other changes in either of these organizations, the Council of the organization concerned must take the necessary steps for the continuation of the pensions. In the event of dissolution of CERN, its Council will, without prejudice to other systems providing equivalent guarantees, set up a Foundation under Swiss law to succeed the Fund in order to guarantee the rights acquired as at the date of dissolution and will implement any steps for integration into the national social security systems of the Member States guaranteeing such equivalence. In the event of dissolution of ESO, its Council will take the necessary steps to guarantee the rights acquired by the members of its personnel who are members of the Fund.

Article I 1.01 of the Pension Fund Rules states that “The purpose of the Fund is to insure its members and beneficiaries as well as the members of their families against the economic consequences of the disability and old age of its members and of the death of its members and beneficiaries”.

The Fund is a defined-benefit scheme. The retirement age is as follows:

i. For members who joined the Fund on or before 31 December 2011: 65 years;

ii. For members who joined the Fund on or after 1 January 2012: 67 years.

Pensions are calculated in the following manner:

i. For members who joined the Fund on or before 31 December 2011, 2% of the Basis for the Calculation of Benefits, as set out in Article II 1.08 of the Rules, for each year of membership, up to a maximum of 35 years;

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ii. For members who joined the Fund on or before 31 December 2011, 2% of the Basis for the Calculation of Benefits, as set out in Article II 1.08 of the Rules, for each year of membership, up to a maximum of 35 years;

iii. For members who joined the Fund on or after 1 January 2012, 1.85% of the Basis for the Calculation of Benefits, as set out in Article II 1.08, of the Rules, for each year of membership, up to a maximum of 37 years and 10 months.

The entitlement to a pension begins after a minimum of five years’ contributions. Similarly, in the event of a member’s resignation, the Pension Fund will transfer the acquired rights to another pension scheme. Article I 2.01 of the Pension Fund Rules states that the Fund, which is an integral part of CERN, is under the supreme authority of the CERN Council. Its bodies are the Pension Fund Governing Board (PFGB) and the Fund’s Chief Executive Officer. Its committees are the Investment Committee (PFIC) and the Actuarial and Technical Committee (ATC). The administration and the management of the Fund’s finances are separate from those of CERN and ESO.

The PFGB has a procedure and structure in place in order to assure the proper and consistent implementation of the governance principles and policy (CERN/2733/Rev.). This aims to guarantee the protection of the present and future benefits of pensioners and active staff by improving the funding policy, the structure of the bodies of the Fund and its management.

1.2. Funding arrangements

The contributions are expressed as a percentage of each member's reference salary and are apportioned between the member and the participating Organizations as follows:

i. For members who joined the Fund on or before 31 December 2011: member: 11.33%; Organization: 22.67%; total: 34%;

ii. For members who joined the Fund on or after 1 January 2012: member: 12.64%; Organization: 18.96%; total: 31.6%2.

2 Until 1 April 2012 contributions were as follows: member 11.33%; Organization 17%; total 28.33%

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1.3. Termination terms

When membership of the Fund terminates before applicable age of retirement for a reason other than death or total incapacity, a transfer value is calculated on the basis of the reference salary at the date of termination:

i. Less than five years of service: where the member has less than five years of service, the transfer value is paid into another pension scheme, or, at his request, to the member himself;

ii. Between five and ten years of service: the member has the choice between a deferred retirement pension, or payment into another pension scheme, or, if the latter option is not possible, to himself;

iii. Ten or more years of service: the member has the choice between a deferred retirement pension, and payment into another pension scheme, or, if the latter option is not possible, into a private insurance scheme offering comparable guarantees.

Payment of a transfer value extinguishes any right to a pension, except that for partial disability that is already being paid.

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2. Summary of Significant Accounting Policies

2.1. Basis of preparation

The CERN Pension Fund Financial Statements for 2012 have been prepared on a going-concern basis and pursuant to Article I 4.02 of the Rules of the Pension Fund, in accordance with International Public Sector Accounting Standards (IPSAS). The preparation of financial statements in conformity with IPSAS requires the use of certain critical accounting estimates. It also requires the Fund to exercise its judgement in the process of applying the Pension Fund’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed under note 4. If such estimates and assumptions deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the year in which the circumstances change.

The CERN Pension Fund Financial Statements for 2012 are submitted by the Pension Fund Governing Board to Council, via the Finance Committee, for approval and discharge.

The following standards are effective on or after 1 January 2013 and have been early adopted:

i. IPSAS 28, Financial instruments: Presentation;

ii. IPSAS 29, Financial instruments: Recognition and measurement;

iii. IPSAS 30, Financial instruments: Disclosures;

Changes in accounting policy and disclosure, new standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2012 and that are not the subject of early adoption:

iv. IPSAS 32, Service Concession Arrangements: Grantor - effective January 1, 2014.

2.2. Measurement base

The measurement base adopted is that of historical cost as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments) and investment property at fair value through profit or loss.

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2.3. Foreign currency translation

2.3.1. Functional and presentation currency

Pursuant to Article I 4.02 of the Rules of the Pension Fund, the unit of account of the Pension Fund is the Swiss franc which is the functional and presentation currency.

2.3.2. Transaction and balances

At each balance sheet date assets and liabilities that are denominated in foreign currencies are translated at the exchange rates ruling on that date. Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transaction. Gains and losses arising on translation are shown separately in the Statement of Financial Performance for the period.

2.4. Classification of assets and liabilities

The CERN Pension Fund is an entity that, inter alia, manages assets used to pay pensions. As such, the assets and liabilities are disclosed in the Statement of Financial Position in an order that broadly reflects their relative liquidity. Financial assets and financial liabilities are recognised on the Fund’s Statement of Financial Position when the Fund becomes a party to the contractual provisions of the instrument.

