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Independent Audit Report

2016AHORRO CORPORACIÓN FINANCIERA, S.V. S.A.U.

Annual Accounts and Management Report corresponding to the year ended 31st December 2016

2016 ANNUAL REPORT · Ahorro Corporación Financiera, SV, S.A.U.

Independent Audit Report

AHORRO CORPORACIÓN FINANCIERA, S.V. S.A. Annual Accounts and Management Report corresponding to the year ended 31st December 2016

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Ernst & Young, S.L.

C/Raimundo Fernández Villaverde, 65

28003 Madrid

Tel.: 902 365 456

Fax: 915 727 300

www.ey.com/es

INDEPENDENT AUDIT REPORT OF ANNUAL ACCOUNTS

To the shareholders of AHORRO CORPORACIÓN FINANCIERA, S.V., S.A.: Report on the Annual Accounts We have audited the attached Annual Accounts of AHORRO CORPORACIÓN FINANCIERA, S.V., S.A., which comprise the balance sheet at December 31, 2016, the profit and loss account, the statement of changes in equity, the statement of cash flow and the Annual Accounts for the year ended on that date. Liability of directors in relation to the Annual Accounts. The directors are responsible for formulating the accompanying Annual Accounts, so that they show a true reflection of the equity, financial situation and the results of AHORRO CORPORACIÓN FINANCIERA, S.V., S.A., in accordance with the regulatory framework of financial information applicable to the entity in Spain, which is identified in Note 2 of the accompanying report, and the internal control deemed necessary to enable the preparation of the Annual Accounts free from substantial inaccuracies due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on the accompanying Annual Accounts based on our audit. We have conducted our audit in accordance with the regulatory standards of the audit practice in force Spain. These regulations require that we comply with ethical requirements and plan and perform the audit in order to obtain reasonable assurance that the Annual Accounts are free of substantial misstatements. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Annual Accounts. The procedures selected depend on the auditor's opinion, including the assessment of the risks of substantial inaccuracy in the Annual Accounts due to fraud or error. In making those risk assessments, the auditor considers internal control that is relevant to the formulation by the entity of the Annual Accounts, in order to design audit procedures that are appropriate in terms of the circumstances, and not for the purpose of expressing an opinion on the effectiveness of the internal control of the entity. An audit also includes evaluating the appropriateness of the accounting policies applied and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the Annual Accounts taken as a whole. We believe that the audit evidence we have obtained provides a sufficient and adequate basis for our audit opinion.

http://www.ey.com/es

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Opinion In our opinion, the Annual Accounts attached, express in all significant respects, a true and fair image of the equity and of the financial position of AHORRO CORPORACIÓN FINANCIERA, S.V., S.A. at December 31, 2016, and of its results and cash flow corresponding to the fiscal year ended on that date, pursuant to the regulatory financial reporting framework that is applicable and in particular, to the accounting principles and criteria contained therein. Report on other legal and regulatory requirements The attached management report for 2016 contains the explanations that the directors consider relevant to the situation of the company, the evolution of its activities and other matters, and are not an integral part of the Annual Accounts. We have verified that the accounting information contained in the aforementioned management report is consistent with the Annual Accounts for the year 2016. Our work as auditors is limited to verifying the management report to the extent mentioned in this paragraph and it does not include the review of information other than that drawn from the accounting records of AHORRO CORPORACIÓN FINANCIERA, S.V., S.A.

April 7, 2017.

Francisco J. Fuentes García


ANNUAL ACCOUNTS: BALANCE SHEET PROFIT AND LOSS STATEMENT

STATEMENTS OF CHANGES IN TOTAL EQUITY

CASH FLOW STATEMENTS

REPORT

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BALANCE SHEET AS OF DECEMBER 31

EUROS

ASSET NOTE 2016 2015

Cash 7 6,172,834.45 66,493.66

Trading portfolio 8 81,870,067.29 483,040,885.01

Debt securities 29,306.06 119,524,648.51

Capital instruments 404,999.99 404,999.98

Trading derivatives 81,435,761.24 363,111,236.52

Other financial assets - -

Token entry: Furnished or pledged - -

Other financial assets at fair value, with changes posted to profit and loss - -

Debt securities - -

Other capital instruments - -



Financial assets available for sale 9 8,040.00 8,440.01

Debt securities - -

Capital instruments 8,040.00 8,440.01


Lending investments 11 151,548,208.39 236,960,861.35

Lines of credit in favor of financial intermediaries 148,703,695.13 231,997,397.87

Lines of credit in favor of individuals 2,844,513.26 4,963,463.48


Held-to-maturity investment portfolio - -


Hedging derivatives - -

Non-current assets held for sale - -

Debt securities - -

Capital instruments - -

Tangible assets - -

Other - -

Shares 13 482,388.14 556,978.71

Group entities 482,388.14 556,978.71

Jointly-controlled entities - -

Associated/partner entities - -

Insurance contracts linked to pensions - -

Tangible assets 12.1 984,379.20 559,708.94

For own use 984,379.20 559,708.94

Estate investments - -

Intangible assets 321,134.44 189,383.53

Goodwill - -

Other intangible assets 12.2 321,134.44 189,383.53

Tax assets 20 32,844.66 -

Current 32,844.66 -

Deferred - -

Remaining assets 15 2,210,324.37 3,551,903.55

TOTAL ASSETS 243,630,220.94 724,934,654.76

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EUROS

LIABILITIES AND TOTAL EQUITY NOTE 2016 2015

Trading portfolio 8 79,098,929.90 418,263,487.53

Other liabilities at fair value, with changes posted to profit and loss - -

Financial liabilities at amortized cost 14 107,844,324.13 251,613,881.62

Debts with financial intermediaries 53,615,571.49 197,871,037.44

Debts with individuals 54,228,752.64 53,742,844.18

Loans and subordinate liabilities - -

Other financial liabilities - -

Hedging derivatives - -

Liabilities associated with non-current assets held for sale - -

Provision items 4,720,174.81 4,278,705.41

Provisions for pensions and similar obligations - -

Provisions for taxes and other legal contingencies - -

Other provisions 17 4,720,174.81 4,278,705.41

Tax liabilities - -

Current - -

Deferred - -

Remaining liabilities 15 1,201,693.02 1,321,626.62

TOTAL LIABILITIES 192,865,121.86 675,477,701.18

SHAREHOLDERS' EQUITY 50,765,099.08 49,456,953.58

Capital 16.1 28,603,951.93 28,603,951.93

Subscribed 28,603,951.93 28,603,951.93

Less: Uncalled capital - -

Share issuance premium 16.1 11,913,230.94 11,913,230.94

Reserves 16.1 10,997,522.29 11,849,382.94

Other capital instruments - -

Less: Treasury shares - -

Profit or loss from the fiscal period 4 (749,606.08) (2,909,612.23)

Less: Dividends and remuneration - -

VALUATION ADJUSTMENTS 16.2 - -

Financial assets available for sale - -

Cash flow hedges - -

Net investment in foreign operations hedges - -

Exchange variations - -

Remaining valuation adjustments - -

SUBSIDIES, GIFTS, AND LEGACIES - -

TOTAL EQUITY 50,765,099.08 49,456,953.58

TOTAL LIABILITIES AND TOTAL EQUITY 243,630,220.94 724,934,654.76

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EUROS

TOKEN ENTRY NOTE 2016 2015

Guarantees and sureties granted 31,558,364.24 135,455,781.19

Other contingent liabilities - -

Commitment to forward trade securities 8.1 1,838,455.57 87,834.61

Treasury shares lent - -

Payments pledged for underwriting commitments - -

Financial derivatives 259,358,550.85 4,836,530,079.95

Other contingent risks and commitments - 6,104.772.49

TOTAL CONTINGENT RISKS AND COMMITMENTS 18.1 292,755,370.66 4,978,178,468.24

Securities deposits 10,130,073,482.95 13,568,418,928.05

Managed portfolios 61,694,558.50 1,569,996.17

Other memorandum accounts 657,667,233.99 517,365,775.36

TOTAL OTHER MEMORANDUM ACCOUNTS 18.2 10,849,435,275.44 14,087,354,699.58

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PROFIT AND LOSS STATEMENT CORRESPONDING TO THE ANNUAL PERIOD FINISHED ON DECEMBER 31

EUROS

NOTE 2016 2015

Interest receivable and similar income 19.1 349,797.62 844,018.13

Interest payable and similar charges 19.1 (491,491.93) (371,238.98)

NET INTEREST INCOME (141,694.31) 472,779.15

Return on capital instruments - 26,127.02

Commissions received 19.1 21,574,420.66 27,684,397.45

Commissions paid (-) 19.1 (8,712,325.15) (8,322,748.35)

Profit or loss on financial transactions (net) 19.1 2,986,568.78 4,563,520.76

Trading portfolio 8.3 2,986,568.78 4,411,178.93

Other financial instruments at fair value, with changes posted to profit and loss - -

Financial instruments not assessed at fair value, with changes posted to profit and loss 9 - 152,341.83

Other - -

Exchange variations (net) (31,840.30) 66,016.34

Other operating income 13,284.30 23,538.51

Other operating expenses 19.4 (500,430.78) (675,039.31)

GROSS MARGIN 15,187,983.20 23,838,591.57

Personnel expenses 19.2 (9,056,023.87) (19,315,384.30)

General expenses 19.3 (6,944,904,83) (9,670,655,06)

Depreciation 12 (265,577.66) (283,350.77)

Appropriations to provisions (net) (1,651,539.82) (3,581,783.26)

Impairment losses on financial assets (net) 1,257,161.47 4,301,962.36

Lending investments 11.3 1,681,469.19 4,579,809.93

Other financial instruments not assessed at fair value, with changes posted to profit and loss 13 (424,307.72) (277,847.57)

OPERATING PROFIT (1,472,901.51) (4,710,619.46)

Impairment losses on remaining assets (net) (2,336.20) -

Tangible fixed assets - -

Intangible assets (2,336.20) -

Remaining - -

Gains/(Losses) on disposal of assets not classified as non-current assets held for sale 12.2 735,166.42 818,878.44

Negative goodwill on business combinations - -

Gains/(Losses) on non-current assets held for sale not classified as discontinued operations - -

PRE-TAX PROFIT OR LOSS (740,071.29) (3,891,741.02)

Tax on profits 20 (9,534.79) 982,128.79

FISCAL PERIOD PROFIT OR LOSS FROM CONTINUED OPERATIONS (749,606.08) (2,909,612.23)

Profit or loss from discontinued operations (net) - -

PROFIT OR LOSS FROM THE FISCAL PERIOD (749,606.08) (2,909,612.23)

EARNINGS PER SHARE - -

Basic - -

Diluted - -

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STATEMENT OF RECOGNIZED INCOME AND EXPENSES CORRESPONDING TO THE ANNUAL PERIOD FINISHED ON DECEMBER 31

EUROS

2016 2015 A) PROFIT OR LOSS FROM THE FISCAL PERIOD (749,606.08) (2,909,612.23) B) OTHER RECOGNIZED INCOME/EXPENSES - - 1. Financial assets available for sale - - a) Earnings/(Losses) from valuation - 152,341.83 b) Amounts transferred to profit and loss statement - (152,341.83) c) Other reclassifications - - 2. Cash flow hedges - - a) Earnings/(Losses) from valuation - - b) Amounts transferred to profit and loss statement - - c) Amounts transferred to the initial carrying amount of hedged items - - d) Other reclassifications - - 3. Net investment in foreign operations hedges - - a) Earnings/(Losses) from valuation - - b) Amounts transferred to profit and loss statement - - c) Other reclassifications - - 4. Exchange variations - - a) Earnings/(Losses) from valuation - - b) Amounts transferred to profit and loss statement - - c) Other reclassifications - - 5. Non-current assets held for sale - - a) Earnings/(Losses) from valuation - - b) Amounts transferred to profit and loss statement - - c) Other reclassifications - - 6. Actuarial Earnings/(Losses) on pension plans - - 7. Remaining recognized income and expenses - - 8. Tax on profit - - TOTAL RECOGNIZED INCOME AND EXPENSES (A+B) (749,606.08) (2,909,612.23)

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STATEMENT OF CHANGES IN EQUITY CORRESPONDING TO THE ANNUAL PERIOD FINISHED ON DECEMBER 31

EUROS

TOTAL SHAREHOLDERS' EQUITY VALUATION ADJUSTMENTS

CAPITAL

SHARE ISSUANCE PREMIUM AND RESERVES (1)

OTHER CAPITAL INSTRUMENTS

PROFIT OR LOSS FROM THE

FISCAL PERIOD

TOTAL SHAREHOLDERS'

EQUITY

FINANCIAL ASSETS

AVAILABLE FOR SALE HEDGES

TOTAL ADJUSTMENTS

SUBSIDIES, GIFTS, AND LEGACIES TOTAL EQUITY

Final balance as of 31/12/2015 28,603,951.93 23,762,613.88 - (2,909,612.23) 49,456,953.58 - - - - 49,456,953.58

Adjustments for changes in accounting criteria - - - - - - - - - -

Adjustments for errors - - - - - - - - - -

Adjusted opening balance 28,603,951.93 23,762,613.88 - (2,909,612.23) 49,456,953.58 - - - - 49,456,953.58

Total recognized income/(expenses) - - - (749,606.08) (749,606.08) - - - - (749,606.08)

Other changes in total equity - (851,860.65) - 2,909,612.23 2,057,751.58 - - - - 2,057,751.58

Capital increase - - - - - - - - - -

Capital reductions - - - - - - - - - -

Reclassification of financial liabilities to capital - - - - - - - - - -

Increases of other capital instruments - - - - - - - - - -

Reclassification of financial liabilities to other capital instruments - - - - - - - - - - Reclassification of other capital instruments to financial liabilities - - - - - - - - - -

Dividend payout/remuneration for partners - - - - - - - - - -

Transactions with own capital instruments (net) - - - - - - - - - -

Transfers between total equity line items - (2,909,612.23) - 2,909,612.23 - - - - - -

Increases/(decreases) due to business combinations - - - - - - - - - -

Payments with capital instruments - - - - - - - - - -

Remaining increases/(reductions) of total equity (Note 1.2) - 2,057,751.58 - - 2,057,751.58 - - - - 2,057,751.58

Final balance as of 31/12/2016 28,603,951.93 22,910,753.23 - (749,606.08) 50,765,099.08 - - - - 50,765,099.08

(1) The "Share Issuance Premium and Reserves" column, for the purposes of completing this statement, includes the following total equity items from the balance sheet: Share Issuance Premium and Reserves.

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STATEMENT OF CHANGES IN EQUITY CORRESPONDING TO THE ANNUAL PERIOD FINISHED ON DECEMBER 31

EUROS

TOTAL SHAREHOLDERS' EQUITY VALUATION ADJUSTMENTS

CAPITAL

SHARE ISSUANCE

PREMIUM AND RESERVES (1)

OTHER CAPITAL

INSTRUMENTS

PROFIT OR LOSS FROM THE FISCAL

PERIOD

TOTAL SHAREHOLDERS'

EQUITY

FINANCIAL ASSETS

AVAILABLE FOR SALE HEDGES

TOTAL ADJUSTMENTS

SUBSIDIES, GIFTS, AND LEGACIES TOTAL EQUITY


Adjustments for changes in accounting criteria - - - - - - - - - -

Adjustments for errors - - - - - - - - - -

Adjusted opening balance 28,603,951.93 26,223,322.42 - (2,460,708.54) 52,366,565.81 - - - - 52,366,565.81

Total recognized income/(expenses) - - - (2,909,612.23) (2,909,612.23) - - - - (2,909,612.23)

Other changes in total equity - (2,460,708.54) - 2,460,708.54 - - - - - -

Capital increase - - - - - - - - - -

Capital reductions - - - - - - - - - -

Reclassification of financial liabilities to capital - - - - - - - - - -

Reclassification of financial liabilities to other capital instruments - - - - - - - - - -

Increases of other capital instruments - - - - - - - - - -

Dividend payout/remuneration for partners - - - - - - - - - -

Transactions with own capital instruments (net) - - - - - - - - - -

Transfers between total equity line items - (2,460,708.54) - 2,460,708.54 - - - - - -

Increases/(decreases) due to business combinations - - - - - - - - - -

Payments with capital instruments - - - - - - - - - -

Remaining increases/(reductions) of total equity - - - - - - - - - -


(1) The "Share Issuance Premium and Reserves" column, for the purposes of completing this statement, includes the following total equity items from the balance sheet: Share Issuance Premium and Reserves.

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CASH FLOW STATEMENT CORRESPONDING TO THE ANNUAL PERIOD FINISHED ON DECEMBER 31

EUROS

NOTE 2016 2015

1. CASH FLOWS FROM OPERATIONAL ACTIVITIES 23,322,865.32 2,462,974.36

Profit or loss from the fiscal period (749,606.08) (2,909,612.23)

Adjustments to obtain cash flows from operational activities (33,839.96) (2,260,610.10)

Depreciation 265,577.66 283,350.77

Impairment losses on asset values (1,257,161.47) (4,301,962.36)

Appropriations to provisions for contingent risks 1,651,539.82 3,581,783.26

Profit or loss from sale of non-financial assets (735,166.42) (818,878.44)

Profit or loss from sale of shares (4.64) -

Other items 41,375.09 (1,004,903.33)

Adjusted profit (783,446.04) (5,170,222.33)

Net increase/(decrease) in operating assets ( +/– ) 224,560,163.49 61,644,785.95

Lending investments 103,291,617.02 181,034,708.31

Trading portfolio 119,495,342.45 (119,522,653.51)

Financial assets at fair value, with changes posted to profit and loss - -

Financial assets available for sale 400.00 309,882.01

Other operating assets 1,772,804.02 (177,150.86)

Net increase/(decrease) in operating liabilities ( +/– ) (200,100,394.71) (53,776,851.02)

Financial liabilities at amortized cost (141,642,975.46) (42,772,285.10)

Trading portfolio (57,489,082.35) (10,486,908.92)

Financial liabilities at fair value, with changes posted to profit and loss - -

Other operating liabilities (968,336.90) (517,657.00)

Income tax received/paid (353,457.42) (234,738.24)

2. CASH FLOWS FROM INVESTMENT ACTIVITIES (1,245,245.02) 151,752.59

Payments ( – ) (1,252,525.02) (686,735.77)


Shares (349,812.24) (456,788.87)

Tangible assets 12.1 (636,678.54) (165,888.10)

Intangible assets 12.2 (266,034.24) (64,058.80)

Other business units - -

Non-current assets and associated liabilities held for sale - -

Other payments related with investment activities - -

Receivables 7,280.00 838,488.36


Shares - -

Tangible assets 7,280.00 7,633.06

Intangible assets - -

Other business units 12.2 - 830,855.30

Non-current assets and associated liabilities held for sale - -

Other payments related with investment activities - -

3. CASH FLOWS FROM FINANCING ACTIVITIES 2,057,751.58 -

Payments ( – ) - -

Amortization of equity instruments - -

Acquisition of own capital instruments - -

Repayment and amortization of debentures and other marketable securities - -

Repayment and amortization of subordinate liabilities, loans, and other financing received - -

Receivables 2,057,751.58 -

Issuance of equity instruments - -

Issuance and disposal of own capital instruments - -

Issuance of debentures and other marketable securities -

Issuance of subordinate liabilities, loans, and other financing 2,057,751.58 -

Dividends paid and remuneration from other equity instruments (-) - -

4. Effect of exchange rate differences on cash and cash equivalents - -

5. NET INCREASE / (DECREASE) OF CASH AND CASH EQUIVALENTS (1+2+3+4) 24,135,371.88 2,614,726.95

Cash and cash equivalents at the start of the fiscal period 3.v 96,482,667.54 93,867,940.59

Cash and cash equivalents at the end of the fiscal period 3.v 120,618,039.42 96,482,667.54


INDEX

1. BUSINESS ACTIVITY AND GENERAL INFORMATION

2. BASIS OF PRESENTATION OF ANNUAL ACCOUNTS

3. EVALUATION PRINCIPLES AND CRITERIA APPLIED

4. DISTRIBUTION OF PROFIT

5. CAPITAL MANAGEMENT

6. FINANCIAL INSTRUMENT RISK MANAGEMENT

7. CASH

8. TRADING PORTFOLIO

9. FINANCIAL ASSETS AVAILABLE FOR SALE

10. HEDGING DERIVATIVES

11. LENDING INVESTMENTS

12. TANGIBLE AND INTANGIBLE ASSETS

13. SHARES IN GROUP COMPANIES

14. FINANCIAL LIABILITIES AT AMORTIZED COST

15. REMAINING ASSETS AND LIABILITIES

16. TOTAL EQUITY

17. PROVISION ITEMS

18. CONTINGENT RISKS AND COMMITMENTS AND MEMORANDUM ACCOUNTS

19. PROFIT AND LOSS STATEMENT

20. TAX SITUATION

21. RELATED PARTIES

22. OTHER INFORMATION

23. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET

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1 BUSINESS ACTIVITY AND GENERAL INFORMATION

1.1. NAME OF THE COMPANY, LEGAL FORM, AND ADDRESS OF COMPANY HEADQUARTERS

Ahorro Corporación Financiera, S.V., S.A.U. was established for an indefinite period of time via a public deed dated July 7, 1989. The Company is registered with the Securities Company Register of the National Securities Market Commission (hereinafter, C.N.M.V.) under number 24, and it undertakes its business activities through its offices open in Madrid and Barcelona. The Company is a member of the Madrid, Barcelona, Valencia, and Bilbao Stock Exchanges.

