Schroder International Selection Fund. Semi-Annual Report - Hong Kong 30 June 2013

Transcription

1 International Selection Fund Semi-Annual Report - Hong Kong 30 June 2013

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3 EXPECTED LEVEL OF LEVERAGE None of the Hong Kong authorised sub-funds of International Selection Fund intends to utilise financial derivative instruments extensively for investment purposes except for the following sub-funds which adopt VaR approach to calculate their global exposure relating to financial derivative instruments. The expected levels of leverage calculated based on commitment approach of the sub-funds are set out below: - Sub-funds Expected levels of leverage using commitment approach* Asian Bond Absolute Return 0 to 200 Asian Local Currency Bond 0 to 200 EURO Bond 0 to 200 EURO Corporate Bond 0 to 150 EURO Government Bond 0 to 100 EURO Short Term Bond 0 to 100 Global Bond 100 to 300 Global Corporate Bond 0 to 150 Global Credit Duration Hedged 0 to 200 Global High Yield 0 to 100 Global Inflation Linked Bond 0 to 150 Strategic Bond 200 to 500 US Dollar Bond 0 to 250 * The expected level of leverage using commitment approach takes into account the market value of the equivalent position in the underlying asset of financial derivative instruments or financial derivative instruments notional value, as appropriate and allows in certain circumstances (i) the exclusion of certain types of non-leveraged swap transactions or certain leverage free transactions and (ii) the consideration of netting and hedging transactions.

4 VaR * * (i) (ii)

5 International Selection Fund Société d Investissement à Capital Variable (SICAV) Semi-Annual Report 30 June 2013 No subscriptions can be received on the basis of periodical reports. Subscriptions are valid only if made on the basis of the current prospectus accompanied by the last available annual report or semi-annual report if published thereafter. This report is based on the current prospectus. Annual and semi-annual reports, the current prospectus and the Articles of Incorporation of the Company are available, free of charge, at the Company s registered office, 5, rue Höhenhof, L-1736 Senningerberg, Grand Duchy of Luxembourg.

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7 Table of Contents International Selection Fund Semi-Annual Report 30 June 2013 Page 5 International Selection Fund Board of Directors Administration Investment Managers Report Notes to the Financial Statements Statement of Distribution of Investments by Industry Mainstream Equity Funds Asian Opportunities EURO Equity European Large Cap Global Equity Italian Equity Japanese Equity Swiss Equity UK Equity US Large Cap Specialist Equity Funds Asia Pacific Property Securities Asian Equity Yield Asian Smaller Companies Asian Total Return Brazilian Equity BRIC (Brazil, Russia, India, China) China Opportunities Emerging Asia Emerging Europe Emerging s European Dividend Maximiser European Equity Focus European Equity Yield European Smaller Companies European Special Situations European Total Return Frontier s Equity Global Climate Change Equity Global Demographic Opportunities Global Dividend Maximiser Global Emerging Opportunities Global Energy Global Equity Yield

8 Page 6 International Selection Fund Semi-Annual Report 30 June 2013 Table of Contents Specialist Equity Funds Global Property Securities Global Resources Equity Global Small Cap Energy Global Smaller Companies Greater China Hong Kong Equity Indian Equity Japanese Opportunities Japanese Smaller Companies Korean Equity Latin American Middle East Swiss Equity Opportunities Swiss Small & Mid Cap Equity Taiwanese Equity US Small & Mid-Cap Equity US Smaller Companies Style Equity Funds European Small & Mid-Cap Alpha Equity Funds European Equity Alpha Global Equity Alpha Japanese Equity Alpha US Equity Alpha Quantitative Equity Funds QEP Global Active QEP Global Blend QEP Global Core QEP Global Emerging s QEP Global Quality Asset Allocation Funds Global Tactical Asset Allocation Multi-Asset Funds Asian Diversified Growth Global Conservative Global Diversified Growth Global Dynamic Balanced Global Multi-Asset Income Japan DGF Wealth Preservation * * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review.

9 Table of Contents International Selection Fund Semi-Annual Report 30 June 2013 Page 7 Multi Manager Funds Balanced Portfolio Conservative Portfolio Growth Portfolio Absolute Return Funds Asian Bond Absolute Return Emerging Europe Debt Absolute Return Emerging s Debt Absolute Return Mainstream Bond Funds EURO Bond EURO Government Bond EURO Short Term Bond Global Bond Global Inflation Linked Bond Hong Kong Dollar Bond US Dollar Bond Specialist Bond Funds Asian Local Currency Bond EURO Corporate Bond EURO High Yield Global Corporate Bond Global High Income Bond Global High Yield Global Unconstrained Bond * Strategic Bond Specialist Bond Funds (Medium-higher Risk) Asian Convertible Bond Emerging Bond Emerging Corporate Bond Emerging Sovereign Bond Global Convertible Bond Global Credit Duration Hedged RMB Fixed Income Liquidity Funds EURO Liquidity US Dollar Liquidity Currency Funds Currency Absolute Return EUR Currency Absolute Return Global Managed Currency Appendix I - Unaudited TER * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review.

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11 International Selection Fund Semi-Annual Report 30 June 2013 International Selection Fund Page 9 The Company International Selection Fund (the Company ) is an open-ended umbrella company incorporated under Luxembourg law, which enables investors to choose from Funds (specific portfolios of assets and liabilities within the Company having their own net asset value and represented by a separate class or classes of Share) offering different investment objectives. The shares of each Fund are listed on the Luxembourg Stock Exchange. Prices are also available on Bloomberg and Reuters. This report covers the period from 1 January 2013 to 30 June The financial statements are prepared in accordance with Luxembourg regulations relating to undertakings for collective investment. The last day on which prices were calculated was 28 June 2013, the last working day of the period. At the date of this report, 100 Funds were available for investment. Please refer to the current prospectus for the investment objectives of the Funds as well as details of investment restrictions. The monthly Factsheets for each Fund can be obtained from the Company s registered office and are also available on the website of Investment Management (Luxembourg) S.A. ( Hereafter, International Selection Fund will be referred to as the Company and all names of the Funds will be preceded by, e.g., Global Equity Alpha. Corporate Governance The Company is subject to corporate governance based on: 1. Its obligations as defined by the UCITS Directive 2009/65/EC dated 13 July 2009, as implemented in Luxembourg law which is available for inspection at the registered office of the Company at 5, rue Höhenhof, L-1736 Senningerberg, Grand Duchy of Luxembourg. 2. Its Articles of Incorporation which are available for inspection at the registered office of the Company and at the Luxembourg corporate and trade register, Registre de Commerce et des Sociétés (RCSL). 3. The obligations in respect of the management of the Company, for which the Company has appointed Investment Management (Luxembourg) S.A., which is subject to the requirements of the Management Company Directive 2010/43/EC, as implemented in Luxembourg law. 4. The Association of the Luxembourg Fund Industry (ALFI) code of conduct, which the Company has voluntarily adopted. Internal Control and Risk Management Systems The Board of Directors is responsible for establishing and maintaining adequate internal control and risk management systems of the Company in relation to the financial reporting process. Such systems are designed to manage rather than eliminate the risk of error or fraud in achieving the Company's financial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board of Directors has contracted with the Management Company to put procedures in place to ensure all relevant accounting records are properly maintained and are readily available, including the production of annual and semi-annual reports. The annual and semiannual reports of the Company are required to be approved by the Board of Directors of the Company and filed with the Commission de Surveillance du Secteur Financier (CSSF) and the Registre de Commerce et des Sociétés (RCSL). The annual statutory financial statements are required to be audited by independent auditors who report to the Board of Directors on their findings. The Board meets at least four times a year and ensures that the Company maintains high standards of integrity and control in its operations and that it possesses adequate governance and means of control as law and regulation demand.

12 Page 10 International Selection Fund Semi-Annual Report 30 June 2013 Board of Directors Chairman Massimo Tosato Executive Vice Chairman s PLC 31, Gresham Street London EC2V 7QA United Kingdom Directors Jacques Elvinger Avocat Elvinger, Hoss & Prussen 2, place Winston Churchill L-2014 Luxembourg Grand Duchy of Luxembourg Gavin Ralston Head of Official Institutions and Global Head of Product Investment Management Limited 31, Gresham Street London EC2V 7QA United Kingdom Daniel De Fernando Garcia Independent Director Agatha Christie Madrid Spain Carlo Trabattoni* Head of Pan European Intermediary Distribution and GFIG Investment Management Limited 31 Gresham Street London EC2V 7QA United Kingdom Achim Kuessner Country Head Germany, Austria & CEE Investment Management GmbH Taunustor 2 (Japan Center) Frankfurt Germany Ketil Petersen Country Head Nordic Region Investment Management A/S Store Strandstraede Copenhagen K Denmark Georges-Arnaud Saier Independent Director 6, Rue Paul Baudry Paris France Marie-Jeanne Chevremont-Lorenzini** Independent Director 37C Avenue J.F. Kennedy L-1855 Luxembourg Grand Duchy of Luxembourg * Carlo Trabattoni was appointed a member of the Board of Directors with effect from 30 January ** Marie-Jeanne Chevremont-Lorenzini was appointed a member of the Board of Directors with effect from 28 May 2013.

13 Administration International Selection Fund Semi-Annual Report 30 June 2013 Page 11 Registered Office Management Company, Domiciliary Agent, Principal Paying Agent, Registrar and Transfer Agent 5, rue Höhenhof, L-1736 Senningerberg, Grand Duchy of Luxembourg Investment Management (Luxembourg) S.A. 5, rue Höhenhof, L-1736 Senningerberg, Grand Duchy of Luxembourg Custodian and Fund Administrator Principal Legal Adviser Auditor Investment Managers J.P. Morgan Bank Luxembourg S.A. European Bank & Business Centre, 6, route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg Elvinger, Hoss & Prussen 2, place Winston Churchill, L-2014 Luxembourg, Grand Duchy of Luxembourg PricewaterhouseCoopers, Société coopérative 400, Route d'esch, B.P. 1443, L-1014 Luxembourg, Grand Duchy of Luxembourg Investment Management Limited 31, Gresham Street, London EC2V 7QA, United Kingdom Balanced Portfolio BRIC (Brazil, Russia, India, China) Conservative Portfolio Currency Absolute Return EUR Currency Absolute Return Emerging Europe Emerging Europe Debt Absolute Return Emerging s Emerging s Debt Absolute Return EURO Bond EURO Corporate Bond EURO Equity EURO Government Bond EURO High Yield EURO Liquidity EURO Short Term Bond European Dividend Maximiser European Equity Alpha European Equity Focus European Equity Yield European Large Cap European Smaller Companies European Special Situations European Total Return Frontier s Equity Global Bond Global Climate Change Equity Global Demographic Opportunities Global Diversified Growth Global Dividend Maximiser Global Emerging Opportunities Global Energy Global Equity Global Equity Alpha Global Equity Yield Global Inflation Linked Bond Global Managed Currency Global Multi-Asset Income Global Resources Equity Global Small Cap Energy Global Smaller Companies Global Tactical Asset Allocation Global Unconstrained Bond* Growth Portfolio Italian Equity Latin American * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review.

14 Page 12 International Selection Fund Semi-Annual Report 30 June 2013 Administration Investment Managers (cont) Investment Management Limited (cont) 31, Gresham Street, London EC2V 7QA, United Kingdom Middle East QEP Global Active QEP Global Blend QEP Global Core QEP Global Emerging s QEP Global Quality Strategic Bond UK Equity Wealth Preservation * Investment Management Brasil DTVM S.A. Rua Joaquim Floriano, º andar - cj. 141 / 142, São Paulo SP, Brazil Brazilian Equity Investment Management (Hong Kong) Limited Suites 3301, Level 33, Two Pacific Place, 88 Queensway, Hong Kong SAR Asia Pacific Property Securities Asian Diversified Growth China Opportunities Emerging Asia Greater China Hong Kong Dollar Bond Hong Kong Equity RMB Fixed Income Taiwanese Equity Investment Management (Japan) Limited 21st Floor Marunouchi Trust Tower Main, Marunouchi, Chiyoda-Ku, Tokyo , Japan Japanese Equity Japanese Equity Alpha Japanese Opportunities Japanese Smaller Companies Investment Management North America Inc. 875 Third Avenue, 22nd Floor, New York, New York , United States of America Emerging Bond Emerging Sovereign Bond Global Corporate Bond Global Credit Duration Hedged Global High Income Bond Global High Yield US Dollar Bond US Dollar Liquidity US Equity Alpha US Large Cap US Small & Mid-Cap Equity US Smaller Companies * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review.

15 Administration International Selection Fund Semi-Annual Report 30 June 2013 Page 13 Investment Managers (cont) Investment Management (Singapore) Limited 65 Chulia Street, #46-00, OCBC Centre, Singapore , Singapore Asian Bond Absolute Return Asian Equity Yield Asian Local Currency Bond Asian Opportunities Asian Smaller Companies Asian Total Return Emerging Corporate Bond Indian Equity Japan DGF Korean Equity Investment Management (Switzerland) AG Central 2, CH-8021 Zurich, Switzerland European Small & Mid-Cap Global Conservative Global Dynamic Balanced Swiss Equity Swiss Equity Opportunities Swiss Small & Mid Cap Equity European Investors Inc. 640 Fifth Avenue, 8th Floor, New York 10019, United States of America Global Property Securities Fisch Asset Management AG 241 Bellerive, CH-8034, Zurich, Switzerland Asian Convertible Bond Global Convertible Bond

16 Page 14 International Selection Fund Semi-Annual Report 30 June 2013 Investment Managers Report The year started on a relatively strong note for financial markets after US lawmakers reached a last-minute agreement on the fiscal cliff. The agreement boosted risk appetite and drove increased confidence surrounding the outlook for the global economy. In addition, there was some better-than-expected US macroeconomic data at the start of the year, with stronger employment, consumer spending and housing data all providing cause for optimism. The eurozone debt crisis reared its head again in February as an inconclusive outcome to the Italian general elections raised fears that the reforms put in place by Mario Monti s caretaker administration could be undermined. The potential implosion of the Cypriot banking sector also caused concern, amid uncertainty over the bailout conditions that would be imposed. The eurozone remained in recession with GDP figures showing a contraction of 0.6 for the fourth quarter of 2012 and a 0.2 contraction for the first quarter of The European Central Bank cut interest rates in May to 0.5 from Towards the end of the period Europe relaxed its focus on austerity, with the European Commission allowing certain countries more time to meet deficit targets. Japanese equities enjoyed a stellar start to 2013, buoyed largely by yen weakness. At the beginning of the year, the Bank of Japan (BoJ) doubled its inflation target to 2 at its monetary policy meeting and the appointment of Haruhiko Kuroda as governor of the BoJ fuelled expectations of further aggressive monetary policy. However, mid-may saw an abrupt change in sentiment after Federal Reserve (Fed) Chairman Ben Bernanke indicated that the Fed would start to taper its programme of asset purchases if macroeconomic data continued to show improvement. The prospect of the Fed scaling back quantitative easing which has been the main support for asset prices caused volatility across global markets at the end of May and into June. Gold prices tumbled with spot gold hitting a three-year low towards the end of the period. There were also worries about the resilience of the Chinese economy. Data showed a slowdown in Chinese economic growth, with first quarter GDP up by 7.7 Interbank lending rates in China rose sharply at the end of the period, prompting fears of a credit crunch. After a few days, the Peoples Bank of China acted to ease market tensions, saying it would backstop banks suffering cash shortfalls. Equities overview Most equity markets posted positive returns over the six month period, largely due to gains made in the first four months. The average return from global equities in US dollar terms was 7.1 (as measured by the MSCI World index). However, some emerging markets posted sharp losses for the period as they suffered outflows following the Fed s comments about tapering monetary stimulus. Brazil s Bovespa was also hit by slowing growth and pressure on commodity-related stocks. Mexico s IPC index saw declines, again due to slowing growth and worries over the Fed s policy. Turkish markets slumped at the end of the period as anti-government protests weighed on sentiment. South Korea s Kospi declined with the softer yen putting pressure on South Korean exporters. Hong Kong shares fell as new restrictions were imposed on the property market, and were also hit by worries over weaker China data. Chinese trade data for May came in much lower than in previous months. However, China shares registered a small positive performance over the six months, losing ground towards the end of the period on concerns over tighter liquidity. Japan s Nikkei saw extreme volatility, with strong gains early in the year followed by a sharp drop from mid-may. The Nikkei entered bear market territory in June, with a 22 drop from its May highs. However, the Japanese index still registered strong gains for the six-month period. In the eurozone, most equity markets gained as they continued to be supported by accommodative monetary policy from the European Central Bank (ECB). Spain and Italy saw declines for the period. Spanish shares tumbled in early February after the six month ban on short-selling was lifted. The index then staged a recovery only to fall again in March amid worries over the Cypriot crisis. Italian equities suffered losses in February and March due to uncertainty over the outcome of the general election. Turning to other developed markets, US equities gained over the six months, helped largely by some better-than-expected macroeconomic data and generally solid corporate earnings. The UK also delivered a positive return (in sterling terms) as its economic recovery began to gain traction, with GDP figures showing growth of 0.3 in the first quarter. Fixed income overview Riskier fixed income assets started the period well in January as a number of the concerns that had influenced markets in 2012 appeared to have eased. The positive sentiment, engendered by the actions of the ECB, continued to drive peripheral bonds lower, while gilt, bund and Treasury yields rose. However, eurozone fears re-emerged in February as Italy held a general election. The 10-year Italian yield hit a peak for the quarter of 4.90 on 26 February as it became clear that the electorate had rejected austerity and that no single political party had gained an overall majority. In March, the Cypriot bailout initially sparked concern that Cyprus problems could trigger a further escalation of the eurozone crisis. This led to rising peripheral bond yields and falling yields on UK gilts and German bunds. Corporate bond performance was mixed over the first quarter. Credit returns were dampened by the default of senior secured bonds from Dutch bank SNS. The sterling corporate bond market outperformed gilts, with credit spreads tightening and BBB-rated credit and financials performing best. Returns from euro credit were tepid and below bunds.

17 International Selection Fund Semi-Annual Report 30 June 2013 Investment Managers Report Page 15 Concerns over the Federal Reserve reducing its programme of asset purchases emerged in May. The second quarter was dismal for fixed income as investors woke up to the prospect of reduced central bank support. Government bond yields rose across the board. By the end of June the 10- year Treasury yield was 64bps up for the second quarter as a whole, at In Europe, the ECB cut its benchmark interest rate to 0.5 in a widely expected move at the beginning of May. However, it was US quantitative easing (QE) talk that drove European bond yields and they followed the same path as Treasuries over the quarter, with the 10-year German bund yield up 44bps to 1.73 and the equivalent UK gilt yield up 68bps to Corporate bond markets were also spooked by the prospect of QE tapering and also posted losses. Spreads tightened overall in Europe and the UK, but widened in the US. In European credit there was a significant divergence in sector performance, with BBB-rated non-financials, subordinated financials and subordinated insurance performing best, and industrials, telecoms and consumer cyclicals among the laggards. In sterling credit, the best performing sectors were BBB-rated non-financials and insurance, while covered bonds, consumer cyclicals and telecoms were among the worst. Performance was poor across the board in the US credit market. Emerging market debt was hit particularly hard by the nervous market environment, with local currency debt and emerging market corporate bonds especially affected. Liquidity dried up and prices fell in the corporate bond sector as forced selling took its toll. By the final week of the quarter the picture was brightening, as investors fears were eased by comments from Fed officials who said markets had overreacted to the possibility of a tapering of QE. The more positive mood was also helped by better news from China, where money market rates eased. Outlook The recent comments made by the Federal Reserve mean that it is right for markets to factor in a greater degree of policy uncertainty than has been present for the last five years. This means higher bond yields are appropriate, which in turn implies we have seen the lows in bond yields for this cycle. Sustained economic expansion in the US and signs of a resumption of growth in Europe should provide a more supportive environment for equities. However, the risks of a growth slowdown have increased as long-term borrowing costs have risen. Emerging markets are facing an unattractive combination of slowing growth and tightening monetary conditions. Equities are still reasonably valued on the basis of cyclically adjusted P/Es, valuation relative to bonds, and momentum. More cyclical sectors (such as materials, IT and energy) are still trading at a valuation discount. Demand for high yielding assets is likely to remain significant, given the sluggish global growth environment. The Investment Managers International Selection Fund 30 June 2013 Source: Datastream MSCI World Index. Six months to 28 June 2013 The information contained in this report is historical and not necessarily indicative of future performance.

18 Page 16 International Selection Fund Semi-Annual Report 30 June 2013 Notes to the Financial Statements The Company The Company was incorporated in Luxembourg on 5 December 1968 as a société anonyme. Pursuant to an Extraordinary General Meeting of Shareholders held on 31 January 1989, the form and name of the Company, as well as its establishment period, was changed to a société d investissement à capital variable ( SICAV ) established for an unlimited period under the name of International Selection Fund. The company qualifies as an undertaking for collective investment (UCI) regulated by the provisions of Part I of the Luxembourg Law of 17 December 2010 regarding undertaking for collective investment (the 2010 law ). Classes of Shares At the date of this report, ten classes of shares are available within the Funds: A, B, C, D, E, I, J, X, A1 & B1 shares. All Funds offer A, B and C shares, apart from the following Funds: Asian Diversified Growth (offers only A, C, I and A1 shares); Balanced Portfolio (offers only C, D and A1 shares); Brazilian Equity (offers only A, C, I and A1 shares); Currency Absolute Return EUR (offers only A, C & I shares); Conservative Portfolio (offers only C, D and A1 shares); EURO High Yield (offers only A, C & I shares); European Equity Focus (offers only A, C & I shares); European Small & Mid-Cap (offers only A, C & I shares); Global Conservative (offers only A and A1 shares); Global Demographic Opportunities (offers only A & C shares); Global Small Cap Energy (offers only A, C & I shares); Global Tactical Asset Allocation (offers only A, C & I shares); Growth Portfolio (offers only C, D & A1 shares); Japan DGF (offers only C, I & X shares); Japanese Opportunities (offers only A, C, I & A1 shares); QEP Global Blend (offers only A, C, & I shares); QEP Global Core (offers only C & I shares); QEP Global Emerging s (offers only A, C, I & A1 shares); RMB Fixed Income (offers only A, C, E & I shares); Wealth Preservation (offers only A, C, E & I shares)*. Shares are generally issued as Accumulation shares. Distribution shares may be issued within any Fund at the Directors discretion. A list of available Distribution shares may be obtained upon request at the Management Company. In accordance with the provisions of the current prospectus, the Directors may also offer classes in multiple currency denominations. The respective Investment Managers have the ability to hedge the shares of such classes in relation to the Fund currency or in relation to currencies in which the relevant Fund's underlying assets are denominated. