tiï O Q, Notes to the Consolidated Financial Statements (continued) - - - - - - - - Introduction Report of the Executive Board Report of the Supervisory Board Defined benefit plan assets 2018 2017 In millions of Quoted Unquoted Total Quoted Unquoted Total Equity instruments: Europe 815 815 985 985 Northern America 522 522 556 556 Japan 129 129 109 109 Asia other 60 60 122 122 Other 315 193 508 330 180 510 1,841 193 2,034 2,102 180 2,282 Debt instruments: Corporate bonds - investment grade 2,150 1,353 3,503 2,258 1,524 3,782 Corporate bonds - non-investment grade 223 507 730 240 476 716 2,373 1,860 4,233 2,498 2,000 4,498 Derivatives 33 (537) (504) 11 (1,333) (1,322) Properties and real estate 256 501 757 270 437 707 Cash and cash equivalents 196 (12) 184 626 3 629 Investment funds 523 239 762 675 244 919 Other plan assets 104 112 216 119 76 195 1,112 303 1,415 1,701 (573) 1,128 Balance as at 31 December 5,326 2,356 7,682 6,301 1,607 7,908 The HEINEKEN pension funds monitor the mix of debt and equity securities in their investment portfolios based on market expectations. Material investments within the portfolio are managed on an individual basis. Through its defined benefit pension plans, HEINEKEN is exposed to a number of risks, the most significant are detailed below. Heineken N.V. Annual Report 2018! 90 Financial Statements Sustainability Review Other Information Risks associated with defined benefit plans Asset volatility The plan liabilities are calculated using a discount rate set with reference to corporate bond yields. If the return on the plan assets is less than the return on the liabilities implied by this assumption, this will create a deficit. Both the Netherlands and the UK plans hold a significant proportion of equities, which are expected to outperform corporate bonds in the long term, while providing volatility and risk in the short term. In the Netherlands, an Asset-Liability Matching (ALM) study is performed at least on a triennial basis. The ALM study is the basis for the strategic investment policies and the (long-term) strategic investment mix. This resulted in a strategic asset mix comprising 38% equity securities, 40% bonds, 9.5% property and real estate and 12.5% other investments. The objective is to hedge currency risk on the US dollar, Japanese yen and British pound for 50% of the equity exposure in the strategic investment mix. The ALM study has been performed in 2018 and a new strategy mix will be implemented in 2019. In the UK, an Asset-Liability Matching study is performed at least on a triennial basis. The ALM study is the basis for the strategic investment policies and the (long-term) strategic investment mix. This resulted in a strategic asset mix comprising 45% of plan assets in liability driven investments, 18% in absolute return, 16% in equities (global and emerging markets), 5.5% in alternatives and 15.5% in private markets. The objective is to hedge 100% of currency risk on developed non-GBP equity market exposures in the strategic investment mix. Interest rate risk A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans' fixed rate instruments holdings. In the Netherlands, interest rate risk is partly managed through fixed income investments. These investments match the liabilities for 24.4% (2017: 22.9%). In the UK, interest rate risk is partly managed through the use of a mixture of fixed income investments and interest rate swap instruments. These investments and instruments match 34% of the interest rate sensitivity of the total liabilities (2017: 32%).

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