The Company's Assembly of Shareholders, during its session dated December 21, 2001, in order to adapt to the provisions of Royal Decree 867/2001, of July 20, agreed to change the Company's name from Ahorro Corporación Financiera, S.V.B., S.A., to Ahorro Corporación Financiera, S.V., S.A. This agreement was put on record in a public document on February 28, 2002.

The company headquarters is in Madrid, Paseo de la Castellana, 89, and the purpose of the company is as follows:

Investment Services under the conditions described in article 140 of Royal Legislative Decree 4/2015, which approved the Consolidated Text of the Securities Market Law (LMV):

a) Reception and transmission of clients' orders in relationship with one or more financial instruments.

b) Execution of said orders on clients' behalf.

c) Dealing on own account.

d) Discretionary and individualized management of investment portfolios in accordance with the instructions provided by clients.

e) Placing of financial instruments, with or without a firm commitment basis.

f) Underwriting of issues or placing of financial instruments.

g) Investment advising.

As additional services, the Company may undertake the following -- in accordance with the conditions set forth in article 141 of the Securities Market Law:

a) Custody and administration, on behalf of clients, of the instruments set forth in article 2 of the Securities Market Law.

b) Granting of credit or loans to investors so that they can undertake a transaction on one or more of the instruments set forth in article 2 of the Securities Market Law -- providing the company granting the credit or loan intervenes in said transaction.

c) Advising to companies on capital structure, industrial strategy, and related matters -- as well as advising and other services related with company mergers and acquisitions.

d) Services related with the underwriting of issues or placing of financial instruments.

e) Drafting of reports on investments and financial analyses or other types of general recommendations in relationship with financial instrument transactions.

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f) Currency exchange services, provided these are related with the provision of investment services.

During the 2015 fiscal period, the Company was substituted as a party into several sales agreements held by Ahorro Corporación Gestión, S.G.I.I.C., S.A. with other foreign management firms.

As of December 31, 2016, the Company sells the foreign Collective Investment Schemes listed in Annex I.

The undertaking of the aforementioned business activities shall be conditioned to an explicit statement before the C.N.M.V. pertaining to the Company's will to undertake each one of said business activities, including the general or limited scope that is desired for each case. For said purposes, the Company did formulate the corresponding statement of business activities.

The Company, along with the following entities, is part of a consolidated group of financial entities as described in Royal Decree 1332/2005, of November 11, which regulates Law 5/2005 of April 22 on the supervision of financial conglomerates:

• Ahorro Corporación S.A. (Parent company of the Group)

• ACF International Inc.

• Vehículo de Tenencia y Gestión 3, S.L.U.

Ahorro Corporación, S.A. has been designated by the National Securities Market Commission as an entity which is obliged to formulate, separately, the consolidated annual accounts for the Ahorro Corporación Group, which are, in turn, subject to independent audit.

1.2. COMPANY SALE PROCESS

As of November 8, 2016, the Board of Directors of the sole shareholder, Ahorro Corporación, S.A., agreed to accept an offer made to purchase all the shares representing the Company's capital stock, said offer being made by the British group StormHarbour Partners. The sale of these shares likewise implied the sale of the American subsidiary, ACF International Inc. -- a wholly-owned Company subsidiary.

On that same date, the sole shareholder and the purchaser of the Company signed a private sale agreement, which was complemented with the Addendum thereto dated February 16, 2017 (see note 23). In accordance with the conditions of the Agreement and its subsequent Addendum, it has been established that the effective sale of the shares of Ahorro Corporación Financiera, S.V., S.A.U. is subject to compliance with two conditions precedent:

Approval of said sale transaction by the General Assembly of Shareholders of the sole shareholder. Said approval was granted unanimously in the meeting of the sole shareholder's General Assembly of Shareholders held on November 15, 2016.

No express or tacit objection to this transmission by the National Securities Market Commission (C.N.M.V.).

To this end, it must be indicated that neither on December 31, 2016 nor on the date that these annual accounts were drafted has the C.N.M.V. made any type of comment on the matter and, as a result, the sale cannot be considered effective.

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Likewise, aiming to facilitate said sale, on November 8, 2016, the Company and its sole shareholder, Ahorro Corporación, S.A., signed a “Contribution Agreement” under which the sole shareholder committed to providing the Company, as of December 31, 2016, with a series of assets that had been property of the sole shareholder until that time and that are necessary for the Company's independent, autonomous functioning, without the need to turn to the auxiliary services provided by the AC Group or, if applicable, by other external providers in the form of outsourced services. In accordance with the conditions of said “Contribution Agreement,” as of December 31, 2016, the sole shareholder effectively provided the Company with the following assets, which were included on the balance sheet as of said date:

The so-called “Corporate Services Unit,” made up of the assets, the labor relationships held with the employees, and the associated labor liabilities. More specifically, the following has been provided:

- Different types of tangible assets, amongst which the central computer is noteworthy (see Note 12.1).

- A total of 38 employees (of the 41 that made up the sole shareholder's staff as of the date of contribution) were transferred to the Company, which, in turn, assumed the occupational conditions and commitments that the sole shareholder had with said employees.

- Certain labor liabilities of the sole shareholder covered by the “Restructuring Provision” (see Note 17).

- Other assets and liabilities of lesser importance.

The net value of the assets provided and listed on the balance sheet of the sole shareholder as of the effective date of provision came to 2,058,000 euros; for accounting purposes, this provision has been reflected by adding the contributed assets to the Company balance sheet for the aforementioned net value, with the "Shareholder Contribution" item of the Total Equity being the balancing entry, given that this contribution has not involved any type of payment by the Company.

Additionally, several intangible assets associated with brands and internet domains which were also the property of the sole shareholder have likewise been provided to the Company. These intangible assets were not listed on the sole shareholder's balance sheet as they were internally generated and, consequently, they also have not been listed on the Company's balance sheet. Nevertheless, for the purposes of the "Contribution Agreement," these assets were assessed by an independent expert and said assessment came to 2,839,000 euros.

Considering that the sale was not complete as of December 31, 2016, nor was it complete as of the date that these annual accounts were drafted, the Company --for accounting, tax, regulatory, etc. purposes-- is still part of the Ahorro Corporación Group.

1.3. DRAFTING OF THE ANNUAL ACCOUNTS

The annual accounts for the 2016 period, which were prepared by the Board of Directors during a meeting dated March 28, 2017, are pending approval from the Company's General Assembly of Shareholders. Nevertheless, the Administrators believe that said annual accounts will be approved without modifications. The annual accounts from the 2015 period were approved by the Company's General Assembly of Shareholders which was held on April 27, 2016. Said accounts were drafted in accordance with the provisions in Circular 7/2008, of November 26, of the C.N.M.V.

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1.4. APPLICABLE REGULATIONS

The business activities undertaken by the Company are regulated by Royal Legislative Decree 4/2015, of October 23, which approved the Consolidated Text of the Securities Market Law.

The Company is subject to compliance with a solvency ratio (see Note 5) and to maintain a minimum level of liquid assets, set in accordance with the clients' balances (see Note 6.4). As of June 26, 2013, the European Parliament and the Council published Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms. This Regulation is obligatory for Member States and of application as of January 1, 2014.

2 BASIS OF PRESENTATION OF ANNUAL ACCOUNTS

2.1. BASIS OF PRESENTATION OF ANNUAL ACCOUNTS

The annual accounts of the Company are presented in accordance with the criteria and practices established in Circular 7/2008, dated November 26, drafted by the C.N.M.V., on accounting regulations, annual accounts, and statements of sensitive information from investment firms (hereinafter, Circular 7/2008). The accounts have been presented to show a true and fair view of the Company's equity and financial situation as of December 31 of 2016, while likewise showing a true and fair view of profits or losses from the Company's operations and of changes in total equity and in cash flows during the annual fiscal period ending on the aforementioned date. The aforementioned annual accounts have been prepared based upon the Company's accounting records.

Circular 7/2008's aim is to modify the accounting scheme of the entities to which it applies, adapting said scheme to the new accounting framework established in the General Accounting Plan approved by Royal Decree 1514/2007, of November 16. Thus, accounting rules and criteria are established which, while being framed within the principles and guidelines of the new General Accounting Plan, adapt said General Accounting Plan to the specific characteristics inherent to investment firms, collective investment scheme management companies, and venture capital management companies. This allows for adequate, effective supervision of the aforementioned entities, guaranteeing the protection of investors.

While drafting these annual accounts, we have followed the accounting principles and guidelines, as well as the assessment criteria, listed in Circular 7/2008, all of which is summarized in Note 3. There are no obligatory accounting principles or assessment criteria that significantly affect the annual accounts and have been left out.

Changes in accounting criteria --whether they be because regulations are changed or because the Administrators decide to change the criteria for application retroactively-- require adjusting the amounts of the affected line items by using as a balancing entry the corresponding total equity item in the oldest opening balance sheet about which comparative information is published, as if the new accounting criteria had always been of application. Retroactive application of the new criteria is not undertaken if it is impractical to do so or if the regulatory provision modifying said criteria sets the date from which it should be of application. If errors from prior fiscal periods are detected as a result of omissions, inaccuracies, or mistakes when using the information available during said fiscal periods, these errors shall be corrected by applying the same guidelines mentioned previously for when a change in the applied accounting criteria occurs.

The figures included in these annual accounts are in euros, unless otherwise noted.

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2.2. USE OF JUDGMENT AND ESTIMATIONS IN THE DRAFTING OF THE FINANCIAL STATEMENTS

When preparing the Company's annual accounts, the Administrators have had to assess values, undertake estimations, and make assumptions that affect the application of accounting policies and the asset, liability, income, and expense figures, likewise affecting the breakdown of contingent liabilities which were in existence on the date these annual accounts were issued.

Value judgments, estimations, and assumptions made are based on prior experience and other various factors which are understood to be reasonable for the circumstances. The results of said judgments, estimations, and assumptions make up the basis for establishing the carrying amount for assets and liabilities whose values are not easily accessible via other means. Estimations and assumptions are reviewed continuously.

Nevertheless, the inherent uncertainty of estimations and assumptions could bring about significant adjustments in the future to the values for the affected assets and liabilities.

The most significant value judgments and estimates used for the preparation of these annual accounts make reference to:

• Estimation of the degree of recoverability of doubtful accounts (Notes 3.i and 6.2)

• Assessment of financial instruments (Notes 3.h.4 and 6.1)

• Recovery of deferred tax assets (Note 20)

2.3. COMPARISON OF INFORMATION

In accordance with commercial code, the Company Administrators are presenting, for comparative purposes, with each one of the entries for the balance sheet, for the profit and loss statement, for the statement of recognized income and expenses, for the statement of changes in total equity, and for the statement of cash flows and notes, the corresponding figures for the previous fiscal period in addition to figures from the 2016 fiscal period. To this end, the balance sheets, profit and loss statements, recognized income and expense statements, changes in total equity statement, and cash flow statements presented herein align with the templates included in Circular 7/2008.

3 EVALUATION PRINCIPLES AND CRITERIA APPLIED

The most important accounting principles and criteria that were applied when preparing theses annual accounts are those which are summarized below. They align with the stipulations of Circular 7/2008:

a) Going concern principle

The business activity of the Company, and that of the Group to which it belongs, has been affected over the last few fiscal periods by the financial crisis and its impact on the real economy. This has mainly translated into lower levels of activity in the different businesses and difficulties when accessing finance markets.

Within this context, the Company gradually adopted measures over the last few years which were aimed at adapting its capacity to the current situation and business outlook. To accomplish this, the Company had the support of the Group and of its shareholders. These measures were complemented with other measures designed to streamline the Company's structure and cut back on its balance sheet. This restructuring process has been undertaken in to main spheres: firstly, a plan was put into place to disinvest in non-strategic assets (sale of portfolios, settlement of positions in

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financial derivatives, disinvestment in companies and assets, etc.) and, secondly, a very significant reduction of financing needs and operating expenses has been undertaken.

The aforementioned has been planned and carried out with the aim of allowing the Company to continue its business activity autonomously, with a stable capital base, and with regulatory capital levels higher than the legal minimums.

During this 2016 fiscal period, the restructuring process was finished with the sale of the Company to an investor outside of the Ahorro Corporación Group (see Note 1.2). Once said sale is finalized, it is expected for the new shareholder to put into place a new business plan aiming to earn a profit on the investment made.

Considering the aforementioned, and independently from the sales process which has been started, the Administrators feel that the continuity of the Company's operations is guaranteed and, consequently, the Administrators have drafted these annual accounts based upon the "going concern" principle.

b) Accrual accounting principle

These annual accounts, except for parts related with the cash flow statement, have been drafted based upon the actual flow of goods and services and regardless of the date of their payment or their collection.

c) Principle of prudence

For the drafting of estimations and assessments under uncertain conditions, the Company is accounting for only the profits yielded until the final day of the fiscal period. However, for the drafting of these annual accounts, all risks which originated during the fiscal period in question and during other prior fiscal periods were taken into account as soon as they were known when liabilities or expenses were calculated, notwithstanding their subsequent reflection upon other documents which make up the annual accounts.

d) Offsetting of balances

Balances only offset each other and, as a result, we only present on the balance sheet (with their net amount) debit and credit balances which contemplate the possibility of being offset and for which the intention is for them to be settled for their net amount, or for the asset to be realized and the liability to be settled simultaneously.

e) Materiality principle

For the drafting of these annual accounts, the materiality principle has been upheld. Thus, the Company has opted to group any entries or amounts of a similar nature, provided their materiality is not very significant. Thus, the true and fair view of the Company is not altered.

f) Transactions in a foreign currency

For the purposes of these annual accounts, the euro has been chosen as the functional currency and the currency used for presentation. The term "foreign currency" can be understood as any currency different from the euro.

Upon initial recognition, debit and credit balances in foreign currencies are converted to euros by using the spot exchange rate. After that moment, the following rules are applied for converting figures listed in foreign currencies to euros.

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• Assets and liabilities of a monetary nature are converted to euros by using the official reference exchange rate published by the European Central Bank on the date of each fiscal period's close.

• Non-monetary items assessed at historic cost are converted based upon the exchange rate on the day of acquisition.

• Non-monetary items assessed at fair value are converted based upon the exchange rate of the day on which the fair value was determined.

• Income and expenses are converted by applying the exchange rate on the date of the transaction.

• Amortizations are converted by applying the exchange rate applied to the corresponding asset.

Exchange variations which arise through the conversion of figures in a foreign currency are recorded on the profit and loss statement, with the exception of variations which arise in non-monetary items assessed at fair value whose adjustment to said fair value is allocated to total equity until the time when said items are realized.

g) Recognition of income and expenses

Generally speaking, income is recognized at the fair value of the compensation that is received (or that is going to be received), less commercial discounts, allowances, or markdowns. If cash inflow is deferred in time, the fair value is determined by discounting future cash flows.

Recognition of any income on the profit and loss statement or in the total equity shall be conditioned to compliance with the following premises:

• Its amount can be reliably estimated.

• It is likely for the entity to receive the economic benefits.

• Information is verifiable.

If doubts remain in relationship with the collection of an amount recognized previously as income, the amount whose recoverability may no longer be probable is recorded as an expense and not as lower income.

All debt instruments which are classified by the Company individually as impaired, as well as those debt instruments for which impairment losses have been calculated collectively as they are over three months past due, stop accruing interest.

Interest and dividends are recorded on the profit and loss statement based upon the following:

• Interest uses the effective interest rate method for recognition on the profit and loss statement.

• Dividends are recognized when the shareholder's right to receive payment has been established.

Notwithstanding the foregoing, interest and dividends accrued prior to the instrument's acquisition date and which are outstanding do not make up part of the acquisition nor are they recognized as income.

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h) Financial instruments

A financial instrument is a contract which brings about a financial asset in one entity and simultaneously brings about a financial liability or capital instrument in another entity:

Financial instruments are recognized on the balance sheet solely if the Company becomes a party in the contract, in accordance with the specifications thereof. The Company recognizes accounts receivable or payable through credits and debits from the date on which the legal right to receive or the legal obligation to pay arises (for cash); for financial derivatives, this is from the contract date. Additionally, transactions undertaken on the currency market are recorded on the settlement date. Financial assets traded on Spanish secondary stock markets, if they are capital instruments, are recognized on the contract date and, if they are debt securities, this is on the settlement date.

Financial instruments issued by the Company, as well as their components, are classified as financial liabilities on the date of their initial recognition, in accordance with their substance if said substance does not coincide with their legal form.

Remuneration, changes to carrying amounts, as well as profit or loss associated with the repurchase or refinancing of financial liabilities are recorded on the profit and loss statement as a financial expense. Likewise, in the profit and loss statement all issuance costs for financial liabilities are recorded, applying the effective interest rate method.

h.1) Financial assets

Financial assets are, amongst others, the cash in hand balance, lines of credit in favor of financial intermediaries, lines of credit in favor of individuals, debt securities, acquired capital instruments (except for those which correspond to dependent companies, jointly-controlled companies, or associated/partner companies), and trading derivatives and hedging derivatives.

The Company classifies its financial assets into the following portfolios for the purposes of assessment:

• “Financial assets at fair value, with changes posted to profit and loss”

“Trading portfolio:” Financial assets which originated or were acquired with the aim of being realized over the short term, or which are part of a portfolio of financial instruments that are identified and managed jointly and for which there is evidence of recent actions to obtain profits over the short term. Likewise, part of this portfolio is comprised of derivative instruments which are not designated as accounting hedges.

“Other assets at fair value, with changes posted to profit and loss:” The Company includes in this category hybrid financial instruments which must be assessed at their fair value in accordance with Circular 7/2008.

• “Held-to-maturity investment portfolio:” Includes debt securities with fixed dates of maturity whose future flows are of a determined or determinable amount and which the Company has the intention and proven financial ability (both at the beginning and at any later date) to hold until maturity.

• “Lending investments:” Include financial assets which are not traded on an active market and for which assessment at fair value is not obligatory; their cash flows are of a determined or determinable amount and the entire amount paid by the Company is expected to be recovered -- except for in cases which are attributable to the debtor's solvency. This category includes investments stemming from the business activity of providing lines of credit in favor of financial intermediaries and individuals.

• “Financial assets available for sale:” This portfolio includes debt securities which are not classified as held-to-maturity investments or fair value investments with changes posted to

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profit and loss, capital instruments belonging to the Company's non-dependent entities, associated/partner entities, or jointly-controlled entities, as well as shares in mutual funds -- all of which are have not been included in the category of "at fair value, with changes posted to profit and loss."

Upon initial recognition on the balance sheet, financial assets are recorded at their fair value. The fair value is the amount for which an asset can be exchanged or a liability can be settled, between interested and duly informed parties, in an arm's length transaction.

After their initial recognition, the Company assesses all financial assets, including active derivatives, at fair value without deducting any transaction costs incurred through their sale, or any other type of payment, with the following exceptions:

• Financial assets included in the categories "Lending Investments" and "Held-to-maturity Investment Portfolio," which are assessed at their amortized cost.

• Financial assets that are capital instruments and whose fair value cannot be reliably estimated, as well as derivatives that those instruments have as underlying assets and that are liquidated through their surrender -- these are assessed at cost.

The "fair value of a financial instrument" is understood to be the amount for which said instrument could be bought or sold on a given date, between interested and duly informed parties, in an arm's length transaction.

"Amortized cost" is understood as the acquisition cost of a financial asset or liability which is adjusted (either up or down, depending upon the case) as a result of the repayment of principle and interest, plus or minus (depending on the case) the difference between the initial amount and the repayment amount of said financial instrument, as assigned to the profit and loss statement (through the use of the effective interest rate method). In the case of financial assets, the amortized cost additionally includes value adjustments due to any impairment undergone.

The effective interest rate is the rate that exactly matches the net carrying amount of a financial instrument to all its estimated cash flows of any kind throughout its residual life. For financial instruments with a fixed interest rate, the effective interest rate corresponds to the contractual interest rate set at the time of acquisition plus, if applicable, any commissions that are comparable to an interest rate because of their nature. For financial instruments with a variable interest rate, the effective interest rate corresponds to the rate of return prevailing for all items until the date on which the reference interest rate is to be revised for the first time.

Financial assets are taken off the Company's balance sheet when the rights to receive the related cash flows have matured or have been transferred, provided that their risks and rewards are substantially transferred in said transfer or, although the latter are not substantially transferred nor retained, control over the financial asset is transferred. In this latter case, if control of the assets is not transferred, said assets shall continue being recognized for their ongoing commitment; that is to say, for an amount equal to the Company's exposure to changes in value for the transferred financial asset.

Additionally, the Company will consider as doubtful accounts any amounts which correspond to debt instruments (matured or not) for which, after individual analysis, their possibility of recovery is considered to be remote and they should be derecognized from assets. Unless proof to the contrary is provided, all debits shall be included in this category (except for amounts covered by sufficient effective guarantees) from clients who are in bankruptcy proceedings and for which it is on record that the liquidation phase has been undertaken or is going to be undertaken, or debts from clients whose solvency notably and irreversibly goes down, as well as the inclusion of balances from transactions classified as doubtful because of the fact they have been outstanding for more than two years.

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The carrying amount for financial assets is adjusted by the Company and posted to the profit and loss statement if there is objective evidence that impairment losses have arisen (see Note 3.i).

h.2) Financial liabilities

Financial liabilities are, amongst others, debts with financial intermediaries, debts with individuals, trading derivatives and hedging derivatives, subordinate liabilities, and short positions.

Financial liabilities are classified, for the purpose of their assessment, into the following categories:

• “Financial liabilities at fair value, with changes posted to profit and loss:” This item mainly includes trading derivatives, as well as the short-selling of securities.

• “Financial liabilities at amortized cost:” This category includes financial liabilities which are not included in the previous category.

Upon initial recognition on the balance sheet, financial liabilities are recorded at their fair value. After their initial recognition, all the Company's financial liabilities are assessed at their amortized cost, except for those identified as "liabilities at fair value, with changes posted to profit and loss."

The Company derecognizes a financial liability when the obligation has disappeared. The difference between the carrying amount for extinguished financial liabilities and the compensation received is immediately recognized on the profit and loss statement.

The securities Company maintains instrumental and temporary credit balances on behalf of individual clients in demand deposits with financial intermediaries, specifically mentioning their condition as "client balances" in compliance with Order 848/2005 from the Ministry of the Treasury. h.3) Earnings and losses from financial instruments

Earnings and losses from financial instruments are recorded depending on the portfolio in which they are classified, in accordance with the following criteria:

• For financial instruments included in the category of "at fair value, with changes posted to profit and loss," changes in fair value are recorded directly on the profit and loss statement. A distinction is made, for instruments which are not derivatives, between the part attributable to the instrument's accrued returns (recorded as interests or dividends, depending on their nature) and the rest (recorded as returns from financial transactions). Interest from financial instruments classified within this category is calculated by applying the effective interest rate method.

• For financial instruments assessed at amortized cost, changes in fair value are recognized when the financial instrument is derecognized and, for financial assets, when impairment occurs. Interest from financial instruments classified within this category is calculated by applying the effective interest rate method.

• For financial assets available for sale, the following criteria are applied: (i) Accrued interest is calculated in accordance with the effective interest rate method and, if applicable, accrued dividends are recognized on the profit and loss statement; (ii) Impairment losses are recorded in accordance with the description in Note 3.i), (iii) Exchange variations are recognized on the profit and loss statement if monetary financial assets are at play, and temporarily in total equity as "valuation adjustments" if non-monetary financial assets are at play -- until they are derecognized from the balance sheet, at which time these differences are allocated to the profit and loss statement; (iv) The remaining value changes are recognized directly in the Company's total equity until the financial asset is derecognized from the balance sheet.

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h.4) Fair value of financial instruments

The most objective and common reference for the fair value of a financial instrument is the price that would be paid for said instrument on an active market.

If a price reference does not exist on the active market for a specific financial instrument, an estimate of its fair value is turned to, based upon recent transactions of comparable instruments and, if this is not possible, properly backed up assessment models are turned to, taking into account the specific peculiarities of the instrument to be assessed and, especially, the different types of risk that are associated with the instrument.

The Company considers a market as not active if the trading volume and the number of transactions do not surpass the minimum threshold and, therefore, it cannot be considered to be representative. As of December 31, 2016 and 2015, the Company has generally considered the corporate bond market as not active.

More specifically, for debt instruments not traded on active markets, the Company has used the information available on the informational sheets of the Financial Asset Intermediaries' Association and the information disseminated via informational channels (Bloomberg, Reuters, etc.) which provide reference prices based upon quotes sent by different contributors.

The fair value of financial trading derivatives on organized, transparent, and deep markets included in trading portfolios resembles the daily quote; and if, because of extraordinary circumstances, a quote cannot be established on any given day, methods similar to those used to assess derivatives not traded on organized markets are turned to.

The fair value of derivatives not traded on organized markets or traded on organized markets which are not very deep or transparent resembles the sum of future cash flows which originate in the instrument, discounted to the assessment date ("present value" or "theoretical close"), using during the assessment process methods which are recognized on the financial markets: "net present value" (NPV), option pricing models, etc. -- including a spread for non-collateralized positions that reflects the counterparty risk and the product's liquidity.

h.5) Reclassification of financial instruments to other categories.

Reclassification of financial instruments to other categories is permitted under certain extraordinary circumstances and in accordance with specific rules.

During the 2016 and 2015 fiscal periods, the Company did not undertake any type of reclassification.

i) Impairment on financial assets

The carrying amount for financial assets is adjusted by the Company and posted to the profit and loss statement if there is objective evidence that impairment losses have arisen.

i.1) Debt instruments

Objective evidence of the impairment of debt instruments (understood as loans and debt securities) is considered to exist if, after initial recognition, an event which has a negative impact on said instrument's future cash flow occurs.

Objective evidence of impairment is determined individually for significant debt instruments, and individually and jointly for groups of instruments which are not individually significant.

In the case of debt instruments valued at their amortized cost, the amount of impairment losses is equal to the difference between their carrying amount and the present value of their future estimated cash flows, taking into account the value of the guarantees received. For traded instruments, and as

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a substitute for the present value of cash flows, the Company uses the market value thereof -- provided that said market value is sufficiently reliable. The amount of estimated impairment losses is recognized on the profit and loss statement, using a compensatory balancing entry to correct the value of the assets.

Foreseen future flows are calculated by taking into account the guarantees, types of risk, and circumstances under which recovery is foreseen to take place.

In the case of “financial assets available for sale,” the amount for impairment losses is equal to the positive difference between the asset's acquisition cost, net of any principal repayment, and its fair value, less any impairment losses previously recognized on the profit and loss statement. If there is objective evidence of a decrease in fair value being due to impairment, unrealized losses recognized as "valuation adjustments" in "total equity" are recorded immediately on the profit and loss statement.

Recovery of impairment losses from debt instruments are recognized on the profit and loss statement for the period in which recovery took place.

To calculate impairment losses for this type of asset, the Company evaluates possible losses as follows:

• Individually: for all significant assets and for assets that, although they are not significant, they are not included in homogeneous groups with similar characteristics - age of amounts due, type of guarantee, business activity sector, geographic area, etc.

• Collectively: The Company groups assets that have not been identified individually into homogeneous groups depending on their balancing entry, sector, transaction state, guarantee, and age of amounts due. For each group, the Company calculates the impairment losses, which are represented by the difference between the carrying amount of all the Company's financial assets and the present value of its future estimated cash flows, said cash flows being estimated based upon the Company's historic loss trends and trends from other entities which do business on the same market, for debt instruments with credit risk characteristics which are similar to those of the group, once the pertinent adjustments have been undertaken to align the historic data with the current market conditions.

i.2) Capital instruments

There is objective evidence of the fact that a capital instrument has become impaired if, after recognition, the asset undergoes a significant or prolonged decrease below its carrying amount in such a way that the Company feels as though its carrying amount will not be able to be recovered, or if significant adverse changes have arisen in relationship with the technological, market, economic, or legal contexts where the instrument's issuer does business, said changes possibly affecting recovery of the investment.

In the case of capital instruments assessed at fair value and included in the "financial assets available for sale" portfolio, impairment losses are calculated as the difference between their acquisition cost and their fair value less previously recognized impairment losses. Unrealized losses directly recognized as "valuation adjustments" in "total equity" are recorded on the profit and loss statement if decrease in fair value is determined to be due to impairment. If, subsequently, all or part of the impairment losses are recovered, their amount is recognized in the "valuation adjustments" entry in "total equity."

In the case of capital instruments assessed at cost in the "financial assets available for sale" portfolio, impairment losses are calculated as the difference between their carrying amount and the present value of expected future cash flows, updated in accordance with the market rate of return for other similar securities. For the calculation of impairment, the total equity of the investee is taken into account, and this is corrected for unrealized gains existing at the assessment date. These losses are

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recorded on the profit and loss statement by directly deducting the capital instrument, without its amount being recoverable later except for in the case of sale.

j) Accounting hedges

The company uses financial derivatives as part of its strategy to reduce its exposure mainly to interest rate risks, credit risks, and exchange variation risks, amongst others. If these transactions meet certain requirements which are established in Regulation 25 of Circular 7/2008, said transactions are considered to be "hedging transactions."

The Company designates hedging transactions from the initial moment, documenting said transaction properly, identifying the hedged instrument or instruments and the hedging instrument or instruments in addition to the nature of the hedged risk, as well as the criteria or methods used by the Company to evaluate the effectiveness of the hedge over its entire term in terms of managing the hedged risk.

The Company only records as hedging transactions those transactions that are considered highly effective throughout their term. A hedge is considered highly effective if, during its foreseen term, variations in fair value or in cash flows that are attributed to the hedged risk are almost entirely offset by changes in the fair value or in the cash flows, as appropriate, of the hedging instrument or instruments.

To measure the effectiveness of hedges, the Company analyses whether, from the beginning to the end of the term defined for the hedging transaction, it may be expected, prospectively, that the changes in fair value or in the cash flows of the hedged item that are attributable to the hedged risk will be almost entirely offset by changes in the fair value or in the cash flows, as applicable, of the hedging instrument or instruments and, retrospectively, that the results of the hedge will be within a range of 80% to 125% of the results of the hedged item.

During the 2016 and 2015 fiscal periods, the Company did not undertake any type of hedging transaction.

k) Tangible fixed assets

Tangible fixed assets include amounts for real property, furnishings, computer equipment, and other facilities which belong to the Company or are acquired under a financial leasing scheme. Tangible assets are classified depending on their use as tangible fixed assets for own use and real estate investments, and they can be reclassified into another category if their use changes.

Tangible fixed assets for own use includes all assets which are property of the Company or which the company holds under a financial leasing scheme and which the Company expects to use for more than one fiscal period for administrative purposes or for producing or supplying goods and services. These assets are initially assessed at cost and, subsequently, they are assessed at cost less their accumulated amortization and, if applicable, less the accumulated amount for write downs as a result of recognized impairment.

The cost of tangible fixed assets includes payments made both initially upon acquisition and production and subsequently if an extension, substitution, or improvement takes place provided, in both cases, future economic benefits are thought to be likely to stem from the asset's use.

Likewise included as part of the value for tangible fixed assets is the initial estimate of the present value for any obligations assumed stemming from dismantling or removal, as well as restoration costs and similar costs, provided said obligations give rise to the recognition of provisions in accordance with the stipulations for assessing provisions set forth herein.

The acquisition costs or production costs for tangible assets, net of their residual value, are depreciated on a straight-line basis depending on the estimated years of service life for the different elements and in accordance with the following:

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YEARS OF SERVICE LIFE DEPRECIATION RATE USED

Communications equipment 8.33 12%

Computer equipment 4 25%

Facilities 10-17 6%-15%

Furniture and fixtures 10 10%

Transport elements 5-6.25 16%-20%

Expenses for maintenance and upkeep which do not increase the asset's service life are charged to the profit and loss statement for the fiscal period in which they are incurred.

The borrowing costs incurred before getting the fixed asset up and running, stemming from outside financing, whether specific or generic, are included as a higher value in the acquisition price -- provided that they are directly attributable and that the period of time for the asset to be operational is greater than one year.

The tangible fixed assets are derecognized from the balance sheet upon their transfer of title, when they are disposed of, or when they are permanently taken out of use and no future financial benefit is expected to stem therefrom. The difference between the sale amount and the asset's carrying amount is recognized on the profit and loss statement for the period in which the asset is derecognized, and it is classified in a separate line item.

The Company periodically reviews the residual value, the service life, and the depreciation method used for assets and it identifies if there are any indications --either internal or external-- that a tangible asset may be impaired as of the date reflected on the financial statements. For any assets that are identified, the recoverable amount of the tangible asset is estimated, which is understood to be the greater value of: (i) its fair value less necessary sale costs and (ii) its value in use. If the recoverable value calculated in this way is less than the asset's carrying amount, the difference between the two is recognized on the profit and loss statement, reducing the asset's carrying amount to its recoverable amount.

l) Intangible assets

The Company classifies as intangible assets all non-monetary assets without physical substance from which it is probable that financial benefits shall be obtained and whose costs may be reliably estimated. For each intangible fixed asset, the service life is analyzed to determine if it is finite or indefinite.

Intangible assets are initially recognized at cost and, subsequently, they are assessed at cost less any accumulated amortization and possible impairment losses. An intangible asset is recognized as such if and only if it is likely for the asset to generate future returns for the Company and if its cost can be assessed reliably.

Intangible assets are systematically depreciated depending upon the estimated service life of the goods and on their residual value. The depreciation methods and periods applied are reviewed upon close of each fiscal period and, if applicable, adjusted prospectively. At least upon fiscal period closure, the existence of signs of impairment is evaluated, in which case the recoverable amounts are estimated and the applicable value adjustments are made.

The years of service life and the depreciation rates used for intangible assets are as follows:

YEARS OF SERVICE LIFE DEPRECIATION RATE USED

Computer applications 3 33%

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Included in computer applications are amounts paid for access to property rights or for usage rights over computer programs. Maintenance costs for these computer programs are directly allocated as expenses for the fiscal period in which they arise.

m) Commissions and trading losses

The Company classifies the commissions that it collects or pays into the following categories:

m.1) Commissions for service provision

Commissions for investment services, complementary business activities, and other similar activities are recognized on the profit and loss statement in accordance with the following:

• Commissions for business activities and services provided during a specific timeframe (client portfolio management, Collective Investment Scheme sales, deposit contracts, asset registration, custody, and administration, etc.), whether or not these activities and services are renewable, shall be allocated to the profit and loss statement over the period in which they are executed.

• Commissions for business activities and services provided for a non-specified timeframe (agreements for the underwriting and placing of issues, designing or advice strategies, and similar services) shall be recognized on the profit and loss statement depending upon their degree of realization.

• Commissions received for business activities and services provided just one time (reception, transmission, and settlement of orders, intermediary transactions on markets, Collective Investment Scheme subscription and redemption, etc.) shall be recognized on the profit and loss statement at the time of their execution.

m.2) Financial commissions

This type of commission, which is a comprehensive part of the return or effective cost of a financial transaction and which is collected or paid in advance, is generally recognized on the profit and loss statement throughout the time period that financing is expected to last, net of directly related costs, as an adjustment to the effective cost or return on the transaction.

m.3) Trading losses

The Company assumes, as trading losses, any derivative losses from trading incidents due to differences between the conditions of the orders received from the financial intermediaries and the trading and settlement conditions of the realized transactions.

The Company recognizes the loss when it arises, regardless of the time when settlement takes place.

n) Personnel expenses and remuneration based on capital instruments

n.1) Short-term remuneration

This type of remuneration is assessed, without being updated, as the amount that must be paid for services received. It is generally recorded as personnel expenses for the fiscal period and is included as "accruals and deferred income" on the liability side of the balance sheet (difference between the total expenditure and the amount already paid).

25


o) Other long-term remuneration

o.1) Long-term remuneration

This type of remuneration is assessed, without being updated, as the amount that must be paid for services received. It is generally recorded as personnel expenses for the fiscal period and is included as "accruals and deferred income" on the liability side of the balance sheet (difference between the total expenditure and the amount already paid).

o.2) Provisions for pensions and similar obligations

The Company promoted, in 1994, the Pension Plan for Employees of the Ahorro Corporación Group. Said plan is regulated by Royal Decree 304/2004, of February 20, which approves the Regulations on Pension Plans and Pension Funds, and its term is indefinite.

The plan promoted covers the following contingencies:

• Participant's retirement

• Permanent total disability impeding all work, or severe disability

• Participant's passing

Retirement benefits are charged to the capitalization fund established through pension contributions from the sponsor (net of payments for insurance premiums) plus returns (net of expenses) generated from said contributions. Benefits for disability or death shall be partly charged to the aforementioned capitalization fund and partly charted to an insurance policy with an insurance company.

In accordance with the regulations for the aforementioned pension plan, the Company makes ordinary contributions for all staff members, with said contributions being, depending upon the seniority of the employee (greater or less than 2 years), being equivalent to 2.5% of the annual pensionable salary, or equal to the amount necessary to cover the insured capital in the case of death or disability, respectively. Contributions for 2016 and 2015 came to 170,000 and 236,000 euros respectively -- amounts which are recorded under the heading "Personnel Expenses" on the attached profit and loss statement. (Note 19.2).

As of February 24, 2005, new specifications were established for the Pension Plan which dictated that, in addition to ordinary contributions, the sponsor could make individual extraordinary contributions for each participant, the amount of which could be determined in accordance with productivity and results during the fiscal period (without surpassing the limits set forth by the regulations in force). There have been no contributions of this type during the 2016 and 2015 fiscal periods.

o.3) Termination benefits

Termination benefits are recognized as a provision and as a personnel expense only if the Company is demonstrably required to terminate the bond that unites it with the employee or group of employees before the normal retirement date, or if the company is demonstrably required to pay termination benefits as a result of an offer made to incentivize the employee's voluntary withdrawal from employment.

p) Provisions and contingencies

The company distinguishes between provisions, contingent liabilities, and contingent assets. Provisions are credit balances that cover obligations which are present as of the balance sheet date and which arose as a result of events from which monetary losses for the entity could arise -- considered probable in terms of their occurrence, concrete in terms of their nature, but undetermined

26


in terms of their amount and/or moment of payment. Contingent liabilities are possible obligations which arise as a result of past events whose materialization is conditioned on one or more future events happening or not -- whether or not the will of the Company is for said future events to materialize. Contingent assets are assets whose existence is conditioned to the occurrence or not of events outside of the Company's control which bring about the asset's origin.

The Company's annual accounts include all significant provisions with regard to which it is thought the likelihood of having to handle the obligation is greater than that of not having to handle the obligation, provided that the amount of the obligation can be estimated reliably and that said obligation involves the Company's losing of resources which are financially beneficial. Contingent liabilities and contingent assets are not recognized in the annual accounts; instead, they are informed upon in memorandum accounts.

Provisions, which are quantified taking into account improved information available on the consequences of the event which caused them and are re-estimated at every accounting reporting period, are used to face the specific obligations for which they were originally recognized. Thus, they are reverted (either in full or partially) if said obligations cease to exist or diminish. Under no circumstance are provisions recognized to cover future losses stemming from the business activities of the entity nor to compensate for lower future returns.

For situations in which compensation is going to be received from a third party when an obligation is settled, and provided that there are no doubts as to whether said payment will be received, an asset is posted without reduction of the amount of the debt. The amount for which said asset is recorded may not surpass the amount of the obligation recorded in the accounting. Only in cases in which there is a legal or contractual bond through which a portion of the risk has been externalized and as a result of which the Company is not liable has compensation been taken into account when estimating the amount of the provision.

q) Tax on profits

The expense for tax on profits is determined by the tax to be paid with regard to the accounting profit from a fiscal period after having considered variations during said fiscal period stemming from temporary differences, from tax credits due to deductions and abatements, and from negative tax bases.

The expense for tax on profits is recognized on the profit and loss statement, except when the transaction is directly recorded in total equity and except in the case of business combinations (in which the deferred tax is recorded as another capital asset thereof).

For deductions, abatements, and credits from negative tax bases to be applied, the requirements in current legislation must be complied with.

The tax effect of temporal differences is included, if applicable, in the corresponding prepaid or deferred tax line items recorded under the headings "tax assets" and "tax liabilities" of the attached balance sheet.

The Company reviews recorded deferred tax at least at the end of each reporting period and, therefore, review is likewise undertaken of the related tax assets and liabilities recorded. The opportune value corrections are made in the event that said deferred taxes are found not to be outstanding or are recoverable.

Deferred tax assets and liabilities are assessed at the effective tax rates that are expected to be of application for the fiscal period in which the assets are realized or the liabilities are settled, depending upon the tax rates (and tax law) approved as of the date on the balance sheet.

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r) Off-balance-sheet customer funds

The Company includes, in memorandum accounts and at fair value, funds entrusted by third parties for their investment in companies and mutual funds, pension funds, and discretionary portfolio management agreements.

Likewise, in memorandum accounts (see Note 18), recorded at fair value or, in the event that a reliable estimation thereof does not exit, at cost, are assets acquired on behalf of third parties, capital instruments, debt instruments, derivative instruments, and other financial instruments that are held on deposit; therefore, the Company is liable before its clients to this end. When the market so requires, the Company uses omnibus accounts (combining individuals' accounts) for which the entity itself appears as the bearer of the positions. The Company keeps the internal records necessary to know the breakdown per client.

To determine the fair value of these positions, the Company uses the share prices obtained on the different markets or supplied by the global custodians if mutual funds are being dealt with (net asset value).

The commissions charged for the provision of these services are included under the heading of "commissions received" on the profit and loss statement, and they have been detailed in Note 19.1 of this Report.

s) Investment Guarantee Fund and National Resolution Fund

In accordance with the provisions of Royal Decree 948/2001, dated August 3, on systems to indemnify investors, modified by Law 53/2002, of December 30, on tax measures, administrative measures, and social measures, also modified by Royal Decree 1642/2008, of October 10, which updates guaranteed amounts, Securities Companies must make annual contributions to an Investment Guarantee Fund. The amount that the Company contributed during the 2016 fiscal period to said Fund came to 183,000 euros (185,000 euros during 2015) and it is listed as an expense under the heading “other operating expenses” (Note 19.4) of the attached profit and loss statement.

Law 11/2015, of June 18, along with its regulatory body listed in Royal Decree 1012/2015, of November 6, stipulates the transposition of Directive 2014/59/EU, of May 15, to Spanish legal order. In said regulation, a new framework is established for the resolution of credit institutions and investment firms, said framework in turn being one of the bases that contributes to the constitution of a Single Resolution Mechanism created through Council Regulation (EU) No. 806/2014, of July 15, establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund.

One of the pillars of the new framework for resolution is the creation of resolution funds as financing instruments that the resolution authorities are able to use to effectively undertake the different established resolution measures.