2.5. Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less, margin accounts with brokers that cover margin calls on derivative positions and investment property bank accounts held by local managers to pay investment property portfolio operating expenses.

2.6. Financial assets

The Fund classifies its financial assets in the following categories: at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

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2.6.1. Financial assets at fair value through profit or loss

The Fund’s business is investing in assets with a view to profiting from their total return in the form of interest, dividends, distributions and increases in fair value.

A. Classification

The Fund classifies its investments in debt, equity securities and related derivatives as financial assets at fair value through profit or loss. These financial assets are designated by the Fund at fair value through profit or loss.

The portfolio of investment funds and private equity investments are categorized as financial assets designated at fair value through profit or loss at inception and are shown under Investment Funds on the Statement of Financial Position.

B. Recognition and derecognition

Purchases and sales of unquoted and quoted investments are recognised and derecognised on trade date where a purchase or sale is made under a contract whose terms require delivery within the timeframe established by the market concerned.

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership.

Financial assets at fair value through profit or loss and traded on an active market are initially recognised at acquisition cost. Transaction costs are expensed in the Statement of Financial Performance.

C. Measurement

Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit & loss” category are presented in the Statement of Financial Performance within “Unrealised Gains/(Losses) on Financial Assets at Fair Value Through Profit & Loss” line in the period in which they arise.

Subsequent to initial recognition, all financial assets at fair value through profit or loss are measured at fair value which is based on the last reported bid price (sales price) at the balance sheet date. Unrealised gains and losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are presented in the Statement of Financial Performance in the period in which they arise.

D. Fair value estimation

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund’s policies for determining the fair values of financial assets are set out in note 3.2. Fair value estimation.

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2.6.2. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Sundry debtors include recoverable withholding tax levied at source on dividends and reimbursable value added tax paid on investment property transactions, investment property debtors and other due amounts.

Settlements receivable represent amounts due to the Fund for securities sold that have been contracted for but not yet settled or delivered at the balance sheet date.

Other receivables include accrued interest, dividends receivable and outstanding receipts.

These amounts which do not carry any interest are expected to be received within twelve months and are accordingly stated at their nominal value as reduced, where appropriate, by allowances for estimated irrecoverable amounts.

Loans and receivables are subsequently carried at amortised cost using the effective interest method.

2.7. Offsetting Financial Instruments Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

2.8. Impairment of Financial Assets Financial Assets carried at amortised costs are Loans and Receivables.

The Fund assesses at the end of each reporting period whether there is objective evidence that this group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicates that there is a measureable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

For loans and receivables, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have been not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the Statement of Financial Performance.

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2.9. Non-Financial Assets

Those assets where there is no contractual right to receive cash or another financial asset are listed under this heading.

2.9.1. Investment property

Investment property is defined as land, buildings and forests held to earn rental income and capital appreciation and is not occupied by the Fund.

Investment property is measured initially at its cost, including related transaction costs. After initial recognition investment property is carried at fair value, representing open market value determined annually by external valuators having professional qualifications and experience. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If the information is not available, the Fund uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. Changes in fair values are recorded in the Statement of Financial Performance, as part of Investment Property Income.

The costs of the day-to-day running of the properties, e.g. repairs and maintenance, are recognised in the Statement of Financial Performance as incurred. Expenditure incurred in the replacement or renovation of part of an existing investment property that is 5% or more of the value of that property is recognised in the carrying amount, only when it is probable that future economic benefits associated with the item will flow to the Fund and the cost of the item can be reliably measured.

2.10. Liabilities

The liabilities at the balance sheet date, which are not interest-bearing and are due within twelve months, are initially recognised at their fair value and subsequently measured at amortised cost using the effective interest rate method. Liabilities in respect of accrued losses and shown as derivatives in the Statement of Financial Position are measured at fair value.

Settlements payable represent amounts due by the Fund for securities purchased that have been contracted for but not yet settled or delivered at the balance sheet date.

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2.11. Actuarial Liabilities

The table hereafter shows the significant actuarial assumptions approved by the PFGB at its meeting of 14 February 2013 (CERN/PFGB/42.16) and also those used in the corresponding period. The discount rate of 1.16% represents the long-term Swiss Confederation Bonds interest rate. New generational life expectancy tables (VZ 2010 GEN) were introduced in 2011 to replace the previous periodic tables now out of date.

The other set of assumptions reflect the actuarial assumptions used in the paper “Report by the Pension Fund Governing Board on Funding principles and policy and measures to restore full funding of the CERN Pension Fund” (CERN/FC/5432/RA – CERN/2897/RA). The actuarial present value of promised retirement benefits in 2012 under these assumptions is included in Annex A for information purposes.

The benefits have been determined using projected salary levels:

Actuarial assumptions 2012 2012 2011

CERN Accounting Policy

CERN/FC/5432/RA CERN/2897/RA3

CERN Accounting Policy

Discount Rate 1.16% 5.0% 1.23% Future salary increase 1.5% 2.0% 1.5% Future pension increase 1.0% 2.0% 1.0% Salary Advancement 1.9% Increase by age 1.9% Life Expectancy VZ 2010 GEN VZ 2010 GEN VZ 2010 GEN

2.12. Revenue recognition

i. Interest income is recognised on time proportionate basis using the effective interest method;

ii. Rental income is recognised over the term of the lease on a straight line basis;

iii. Dividend income is recognised when the right to receive payment is established.

2.13. Derivative financial instruments and hedging activities The Fund's activities expose it to the financial risks of changes in foreign currency rates and interest rates and therefore the Fund may use derivative instruments such as foreign exchange forward contracts and

3 Actuarial assumptions as per CERN/FC/5432, adjusted for longevity tables and corresponding discount rate.

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interest rate swap contracts to hedge these exposures. The Fund may also use derivative instruments for investment purposes, principally to gain exposure to specific markets.

The Fund may, at a given time, hold the following derivative instruments:

A. Forward contracts

Forward contracts are contractual obligations to buy or sell financial instruments on a future date at a specified price. A forward contract is a non-standardised contract written by the Fund and the counterparty to the agreement. The contracts are collateralised by cash and changes in the forward contracts’ value are settled on reset, rollover or closure of the contract. The forward contracts are settled on a gross basis.

B. Options

An option is a contractual arrangement under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, either to buy (a call option) or sell (a put option) at or by a set date or during a set period, a specific amount of securities or a financial instrument at a predetermined price. The seller receives a premium from the purchaser in consideration for the assumption of the future securities price. Options are settled on a gross basis.

C. Swaps

Swaps are contracts to exchange cash (flows) on or before a specified future date based on the underlying value of currencies/exchange rates, bonds/interest rates, commodities, stocks or other assets.

D. Futures

Future contracts are contractual obligations to buy or sell financial instruments on a future date at a specified price established in an organised market. The futures contracts are collateralised by cash and changes in the futures contracts’ value are settled daily with the exchange. Futures are settled on a net basis.

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3. Financial Risks

3.1. Financial risk factors

The Pension Fund’s activities expose it to a variety of financial risks: market risk (including price risk, foreign exchange risk, interest rate risk), credit risk and liquidity risk. The Fund’s overall risk management programme seeks to maximise the returns derived for the level of risk to which the Fund is exposed and seeks to minimise potential adverse effects on the Fund’s financial performance. The Fund uses derivative financial instruments to both hedge and to create certain risk exposures.

All securities investments present a risk of loss of capital. The maximum loss of capital on bonds, equities, investment funds and purchased options is limited to the fair value of those positions. The maximum loss of capital on written put options, long futures and forward currency contracts is limited to the notional contract values of those positions. On written call options and short future positions the maximum loss of capital can be unlimited.

The management of these risks is carried out by investment managers under policies approved by the Investment Committee and the Pension Fund Governing Board. The Fund uses different methods to measure and manage the various types of risk to which it is exposed; these methods are explained below.

3.1.1. Market risk

A. Price risk

The Fund is exposed to securities price risk, derivative price risk and Investment Property price risk. This arises from investments held by the Fund for which prices in the future are uncertain. Where assets of the Fund are denominated in currencies other than the Swiss franc, the price initially expressed in foreign currency and then converted into Swiss franc will also fluctuate because of changes in foreign exchange rates. Paragraph B: “Foreign exchange risk” sets out how this component of price risk is managed and measured.

The risk management policy of the Fund is defined in the Statement of Investment Principles. It is based on setting a risk measure, an annual risk limit and managing the asset allocation exposure compatible with the risk limit and with the return objective. The risk measure of 1 Year 5% CVaR (Conditional Value at Risk) was approved by the PFGB, based on the recommendation of the PFIC. The annual 1 Year 5% CVaR risk limit of -8% for 2012 was set by the PFGB taking into account the actuarial return considerations. The risk exposure of the Natural Strategic Asset Allocation (NSAA) and Fund is estimated and reported to the PFIC by the independent risk consultant on a quarterly basis and compared to the risk limit set by the PFGB.

The CVaR of a certain confidence level measures the expected return of the corresponding tail of the return distribution. 1 Year 5% CVaR is defined as the annual expected return in the worst 5% of the return distribution of a portfolio. CVaR is also called expected shortfall.

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During 2012 all quarterly evaluations of the estimated 1 Year 5% CVaR showed that the Fund was within the risk limit. As at 31 December 2012 the estimated 1 Year 5% CVaR of the Fund was -5.7% (-7.9% as at 31 December 2011).

Some of the Funds’ assets and liabilities are exposed to market price risk. The fair value of these assets as at 31 December was as follows:

(in kCHF) 2012 2011AssetsBonds 707,624 757,055 Equities 440,014 339,717 Investment Funds 1,099,421 904,439 Derivatives 54,473 32,487 Investment Property 517,907 463,697 Total assets 2,819,439 2,497,395 LiabilitiesDerivatives 5,739 50,278 Total liabilities 5,739 50,278

B. Foreign exchange risk

The Fund is exposed to foreign exchange risks arising essentially upon investments in assets denominated in foreign currencies as outlined in the table below. As a general policy, the Fund hedges its exchange rate risk to the level of 100% of its exposure, but may alter the hedge ratios depending on tactical considerations. The Fund uses three month rolling forward foreign exchange contracts and currency options to cover the currency exposure of existing and anticipated investments in foreign currency. The value of currency forward contracts as at 31 December 2012 is disclosed in note 8. “Derivatives”.

As at 31 December 2012, given a shift of 10% in foreign currency rates against the Swiss Franc with all other variables held constant, the Statement of Financial Performance would have shown a higher/lower result of 15,671 kCHF mainly due to foreign exchange gains/losses on translation of non-Swiss Franc denominated monetary assets and liabilities (18,196 kCHF as at 31 December 2011).

The table below summarises the Fund’s net assets that are denominated in a currency other than the Swiss franc. The table excludes the forward foreign exchange contracts that are used to hedge foreign exchange rate exposure.

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(in kCHF) 2012 2011US dollar 1,489,194 1,172,961 Euro 1,066,528 875,993 Pound sterling 334,963 225,461 Japanese yen 41,331 11,788 Swedish krona 29,163 28,729 Danish krone 18,301 20,221 Hong Kong dollar 23,681 16,402 Australian dollar 13,434 28,702 Other currencies 40,209 50,780 Total 3,056,804 2,431,037

The Fund uses year-end exchange rates supplied by its global custodian. The source of these rates is Reuters World Markets.

The table below shows the rates used by the Fund at 31 December 2012 to convert the major currencies in the Fund’s portfolios to the Swiss franc and also the rates from the Swiss National Bank.

Currency Swiss National Bank Reuters World Markets Euro 1.2072 1.2058 US dollar 0.9153 0.9153 Pound sterling 1.4794 1.4879

C. Fair value estimation

The fair value of financial assets traded in active markets is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Fund is the current bid price; the appropriate quoted market price for financial liabilities is the current asking price.

The Fund’s methods for the valuation of financial assets not traded on active markets are outlined under note 4. “Critical Accounting Estimates and Judgements”.

D. Cash flow and fair value interest rate risk

Interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rates on the fair value of financial assets and future cash flows.

The Fund holds some fixed income investments and cash on short-term deposits. The duration of the fixed income investments assets is strictly regulated by investment guidelines given to portfolio managers. The Fund also holds a limited number of floating rate debt and derivatives that expose the Fund to cash flow interest rate risk.

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In addition, the Fund may use derivatives to hedge interest rate exposure.

The analysis below summarises the maturity range of the Fund’s principal fixed income portfolio at 31 December and is a measure of the sensitivity of the fair value of the Fund’s fixed interest securities to changes in market interest rates:

2012 2011Global Fixed Income 703 MCHF 752 MCHF0 - 1 year 7% 19%1 - 3 years 15% 6%3 - 5 years 12% 16%5 - 7 years 9% 8%7 - 10 years 49% 44%> 10 years 8% 7%Total 100% 100%

The duration of the above securities, which is the weighted-average term to maturity of the cash flows, was 5.92 years at 31 December 2012 (2011: 6.10 years)

The following table indicates the Fund’s exposure to interest rate risk in respect of short-term deposits:

(in kCHF) ExposureEuro 212,946 Swiss franc 406,565 Total 619,511

(in kCHF) ExposureEuro 142,148 Swiss franc 679,686 Total 821,834

2012

2011

As at 31 December 2012, if interest rates on investments had been 1% higher with all other variables held constant, the net assets available for benefits at the end of the year would have been lower by 4,429 kCHF (4,037 kCHF as at 31 December 2011).

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3.1.2. Credit risk

The Fund is exposed to credit risk, which is the risk that the counterparty will be unable to pay amounts in full when they fall due.

Credit risk arises from cash and cash equivalents, derivative financial instruments and bonds, as well as credit exposures including outstanding receivables and committed transactions.

All transactions in listed securities are contracted using approved brokers and settled/paid for upon delivery. The risk of default is considered minimal, as delivery of the securities sold is only made once the custodian has received payment. Payment is made on a purchase once the securities have been received by the custodian. The trade will fail if either party fails to meet its obligation.

The Fund invests in fixed income securities issued by various bodies such as governments, agencies or corporations. The management of these holdings is entrusted to portfolio managers who have strict investment guidelines with regard to, inter alia, issuer quality and diversification. In addition, the Fund limits the amount of credit exposure to any financial institution through diversification of its counterparties and strict monitoring of open receivables on derivatives instruments. If a derivative position is showing a profit, the Fund may ask for collateral or force the reset of the position.

The analysis below summarises the issuer quality of the Fund’s principal fixed income portfolio at 31 December:

2012 2011Global Fixed Income 703 MCHF 752 MCHFAAA 20% 51%AA 35% 22%A 19% 14%BBB-B 25% 10%NR/NA 1% 3%Total 100% 100%

The maximum exposure to credit risk at 31 December is set out below:

(in kCHF) 2012 2011Bonds 707,624 757,055 Derivative assets 54,473 32,487 Cash and cash equivalents 1,009,313 1,232,696 Settlements receivable 19,461 2,029 Other assets 18,188 15,302 Total 1,809,059 2,039,569

No material financial assets were past due as at 31 December 2012.

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3.1.3. Liquidity risk

Liquidity risk is the risk that the Fund may not be able to generate sufficient cash resources to settle its obligations in full as they fall due, or can only do so on terms that are materially disadvantageous. In addition to its commitments to pay monthly benefits, the Fund is exposed to the periodic settlement of margin calls and gains and losses on derivative positions. The currency overlay programme can generate substantial cash flows that are difficult to predict. Therefore the Fund aims to maintain sufficient levels of cash and cash equivalents to meet its short-term liabilities. The Fund does not take leveraged positions on the market.

The table below analyses the Fund’s financial liabilities (excluding the derivative financial instruments in a loss position) into relevant maturity groupings, based on the remaining period at the balance sheet date to the contractual maturity date:

(in kCHF) < 7 days 1-3 months 3-12 monthsAs at 31 December 2012Settlements payable 49 Members and Beneficiaries 2,964 Investment property deposits 2,936 Taxes Payable 393 Investment property Creditors 3,533 Reimbursements of contributions 573 Payments Outstanding 1,876 Total 3,586 5,802 2,936 As at 31 December 2011Settlements payable 217 Members and Beneficiaries 5,137 Investment property deposits 2,617 Taxes Payable 97 Investment property Creditors 2,307 Reimbursements of contributions 1,092 Payments Outstanding 2,753 Total 6,446 5,157 2,617

The table below analyses the Fund’s derivative financial instruments in a loss position that will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.

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(in kCHF) 1-6 monthsAt 31 December 2012Forwards 3,095 Futures 204 Swaps 1,826 Currency Forwards 614 Total 5,739 At 31 December 2011Forwards 7,632 Futures 596 Swaps 711 Currency Forwards 41,339 Total 50,278

3.2. Fair value estimation

The fair value of financial assets traded in active markets (such as trading securities) is based on quoted market prices at the close of trading on the reporting date.

An active market is a market in which transactions for the asset take place with a sufficient frequency and volume to provide pricing information on an on-going basis.

The fair value of assets not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each year end date. Valuation techniques include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.

The fair value of the financial assets and liabilities approximates the carrying amounts.

The fair value hierarchy has the following levels:

i. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets that the Fund can access at the measurement date;

ii. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly, or indirectly;

iii. Level 3 inputs are based on unobservable market inputs for the asset or liability.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a

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particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset.

The determination of what constitutes “observable” requires significant judgement by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The following table analyses within the fair value hierarchy the Fund’s assets measured at fair value at 31 December 2012:

(in kCHF) Level 1 Level 2 Level 3 TotalFinancial assets designated at fair value through profit or loss Equities 431,899 - 8,115 440,014 Bonds - 707,624 - 707,624 Derivatives 1,366 51,495 1,612 54,473 Investment Funds 102,646 - 996,775 1,099,421 Total assets at fair value through profit or loss 535,911 759,119 1,006,502 2,301,532 LiabilitiesDerivatives (3,299) (1,448) (992) (5,739) Total liablities at fair value through profit or loss (3,299) (1,448) (992) (5,739)

The following table analyses within the fair value hierarchy the Fund’s assets measured at fair value at 31 December 2011:

(in kCHF) Level 1 Level 2 Level 3 TotalFinancial assets designated at fair value through profit or loss Equities 331,456 - 8,261 339,717 Bonds - 757,055 - 757,055 Derivatives 2,316 30,090 81 32,487 Investment Funds 218,926 - 685,513 904,439 Total assets at fair value through profit or loss 552,698 787,145 693,855 2,033,698 LiabilitiesDerivatives (8,107) (42,051) (120) (50,278) Total liablities at fair value through profit or loss (8,107) (42,051) (120) (50,278)

Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include listed equities, exchange-traded derivatives and exchange traded funds.

Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include government bonds, corporate bonds, and over the counter derivatives. As Level 2 investments include positions that are not traded in active markets and/or subject

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to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include investment funds, private equity, over the counter derivatives and unlisted equities. As observable prices are not available for these securities, the Fund has used valuation techniques to derive the fair value.

Specific valuation techniques used to value financial instruments include:

i. Quoted market prices or dealer quotes for similar instruments;

ii. Prices sourced from broker quotes, inter-dealer prices or other reliable pricing services;

iii. The fair value of derivatives is calculated as the present value of the estimated future cash flows using observable yield curves, prices and other available market information;

iv. The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value;

v. The fair value of Investment Funds is based on the latest available valuation received from the fund administrator;

vi. Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

There were no transfers between levels for the year ended 31 December 2012.

The following table presents the movement in level 3 instruments for the year ended 31 December 2012 by class of financial instrument:

(in kCHF) Equities Deriviatives Investment

Funds TotalOpening balance 8,261 (39) 685,513 693,735 Purchases 7,470 - 316,231 323,701 Sales (9,720) - (38,809) (48,529) Transfers into level 3 - - - -

Net gains/(losses) recongnised in other net changes in fair value on financial assets or liabilities at fair value through profit or loss 2,104 659 33,840 36,603 Closing balance 8,115 620 996,775 1,005,510

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4. Critical Accounting Estimates and Judgements

The Fund makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated by the Fund, with input from independent experts, and are based on historical experience and other factors, including assumptions about future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results.

The most significant estimates and judgements made during the period are outlined below.

4.1. Actuarial assumptions

The liabilities of the Fund, in respect of promised benefits to be paid, have been determined using methods relying on actuarial estimates and assumptions. These assumptions reflect the long-term nature of future benefits. Changes in these estimates and assumptions could materially affect liabilities in respect of benefits.

The basis for the Fund’s actuarial assumptions is set out under note 2. “Summary of Significant Accounting Policies”. The Fund takes advice from an independent actuary concerning the appropriateness of the assumptions.

In 2012, the PFGB made changes to the actuarial assumptions compared to 2011. In 2012 the discount rate used to determine the present value of future promised benefits was 1.16% (1.23% in 2011), representing the long-term Swiss Confederation Bonds interest rate. The effect of this change was an increase in liabilities of 120 MCHF.

Total liabilities, as at 31 December 2012, was 9,591 MCHF (9,438 MCHF as at 31 December 2011).

The Fund calculates that a 0.5% increase/decrease in the discount rate would decrease/increase liabilities by 838 MCHF. A 0.5% increase/decrease in the indexation of pensions would increase/decrease liabilities by 644 MCHF and a 0.5% increase/decrease in the indexation of salaries would increase/decrease liabilities by 264 MCHF.

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4.2. Fair value of Investment Property The fair value of the Fund’s investment property is considered to be its market value.

If information on current prices for similar investment properties is not available, the fair values of investment properties are determined, in the main, using discounted flow valuation techniques. The Fund uses assumptions that are mainly based on market conditions existing at each balance sheet date.

The principal assumptions underlying the Fund’s estimation of fair value are those related to:

− The receipt of contractual rentals;

− Expected future market rentals;

− Void periods;

− Maintenance requirements;

− Appropriate discount rates.

These valuations are regularly compared to actual market yield data, and actual transactions by the Fund and those reported by the market. The expected future market rentals are determined on the basis of current market rentals for similar properties in the same location and condition.

The following table includes the main methods used in the valuation of the Funds’ Investment property.

Country Valuation Method

France

Reference was made to sales prices obtained on the market for similar properties where information on relevant transactions was available. Otherwise the discounted cash flow technique was used with a range of discount rates between 3.5% and 6.5 %.

France (Forests) Values based on a revaluation of the forests’ inventory carried out in 2012.

U.K. Valuation made on a sales comparison basis.

Switzerland

The discounted cash flow technique was used based on discount rates within a range of 4.0% and 5.5%.

Holland The discounted cash flow technique was used with a range of discount rates between 6.7% and 8.2%.

Germany The discounted cash flow technique was used with a discount rate of 6.5%.

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4.3. Fair value of financial assets not quoted in an active market

In arriving at the fair value of financial assets not quoted in an active market, the Fund considers factors such as industry performance, company performance, quality of management, the price of the most recent financing round, exit opportunities which are available, liquidity preference, comparable market transactions, discounted cash-flows, earnings multiples and net present value analysis. The maximum use of market inputs is made with as little reliance as possible on entity-specific inputs.

4.3.1. Investment Funds

The Fund holds positions in investment funds, many of whom have the same reporting period as the Fund. Consequently, in some cases, audited financial statements attesting, inter alia, to the value of the Fund’s investments in these funds were not available at the reporting date. Where audited statements were not in evidence, the Fund used unaudited statements as at 31.12.2012 provided by the independent administrators or fund. In the case of four private equity funds unaudited statements as at 30.09.2012 were used, as adjusted for capital movements between the last received statements and 31.12.2012 and in the case of one fund, that has a reporting date of 30.06.2012, an estimate of the net present value received from the investment fund’s administrator was used.

As at 31 December 2012 the Fund had holdings in investment funds totalling 1,003,564 kCHF that are not quoted in an active market. Valuations totalling 602,261 kCHF were based on unaudited statements.

During the year audited statements are received for these funds and a comparison is made between these and the amounts in the Financial Statements. In the corresponding period, 2011, no material differences were identified.

The Fund has the following outstanding commitments to private equity funds as at 31 December 2012:

(in kCHF) Total Net

Asset ValueOutstanding Commitment

European funds 56,003 16,843 US funds 48,338 6,552 Total 104,341 23,395

4.3.2. Over- the-counter derivatives instruments

The fair value of over-the-counter derivatives instruments is determined using quoted prices at the balance sheet date. When an instrument or its equivalent does not have a market price, its valuation is determined using a valuation model that is based on observable market inputs.

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5. Cash and Cash Equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances with original maturity of 90 days or less:

(in kCHF) 2012 2011Current Accounts 387,471 405,486 Deposit Accounts 619,511 821,833 Margin account with brokers 615 4,424 Investment property bank accounts 1,716 953 Total 1,009,313 1,232,696

6. Sundry Debtors

(in kCHF) 2012 2011Recoverable taxes 1,262 1,110 Investment property debtors 1,660 1,542 Other due amounts - 33 Total 2,922 2,685

7. Other Receivables

(in kCHF) 2012 2011Accrued interest 13,811 10,417 Dividends receivable 581 638 Outstanding receipts 493 142 Payments in advance 381 1,420 Total 15,266 12,617

8. Derivatives

The following tables show the types of derivative contracts and their notional values held by the Fund at 31 December:

2012 2011(in kCHF) Assets Liabilities Assets LiabilitiesOptions - - 81 Other derivatives 54,473 5,739 32,406 50,278 Total 54,473 5,739 32,487 50,278

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Fair value Fair valueCurrrency Notional Local Notional CHF Receivable CHF Payable CHF

ForwardsAluminium USD 1,716,858 1,571,526 120,697 - S&P/ASX 200 Index AUD 31,501,250 29,936,140 222,136 - Brent Crude Oil USD 3,957,150 3,622,177 140,891 - WTI Crude Oil USD 6,504,230 5,953,647 281,104 - Copper USD 3,464,388 3,171,127 89,864 (1,259) Corn USD 2,071,438 1,896,090 - (138,447) Gold USD 68,037,400 62,278,034 - (2,454,236) Heating Oil USD 1,373,064 1,256,834 25,289 - Live Cattle USD 2,449,640 2,242,278 34,417 - Natural Gas USD 707,700 647,793 - (3,652) Nickel USD 496,465 454,439 28,943 - Palladium USD 1,532,030 1,402,344 78,423 - Platinium USD 1,046,500 957,914 - (40,220) RBOB Gasoline USD 783,363 717,051 26,158 - Russell 2000 Mini Index USD 6,148,500 5,628,029 - (183,985) S&P/TSX 60 Index CAD 28,963,600 26,626,324 318,152 - Silver USD 1,024,800 938,051 - (108,002) Soybean USD 1,421,675 1,301,330 - (75,654) Sugar USD 751,766 688,129 - (28,080) Wheat USD 650,813 595,721 - (61,614)

FuturesHang Seng Index HKD 27,199,800 3,212,207 - (1,063) H-Shares Index HKD 34,208,950 4,039,965 - (17,012) MSCI Emerging Markets Index USD 7,689,673 7,038,742 - (183,576) MSCI Singapore Index SGD 2,661,780 1,994,646 - (2,218) MSCI Taiwan Index USD 4,785,000 4,379,950 - -

SwapsDax EUR (4,207,816) (5,077,982) - (297,370) Morgan Stanley Volnet Index USD 34,398,570 31,486,731 - (992,024) MSCI Emerging Markets USD 20,498,854 18,763,626 632,208 - MSCI Europe EUR (11,033,018) (13,314,620) - (536,378) MSCI Latin America USD 22,258,938 20,374,719 979,450 - S&P 500 Index USD 286,904,787 262,618,297 1,846,950 - Tokyo Stock Price Index JPY 11,432,514,185 121,028,761 12,087,036 -

Currency Forwards 37,561,264 (614,347) Notional Sold 2,961,610,360 Notional Purchased 52,713,369 Total Derivatives 3,622,753,752 54,472,982 (5,739,137)

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The notional amounts of certain types of financial instrument provide a basis for comparison with instruments recognised on the Statement of Financial Position, but they do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and do not therefore indicate the Fund’s exposure to credit or market price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market prices, interest rates or foreign exchange rates relative to their terms. The aggregate contractual or notional amount of derivative financial instruments on hand, the extent to which instruments are favourable or unfavourable, and thus the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

9. Investment Property

(in kCHF) 2012 2011As at 1 January 463,697 455,781 Purchases 39,747 - Sales (157) - Net gain/(loss) for fair value adjustments 14,620 7,915 As at 31 December 517,907 463,696

10. Sundry Creditors

Sundry creditors include rent guarantee deposits, rents received in advance, amounts due to members leaving the Fund and value added tax payable.

(in kCHF) 2012 2011Members and Beneficiaries 2,964 5,137 Investment property deposits 2,936 2,617 Taxes Payable 393 97 Investment property creditors 3,533 2,307 Deferred Income 255 281 Total 10,081 10,439

11. Other Payables

Other Payables include contributions to be reimbursed to members leaving the Fund and amounts due mainly in respect of management and custody fees.

(in kCHF) 2012 2011Reimbursements of Contributions 573 1,092 Payments Outstanding 1,876 2,753 Total 2,449 3,845

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12. Provisions

Since 2009 the French tax authorities have requested that the Organization pays registration taxes amounting to 1.2 MEUR in respect of two buildings acquired in France by CERN for the benefit of its Pension Fund. CERN declined to pay these taxes as this request is incompatible with the 1972 Host State Agreement with France and its 1983 agreed interpretation.

To find a constructive way forward in this long-standing matter, and in the interest of preserving its good relations with France as one of its Host States, CERN proposed to resolve this issue by mutual agreement on the basis of a two-step approach. In this context, two draft agreements are under discussion as at 31 December 2012 with the French authorities in order to resolve this matter.

13. Interest Income

(in kCHF) 2012 2011Cash and Cash Equivalents 6,220 12,241 Bonds 25,244 32,566 Total 31,464 44,807

14. Investment Property Income

(in kCHF) 2012 2011Residential Property 12,594 12,204 Office Property 13,854 13,906 Agricultural property 1,834 1,434 Forests 337 398 Changes in fair value 14,620 7,915 Gains on Sales 18 - Total Investment Property Income 43,257 35,857

With regard to its Investment Property the Fund is a lessor of operating leases and as such is required to make the following disclosures in respect of future minimum lease payments.

(in kCHF) 2012 2011Not later than 1 year 24,278 21,946 Between 1 and 5 years 61,023 58,924 Later than 5 years 11,043 10,767 Total 96,344 91,637

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15. Unrealised Gains/(Losses) on Financial Assets at Fair Value through

Profit &Loss

(in kCHF) 2012 2011Bonds 24,974 43,346 Equities 53,860 (14,214) Investment Funds 45,133 28,661 Derivatives 11,787 21,459 Total 135,754 79,252

16. Realised Gains/(Losses) on Financial Assets

(in kCHF) 2012 2011Bonds 6,160 (26,718) Equities 9,875 (77,400) Investment Funds (2,490) (17,197) Derivatives 37,119 (91,151) Total 50,664 (212,466)

17. Foreign Exchange Gains/Losses

(in kCHF) 2012 2011Currency Overlay programme 12,125 (619) Other exchange rate movements (22,531) (39,782) Total (10,406) (40,401)

18. Investment Management Fees

All material explicit Investment Management Fees are recorded under this heading. In addition certain Investment Management fees are included in the net asset value of the investment under the heading “Unrealised Gains/(Losses) on Financial Assets at Fair Value Through Profit & Loss”. It is estimated that total management and performance fees applied for direct investments in funds in 2012 amounted to approximately 16.8 MCHF, excluding private equity funds. Of the 8.1 MCHF shown as Investment Management Fees in 2012, 5.0 MCHF are included in the estimated total of 16.8 MCHF. A study will be made regarding the classification of investment management fees in the 2013 Financial Statements.

19. Investment Related Expenditure

Following a change in presentation, Investment Related Expenditure has been presented separately from Administration Costs in the Statement of Financial Performance. The 2011 comparatives under each of these headings have been adjusted accordingly.

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20. Investment Property Expenditure

(in kCHF) 2012 2011Residential Property 3,494 3,329 Office Property 3,712 2,509 Agricultural property 1,365 1,251 Forests 160 169 Total Investment Property expenditure 8,731 7,258

21. Membership Activities

This heading shows the contributions of the members of the Fund and the participating Organizations and other amounts received, as well as the various benefits and other amounts paid during the period.

22. Related-Party Transactions

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

Related parties of the Fund during the period were:

- Professional members nominated by the CERN Council to act as experts in the Pension Fund Governing Board (PFGB), Pension Fund Investment Committee (PFIC) and Actuarial Technical Committee (ATC), to provide advice on Governance, Investment and Actuarial issues respectively. Fees in 2012 were 113 kCHF (132 kCHF in 2011);

- Key management personnel, Chairman of the PFGB, Chairman of the PFIC, the Chief Executive Officer of the Fund, the Chief Investment Officer and the Chief Operating Officer. The Chairman of the PFGB and the Chairman of the PFIC do not receive any remuneration in the execution of these roles. The aggregate remuneration paid to the remaining key management personnel includes salaries, allowances and other entitlements paid in accordance with the Staff Rules and Regulations;

- CERN, the Organization, contributes a significant portion of the Fund’s financing. While the Fund is an autonomous operating entity, for the purposes of IPSAS 20 disclosure requirements, CERN is considered a related party. Although the Fund meets the cost of its operating expenses, CERN provides free of charge some administrative support and office accommodation.

In 2012 the Fund did not grant any loan or pay any other remuneration (except for the above mentioned amounts) to the key management personnel or to their close family members.

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23. Investment Return by Asset Class

The Fund’s custodian reported the following rates of return by asset class for 2012.

Asset Class

Rates of Return

Bonds 7.52%

Equity 13.24%

Real Estate 5.90%

Private Equity 1.69%

Alternative Investments 2.87%

Commodities 3.08%

Cash -0.37%

24. Events after the Balance Sheet Date

Concerning the issue relating to the French registration taxes, described under Note 12. “Provisions”, CERN and France have found a solution to this long-standing matter.

According to an agreement to be signed in April 2013, the matter will be resolved as follows: the Organization will pay 1.2 MEUR in registration taxes for the two buildings which will be reimbursed by the French authorities within 30 days.

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III. BUDGET OF THE PENSION FUND 2013

(in kCHF)

2012 2012 2013

Headings and Sub-headings Annual Accounts Budget Budget

CERN/3066

CERN/FC/5742

(2012 prices) (2013 prices)

PERSONNEL 3,530 3,550 3,685

MATERIALS

Operating expenses

Library 14 27 24

Colloquia, seminars, conferences 0 24 26

Contracts (maintenance, temporary labour, minor work) 185 112 155

Governance 180 213 215

Actuary, audit & consultants 269 346 300

IT consultancy and support 265 484 267

Training costs 15 20 30

Duty travel expenses 82 65 85

Official Hospitality expenses 17 15 15

Research and communication providers 117 66 126

Sub-total 1,144 1,372 1,243

Supplies

Investments and equipment 89 48 56

Sub-total 89 48 56

Total Materials 1,233 1,420 1,299

Grand Total 4,763 4,970 4,984

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IV. AUDIT CERTIFICATE

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ANNEXES

A. TECHNICAL BALANCE SHEET UNDER DOCUMENT CERN/FC/5432/RA – CERN/2897/RA ACTUARIAL ASSUMPTIONS

NET PROVIDENT OVERALL ASSETS (PA) 3,846,573,000 3,846,573,000 3,681,123,401

Transfer values of active members or current value of deferred pensions (including future adjustment) 1

1,763,140,016 1,739,135,215 1,684,962,138

Mathematical reserves of the beneficiaries 4,057,100,958 4,057,100,958 4,115,170,052

ACTUARIAL LIABILITIES (AL) 5,820,240,974 5,796,236,173 5,800,132,190

TECHNICAL BALANCE 2 (1,973,667,974) (1,949,663,173) (2,119,008,789)

66.1 % 66.4 % 63.5 %

Remarks :1) Corresponds to the maximum value between current value of deferred retirement pensions and transfer value.2) = PA - AL3) = PA / AL

DEGREE OF COVERAGE OF ACTUARIAL LIABILITIES OR FUNDING RATIO 3

(in CHF)

31.12.201231.12.2012 with

2011 assumptions 31.12.2011

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B. COMPOSITION OF THE BODIES OF THE FUND (AS AT 1 JANUARY 2013)

Governing Board

MEMBERS APPOINTED BY:

D.-O. Riska, Chair B. Moor

CERN Council

A. Mantel ESO Council

S. Lettow Ex-officio

D. Duret, (until 13.03.2012) A. Raimondo (as of 01.05.2012) S. Weisz, Vice-Chair

CERN Staff Association

P. Ballester ESO Staff Association

F. Wittgenstein CERN and ESO Pensioners Association

R. Balfe A. Samper

Professional members appointed by CERN Council

Investment Committee

MEMBERS

S. Lettow, Chair

D. Duret (until 13.03.2012)

T. Economou

A. Raimondo (as of 28.06.2012)

L. Braga

P. Sauvagnat (as of 01.01.2012)

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Actuarial and Technical Committee

MEMBERS

A. Mantel, Chair

S. Weisz

R. Balfe

T. Economou

Chief Executive Officer

T. Economou

C. ADVISORS

APPOINTED BY:

Consulting Actuary Pittet Associés SA, Geneva, Switzerland Pension Fund Governing Board

Consulting Medical Practitioner F. Zrounba, Ferney-Voltaire, France (CERN Consulting Medical Practitioner)

CERN Director-General

Auditors Corte dei Conti, Rome, Italy (CERN External Auditors) PricewaterhouseCoopers, Lausanne, Switzerland

CERN Council Pension Fund Governing Board