118. (1) The directors of an ICAV shall for each financial year prepare a report (a “directors’ report”) dealing, so far as is material for the appreciation of the state of the ICAV’s affairs (and, if it has subsidiaries, of the affairs of the ICAV and its subsidiaries as a group), with—

(a) any change during the financial year in the nature of the business of the ICAV or of the ICAV’s subsidiaries in the classes of business in which the ICAV has an interest whether as a member of another ICAV or a company or otherwise, and

(b) the amount, if any, which they recommend should be paid by way of dividend and the amount, if any, which they propose to carry to reserves.

(2) The report shall be approved by the board of directors and signed on behalf of the directors by 2 directors.

(3) The report shall contain a list of bodies corporate in relation to which either of the following conditions is fulfilled at the end of the ICAV’s financial year:

(a) the body corporate is a subsidiary of the ICAV;

(b) although the body corporate is not a subsidiary of the ICAV, the ICAV is beneficially entitled to more than 20 per cent in nominal value of its shares carrying voting rights (other than voting rights which arise only in specified circumstances).

(4) The list referred to in subsection (3) shall distinguish between bodies corporate falling within paragraph (a) and paragraph (b) of that subsection and shall state in relation to each such body corporate—

(a) its name,

(b) where it is incorporated, and

(c) the nature of the business carried on by it.

(5) The report shall contain the following information:

(a) a fair review of the development and performance of the ICAV’s business and of its position and, in relation to its subsidiaries, if any, of the development and performance of their business and of their position, during the financial year ending with the relevant balance sheet date together with a description of the principal risks and uncertainties that they face;

(b) particulars of any important events affecting the ICAV or any of its subsidiaries, if any, which have occurred since the end of that year;

(c) an indication of likely future developments in the business of the ICAV and of its subsidiaries, if any;

(d) in relation to the use by the ICAV and its subsidiaries, if any, of financial instruments and where material for the assessment of the assets, liabilities, financial position and profit or loss of the ICAV and, as the case may be, the group—

(i) the financial risk management objectives and policies of the ICAV and the group, including the policy for hedging each major type of forecasted transaction for which hedge accounting is used, and

(ii) the exposure of the ICAV and the group to price risk, credit risk, liquidity risk and cash flow risk.

(6) The review mentioned in subsection (5)(a) —

(a) shall be a balanced and comprehensive analysis of the development and performance of the ICAV’s business and of its position and, in relation to its subsidiaries, if any, of the development and performance of their business and of their position, consistent with the size and complexity of the business, and

(b) to the extent necessary for an understanding of the ICAV’s development, performance or position, and that of its subsidiaries, if any, shall include an analysis of financial, and, where appropriate, non-financial key performance indicators relevant to the particular business, including information relevant to environmental and employee matters, and, where appropriate, shall include additional explanations of amounts included in the annual accounts.

(7) If an ICAV fails to comply with this section, the ICAV and any officer of it who is in default commits a category 1 offence.