On the national level, Law 11/2015 regulates the creation of a National Resolution Fund whose financial resources must reach, before December 31, 2024, 1% of the amount of guaranteed deposits -- this being reached through the contributions of credit institutions and investment firms established in Spain.

The Royal Decree establishes that the Fund for Orderly Bank Restructuring (FROB) shall annually set the entities' contributions to the National Resolution Fund, with said contributions being tailored to the entity's risk profile. During the 2016 fiscal period, a contribution to the National Resolution Fund was made for the amount of 173,000 euros (248,000 euros in 2015) (Note 19.4), recorded under the heading “other operating expenses” on the profit and loss statement.

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t) Related parties

The company considers Administrators, key members of Management, and related individuals to be related parties -- as well as companies belonging to the Ahorro Corporación Group. Transactions with related parties are undertaken under normal market conditions.

u) Shares

This item includes investments in Group Companies, Jointly-Controlled Companies, and Associated/Partner Companies. These investments are assessed at cost less any write downs for impairment. Group Companies are those over which the Company has control either by exercising effective control or by virtue of agreements with the other shareholders.

v) Cash flow statement

For the purposes of drafting the cash flows, the Company has considered as cash or cash equivalents the cash balance in the treasury, demand deposits with financial intermediaries, and lines of credit to financial intermediaries for proprietary trading pending settlement, net of debts with financial intermediaries for proprietary trading pending settlement. The breakdown of these entries as of December 31, 2016 and 2015 is as follows:

VALUES ARE IN THOUSANDS OF EUROS

2016 2015

Cash (Note 7) 6.173 66

Demand deposits (Note 11.1) 114.445 96.417

Cash and cash equivalents 120.618 96.483

4 DISTRIBUTION OF PROFIT

Below, the distribution of profit from the 2016 fiscal period is included, which the Company's Board of Directors will propose to the General Assembly of Shareholders for approval. Likewise included is the distribution of profit from the 2015 fiscal period which was approved by the General Assembly of Shareholders as of April 27, 2016:

EUROS

2016 2015

Profit/(Losses) from the fiscal period after corporate income tax (749,606.08) (2,909,612.23)

Total distributable (749,606.08) (2,909,612.23)

To negative results from previous fiscal periods (749,606.08) (2,909,612.23)

Total distributable (749,606.08) (2,909,612.23)

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4.1 LIMITATIONS FOR THE DISTRIBUTION OF DIVIDENDS

The Company is obliged to allocate 10% of profits from the fiscal period for the constitution of legal reserves until said reserves reach at least 20% of the capital stock.

Likewise, the Company must recognize a restricted reserve every year of at least 5% of the goodwill recorded in assets on the balance sheet.

5 CAPITAL MANAGEMENT

The Company maintains active management of its equity based on the hedging of the main business risks. The Company's equity is supervised in accordance with the guidelines set forth in Regulation (EU) No. 575/2013, of June 26, on prudential requirements for credit institutions and investment firms. This Regulation is obligatory for Member States and of application as of January 1, 2014.

Capital management

The main goal of the Company's capital management strategies is to ensure that compliance is met in terms of equity and to guarantee maintenance of a healthy capital ratio with the aim of undertaking business and maximizing value for the shareholder.

The Company manages the structure of its equity and makes the necessary adjustments in accordance with changes in economic conditions and with risks stemming from the businesses activities undertaken. To maintain or adjust the structure of equity, the Company adjusts the amount of the dividends to be paid to the shareholder, the issuance of own capital instruments, and the distribution of reserves. Current laws (aforementioned) regulate the minimum amount of equity which must be held by investment firms, both on an individual level and on a consolidated group level, as well as the way in which said equity must be calculated.

The Company's computable equity (and that required) as of December 31, 2016 and 2015, calculated in accordance with Regulation 575/2013, is as follows:

VALUES ARE IN THOUSANDS OF

EUROS

2016 2015

Computable capital 40.517 40.517

Computable reserves 10.248 8.939

Intangible assets (321) (189)

Second tier equity - -

Computable equity 50.444 49.267

Equity requirements 8.964 16.392

Equity surplus 41.480 32.875

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6 FINANCIAL INSTRUMENT RISK MANAGEMENT

The company has the following control and compliance departments within the structure of the Ahorro Corporación Group:

• Risk management

• Legal services and regulatory compliance

• Internal auditing

• Computer system monitoring

The aforementioned departments, in order to undertake their activities, have access to accounting information, general managerial information, and risk management information from every business unit. Generally, their tasks can be summed up as:

• Evaluating the suitability and efficiency of control procedures and mechanisms established in terms of the different Company business activities (including the undertaking of unscheduled audits of business activities).

• Supervising policies and procedures for risk control, as well as complying with risk limits at the close of each day.

• Drafting proposals and developing internal control systems and risk control systems.

• Advising the Company in order to guarantee compliance with current regulations while undertaking its investment activities and service provision.

• Monitoring and evaluation of compliance with current legislation.

• Drafting proposals for the Company's Board of Directors on informational models and systems for incurred risks.

• Informing the Company's Board of Directors by presenting periodic reports on the degree of compliance with control procedures and on compliance with risk limits.

6.1. MARKET RISK

Exposure to potential loss stemming from adverse movements in terms of the price of the securities which make up portfolios is considered "market risk." Amongst the factors which originate market risk, noteworthy because of their incidence in the business activities undertaken by the Company are interest rate fluctuations, exchange rate fluctuations, share price, and option volatility.

As described in Note 3 --except for financial assets classified under the heading "lending investments" and capital instruments whose fair value cannot be estimated reliably, or derivative instruments whose underlying assets are said capital instruments-- the Company's financial assets are recorded on the attached balance sheet at fair value.

Likewise, except for financial liabilities recorded under the heading "financial liabilities at amortized cost," the rest of the financial liabilities are recorded at fair value on the attached balance sheet.

Management of market risk is undertaken by the Ahorro Corporación Group's Strategy and Risk Commission and Parent Company Board of Directors through the establishment of limits and the daily calculation of the Value at Risk (VaR). This management is complemented by the definition and monitoring of other limits (mainly concentration ratio and stop-loss methods).

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The VaR is established based on a confidence level of 99%, a historical observation period of one year (250 sessions), and a time horizon that includes the investments of one day.

The summary of the monthly evolution of the average and maximum daily VaR from the 2016 and 2015 fiscal periods, by business activity area, is as follows (in thousands of euros):

• Monthly evolution of the VaR from the 2016 fiscal period

Average Daily VaR Limit

(*)

JAN-16 FEB-16 MAR-16 APR-16 MAY-16 JUN-16 JUL-16 AGU-16 SEP-16 OCT-16 NOV-16 DEC-16

Average 2016

Risk - Variable Income 99 0 0 1 0 0 0 0 0 0 0 0 1

0

Risk - Fixed Income 216 77 80 89 68 67 47 8 8 8 8 7 7

39

TOTAL AGGREGATED VaR 315 77 80 89 68 67 47 8 8 8 8 7 8

40

24% 25% 28% 22% 21% 15% 3% 3% 2% 2% 2% 2%

13%

Maximum Daily VaR Limit

(*)


Average 2016

Variable Income - Cash 99 0 0 14 0 0 1 0 0 0 0 0 14

2

Variable Income - Derivatives 216 102 91 95 70 70 70 9 8 8 8 7 8

45


46

32% 29% 30% 22% 22% 22% 3% 3% 3% 2% 2% 6%

15%

• Monthly evolution of the VaR from the 2015 fiscal period

Average Daily VaR

Limit (*)


Average 2015

Risk - Variable Income 108 3 7 0 0 0 1 1 0 2 3 2 0

2

Risk - Fixed Income 237 36 63 52 51 53 54 74 81 68 70 82 81

64


64

11% 19% 15% 15% 15% 16% 22% 24% 20% 20% 24% 22%

18%

Maximum Daily VaR Limit

(*)


Average 2015

Variable Income - Cash 108

15 42 7 2 4 14 32 4 28 13 0 0

13

Variable Income - Derivatives 237 57 69 66 60 67 63 86 90 79 120 96 97

79


82

16% 24% 19% 17% 19% 18% 25% 26% 26% 35% 30% 28%

24%

Below, the breakdown of the fair value of the financial instruments is indicated. The financial instruments are classified depending upon the assessment method applied. The three levels of classification are:

Level 1: Financial instruments whose market value has been calculated based on their quoted price in active markets.

Level 2: Financial instruments whose fair value has been calculated based on assessment methods which use references to prices from similar instruments or inputs based on observable market data.

The main assessment methods, hypotheses, and inputs used for estimating the fair value of financial instruments classified as Level 2, by financial instrument type, are as follows:

• Trading derivatives: The fair value of derivatives on interest rates has been determined by discounting future flows by using money market curves and the swap curve. For derivatives on equity instruments or stock indexes, the fair value has been obtained by using the Monte Carlo Method or the Black-Scholes Model.

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As of July 30, 2015, the Company signed a sales agreement for practically all of its positions in derivatives -- subject to compliance with specific conditions.

With regard to derivatives with a banking entity counterparty, the purchaser applied, to the present value thereof, a discount of 1.5 million euros, paid in November of 2015 and recognized as a decrease in the value of the aforementioned derivatives. This loss has been reflected in the heading "profit or loss on financial transactions (net) - trading portfolio" on the attached profit and loss statement.

Recording of derivatives shall continue on the Company balance sheet until conditions arise in which all risks from the portfolio are transferred to the acquiring entity.

Likewise, in the aforementioned agreement, a series of discounts were established, applicable to corporate IRS derivatives.

As of December 31 of the 2016 fiscal period, the Company continued to record 23 transactions with these characteristics.

• Debt securities: The fair value of debt instruments has been determined based on their price on official markets (Office of Entries of the Bank of Spain), informational sheets by the Financial Asset Intermediaries' Association (credit institutions), or by applying prices obtained from information service providers who calculate their prices based on prices disseminated by contributors, as well as by using prices from recent sales of similar instruments.

• Lending investments and financial liabilities at amortized cost: These headings recognize credits and debits at a fixed or variable interest rate whose maturity is on a very short term; therefore, significant differences between their amortized cost and the fair value of said credits and debits are not thought to arise.

Level 3: Financial instruments whose fair value has been calculated based on assessment methods in which some of the input is not based on observable market data. The assessment methods applied for these cases are sufficiently backed up by the financial markets, they are habitually used by those who operate on said markets, they maximize the use of observable data and/or recent transactions, and they take into account the specific peculiarities of the instrument to be assessed and, especially, the different types of risk that are associated with the instrument.

For the specific case of derivatives not traded on organized markets or traded on organized markets which are not very deep or transparent included in Level 3, such as corporate IRS derivatives, their fair value is calculated by discounting the future cash flows of the derivative, discounted to the assessment date ("present value") and, additionally, for derivatives not guaranteed by a collateral contract, an adjustment is applied for the Company's own credit risk or for external credit risks (CVA and DVA) which reflects the counterparty credit risk and the product's liquidity.

33


As of December 31, 2016 and 2015 these non-collateralized transactions correspond to long-term financial swaps with companies for which no observable data exists on the market such as rating, Credit Default Swap (CDS) price, etc. To determine CVA, fixed income issues from entities or institutions which, due to their nature, would be comparable to the balancing entries for these transactions have been used as a reference. As a result of the evolution of the interest rate curve for the 2016 fiscal period, the spreads applied to the market interest rates (Euribor) as of December 31, 2016 were zero basis point spreads (72 and 2,704 basis points in 2015) and, as a result, no CVA was made as of December 31, 2016. During the 2015 fiscal period, CVA came to 16,710,000 euros, impacting the profit and loss statement for 2015 with 4,783,000 euros in losses.

As has been indicated previously, the purchaser of the corporate IRS derivatives has applied a series of discounts to the present value thereof. When calculating the spreads listed previously, the most unfavorable discount for the Company has been considered.

The breakdown of all the financial assets and liabilities, classified by the different assessment levels, as of December 31, 2016 and 2015 is as follows:

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2016 FISCAL PERIOD

VALUES ARE IN THOUSANDS OF EUROS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL

CARRYING AMOUNT FAIR VALUE




Financial assets - - 231.226 231.226 2.200 2.200 233.426 233.426

Trading portfolio - - 79.670 79.670 2.200 2.200 81.870 81.870

-Debt instruments - - 29 29 - - 29 29

-Capital instruments and Collective Investment Schemes - - - - 405 405 405 405

-Derivatives - - 79.641 79.641 1.795 1.795 81.436 81.436

Other assets at fair value, with changes posted to profit and loss - - - - - - - -

Lending investments - - 151.548 151.548 - - 151.548 151.548

Financial assets available for sale 8 8 8 8

-Debt instruments - - - - - - - -

-Capital instruments and Collective Investment Schemes - - 8 8 - - 8 8

Held-to-maturity investment portfolio - - - - - - - -

Hedging derivatives - - - - - - - -

Financial liabilities - - 186.943 186.943 - - 186.943 186.943

Trading portfolio and other liabilities at fair value, with changes posted to profit and loss - - 79.099 79.099 - - 79.099 79.099

-Short-selling of debt instruments - - - - - - - -

-Short-selling of capital instruments - - - - - - - -

-Derivatives - - 79.099 79.099 - - 79.099 79.099

Financial liabilities at amortized cost - - 107.844 107.844 - - 107.844 107.844


35

2016 ANNUAL REPORT · Ahorro Corporación Financiera, SV, S.A.U. 2015 FISCAL PERIOD

VALUES ARE IN THOUSANDS OF EUROS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL





Financial assets 119.490 119.490 572.389 572.389 28.131 28.131 720.010 720.010

Trading portfolio 119.490 119.490 335.420 335.420 28.131 28.131 483.041 483.041

-Debt instruments 119.490 119.490 35 35 - - 119.525 119.525

-Capital instruments and Collective Investment Schemes - - - - 405 405 405 405

-Derivatives - - 335.385 335.385 27.726 27.726 363.111 363.111

Other assets at fair value, with changes posted to profit and loss - - - - - - - -

Lending investments - - 236.961 236.961 - - 236.961 236.961

Financial assets available for sale - - 8 8 - - 8 8

-Debt instruments - - - - - - - -

-Capital instruments and Collective Investment Schemes - - 8 8 - - 8 8

Held-to-maturity investment portfolio - - - - - - - -


Financial liabilities - - 669.877 669.877 - - 669.877 669.877

Trading portfolio and other liabilities at fair value, with changes posted to profit and loss - - 418.263 418.263 - - 418.263 418.263

-Short-selling of debt instruments - - - - - - - -

-Short-selling of capital instruments - - - - - - - -

-Derivatives - - 418.263 418.263 - - 418.263 418.263

Financial liabilities at amortized cost - - 251.614 251.614 - - 251.614 251.614


2016 ANNUAL REPORT · Ahorro Corporación Financiera, SV, S.A.U. ANEXO I

36

6.2 CREDIT RISK

6.2.1 CREDIT RISK GOALS, POLICIES, AND MANAGEMENT PROCESSES

Credit risks arise due to the possibility of incurring losses as a result of non-compliance with payment obligations by debtors, as well as losses in value due to declines in debtors' creditworthiness.

In the Company, most credit risks (including counterparty risk) come from market transactions, or credit risk is assumed alongside entities (mainly credit institutions) and comes from the financial transaction -- both in cash (where the amount of risk is comparable to the nominal amount of the transaction) and in derivatives not traded on organized markets (whose exposure to risk, in the majority of cases, is less than the nominal amount of the transaction).

The management policies for said risk are set by the Board of Directors through the Strategy and Risk Commission. Thus, the Board establishes the general principles which define the risk profiles for the Company in terms of the business activities undertaken.

The Company has a procedure for granting and monitoring of limits, as well as for the approval of certain specific transactions with entities which are not financial institutions.

Credit risk is managed via a limit structure that is dependent upon the likelihood of default, with similar criteria being used as that for the different rating levels.

In the case of transactions on financial markets, the Company also has contractual rights and agreements for compensation (“netting”) with the majority of the financial counterparties with which it contracts derivative instruments.

It is also a common practice on the financial market to establish “Collateral Programs” amongst entities which contract O.T.C. derivative products. The main reason for this lies in mitigating the counterparty credit risk for said derivative products. Currently, there are different collateral agreements for derivatives (“Collateral Security Agreement”) and for repos (“General Master Repurchase Agreement”). In all of these agreements, only "cash" is accepted as a guarantee. Thus, value adjustments are avoided for the guarantee.

To ensure the effectiveness of these guarantees, the agreements entered into with the counterparties are materialized by using ISMA contracts (International Securities Markets Association), ISDA contracts (International Swaps and Derivatives Association), and the ISDA-CSA (ISDA Credit Support Annex), within the context of ISDA support.

Calculation of exposure for each transaction takes into account methods based upon the market value for the transaction, and this is determined by the transaction's credit risk equivalent (CRE) -- its market value, or current exposure.

The Risk Control Department undertakes daily monitoring of business with each counterparty and verifies that everything is within the authorized limits.

Mediation of risks and management of collateral is undertaken daily, and the information generated is periodically presented to the Risk Committee, made up of the corporate executives responsible for risk management. Likewise, said Committee is in charge of setting and approving specific transactions and lines with new counterparties -- always respecting the general principles established by the Board of Directors through the Strategy and Risk Commission.

Financial assets exposed to credit risks are those shown below, with their carrying amount.

The company's maximum credit risk exposure is as follows:

31 DECEMBER 2016 EUROS


37

EXPOSED TO CREDIT

RISK NOT EXPOSED TO

CREDIT RISK TOTAL

Financial assets:

Trading portfolio 81,465,067.30 404,999.99 81,870,067.29

-Debt instruments 29,306.06 - 29,306.06

-Capital instruments and Collective Investment Schemes - 404,999.99 404,999.99

-Derivatives 81,435,761.24 - 81,435,761.24

Other assets at fair value, with changes posted to profit and loss - - -

Held-to-maturity investments - - -

Lending investments 151,548,208.39 151,548,208.39

Financial assets available for sale - 8,040.00 8,040.00

-Debt instruments - - -


Hedging derivatives - - -

Total financial assets 233,013,275.69 413,039.99 233,426,315.68

Guarantees and sureties granted 31,558,364.24 - 31,558,364.24

Total credit risk 264,571,639.93 413,039.99 264,984,679.92


EXPOSED TO CREDIT

RISK NOT EXPOSED TO

CREDIT RISK TOTAL

Financial assets:


-Debt instruments 119,524,648.51 - 119,524,648.51


-Derivatives 363,111,236.52 - 363,111,236.52


Held-to-maturity investments - - -

Lending investments 236,960,861.35 - 236,960,861.35

Financial assets available for sale 8,440.01 8,440.01





Guarantees and sureties granted 135,455,781.19 - 135,455,781.19

Total credit risk 855,052,527.57 413,439.99 855,465,967.56


38

Counterparty risks for transactions pending settlement by clients are managed by following the procedures set for settling transactions. As of December 31, 2016 and 2015, credits and receivables, impaired, were as follows:


RISK

COUNTERPARTY DEBT IMPAIRMENT ADJUSTMENT NET VALUE

Lending investments

- Lines of credit in favor of financial intermediaries (Note 11.1) 45,503.23 (45,503.23) -

- Lines of credit in favor of individuals (Note 11.2) 571,467.97 (571,467.97) -

Total 616,971.20 (616,971.20) -


RISK

COUNTERPARTY DEBT IMPAIRMENT ADJUSTMENT NET VALUE

Lending investments

- Lines of credit in favor of financial intermediaries (Note 11.1) 56,044.73 (56,044.73) -

- Lines of credit in favor of individuals (Note 11.2) 9,438,517.21 (9,438,517.21) -

Total 9,494,561.94 (9,494,561.94) -

The breakdown of impaired risks, by the age of the debt, as of December 31, 2016 and 2015 is as follows:


COUNTERPARTY LESS THAN 3

MONTHS

BETWEEN 3 AND 6

MONTHS

BETWEEN 6 AND 12

MONTHS

BETWEEN 12 AND 18

MONTHS

BETWEEN 18 AND 24

MONTHS MORE THAN 24 MONTHS TOTAL

Lending investments

- Lines of credit in favor of financial intermediaries 9,100.35 - - - - 36,402.88 45,503.23

- Lines of credit in favor of individuals 263,724.83 - - - - 307,743.14 571,467.97

Total 272,825.18 - - - - 344,146.02 616,971.20


COUNTERPARTY LESS THAN 3

MONTHS

BETWEEN 3 AND 6

MONTHS

BETWEEN 6 AND 12

MONTHS

BETWEEN 12 AND 18

MONTHS

BETWEEN 18 AND 24

MONTHS MORE THAN 24 MONTHS TOTAL

Lending investments

- Lines of credit in favor of financial intermediaries 19,641.85 - - - - 36,402.88 56,044.73

- Lines of credit in favor of individuals 159,516.77 - - - - 9,279,000.44 9,438,517.21

Total 179,158.62 - - - - 9,315,403.32 9,494,561.94

The balance for lines of credit in favor of individuals (impaired) was, as of December 31, 2015, 8,971,000 euros. This amount corresponded to the amount pending collection from two clients, due to two financial interest rate swaps with settlements not made on maturity. During the 2016 fiscal period, both credit rights were transferred to other institutions, with a profit of 1,717,000 euros being


39

recorded under the heading “impairment losses on financial assets (net)” on the attached profit and loss statement (Note 11.3). As mentioned in Note 11.1 of this Report, during the 2015 fiscal period the Company released the provisions held for the outstanding invoices which corresponded to two venture capital companies -- invoices which, until said date, had been recorded as doubtful and 100% accounting provisions had been made.

The breakdown of impairment losses from the 2016 and 2015 fiscal periods is included in Note 11.3

6.3 INTEREST RATE RISK

This risk refers to the impact that general interest rate changes can have on the profit and loss statement (flows which generate income and expenses) or on the financial assets. The causes are gaps in maturity dates or the repricing of assets and liabilities, which produces a different response when faced with interest rate variations.

As of December 31, 2016 and 2015, the carrying amounts for financial assets and liabilities whose fair values or cash flows are subject to interest risk (those with a fixed or variable interest rate) and the carrying amounts for financial assets and liabilities which are not exposed to said risks are as follows:


EXPOSED TO

INTEREST RISK NOT EXPOSED TO

INTEREST RISK TOTAL

Financial assets:


-Debt instruments 29,306.06 - 29,306.06


-Derivatives 81,435,761.24 - 81,435,761.24








Financial liabilities:

Trading portfolio 79,098,929.90 - 79,098,929.90

Other liabilities at fair value, with changes posted to profit and loss - - -

-Short-selling of debt instruments - - -

-Short-selling of capital instruments - - -

Financial liabilities at amortized cost 107,844,324.13 - 107,844,324.13


Total financial liabilities 186,943,254.03 - 186,943,254.03


40


EXPOSED TO

INTEREST RISK NOT EXPOSED TO

INTEREST RISK TOTAL

Financial assets:


-Debt instruments 119,524,648.51 - 119,524,648.51


-Derivatives 363,111,236.52 - 363,111,236.52









Trading portfolio 418,263,487.53 - 418,263,487.53

Other liabilities at fair value, with changes posted to profit and loss - - -

-Short-selling of debt instruments - - -

-Short-selling of capital instruments - - -

Financial liabilities at amortized cost 251,613,881.62 - 251,613,881.62


Total financial liabilities 669,877,369.15 - 669,877,369.15

As of December 31, 2016 and 2015, the carrying amounts for financial assets by interest rate review date or maturity date (whichever is closer in time) are as follows:

31 DECEMBER 2016 VALUES ARE IN THOUSANDS OF EUROS

LESS THAN 1

YEAR BETWEEN 1

AND 2 YEARS BETWEEN 2


AND 4 YEARS MORE THAN

5 YEARS TOTAL

Financial assets:

Trading portfolio 69.690 11.746 28 1 81.465

Other assets at fair value, with changes posted to profit and loss

- - - - - -

Lending investments 151.548 - - - - 151.548

Financial assets available for sale

- - - -

- -

Hedging derivatives - - - - - -

Total financial assets 221.238 11,746 - 28 1 233.013


Trading portfolio 67.816 11.283 - - - 79.099

Financial liabilities at amortized cost 107.844 - - - - 107.844


Total financial liabilities 175.660 11.283 - - - 186.943


41


LESS THAN 1

YEAR BETWEEN 1



AND 4 YEARS MORE THAN

5 YEARS TOTAL

Financial assets:

Trading portfolio 463.614 9.263 9.724 - 35 482.636

Other assets at fair value, with changes posted to profit and loss

- - - - - -

Lending investments 236.961 - - - - 236.961

Financial assets available for sale

- - - -

- -


Total financial assets 700.575 9.263 9.724 - 35 719.597


Trading portfolio 400.910 8.069 9.285 - - 418.264

Financial liabilities at amortized cost 251.614 - - - - 251.614


Total financial liabilities 652.524 8.069 9.285 - - 669.878

6.4 LIQUIDITY RISK

This is the risk associated with difficulties that can arise when unwinding or closing a position on the market, or when disposing of the necessary cash to cover cash overdrafts which may arise at a given time.

The Company must comply with a liquidity ratio; thus, a volume of investments in low-risk, high-liquidity assets must be maintained at all times to cover a percent of the callable liabilities whose remaining term is less than a year, not counting instrumental and temporary credit balances held for clients. Said volume is defined by the Ministry of the Treasury, and its minimum is 10%. During the 2016 and 2015 fiscal periods, said percentage has been 10%, and the calculations made by the Company at the end of the fiscal period were as follows:

EUROS

2016 2015

Cash 6,172,834.45 66,493.66

Demand deposits 114,453,214.81 96,434,315.70

Net balance proprietary trading transactions pending settlement 1,012.00 -

Time deposits with financial institutions whose maturity < 1 month - -

Temporary purchase of assets (Repo) -- Company's own behalf - -

Listed fixed income securities whose maturity < 18 months 2.60 119,489,669.25

Available and not conditioned to sight in credit institutions - 3,000,000.00

Less:

Temporarily transferred - 119,440,666.18

Clients' temporary balances 97,699,136.74 63,770,432.65

Assets subject to guarantees - -

Total computable assets 22,927,927.12 35,779,379.78

Minimum necessary assets 1,134,581.34 6,972,447.35

Hedging surplus 21,793,345.78 28,806,932.43


42

The Risk Committee of Ahorro Corporación Financiera, S.V., S.A.U. undertakes daily monitoring of the liquidity position, defined as the part of shareholders' equity that surpasses structural investments (tangible assets and investments in associated/partner companies) plus liquidities (excluding the investment of clients' temporary balances and including available balances in unused lines of credit), less future commitments.

Management of liquidity is related with prudent business growth control in terms of financial transaction asset volumes. The key lies in the ability to answer for debts incurred without having high costs or a drop in profitability.

The scheme for assets, liabilities, contingent liabilities, and accrued liabilities, classified by contractual maturity, in thousands of euros, as of December 31, 2016 and 2015 is as follows:

31 DECEMBER 2016 SIGHT UP TO 1 MONTH

BETWEEN 1 AND 3

MONTHS

BETWEEN 3 AND 6

MONTHS

BETWEEN 6 AND 12

MONTHS

MORE THAN 12 MONTHS UNDEFINED TOTAL

Financial assets: Trading portfolio - - 6.298 354 13.134 61.679 405 81.870 -Debt instruments - - - - - 29 - 29 -Capital instruments - - - - - - 405 405

-Derivatives - - 6.298 354 13.134 61.650 - 81.436 Other assets at fair value, with changes posted to profit and loss - - - - - - - - Lending investments 151.548 - - - - - - 151.548 Financial assets available for sale - - - - - - 8 8 -Debt securities - - - - - - - - -Capital instruments - - - - - - 8 8 Hedging derivatives - - - - - - - -

Total financial assets 151.548 - 6.298 354 13.134 61.679 413 233.426

Financial liabilities: Trading portfolio - - 6.256 354 12.894 59.595 - 79.099 Other liabilities at fair value, with changes posted to profit and loss - - - - - - - - -Short-selling of capital instruments

- - - - - - - -

-Short-selling of debt instruments

- - - - - - - -

Financial liabilities at amortized cost 107.844 - - - - - - 107.844 Hedging derivatives - - - - - - - - Total financial liabilities 107.844 - 6.256 354 12.894 59.595 - 186.943 Period gap 43.704 - 42 - 240 2.084 413 Cumulative gap 43.704 43.704 43.746 43.746 43.986 46.070 46.483


43

31 DECEMBER 2015 SIGHT UP TO 1 MONTH

BETWEEN 1 AND 3

MONTHS

BETWEEN 3 AND 6

MONTHS

BETWEEN 6 AND 12

MONTHS

MORE THAN 12 MONTHS UNDEFINED TOTAL

Financial assets: Trading portfolio - 339 23,785 1,511 148,825 308,176 405 483,041 -Debt instruments - - - - 119,490 35 - 119,525 -Capital instruments - - - - - - 405 405 -Derivatives - 339 23,785 1,511 29,335 308,141 - 363,111 Other assets at fair value, with changes posted to profit and loss - - - - - - - - Lending investments 236,961 - - - - - - 236,961 Financial assets available for sale - - - - - - 8 8 -Debt securities - - - - - - - - -Capital instruments - - - - - - 8 8 Hedging derivatives - - - - - - - -

Total financial assets 236,961 339 23,785 1,511 148,825 308,176 413 720,010 Financial liabilities: Trading portfolio - 343 22,718 2,223 32,409 360,570 - 418,263 Other liabilities at fair value, with changes posted to profit and loss - - - - - - - - --Short-selling of capital instruments

- - - - - - - -

-Short-selling of debt instruments - - - - - - - - Financial liabilities at amortized cost 132,174 119,440 - - - - - 251,614 Hedging derivatives - - - - - - - - Total financial liabilities 132,174 119,783 22,718 2,223 32,409 360,570 - 669,877 Period gap 104,787 (119,444) 1,067 (712) 116,416 (52,394) 413 Cumulative gap 104,787 (14,657) (13,590) (14,302) 102,114 49,720 50,133

During the 2016 fiscal period, the Company had a positive gap for all periods shown. The 2015 fiscal period had a negative gap for maturities of less than one year as the result of the purchase of treasury bills with annual maturities and subsequent temporary assignments of less than a month.

Likewise, as of December 31, 2015, the Company had lines of finance with different credit institutions for an amount of 3,000,000 euros, which were canceled in 2016.

The breakdown of the available balances in lines of finance, by contractual maturity, classified as to whether maturity is strictly fixed or if there is an automatic renewal clause, is as follows: VALUES ARE IN THOUSANDS OF EUROS

31 DECEMBER 2015 UP TO 1 MONTH

BETWEEN 1 AND 3

MONTHS

BETWEEN 3 AND 6

MONTHS

BETWEEN 6 AND 12

MONTHS

MORE THAN 12 MONTHS TOTAL

Available in credit account Fixed maturity - - - - - - Tacit renewal - - 3.000 - - 3.000 Total - - 3.000 - - 3.000

6.5 OPERATIONAL RISK

Operational risk is made up of the risk of losses which stem from inadequacies or from a lack of processes, personnel, internal systems, or which are due to external events. Also included in the aforementioned definition is the so-called "technology risk."

The Company's operational risk detection systems are based on the creation of an operational risk scorecard to identify factors and analyze scenarios which reflect the business environment within the internal control systems. To accomplish this, a system is established for periodic reporting to the management of the business units, as well as to Senior Management and to the Board of Directors.


44

7 CASH

The heading “Cash” of the balance sheet, as of December 31, 2016 and 2015, is as follows: EUROS

2016 2015

Cash on hand 6,216.74 13,983.68

Bank of Spain 6,166,617.71 52,509.98

Total (Note 3.v) 6,172,834.45 66,493.66

The balances included in this heading are readily available and are not subject to guarantees.

8 TRADING PORTFOLIO (ASSETS AND LIABILITIES)

The breakdown of this heading from the balance sheet, as of December 31, 2016 and 2015, is as follows: EUROS

2016 2015

ASSET LIABILITY ASSET LIABILITY

Debt securities 29,306.06 - 119,524,648.51 -

Shares in capital instruments 404,999.99 - 404,999.98 -

Trading derivatives 81,435,761.24 79,098,929.90 363,111,236.52 418,263,487.53

Total 81,870,067.29 79,098,929.90 483,040,885.01 418,263,487.53

8.1 DEBT SECURITIES

As of December 31, 2016 and 2015, the breakdown of the balance for this heading, by the issuer's sector and residence, is as follows:

EUROS

2016 2015


Monetary assets and public debt 459.32 - 119,489,974.55 -

Listed domestic portfolio 28,791.26 - 34,502.69 -

Unlisted domestic portfolio - - - -

Listed foreign portfolio - - - -

Accrued interest receivable 55.48 - 171.27 -

Total 29,306.06 - 119,524,648.51 -

The Company complements the management of its trading portfolio through the formalization of forward trading agreements for securities. The breakdown of said trading agreement commitments is as follows:

EUROS

2016 2015

PURCHASES SALES PURCHASES SALES

Commitment to forward trade securities

Monetary assets and public debt 195,569.34 196,431.16 41,220.94 41,225.69

Other fixed income securities 723,072.36 723,382.71 - 5,387.98

Stocks and shares - - - -

Total 918,641.70 919,813.87 41,220.94 46,613.67


45

As of December 31, 2016 and 2015 the commitments to buy and sell securities and monetary assets and public debt match each other.

8.2 CAPITAL INSTRUMENTS

The Company held, as of December 31, 2016 and 2015 the following breakdown of shares in capital instruments, classified under "trading portfolio:"

EUROS

2016 2015


Listed variable income domestic portfolio - - - -

Unlisted variable income domestic portfolio 404,999.99 - 404,999.98 -

Total 404,999.99 - 404,999.98 -

8.3 TRADING DERIVATIVES

The breakdown of positions held, by underlying asset and type of contract, as of December 31, 2016 and 2015 is as follows:

EUROS

2016 2015


Interest rate derivatives 74,825,008.

22 72,488,176.

88 326,575,540.

96 381,764,252.

39

Financial swaps 74,825,008.

22 72,488,176.

88 326,524,614,

94 381,665,758.

19

Purchased options - - 50,926.02 98,494.20

Sold options - - - -

Foreign exchange derivatives - - - -

Futures - - - -

Derivatives with underlying assets based on capital instruments and indexes

36,535,695.56

36,499,235.14

Purchased options 6,610,753.0

2 - 36,535,695.5

6 -

Sold options - 6,610,753.0

2 - 36,499,235.1

4

Forward trading commitments - - - -

Futures - - - -

Total 81,435,761.

24 79,098,929.

90 363,111,236.

52 418,263,487.

53

The breakdown of nominal values for these positions are included in Note 18.1.


46

The breakdown of the results yielded by the trading portfolio is as follows:

EUROS

2016 2015

Debt instrument portfolio

Profit 41,143,324.14 62,913,280.07

Loss (39,375,562.67) (61,368,711.20)

Subtotal 1,767,761.47 1,544,568.87

Capital instrument portfolio

Profit 1,688,366.43 832,743.50

Loss (1,645,829.82) (838,466.19)

Subtotal 42,536.61 (5,722.69)

Derivative financial instrument portfolio

Profit 652,536,320.90 1,436,129,806.01

Loss (651,360,050.20) (1,433,257,473.26)

Subtotal 1,176,270.70 2,872,332.75

Total 2,986,568.78 4,411,178.93

9 FINANCIAL ASSETS AVAILABLE FOR SALE

The breakdown of this asset heading from the balance sheet, as of December 31, 2016 and 2015, is as follows:

EUROS

2016 2015

Listed fixed income domestic portfolio - -

Variable income portfolio

-Listed - -

-Unlisted 8,040.00 8,440.01

Total 8,040.00 8,440.01

The breakdown of the results yielded by the financial assets available for sale is as follows:

EUROS 2016 2015 Debt instrument portfolio

Profit - - Loss - -

Subtotal - - Capital instrument portfolio -

Profit - 152,341.83 Loss - -

Subtotal - 152,341.83 Adjustments from hedging transactions - Subtotal - 152,341.83 Total - 152,341.83

9.1 CAPITAL INSTRUMENTS


47

The breakdown of capital instruments as of December 31, 2016 and 2015 is as follows:


EUROS

Company 2016 2015

Unlisted

General Guarantee Fund Manager 6 6

Others 2 2

Total 8 8

During the 2015 fiscal period the shares in AC Jessica Andalucía, S.A. and AC Jessica Fidae, S.L. were sold, obtaining a profit of 152,000 euros (Note 12.2).

10. HEDGING DERIVATIVES

During the 2016 and 2015 fiscal periods, the Company did not undertake accounting hedging.

11. LENDING INVESTMENTS

The breakdown of this asset heading from the balance sheet, as of December 31, 2016 and 2015, is as follows:

EUROS

2016 2015

Lines of credit in favor of financial intermediaries 148,703,695.13 231,997,397.87

Lines of credit in favor of individuals 2,844,513.26 4,963,463.48

Total 151,548,208.39 236,960,861.35

During the 2016 and 2015 fiscal periods, no transfers of assets have taken place for assets included in this heading to other financial asset portfolios.

The breakdown by maturity of these headings can be found in Note 6.4 on liquidity risk.

11.1 LINES OF CREDIT IN FAVOR OF FINANCIAL INTERMEDIARIES


48

The breakdown of lines of credit in favor of financial intermediaries as of December 31, 2016 and 2015 is as follows: EUROS

2016 2015

Demand deposits (Note 3.v) 114,445,204.

97 96,416,173.8

8

Credit for proprietary trading transactions pending settlement 2,079.00 0.70

with the Central Securities Depository for the Register of Securities and Clearing and Settlement of trades 77.88 -

with the Spanish Official Exchange for Financial Futures and Options - -

with other financial intermediaries 2,001.12 0.70

Time deposits 109,359.30 249,359.30

Temporary purchase of assets - -

Other credits 34,139,042.0

2 135,313,722.

17

Valuation adjustments 8,009.84 18,141.82

Accrued interest receivable 8,009.84 18,141.82

Subtotal 148,703,695.

13 231,997,397.

87

Doubtful assets 45,503.23 56,044.73

Valuation adjustments

Impaired credit with financial intermediaries (45,503.23) (56,044.73)

Total 148,703,695.

13 231,997,397.

87

The item "other credits" mainly includes amounts surrendered by the Company as collateral for counterparties during transactions with derivatives and deposits, guaranteeing derivatives on organized markets.

During the 2015 fiscal period, the Company reclassified, from doubtful assets to other credits, outstanding invoices which corresponded to two venture capital companies managed by the Company. During the 2015 fiscal period, the company sold this business line and signed a payment schedule which guaranteed recovery of the invoices and of the impairment recorded during other fiscal periods (Note 12.2).


49

11.2 LINES OF CREDIT IN FAVOR OF INDIVIDUALS

The breakdown of lines of credit in favor of individuals as of December 31, 2016 and 2015 is as follows:

EUROS

2016 2015

Credit and advances from securities transactions - 4,060.20

Other credit and advances 2,844,513.26 4,959,403.28

Temporary purchase of assets - -

Doubtful assets 571,467.97 9,438,517.21


Accrued interest receivable - -

Value adjustments for impairment (571,467.97) (9,438,517.21)

Total 2,844,513.26 4,963,463.48

11.3 IMPAIRMENT LOSSES

The breakdown of impairment losses recognized at the close of the 2016 and 2015 fiscal periods for lending investments is as follows:


EUROS

2016 2015

Opening balance (9.495) (15.601)

Appropriations to results (204) (1.597)

Recovery of appropriations, posted to results 1.885 6.177

Application and use 7.255 1.101

Other (58) 425

Final balance (617) (9.495)

Of which:

Depending on how they were assessed:

Assessed individually (617) (9.495)

Assessed collectively - -

The balance for lines of credit in favor of individuals (impaired) was, as of December 31, 2015, 8,971,000 euros. This amount corresponded to the amount pending collection from two clients, due to two financial interest rate swaps with settlements not made on maturity. During the 2016 fiscal period, both credit rights were transferred to other institutions, with a profit of 1,717,000 euros being recorded under the heading “impairment losses on financial assets (net)” on the attached profit and loss statement (Note 6.2).

As of December 31, 2014, the Company held on the balance sheet outstanding invoices corresponding to two venture capital companies classified as doubtful for a total amount of 6,086,000 euros. 100% accounting provisions had been made, as it was considered that, in accordance with the service conditions, the amount would not be recoverable. During the 2015 fiscal period, as the result of the sale of the aforementioned venture capital companies to a third party and the establishment of a payment schedule which guaranteed recovery of the invoices (Note 11.1), the Company was able to record the whole of the impaired amount. During the 2016 fiscal period, 4,215,000 euros were recovered in accordance with the established payment schedule (2015: recovery of 1,871,000 euros).


50

12 TANGIBLE AND INTANGIBLE ASSETS

12.1 TANGIBLE ASSETS

The breakdown of this heading from the balance sheet, as of December 31, 2016 and 2015, is as follows:

EUROS

2016 2015

For own use

Furniture, computer equipment, facilities, vehicles, and others 984,379.20 559,708.94

Total 984,379.20 559,708.94

There are not tangible assets of a significant amount for which usage or ownership restrictions exist, which are out of service, or which the Company has surrendered to guarantee debts.

As of December 31, 2016 and 2015, the Company did not have any type of firm commitment to buy or sell tangible assets of a significant amount.

For own use

The breakdown of this heading from the balance sheet, as well as the movements included under this heading, for the 2016 and 2015 fiscal periods, is shown below:


2016 FISCAL PERIOD (VALUES ARE IN THOUSANDS OF EUROS) 31.12.15 INCOMING OUTGOING 31.12.16

Cost

Furniture, computer equipment, facilities, vehicles, others 12.322 15.207 (83) 27.446

Other tangible fixed assets in current construction 2 - (1) 1

Total 12.324 15.207 (84) 27.447

Accumulated amortization

Furniture, computer equipment, facilities, vehicles, others (11.764) (14.782) 83 (26.463)

Net carrying amount 560 (425) (1) 984


2015 FISCAL PERIOD (VALUES ARE IN THOUSANDS OF EUROS) 31.12.14 INCOMING OUTGOING 31.12.15

Cost

Furniture, computer equipment, facilities, vehicles, others 12.281 166 (125) 12.322

Other tangible fixed assets in current construction 38 - (36) 2

Total 12.319 166 (161) 12.324


Furniture, computer equipment, facilities, vehicles, others (11.624) (251) 111 (11.764)

Net carrying amount 695 560


51

The "incoming" column for the 2016 fiscal period includes a net carrying amount of 267,000 euros, which corresponds to the tangible assets provided to the Company by its sole shareholder, Ahorro Corporación, S.A., as of December 31, 2016 as the result of the “Contribution Agreement” signed between the two parties (see Note 1.2). Within these contributed assets, the net carrying amount for the central computer comes to 94,000 euros. The Company, in order to properly control the assets received, has recorded said elements at the cost (14,837,000 euros) and at the accumulated amortization (14,570,000 euros) that the sole shareholder had the elements listed at.

As of December 2016 and 2015, the tangible assets were sufficiently insured.

The amount for fully depreciated assets still in use as of December 31, 2016 at the Company comes to 24,600,000 euros (10,843,000 euros in 2015).

12.2 INTANGIBLE ASSETS

The breakdown of this heading from the balance sheet, as of December 31, 2016 and 2015, is as follows:

EUROS

2016 2015

Other intangible assets

Computer applications 263,264.04 82,765.58

Other intangible assets 57,870.40 106,617.95

Total 321,134.44 189,383.53

As of December 31, 2016 and 2015, all of the Company's intangible fixed assets are used for the Company's business activity, and there are no charges or encumbrances against them.

The heading “other intangible assets” included, as of December 31, 2015, the amounts paid for the transfer of the client portfolio which belonged to Ahorro Corporación Soluciones Inmobiliarias S.A. (in liquidation) to the Company. In the transfer agreement, Ahorro Corporación Financiera S.V., S.A. was substituted into the contractual position of Ahorro Corporación Soluciones Inmobiliarias S.A. for all relevant purposes. The Administrators of the Company made an estimate of the investment's future flows in order to determine the investment's recoverable value. In accordance with those calculations, the Administrators felt that it was not necessary to post impairment losses to the intangible assets with an indefinite service life recorded as of December 31, 2015.

On March 5, 2015, the Company and its Parent, Ahorro Corporación, S.A., signed a notarized agreement to transfer the venture capital business related with management, investment, and advising services for assets linked to the infrastructure sector. For said transfer, the price of 831,000 euros was set, a price that the Company recorded under the heading “gains/(losses) on disposal of assets not classified as non-current assets held for sale” on the profit and loss statement from the 2015 fiscal period. Additionally, in said contract, the sale of AC Jessica Andalucía, S.A. and AC Jessica Fidae, S.A. was agreed upon. As a result of said transaction, the Company obtained a profit of 152,000 euros, which were recorded under the heading “financial instruments not assessed at fair value, with changes posted to profit and loss” on the profit and loss statement from the 2015 fiscal period (Note 9).


52

Computer applications and other intangible assets

The breakdown of this heading from the balance sheet, as well as the movements included under this heading, for the 2016 and 2015 fiscal periods, is shown below:


2016 FISCAL PERIOD 31.12.15 INCOMING OUTGOING 31.12.16

Cost

Industrial property - 6 - 6

Computer applications 2.478 7.009 - 9.487

Other intangible assets 106 30 (78) 58

Total 2.584 7.045 (78) 9.551


Computer applications (2.395) (6.835) - (9.230)

Other intangible assets - - - -

Net carrying amount 189 210 (78) 321


2015 FISCAL PERIOD 31.12.14 INCOMING OUTGOING 31.12.15

Cost

Computer applications 2.474 4 - 2.478

Other intangible assets 46 60 - 106

Total 2.520 64 - 2.584


Computer applications (2.363) (32) - (2.395)

Other intangible assets - - - -

Net carrying amount 157 32 189

The "incoming" column for the 2016 fiscal period includes a net carrying amount of 58,000 euros, which corresponds to the computer applications provided to the Company by its sole shareholder, Ahorro Corporación, S.A. as of December 31, 2016 as the result of the “Contribution Agreement” signed between the two parties (see Note 1.2). The Company, in order to properly control the assets received, has recorded said elements at the cost (6,839,000 euros) and at the accumulated amortization (6,781,000 euros) that the sole shareholder had the elements listed at.

Additionally, several intangible assets associated with brands and internet domains which were also the property of the sole shareholder have likewise been provided to the Company. These intangible assets were not listed on the sole shareholder's balance sheet as they were internally generated and, consequently, they also have not been listed on the Company's balance sheet. Nevertheless, for the purposes of the "Contribution Agreement," these assets were assessed by an independent expert and said assessment came to 2,839,000 euros.

As of December 2016 and 2015, the intangible assets were sufficiently insured.

The amount for fully depreciated intangible fixed assets still in use as of December 31, 2016 at the Company comes to 9,071,000 euros. At the close of the 2015 fiscal period, there were no fully depreciated intangible fixed assets.


53

13 SHARES IN GROUP COMPANIES

As of December 31, 2016, the Company has included in this item 100% of the capital of ACF International Incorporated.

ACF International Incorporated has its headquarters in Boston, Massachusetts (USA). Its business activity is to undertake brokerage services, and its most significant data is as follows:


EUROS 2016 2015 Capital stock and reserves 962 892 Profit or loss from the fiscal period (480) (335) Net carrying amount 482 557 Carrying amount (Valuation provisions deducted) 482 557

As of June 1, 2016, the Company has subscribed 100% of the capital increase carried out in this subsidiary, with the investment reaching an amount of 350,000 euros. Also during the 2016 fiscal period, the Company made provision of an amount of 424,000 euros (278,000 euros in 2015), increasing the provisions established during prior fiscal periods, for its participation in ACF International Incorporated. This amount is listed under the heading “Impairment losses on financial assets (net)” on the profit and loss statement.

On September 26, 2016, the Company sold the whole of its share of “Vehículo de Tenencia y Gestión 3, S.L.U.” to its sole shareholder. Because this transfer was undertaken at the net carrying amount for which the Company was recorded, neither profit nor loss was generated.

14 FINANCIAL LIABILITIES AT AMORTIZED COST

The breakdown of this liability heading from the balance sheet, as of December 31, 2016 and 2015, is as follows:

EUROS

2016 2015

Debts with financial intermediaries 53,615,571.49 197,871,037.44

Debts with individuals 54,228,752.64 53,742,844.18

Total 107,844,324.13 251,613,881.62

The breakdown by maturity of this heading can be found in Note 6.4 on liquidity risk.


54

14.1 DEBTS WITH FINANCIAL INTERMEDIARIES

The breakdown of debts with financial intermediaries as of December 31, 2016 and 2015 is as follows:

EUROS

2016 2015

Loans and credit - 5,680,000.00

Debts for proprietary trading transactions pending settlement 1,067.00 1,060.69

with the Central Securities Depository for the Register of Securities and Clearing and Settlement of Trades - 1,060.69

with other financial intermediaries 1,067.00 -

Temporary assignment of assets - 109,220,114.15

Resident companies - 109,220,114.15

Non-resident companies - -

Temporary balances from securities transactions 27,850,889.96 14,049,130.44

Other debts 8,853,246.97 60,230,549.11

Deposits to guarantee transactions 16,902,040.35 8,635,054.28

Valuation adjustments: (accrued interest receivable) 8,327.21 55,128.77

Total 53,615,571.49 197,871,037.44

The heading “loans and credit” included, as of December 31, 2015, balances used from credit policies granted to the Company. Said financing expired during the 2016 fiscal period. Additionally, as of December 31, 2015, the Company had lines of available finance for an amount of 3,000,000 euros, which expired over the period (see Note 18.2).

The heading “debts for proprietary trading transactions pending settlement” includes, as of December 31, 2016 and 2015, amounts pending settlement for stock exchange transactions. The headings “other debts” and “deposits to guarantee transactions” mainly include deposits requested from counterparties to guarantee transactions with derivatives.

14.2 DEBTS WITH INDIVIDUALS

The breakdown of debts with individuals as of December 31, 2016 and 2015 is as follows:

EUROS

2016 2015

Temporary assignment of assets with resident individuals - 10,220,484.45

Temporary balances from securities transactions

Residents 52,898,092.87 40,928,769.45

Non-residents 1.32 4,823.79

Other debits

Residents 1,152,923.20 2,344,649.04

Non-residents 118,401.09 91,459.96

Deposits to guarantee transactions 48,112.24 152,654.69


Accrued interest receivable 11,221.92 2.80

Total 54,228,752.64 53,742,844.18

The heading “other debits-residents” included, as of December 31, 2015, an amount of 522,000 euros, which corresponded to a provision for sales commissions and variable remuneration. During the 2016 fiscal period, no provisions with those characteristics existed.


55

15 REMAINING ASSETS AND LIABILITIES

The breakdown of other assets and liabilities included on the balance sheet as of December 31, 2016 and 2015 is as follows: EUROS

2016 2015


Public administrations - 545,009.84 - 474,683.09

Other debts not related with securities transactions 1,614,804.55 121,695.39 3,242,469.65 81,139.15

Other 595,519.82 534,987.79 309,433.90 765,804.38

Total 2,210,324.37 1,201,693.02 3,551,903.55 1,321,626.62

During the 2015 fiscal period, the heading “other debts not related with securities transactions” for assets was, basically, a line of credit and a participation loan granted to Vehículo de Tenencia y Gestión 3, S.L.. The risks thereof, as of said date, were 8,311,000 and 1,300,000 euros, respectively. As of December 31, 2015, said transactions were impaired by an amount of 6,653,000 euros. During the 2016 fiscal period, as a result of the sale of this investee company to its sole shareholder (see Note 13), Ahorro Corporación, S.A. was substituted into the net creditor position that was held by the Company, causing an impairment recovery of 58,000 euros.

The aforementioned transactions generated income, up to the date of sale, of 143,000 euros (205,000 euros in 2015), recorded under the heading "interest receivable and similar income" on the profit and loss statement at the close of 2016.

16 TOTAL EQUITY

16.1 SHAREHOLDERS' EQUITY

Capital stock

As of December 31, 2016 and 2015, the capital stock was represented by 4,759,393 registered shares, whose face value was 6.01 euros per share, fully subscribed and paid.

These shares all have equal voting and profit-sharing rights, they are not listed on organized markets, and no rights exist in terms of founder's shares, convertible debentures, or other similar rights or titles.

There are not capital instruments reserved for issue under options and contracts for the sale of said instruments.

The composition of the Company's shareholder structure, as of December 31, 2016 and 2015, is as follows:

%

2016 2015

Ahorro Corporación, S.A. 100.00 99.70

Other shareholders - 0.30

Total 100.00 100.00

However, as is indicated in Note 1.2 of this Report, once no objection from the National Securities Market Commission (C.N.M.V.) is established in terms of the sale of the Company, the sole shareholder will be changed and the Company will leave the Ahorro Corporación Group.

Reserves


56

The breakdown of this entry as of December 31, 2016 and 2015 is as follows: EUROS

2016 2015

Share issuance premium 11,913,230.94 11,913,230.94

Reserves 14,310,091.48 14,310,091.48

Legal reserves 5,703,490.00 5,703,490.00

Voluntary reserves 8,606,601.48 8,606,601.48

Results from previous fiscal periods (5,370,320.77) (2,460,708.54)

Other shareholder contributions 2,057,751.58 -

Total 22,910,753.23 23,762,613.88

Companies are obliged to allocate 10% of profits from each fiscal period for the constitution of a legal reserve fund until said fund reaches at least 20% of the capital stock. This reserve may not be distributed to shareholders and it may only be used to cover amounts owed on the profit and loss statement if no other reserves are available. Likewise, under specific conditions, it can be allocated to capital stock increases.

As indicated in Note 1.2 of these annual accounts, as a result of the "Contribution Agreement" signed between the Company and its sole shareholder, the contribution of certain assets to the Company by the sole shareholder, as of December 31, 2016, used the item “other shareholder contributions” as a balancing entry since the transaction was realized without financial remuneration from the Company to its sole shareholder.

16.2 VALUATION ADJUSTMENTS

As of December 31, 2016 and 2015, this part of the balance sheet carries no balance.

Movements from this heading on the balance sheet are included on the total equity "statement of recognized income and expenses."

17 PROVISION ITEMS

The breakdown of provision items as of December 31, 2016 and 2015 is as follows: EUROS

2016 2015

Provisions for contingent risks 4,720,174.81 4,278,705.41

Total 4,720,174.81 4,278,705.41

During the 2015 fiscal period, the Company recorded a provision to cover liabilities stemming from the employment reduction process undertaken during the 2015 period. The amount was 3,170,000 euros. Additionally, for employment relationship termination processes pending conclusion as of December 31, 2015, the Company recorded a provision for 577,000 euros.

As of December 31, 2016, the Company recorded on its balance sheet the amount of a provision for the long-term restructuring process that was pending application on said date. Said amount came to 1,733,000 euros and had been recorded until that time on the balance sheet of the sole shareholder. This transaction is part of the “Contribution Agreement” signed between the Company and its sole shareholder (see Note 1.2). As a result of said agreement, the Company assumes the labor liabilities covered by this provision and the sole shareholder is exonerated from any commitments associated therewith.

The breakdown of this heading from the balance sheet, as well as the movements included under this heading, for the 2016 fiscal period, is shown below:


57


OPENING BALANCE

NET APPROPRIATIONS USE TRANSFER

FINAL BALANCE

Provisions for employment relationship termination processes 3.360 1.652 (413) 81 4.680

Obligations related with staff benefits 697 - (616) (81) -

Other provisions 222 - (182) - 40

4.279 1.652 (1.211) - 4.720

18 CONTINGENT RISKS AND COMMITMENTS AND MEMORANDUM ACCOUNTS

18.1 CONTINGENT RISKS AND COMMITMENTS

The breakdown of these items as of December 31, 2016 and 2015 is as follows:

EUROS

2016 2015

Guarantees and sureties granted 31,558,364.24 135,455,781.19

Commitment to forward trade securities (Note 8.1) 1,838,455.57 87,834.61

Treasury shares lent - -

Financial derivatives 259,358,550.85 4,836,530,079.95

Other contingent risks and commitments - 6,104.772.49

Total contingent risks and commitments 292,755,370.66 4,978,178,468.24

The guarantees and sureties granted can be broken down as follows:

EUROS

2016 2015

Participation in collective guarantee to market 1,550,000.00 8,760,303.00

Assets subject to own guarantees and third-party guarantees 29,998,294.24 126,565,408.19

Risks from derivatives acquired on behalf of third parties - -

Other 10,070.00 130,070.00

Total 31,558,364.24 135,455,781.19

“Participation in collective guarantee to market” includes the amount of the guarantee that by law must be provided by all Securities Companies and Agencies to "Bolsas y Mercados Financieros, Sociedad Holding de Mercados y Sistemas Financieros, S.A." in order to operate on securities markets. Said guarantee is set monthly by the Securities Clearing and Settlement Service depending upon the volume of transactions undertaken by the Company on the exchange.

The item “assets subject to own guarantees and third-party guarantees” mainly includes amounts deposited as collateral for guarantees, mostly in guarantee of transactions with derivatives. The aforementioned assets are mainly recognized in the item "lending investments" of the asset side of the balance sheet.

Financial derivatives

The item "financial derivative" has the following breakdown:

EUROS


58

2016 2015

Financial asset forward contracts - -

Financial futures on securities and interest rates - -

Other transactions on interest rates

Financial swaps 187,822,504.85 4,525,539,038.07

Other options contracts 11,253,046.00 10,889,460.00

Financial futures on currencies - -

Options on securities and indexes 60,000,000.00 296.954.440,90

Options on interest rates 283,000.00 3,147,140.98

Total 259,358,550.85 4,836,530,079.95

The amount for “other transactions on interest rates” is mainly made up of financial swaps. The breakdown of said financial swaps, depending on if they are managed in nature (one cohesive whole) or brokered in nature (transactions which are related but not a cohesive whole) is as follows:

EUROS

2016 2015

PURCHASES SALES TOTAL PURCHASES SALES TOTAL

Financial swaps that are managed in nature 93,823,425.00 91,299,675.00 185,123,100.00 1,554,681,824.99 1,599,938,486.49 3,154,620,311.48

Financial swaps that are brokered in nature 2,000,000.00 699,404.85 2,699,404.85 695,686,444.31 657,232,282.28 1,370,918,726.59

Total 95,823,425.00 91,999,079.85 187,822,504.85 2,250,368,269.30 2,275,170,768.77 4,525,539,038.07

As of December 31, 2016 and 2015, there are no assigned hedging transactions. The breakdown of notional items contracted through the remaining transactions with derivatives as of December 31, 2016 and 2015 is as follows:


2016 2015

ORGANIZED MARKETS

OVER THE COUNTER (O.T.C.) TOTAL

ORGANIZED MARKETS

OVER THE COUNTER

(O.T.C.) TOTAL

Financial asset forward contracts - - - - - -

.- bought - - - - - -


59

.- sold - - - - - -

Trading in currencies - - - - - -

.- bought - - - - - -

.- sold - - - - - -

Financial futures on securities and interest rates - - - - - -

.- bought - - - - - -

.- sold - -

Financial futures on currencies - - - - - -

.- bought - - - - - -

.- sold - - - - - -

Options on securities and indexes - 60.000 60.000 - 296.954 296.954

.- bought - 30.000 30.000 - 147.352 147.352

.- issued - 30.000 30.000 - 149.602 149.602

Options on interest rates - 283 283 - 3.147 3.147

.- bought - - - - 949 949

.- sold - 283 283 - 2.198 2.198

Total - 60.283 60.283 - 300.101 300.101

18.2 OTHER MEMORANDUM ACCOUNTS

The breakdown of these accounts is as follows: EUROS

2016 2015

Available and not conditioned to sight in credit institutions - 3,000,000.00

Clients' orders to purchase securities, outstanding 97,284,228,40 35,815,147.76

Clients' orders to sell securities, outstanding 97,539,037.33 36,954,943.41

Financial instrument deposits (market value) 10,130,073,482.95 13,568,418,928.05

Own financial instruments and third-party financial instruments in the possession of other entities (market value) 385,730,554.97 371,736,804.06

Third-party securities lending - -

Managed portfolios 61,694,558.50 1,569,996.17

Assets in suspense accounts 77,113,413.29 69,858,880.13

Guarantees received from clients on lines of credit in favor of individuals - -

Other memorandum accounts - -

Total other memorandum accounts 10,849,435,275.44 14,087,354,699.58

The item "assets in suspense accounts” includes, as of December 31, 2016, 7,255,000 euros corresponding to the uncollected part of two clients' transfer of credit rights (Note 6.2), as well as 61,420,000 euros corresponding mostly to derivative transactions 100% impaired by the Company in 2009, being taken off the balance sheet during the 2010 fiscal period. The item "clients' orders, outstanding," as of December 31, 2016 and 2015, corresponds to outstanding transactions on stock exchanges and on other markets, and the breakdown is as follows:

2016 2015

PURCHAS

ES SALES PURCHAS

ES SALES

with the Central Securities Depository for the Register of Securities and Clearing and Settlement of Trades

83,072,244.26

81,484,644.07

1,113,039.40

3,107,142.42

with the Spanish Official Exchange for Financial Futures and Options 51,979.

50 43,866.

08 761,73

4.05 63,834.

05


60

with other financial intermediaries 14,160,00

4.64 16,010,52

7.18 33,940,37

4.31 33,783,96

6.94

Total 97,284,2

28,40 97,539,03

7.33 35,815,1

47.76 36,954,94

3.41

Securities deposits are as follows:

EUROS

2016 2015

Instruments deposited in the entity 10,130,073,482.95 13,568,418,928.05

Treasury shares 434,593.92 441,403.30

Third-party securities 10,129,638,889.03 13,567,977,524.75

From global custody accounts 1,241,212,008.18 1,000,031,731.51

Securities received from a different depositary institution - -

Instruments deposited in other entities 385,730,554.97 371,736,804.06

Treasury shares - -

Third-party securities 385,730,554.97 371,736,804.06

Total 10,515,804,037.92 13,940,155,732.11

The item “instruments deposited in the entity” includes the entity's own deposited securities or those of clients which are held by Ahorro Corporación Financiera, S.V., S.A.U. as a member of the register and depository systems (Iberclear, the Spanish Central Securities Depository, for fixed income and variable income domestic securities and MEFF, the Spanish Official Exchange for Financial Futures and Options, for derivatives traded domestically).

Thus, this heading includes the deposit of securities which belong to the Fund for Orderly Bank Restructuring (FROB), amounting to 2,415,650,000 euros for both fiscal periods.

In addition to the aforementioned, said heading includes, as of December 31, 2016, unlisted securities from five financial institutions and one non-financial institution amounting to 6,325,528,000 euros, stemming from the accounting management services provided by the Company throughout 2016; therefore, this amount does not represent securities deposited in the entity (2015: 9,914,156,000 euros).

The item “instruments deposited in other entities” includes the remaining securities which are re-deposited in other entities that act as sub-custodians (Euroclear (AA+), for fixed income and variable income domestic securities, Goldman Sachs International (A), BNP Paribas (AA), and Citibank (A+), for variable income foreign securities, Credit Suisse Securities (Europe) Limited (Grupo C. Suisse A+), for derivatives traded on foreign markets, and CECA for variable income domestic securities).

Each system or sub-custodian either maintains individualized accounts for each bearer or global combined accounts (“omnibus” accounts) in which there is a distinction between the Company account (if there are positions held by the Company) and the global combined third-party account. The Administrators of the Company feel that the securities held in global combined accounts (because they are recorded in accounts which are specifically for clients, and because the clients have been informed on their use) are assets restricted for clients and they thus would not be part of the assets with which the Company should answer to liabilities or commitments. Nevertheless, these assets are exposed to the counterparty risk of the global combined custodians.

As of December 31, 2016, the Company held 75 third-party portfolio management agreements (18 contracted in 2015).

19 PROFIT AND LOSS STATEMENT


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19.1 INTEREST RECEIVABLE AND SIMILAR INCOME, INTEREST PAYABLE AND SIMILAR CHARGES, RETURN ON CAPITAL INSTRUMENTS, RESULTS FROM FINANCIAL TRANSACTIONS AND NET IMPAIRMENT LOSSES FROM FINANCIAL ASSETS

The composition of these headings on the profit and loss statement for the 2016 and 2015 fiscal periods is as follows:

EUROS

2016 2015

Interest receivable and similar income from financial assets:

Financial intermediaries 199,928.03 509,931.17

Time deposits - 1,994.52

Temporary purchase of assets - 5,210.26

Remaining 199,928.03 502,726.39

Individuals 4,305.26 126,869.56

Monetary assets and public debt 868.93 1,905.93

Other fixed income securities 1,447.18 366.70

Fixed income foreign portfolio - -

Dividends from stocks and shares - 26,127.02

Other interest receivable and returns 143,248.22 204,944.77

Total 349,797.62 870,145.15

EUROS

2016 2015

Interest payable and similar charges from financial liabilities:

Financial intermediaries 334,398.32 358,919.03

Deposits 5,597.91 126,479.16

Temporary assignment of assets 3,820.54 11,413.10

Remaining 324,979.87 221,026.77

Resident individuals 157,093.61 12,319.95

Temporary assignment of assets 311.44 5,196.65

Remaining 156,782.17 7,123.30

Adjustments to costs from hedging transactions - -

Total 491,491.93 371,238.98

The breakdown of results from financial transactions is as follows:

EUROS 2016 2015 PROFIT LOSS PROFIT LOSS Monetary assets and public debt 6,433,513.31 (6,236,030.83) 14,207,684.27 (13,204,447.92) Other fixed income securities - domestic portfolio 587,524.75 (499,742.65) 1,558,895.24 (1,540,692.20) Other fixed income securities - foreign portfolio 34,120,087.48 (32,626,430.13) 47,122,565.42 (45,952,433.87) Stocks and shares - domestic portfolio 1,674,849.14 (1,626,620.30) 958,773.58 (813,333.64) Stocks and shares - foreign portfolio 13,517.29 (19,209.52) 26,311.75 (25,132.55) Trading derivatives 652,536,320.90 (651,360,050.20) 1,436,129,806.01 (1,433,257,473.26) Forward contracts 425,633.87 (367,024.80) 58,596.36 (108,838.01) Futures 8,090,395.12 (8,443,400.64) 8,087,317.01 (8,059,245.72) Financial swaps 503,854,323.74 (502,715,978.75) 1,060,274,272.64 (1,057,260,349.82)


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Options 140,165,968.17 (139,833,646.01) 367,709,620.00 (367,829,039.71) Dif. net sa. fixed income securities -- short sold and on loan 2,198.60 (13,359.06) 24,135.14 (671,137.21) Dif. net sa. stocks and shares -- short sold and on loan - - - - Adjustments to results from hedging transactions - - - - Other earnings or losses - - - - Total 695,368,011.47 (692,381,442.69) 1,500,028,171.41 (1,495,464,650.65)

The composition of the "Commissions" headings on the profit and loss statement for the 2016 and 2015 fiscal periods is as follows:

EUROS

2016 2015

Commissions received

Processing and execution of clients' orders to deal in securities 11,116,717.15 15,905,870.91

On official secondary markets 7,915,681.74 11,480,408.29

On other domestic markets 22,251.82 51,112.79

On foreign markets 3,178,783.59 4,374,349.83

Underwriting and placing of orders 80,937.81 13,871.25

Placing 80,937.81 13,871.25

Underwriting - -

Sale of Collective Investment Schemes 7,563,891.79 6,147,080.45

Deposit and credit of securities to account 195,040.00 189,443.65

Portfolio management 137,693.01 -

Investment advising - 50,000.00

Derivative instrument intermediation 325,221.94 1,066,354.56

Commissions for the drafting of reports on investments and financial analyses 6,866.42 277,064.57

Other commissions 2,148,052.54 4,034,712.06

Total 21,574,420.66 27,684,397.45

EUROS

2016 2015

Commissions paid

Transactions with securities 1,529,523.74 2,336,212.70

Transactions with derivative instruments 227,561.30 273,252.82

Commissions paid to markets and clearing and settlement services 400,229.94 293,445.89

Sureties related with the collective guarantee to the market 16,537.24 109,399.74

Commissions paid to representatives and other entities 5,748,327.47 4,469,790.99

Other commissions 790,145.46 840,646.21

Total 8,712,325.15 8,322,748.35

During the 2015 fiscal period, the Company was substituted as a party into the agreements held by Ahorro Corporación Gestión, S.G.I.I.C., S.A. with foreign management firms for the sale of foreign funds. As a result of said business activity, the Company obtained, during the 2016 fiscal period, a profit of 7,203,000 euros (2015: 5,614,000 euros), recognized under the heading “commissions received” of the attached profit and loss statement. Likewise, the company recorded expenses from commissions paid to sales agents for an amount of 5,748,000 euros (2015: 4,470,000 euros), recorded under the heading “commissions paid” on the profit and loss statement.

Trading losses are included under the heading “other commissions.” During the 2016 and 2015 fiscal periods, 12,000 euros were recorded for this item. Said losses mostly correspond to incidents with retail clients.


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19.2 PERSONNEL EXPENSES

The composition of personnel expenses for the 2016 and 2015 fiscal periods is as follows:

EUROS

2016 2015

Salaries and bonuses 7,141,024.71 10,459,391.95

Social security payments 1,440,758.88 1,892,685.02

Appropriations to external pension funds 169,651.16 236,131.86

Indemnification - 6,352,078.50

Training expenses 13,297.33 18,077.03

Other social expenditures 291,291.79 357,019.94

Total 9,056,023.87 19,315,384.30

The number of individuals employed upon close of the fiscal period is as follows:

2016 2015 MEN WOMEN MEN WOMEN Managers and technical staff 56 22 60 21 Administrative staff 17 15 18 16 Total 73 37 78 37

The average number of individuals employed is as follows:

2016 2015

- Managers and technical staff 80 110 - Administrative staff 33 43

During the 2016 fiscal period, there were no employees with a degree of disability greater than or equal to 33%.

In accordance with the “Contribution Agreement” signed between the Company and Ahorro Corporación, S.A., in order to facilitate the sale of the Company (see Note 1.2), on January 1, 2017, a total of 38 employees of Ahorro Corporación, S.A. who were part of the “Corporate Services Unit” were transferred to the Company. The Company, in turn, assumed the labor commitments and obligations in relationship with said workers.

In terms of the members of the Board of Directors, at the close of the 2016 fiscal period, it was made up of 1 woman and 2 men (2015: 1 woman and 3 men).

19.3 GENERAL EXPENSES

The composition of general expenses for the 2016 and 2015 fiscal periods is as follows:

EUROS

2016 2015

General expenses

Rental of real property and facilities 783,903.85 782,933.21

Communications 1,659,481.21 2,162,341.91

Computer systems 1,278,521.82 1,407,053.22

Supplies 12,815.42 14,870.77


64

Maintenance and repairs 532,658.48 496,151.16

Marketing and publicity 67,317.42 129,567.26

Travel for representatives 205,786.03 301,675.97

Subcontracted administrative services 108,014.52 108,014.52

Other services provided by freelance professionals 161,694.61 241,541.20

Fees and taxes 1,067,727.74 1,543,900.63

Remaining expenses 1,066,983.73 2,482,605.21

Total 6,944,904.83 9,670,655.06

The relevant item from the heading “remaining expenses” includes expenses associated with central services from the parent company (307,000 and 1,483,000 euros in the 2016 and 2015 fiscal periods, respectively).

During the 2016 fiscal period, the amount for financial information services included under the heading “Communications” came to 1,145,000 euros (2015: 1,616,000 euros).

19.4 OTHER OPERATING EXPENSES

The composition of other operating expenses for the 2016 and 2015 fiscal periods is as follows:

EUROS 2016 2015 Other operating expenses (Note 3.s) Contributions to the Investor Guarantee Fund 182,600.13 185,163.36 Other items 317,830.65 489,875.95 Total 500,430.78 675,039.31

The heading “other items” includes, for the 2016 fiscal period, the annual contribution to the National Resolution Fund, constituted during the 2015 fiscal period by Law 11/2015, of June 18. The amount thereof for 2016 was 173,000 euros (2015: 248,000 euros) (Note 3.s). This heading also includes fees paid to the National Securities Market Commission for its supervision of the Company.


65

20 TAX SITUATION

The Company is part of a Group whose parent company is Ahorro Corporación, S.A., paying corporate income tax under the tax consolidation scheme.

The company has its returns for the last four fiscal periods open for inspection. These returns correspond to Corporate Income Tax, Personal Income Tax, and Value Added Tax. In accordance with current legislation, tax returns may not be considered final until they have been inspected by the tax authorities or the corresponding limitation period has passed. Because of the different interpretations of applicable tax law and the different interpretations of profit and loss amounts that could stem from other tax inspections, there are tax liabilities of a contingent nature which cannot be objectively quantified. Nevertheless, it is estimated that, in the event of the appearance of the aforementioned possible contingent liabilities, they would not significantly affect the overall image of the Company's equity and financial situation.

During the 2010 fiscal period, the Company was under the basic VAT tax consolidation scheme as stipulated by Law 36/2006, of November 29, which modified Law 37/1992, of December 28, on Value Added Tax. As of December 17, 2010, the Company's Board of Directors approved the Company's joining (beginning on January 1, 2011) of the special scheme for advanced-level entities -- alongside the parent company, Ahorro Corporación, S.A., and the rest of the associate companies which met the specific legal requirements.

Determination of the accounting results before taxes and the tax base for Corporate Income Tax, as well as the other calculations made by the Company in relationship with said tax, as of December 31, 2016, are as follows: VALUES ARE IN THOUSANDS OF EUROS

INCREASE DECREASE BALANCE

Accounting result from the fiscal period after corporate income tax (750)

Corporate income tax 10

Long-term differences due to tax consolidation - (59) (59)

Long-term differences 4.029 (6.656) (2.627)

Adjusted accounting result (3.426)

Short-term differences

- Originating during the fiscal period 1.525 - 1.525

- Originating during prior fiscal periods - (1.778) (1.778)

Tax base for the fiscal period

Long-term differences due to tax consolidation

Application of tax loss and tax credit carryforwards

Total (3.679)

VALUES ARE IN THOUSANDS

OF EUROS

TAX TAX

DUE Refundable

Rate (25%)

- On adjusted accounting result - -

- On tax base - -

Deductions

- For investments - -

- Others - -

Others (foreign corporate income tax) 10 -

Corporate income tax - -

Withholding and partial prepayment - 41

Total 10 41


66

Determination of the accounting results before taxes and the tax base for Corporate Income Tax, as well as the other calculations made by the Company in relationship with said tax, as of December 31, 2015, are as follows:


INCREASE DECREASE BALANCE

Accounting result from the fiscal period after corporate income tax (2.910)

Corporate income tax (982)

Long-term differences due to tax consolidation - (15) (15)

Long-term differences 544 - 393

Adjusted accounting result (3.514)

Short-term differences

- Originating during the fiscal period 3.830 - 3.830

- Originating during prior fiscal periods - (2.121) (2.121)

Tax base for the fiscal period (1.805)

Long-term differences due to tax consolidation -

Application of tax loss and tax credit carryforwards -

Total -

VALUES ARE IN THOUSANDS

OF EUROS

TAX TAX

DUE Refundable

Rate (28%)

- On adjusted accounting result (984) -

- On tax base - -

Deductions

- For investments - -

- Others - -

Others (foreign corporate income tax) 2 -

Corporate income tax (982) -

Withholding and partial prepayment 36

Total 36

The Company's General Assembly of Shareholders, in their meeting held on April 25, 2002, decided to file taxes under the tax consolidation scheme alongside Ahorro Corporación, S.A. and the other companies of the tax group that met the specific legal requirements, for an indefinite term, beginning for the 2002 fiscal period and continuing for subsequent fiscal periods -- provided the requirements set by the laws in force are met and application of said tax scheme is not waived. The refundable tax amount is recognized in the item “other credit and advances” as part of the balances with Related Parties (Note 21).

As of December 31, 2016 and 2015, the company does not have deferred tax assets or deferred tax liabilities.

The Administrators decided not to record the tax credits or the deferred tax assets which arose as a result of the losses from the 2012 fiscal period, although they did consider the continuity of operations to be sure. Nevertheless, uncertainties about the business and the sector do not bring about the circumstances required by accounting regulations for recognition of the aforementioned tax credits and deferred tax assets during this fiscal period.

The Company's tax loss and tax credit carryforwards pending offset in future fiscal periods, after the 2016 period, come to a total of 106,832,000 euros.


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21 RELATED PARTIES

As of December 31, 2016 and 2015, the Company's balances and transactions with related parties are as follows:

EUROS 2016 2015 ASSET LIABILITY ASSET LIABILITY Credit with financial intermediaries - - - - Lines of credit in favor of individuals 2,635,280.18 - 4,534,656.62 - Debt securities - - - - Capital securities 482,388.14 - 556,978.71 - Accruals - - - - Other assets 1,278,590.05 - 3,114,148.01 - Debts with financial intermediaries - - - - Debts with individuals - 281,185.03 - 11,017,260.26 Subordinate liabilities - - - - Other liabilities - - - 7,087.99 4,396,258.37 281,185.03 8,205,783.34 11,024,348.25

EUROS 2016 2015 DEBIT CREDIT DEBIT CREDIT Interest payable and similar charges 148,203.21 - 12,504.56 - Interest receivable and similar income - 143,248.22 - 348,222.89 Commissions received - 1,738.68 - 399,163.72 Commissions paid 13,249.07 - 338,528.36 - Losses/gains from financial investments - - - - Losses/recover from the impairment of the financial asset 510,046.59 144,193.36 703,021.54 - General expenses 1,783,775.49 - 3,038,510.57 - Other losses 0.35 - - - Other profit - 4.99 - - 2,455,274.71 289,185.25 4,092,565.03 747,386.61

The Company considers the members of the Company's Board of Directors to be key staff members. Total remuneration received during the 2016 fiscal period came to 39,811.71 euros (306,608.16 euros in 2015).

There are no advances or lines of credit granted for members of the Board of Directors.

The Company's contribution to pension plans and life insurance policies for the members of the Board of Directors during the 2016 fiscal period came to 210.04 euros (9,354.00 euros in 2015).

During the 2016 fiscal period, the Company did not act as a corporate administrator; therefore, it did not receive remuneration for said item.

During the 2016 fiscal period, the Administrator's civil liability insurance premiums for damages occasioned through the undertaking of their position were paid for by the Parent Company, Ahorro Corporación, S.A.


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22 OTHER INFORMATION

22.1 ENVIRONMENTAL ACTIVITIES

Given the Company's business activity, it does not have liabilities, expenses, assets, or provisions and contingencies which are environmental in nature and which can be significant in relationship with the Company's equity, its financial situation, and its financial results. For this reason, specific breakdowns are not included in this report with regard to environmental issues.

Likewise, during said fiscal periods, the Company did not hold greenhouse gas emission rights.

22.2 ABANDONED BALANCES AND DEPOSITS

As of December 31, 2016, there are no accounts opened by clients in which the account bearer has not undertaken any transaction in exercise of his/her property rights for the last 20 years. Thus, the situation of abandonment set forth in Law 33/2003 has not surfaced.

22.3 INFORMATION ABOUT ADMINISTRATORS (ARTICLE 229)

In accordance with the information required by article 229 of Royal Legislative Decree 1/2010, of July 2, which approves the consolidated text of the Capital Company Act, we hereby make known that, as of December 31, 2016, the Company's Administrators were not involved in any situation which would bring about a Conflict of Interest as defined by said article.

22.4 LIST OF AGENTS

As of December 31, 2016 and 2015, the Company does not have agents registered with the National Securities Market Commission.

22.5 CUSTOMER SERVICE DEPARTMENT

Article 17 of Order ECO/734/2004, dated March 11, of the Ministry of the Treasury, establishes an obligation for customer service departments and, if applicable, customer advocates working for financial institutions to present a yearly report to the Board of Directors explaining the undertaking of their tasks over the preceding fiscal period.

The Company's Board of Directors, in its meeting held on January 22, 2003, designated the Corporate Legal Advising Department of the Ahorro Corporación Group as the department in charge of undertaking the tasks inherent to a Customer Complaint Department for the Company's customers. On December 28, 2005, the Ahorro Corporación Group's Guidelines for the Customer's Defense were included in the files of the National Securities Market Commission.

During the 2016 fiscal period, the Group's Customer Service Department informed the Board of Directors that over the 2016 fiscal period no claim was received, nor were there requests for information from the National Securities Market Commission with regard to claims and complaints made by customers.

During the 2015 fiscal period, the Group's Customer Service Department informed the Board of Directors that over said fiscal period three claims were received, which were resolved. Two of said customer claims were resolved by dismissal (in the Company's favor) and the third was resolved in the client's favor. The National Securities Market Commission did make a request for information on the claims, and said body followed up on the information provided by finding that the Company did not act incorrectly.


69

22.6 AUDIT FEES

Regardless of the time of their invoicing, the fees charged for the auditing of the accounts from the

2016 fiscal period came to 68,000 euros for fees from the audit and 3,000 euros for accounting

verification labors (2015: 75,000 euros for fees from the audit and 4,000 euros for accounting

verification labors). Additionally, other work was undertaken whose fees were 30,000 euros (30,000

euros in 2015). During the 2016 fiscal period, no other services (other than those mentioned

previously) were provided by the accounts auditor or by the other companies which are part of the

same international network.

22.7 INFORMATION ON DEFERRALS OF PAYMENTS MADE TO PROVIDERS

In accordance with the stipulations of the sole additional provision of the Decision by the Accounting and Accounts Auditing Institute, dated January 29, 2016, in relationship with the information to be included in annual accounting reports in terms of the average time it takes for payment of providers during commercial transactions, no comparative information is being presented, as the annual accounts from the 2015 fiscal period are classified as the initial accounts for the exclusive purpose of applying of the principle of uniformity and the comparability requirement.

The information in relationship with the average time it takes for providers to be paid is as follows: 2016 2015

(values are in days)

Average time it takes for providers to be paid 14 23

Paid transaction ratio 13 22

Pending payment transaction ratio 49 40

(values are in thousands of euros)

Total payments made, in thousands of euros 14.484 14.492

Total pending payments, in thousands of euros 518 647

22.8 CONTRACTING OF THE SOLE SHAREHOLDER WITH THE SINGLE-MEMBER COMPANY

In accordance with the stipulations of article 16 of the Capital Company Act, on the nature and conditions of contracts existing between the sole shareholder and the Company, it is hereby noted that, as of the close of the fiscal period, no current contracts exist between the two.


70

23 EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET

As of February 16, 2017, Ahorro Corporación, S.A. (sole shareholder of the Company) and the group which bought the shares thereof signed an Addendum to the initial Sale Agreement dated November 8, 2016. Said Addendum includes modifications to the initial sale terms. The most significant aspects of said Addendum which affect the Company are as follows:

In accordance with the terms of the Addendum to the Agreement, the Company agreed upon a collective dismissal process which will affect both the Company's staff as of December 31, 2016 and the staff provided by the Company's sole shareholder as of January 1, 2017 as a result of the "Contribution Agreement" signed between the Company and its sole shareholder (see Note 1.2). To this end, as of February 27, 2017, the Company presented to the Office of Employment of the Community of Madrid an explanatory report for the collective dismissal process. As of March 17, 2017, Ahorro Corporación Financiera, S.V., S.A.U and the legal representatives of its workers came to an agreement in terms of the final conditions for the aforementioned collective dismissal process. Said agreement was endorsed by the workers on March 22, 2017 and its launch was foreseen for March 31, 2017. As of the date these annual accounts are being drafted, the impact that said process will have is being evaluated.

Other than the aforementioned, no other significant event occurred between the close of the reporting period and the date the annual accounts were drafted by the Company's Board of Directors which should be included in the attached annual accounts in order for a true and fair view of the Company's equity, financial situation, results, and cash flows to be shown.


71

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81

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82

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83

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LU0319687470 Amundi Funds Abso Volat World Equit SC USD


84

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85



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86

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LU0451950314 HHF EURO CORPORATE BOND FUND A2 ACC EUR EUR


INDEX

1. ECONOMIC CONTEXT

a. 2016 ECONOMIC CONTEXT AND FINANCIAL MARKETS

b. OUTLOOK FOR THE 2017 FISCAL PERIOD

c. EVOLUTION OF THE FINANCIAL SECTOR

d. REGULATORY CONTEXT

2. MAIN FIGURES FROM THE 2016 FISCAL PERIOD

3. STRATEGIC PILLARS FOR THE 2015-2017 PERIOD

a. GROUP DOWNSIZING PLAN

i. Disinvestments

ii. Contribution to equity

iii. Company structure

iv. Governance system

v. Corporate values

b. MAIN LINES OF BUSINESS

i. Description of the main lines of business

ii. Period evolution and results

c. ADJUSTMENT PLAN

4. REMUNERATION FOR THE SHAREHOLDER

5. RISK MANAGEMENT POLICY

2


MANAGEMENT REPORT

CORRESPONDING TO THE ANNUAL PERIOD FINISHED ON DECEMBER 31, 2016

1. ECONOMIC CONTEXT

a. 2016 economic context and financial markets

2016 was marked by populism and the price of oil.

The global economy saw moderate growth in 2016 (+3.0% vs. +3.2% in 2015) due to the slowing of

developed economies, which were largely affected by turbulent financial markets and a continued

recession in Russia and Brazil. During a good part of 2016, financial markets oscillated between

caution --due to political risks, especially in Europe-- and optimism stemming from better economic

indicators and a spike in the price of oil, which calmed deflationary fears. During the last part of the

year, Trump's triumph triggered "reflationary optimism" and brought about a good push for risk assets.

Evolution of the financial markets in 2016

Source: FactSet and ACF Strategy

75

85

95

105

115

125

135

145

155

enero febrero marzo abril mayo junio julio agosto septiembre octubre noviembre diciembre

S&P 500 Euro STOXX Ibex 35 Brent EURUSD

3


Oil prices stole center stage at the start of the year...

The year started off with clear symptoms of economic downturn in China, which resulted in additional

falls for already decreasing crude prices. Said falls in crude oil prices incited even more fear of

deflation in developed economies, which were already feeling the weight of an economic slowdown.

The context of crude oil prices put the oil companies into check and a fear that the insolvency of these

companies would bring the financial sector down with them awoke the ghost of the 2008 financial

crisis and put the sector on center stage with a double fear: its exposure to energy companies and the

decline in its profitability against a backdrop of low interest rates.

The correlation between the price of oil and risk assets, which has turned positive since the start of

the financial crisis in 2008, spiked sharply -- ebbed on by deflationary expectations. Thus, in an

environment with extremely low interest rates, the price of crude oil became one of the main

references for risk assets. With the price of the Brent barrel reaching lows below 30 USD / barrel in

January, risk assets suffered from hard falls, recording lows that, in the case of European equities,

have been around since 2013. Recovery since then In March, the ECB announced an increase to its

stimulus efforts, while the Fed hinted at delaying its scheduled rate increase. Public debt was

classified to be negative over the short and medium term in a good part of the European countries.

Recovery of crude prices began in the wake of expectations of a moderation of supply (oil company

insolvency, especially in the USA, and worry amongst the members of OPEC about such low levels of

prices) and a recovery of demand (economic data began to show signs of improvement). The final

agreement to reduce the supply levels amongst the members of the OPEC did not arrive until the end

of the year, although expectations were surpassed as the volume of supply was cut more than

expected and other non-OPEC members were also included, like Russia. This agreement gave a

major boost to crude prices, which closed at levels higher than 55 USD / Brent barrel at the end of the

year.

… and politics rounded off the second part of the year.

The turbulence of the financial markets at the start of the year made variable income trading volumes

plummet -- caution which was beset by fear of the possibility that the UK's Brexit referendum would

bring about the country's effective withdrawal from the EU. The possibility that the vote would be “no”

to staying in the EU paved the way for great uncertainty, not only in terms of the economy but also in

the political realm. The final vote, which was quite close but ended up deciding in favor of withdrawal,

caused panic selling that lasted a few weeks. From then on, the expectation for the central banks to

once again rescue the markets, as well as the economic indicators (which continued to show signs of

improvement) made the markets adopt a position of "let's wait and see." In this context, although calm

returned to the markets, the volume of risk assets was still quite depleted.

4


Evolution of the trading volume of European equities in 2015 and 2016

Source: FactSet and ACF Strategy

The financial consequences of the Brexit will take a while to become visible and will depend on the

exit scheme agreed upon between the EU and the United Kingdom, but we are already experiencing

the political consequences. The Brexit has made evident a problem that had been festering in Europe

since the debt crisis of 2011-2012: the increase of populist, anti-European political parties. This put on

the table the real possibility of the breakup of the EU that different European parties had advocated

for with increasingly more support from citizens. The increase of these parties is presumed to be

especially worrying in terms of the next few years (2017 and 2018), which have a very tight electoral

calendar with countries like France and Germany in the spotlight. Likewise, Italy has become one of

the centers for greatest worry in Europe because of the possibility that it may have to move up its

elections and due to the strong electoral support that the anti-system and anti-European "Five Star

Movement" has. Spain, which was able to establish a government after its second elections in June

while avoiding the "Podemos" party in the equation, was reborn as one of the countries with greatest

political stability amongst the large countries of the EU -- despite the fact that its government is weakly

supported.

Another of the great political spotlights of the year was, undoubtedly, Trump who, in November,

against all forecasts, won the presidential elections of the United States. Likewise against all

forecasts, after a short period of initial volatility, the reaction of the markets to the election was

practically one of a buying spree brought on by the "reflationary optimism" which was fed by the

expectation that Trump would substantially increase infrastructure spending and lower taxes. The

possibility for protectionism to be increased in one of the biggest commercial powers of the world, in

accordance with the nationalist rhetoric of Trump and his “America First” slogan for foreign policy, has

been until now less considered by investors.

200.000

250.000

300.000

350.000

400.000

450.000

500.000

ene-15 abr-15 jul-15 oct-15 ene-16 abr-16 jul-16 oct-16

MnE

Volumen RV Europa (Pricipales bolsas en España, Francia, Italia, Alemania, Holanda y Bélgica)

5


The euphoria generated by Trump, the increase in the prices of oil, and the Fed's return to its

normalization process for monetary policy during a period of economic improvement all favored the

increase in risk assets of the last two months of the year and the rebound of returns on long-term

debt. The main equity indexes were able to close a very complicated year positively, with the upturns

in Brazil being especially relevant (where the change of government had a positive impact on the

markets) and also in the USA (where the main indicators closed 2016 at all-time highs). In Europe, the

positive tone took a second stage to the political risks, and losses were recorded of around 2% in

Spain and 10% in Italy, where the special political risk and banking sector acted as additional

impediments.

b. Financial and economic outlook for 2017

The global economy has shown signs of greater dynamism during the last stretch of 2016 and start of

2017. Favorable global financial conditions, reinforced by expansive monetary policies, by the

recovery and stabilization of oil prices, and by less pressure on the dollar justify the signs of moderate

growth. Thus, the likelihood is strengthened of the USA growing nearly 2.5% and of the Eurozone

growing more than 1.5%, with Spain continuing to be one of the main engines, with a growth of 2.7%.

One of the keys to the improved outlook, which shows signs of global growth acceleration near 3.5%

as compared with 3.1% in 2016, is the stabilization of the Chinese economy, which increased its inter-

annual growth by one tenth during the last quarter to 6.8%. Likewise of relevance will be the foreseen

abandonment of the recessionary climate in economies like those of Russia and Brazil.

The reasonably favorable macroeconomic outlook, which is being contemplated with the continuity of

the process towards normalization of rates of inflation in advanced economies, likewise has clear risks

of decline, amongst which we can point out populism, the change of monetary policy, and risks which

are now almost commonly associated with excess credit in the Chinese economy. The populist threat

is the most relevant: a risk of protectionist policies and/or an excessive fiscal expansion in the USA, a

risk of breakup processes in the Eurozone, and a risk of the Brexit going towards an especially

traumatic situation. Our common theme is that none of said risks will materialize in full over the next

few months.

In 2017, politics will continue to mark the evolution of financial markets -- with special intensity during

the first half of the year, thanks to the elections in Holland and France, and as we wait for Trump to

start to formulate his most relevant policies. The central banks will also be in the spotlight, thanks to

the normalization process in terms of monetary policy being carried out by the Fed -- three increases

of 25 basis points are expected for rates this year -- and the possibility of the ECB, in keeping with a

clearly expansive monetary policy, beginning to phase out its stimulus program. Within this context,

we expect a spike in returns on sovereign debt both in the USA and in Europe, moderate depreciation

of the Euro when compared with the dollar, and improved behavior of European equities when

compared with American equities. One of the greatest risks for European assets -- the populist

increase -- could become an opportunity and favor more expansive fiscal policies in Europe and, as a

result, economic growth. Additionally, European equities could finally benefit from a more attractive

position in terms of its market valuations.

6


c. Evolution of the financial system

Turbulence on the financial markets, political risks, an environment with extraordinarily low interest

rates, and regulatory changes brought about important challenges for the European financial system

during 2016. Nevertheless, the Spanish financial system kept its signs of improvement that began to

appear in 2015 in terms of its leverage ratios and solvency, strengthening its capital ratios and

cleaning up its balance sheets. The ECB made a comment to this end in its report after its supervision

of the Spanish banking system in October 2016, pointing out that the banking sector had continued

exhibiting a high degree of stability, favored by low finance costs, the restructuring process underway

in the sector, and the strength of economic recovery. After the stress tests undertaken by the

European Banking Authority, the Spanish financial system demonstrated sufficient levels of solvency

to bear periods of tension. Additionally, and according to data from the Bank of Spain, the quality of

the balance sheet continued to improve, with a fall in doubtful assets of more than 38% from

December of 2013 to June of 2016 -- something which would leave the payment default ratio around

levels which are similar to those of 2012 (10%).

The main challenge that the Spanish banking sector faces, just like in other Eurozone countries, is

that of maintaining returns in the current context of low volumes of activity and interest rates which are

extremely low. Another of the great challenges that the financial system faces is that of adapting to

the digital revolution, which is changing the way banking entities relate with their clients, the efficiency

of operations, and even the types of services provided.

d. Regulatory context

Probably the most relevant regulatory element of 2016, which will continue to be present in 2017, is

the Reform of the Registry, Clearing, and Settlement System. In 2016, it was the turn of variable

income instruments and it is expected that in September of 2017, it will be time for fixed income

instruments. Ahorro Corporación Financiera S.V., S.A.U. has successfully participated in the entire

adaptation process for the new system and it is preparing to face the changes in terms of the fixed

income environment. Likewise, the 2017 fiscal period will be crucial for the adaptation of the new

MIFID II Directive which will come into effect in January of 2018 -- something which will pose a great

challenge for all those who participate in securities markets, as well as for companies that provide

investment services.

2. MAIN FIGURES FROM THE 2016 FISCAL PERIOD

During the 2016 fiscal period, Ahorro Corporación Financiera S.V., S.A.U. had losses of 750,000

euros. The main cause for this negative result was the evolution of trading volumes on financial

markets (mainly domestic markets). However, during the 2016 fiscal period ACF was able to

consolidate a solid equity base and very comfortable levels of liquidity; thus, it can work on

accomplishing the aim of achieving returns which are sustainable over time.

The Company has solvency levels which are much higher than the regulatory requirements.

From the 2016 fiscal period, the following significant events stand out:

Sale process of 100% of ACF, SV, S.A.U. shares and of ACF International Inc.

Transfer of the subsidiary Vehículo de Tenencia y Gestión 3, S.L.U. (V3) from ACF to Ahorro

Corporación S.A.

7


3. STRATEGIC PILLARS FOR THE 2015-2017 PERIOD

a. Ahorro Corporación Group's downsizing plan

The Group's Board of Directors, with the support of the executive team, put an action plain into place

(in the middle of the 2014 fiscal period) with the aim of undertaking downsizing within the Group so

that it could obtain sustainable profits in the best interest of its shareholders, employees, clients, and

providers.

Said plan had different phases which had to be undertaken in a certain order over time:

disinvestment, strategic definition, adjustment plan. Lastly, during the 2016 fiscal period, a competitive

process was put into place for the sale of the Group's core business, held by the securities company.

Said process culminated in the sale of Ahorro Corporación Financiera, S.V., S.A.U. to StormHarbour

Partners.

As of November 8, 2016, Ahorro Corporación, S.A. signed a sales contract for 100% of the shares it

held in ACF, S.V., S.A.U. with the British group, StormHarbour Partners. The sale of this company

likewise means the sale of its American subsidiary, ACF International Inc. Subsequently, on February

16, 2017, an Addendum to said sale agreement was firmed which modified and/or included new

clauses for the initial agreement.

The sale is subject to two conditions:

► Approval of the sale by the General Assembly of Shareholders of Ahorro Corporación, S.A. – a

condition which was met during the 2016 fiscal period.

► No objection to the transfer by the National Securities Market Commission – pending. It is

estimated that this second condition will not be met until the second quarter of 2017.

i. Disinvestments

The year 2016 brought an end to the disinvestment process started in 2014 by the Ahorro

Corporación Group with the sale of Ahorro Corporación Financiera, S.V., S.A.U.

Additionally, the disinvestment process for the trading derivatives portfolio has continued. The first

round of derivative transaction assignments or maturities took place during the last quarter of the

2015 fiscal period. These transactions have allowed us to reduce the derivatives figure for the trading

portfolio on the balance sheet by 282 million euros and it also reduced the lending investments figure

by an approximate amount of 105 million due to reduced provision of collateral guarantees. During the

2016 fiscal period, the majority of positions were able to be closed so that, as of December 31, 2016,

the derivative figure for the trading portfolio on the balance sheet came to 81 million euros (compared

to 363 million euros at the close of the 2015 fiscal period), and the "other lines of credit in favor of

financial intermediaries" value, inside "lending investments," came to 6 million (compared to 111

million at the close of the 2015 fiscal period). Assignment of the last outstanding transactions is being

finalized and, once complete, there will be a very significant effect on the ACF balance sheet and on

the consolidated balance sheet -- both of which will see substantial reductions.

8


ii. Contribution to equity

As of December 31, 2016, Ahorro Corporación, S.A. transferred, to ACF, the Corporate Services Unit

(made up solely of assets, labor relationships held with Group employees who provided their services

for ACF, and labor liabilities) as well as certain brands and domain names that belonged to Ahorro

Corporación, S.A. This was done through Ahorro Corporación, S.A.'s contribution to the Company's

equity.

The main implications of said contribution for ACF were that:

The tangible assets contributed by Ahorro Corporación were recorded on the ACF balance

sheet for the net carrying amount that they had at the parent company, being posted to "Total

Equity - Shareholder Contributions."

The intangible assets received, despite having been assessed by an expert, were not recorded

on the ACF balance sheet.

The provision for restructuring assumed in relationship with the contingent risks of Ahorro

Corporación was recorded in the liabilities of ACF, being posted to the profit and loss

statement.

iii. Company structure

During the 2015 and 2016 fiscal periods, the company structure of Ahorro Corporación, S.A. Group

was simplified. This diagram reflects the structure as of December 31, 2016 (prior to the sale of

ACF):

AHORRO CORPORACIÓN, S.A.

AHORRO CORPORACIÓN FINANCIERA, S.V., S.A.U.

100% AC

ACF INTERNATIONAL, INC

100% ACF

VEHICULO DE TENENCIA Y GESTION 3, S.L.U.

100% AC

9


iv. Governance system

The Board of Directors of Ahorro Corporación, S.A., the Group's parent company, is responsible for

defining a corporate governance system which guarantees effective and prudent management of the

Group and which includes the proper distribution of tasks within the organization and the prevention of

conflicts of interest.

The Group's Board of Directors has the last say in the strategic development and coordination of the

entities which make up the Group, alongside other Commissions whose tasks are to inform, advice,

and make proposals to the Board of Directors.

More specifically, the Board of Directors is responsible for providing the Group with the means

necessary to undertake its business activity in compliance with applicable laws and for establishing

the general strategies of the Group that must guide the actions of the CEO or, if applicable, the

General Manager and the Councils of the Subsidiary Companies at all times. The Board of Directors

reports back on accounts to the Group's General Assembly of Shareholders under the terms set forth

in the Capital Company Act.

This body is made up of qualified individuals of renowned integrity who possess broad professional

experience.

The Board of Directors is guided by applicable laws, the Bylaws of each of the companies, and by its

Regulatory Framework which establishes its organization and workings.

The Group has the following Commissions which belong to the Ahorro Corporación Board:

Audit and Control Commission: An advisory commission on matters of auditing and control.

Amongst other tasks, it is responsible for reviewing the Annual Accounts and other financial

information, as well as for supervising Internal Auditing and Regulatory Compliance and

external auditors.

Strategy and Risk Commission: This is an advisory commission for risks and it is

responsible for monitoring the development and establishment of the strategic decisions of

the Ahorro Corporación Group, approved by the Board of Directors. Some of its main tasks

are related with identifying the types of risk, establishing acceptance procedures for said

risks, setting limits, controls, and means.

New Appointments and Remuneration Commission: This advisory commission provides

information and makes proposals to the Board in terms of the appointment of new board

members and those who must make up the Commissions, as well as on the Group's Senior

Management. It also undertakes evaluation tasks. It has responsibilities in terms of

remuneration, rights, and compensation that board members must receive. This Commission

likewise generally supervises the Group's remuneration policy.

The Group's General Manager assumes the responsibilities of the top executive, overseeing all

business units and support areas. This individual reports directly to the Board of Directors and must

uphold, at all times, the decisions and criteria set by the latter when conducting business for the

Group.

During the 2016 fiscal period, the Board of Directors named a new President and a new General

Manager.

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v. Corporate values

The Group has solid values and principles of action. During the restructuring process carried out over

the last few fiscal periods, the main worry of the Administrators and executives was to try to obtain the

objectives set while likewise covering the clients' needs and complying with all regulatory and

contractual obligations -- always with risk control in mind.

Currently, the Group's new configuration allows it to be more ambitious in terms of the objectives of

growth and returns, always upholding the criteria of prudence and sustainability.

b. Main lines of business

i. Description of the main lines of business

As part of the action plan established for the 2015 fiscal period, the Group undertook strategic

reflection to identify the main activities that constitute its reason for being as a core starting point to be

able to develop the full potential of its business. From said reflection, a corporate organizational

scheme arose which is centered around four pillars of activity:

Advising:

This area undertakes advising activities to companies and institutions in terms of their corporate and

strategic development, both from the capital point of view and from the financing point of view. In

terms of the activities undertaken, it is important to point out advising on mergers and acquisitions,

corporate development in relationship with access to organized markets for fixed and variable income

instruments, structured financing and debt restructuring, and advising related with project financing.

Intermediation of fixed income products

This area provides intermediation services for all fixed income financial products, including public

debt, corporate debt, and products from the money market. While this business activity is for all

clients, it is centered mainly around institutional clients. The Group, through ACF, is a member of the

following official markets: AIAF, SENAF, SEND, MARF, ICE Futures Europe, and Eurex (Deutsche

Börse Group), as well as some trading platforms (multilateral trading system - MTS).

Intermediation of variable income products

The intermediation activities for variable income products encompasses intermediation for cash

products and derivatives, both domestic and foreign. The Group, through ACF, is a member of SIBE,

MEFF, ICE Futures Europe, Xetra, and Eurex (Deutsche Börse Group). This area offers

comprehensive services which include analysis, sales, and execution services. Likewise, for clients

who so request, settlement and custody services are available.

Platforms

The platforms area was conceived with the aim of placing value on business activities related with

intermediation service provision through electronic systems and thus developing the great

technological capacity that has characterized the Group throughout history. Noteworthy are tools to

access markets and financial products based on flexible, robust technological solutions. Different

activities can be distinguished within this area: i) market access systems; ii) mutual fund solutions,

including the distribution of foreign mutual funds and a platform for participant management, as well

as distribution of domestic mutual funds; iii) online solutions for retail clients.

11


ii. Period evolution and results

The contribution of the four business activity areas to the results of the 2016 fiscal period has been

noticeably marked by the evolution of the markets and by the restructuring process which was carried

out during said year.

Intermediation business represents, jointly, more than 56.10% of the income from the period.

c. Adjustment plan

The Group continues working on an adjustment plan that allows for the establishment of a balance on

the profit and loss statement in accordance with the levels of foreseen income, taking into account the

Group's new situation and, moreover, the new situation after the sale of ACF.

Over the short term, the measures to be adopted mainly have to do with restructuring the operating

expense base. To this end, a review of all the general expenses is being undertaken with the aim of

reducing them by 40% for the 2017-2018 fiscal periods. Likewise, during the first quarter of 2017,

ACF agreed to start a collective dismissal process which will affect 73 employees. To this end, as of

February 27, 2017, the Company presented to the Office of Employment of the Community of Madrid

an explanatory report for the collective dismissal process. The timeframe of 1 month (as established

by law) was indicated for the Company to negotiate with the workers' legal representatives on the

conditions for the dismissal process.

4. REMUNERATION FOR THE SHAREHOLDER

See Note 4 of the report.

5. RISK MANAGEMENT POLICY

The Ahorro Corporación Group has a solid risk management policy. After the restructuring and

disinvestment processes undertaken during the 2014 and 2015 fiscal periods, the Group's balance

sheet is now 100% healthy. Likewise, a sale process has been undertaken for the derivatives product

portfolio with the aim of placing the Group's focus on lower-risk activities.


DRAFTING OF THE ANNUAL ACCOUNTS AND THE MANAGEMENT REPORT

These Annual Accounts for the 2016 fiscal period, which include the Balance Sheet, the Profit and Loss Statement, the Statement of Changes in Total Equity, the Cash Flow Statement and Notes, and the Management Report are issued on plain paper, approved by the Secretary of the Board, Mr. Luis Giménez-Arribas, and numbered from 1 to 86 (Annual Accounts) and from 1 to 11 (Management Report).

In accordance with the provisions of article 253.2 of the Capital Company Act, said Management Report and the Annual Accounts corresponding to the 2016 fiscal period have hereby been drafted and signed by the board members who are listed below on this page.

Ms. BLANCA RIVILLA CALLE

Mr. ANDRÉS GUITERAS QUILIS

Mr. ENRIQUE PRADOS DEL AMO

Madrid, March 28, 2017

MadridPaseo de la Castellana, 8928046 - Madrid(+34) 91 586 9300

BarcelonaPasseig de Gràcia, 74, 1º, 1ª08008 - Barcelona(+34) 93 366 2400

Boston50 Congress Street, Suite 6Boston, MA 02109(+00) 161 7523 3295

www.ahorrocorporacion.com

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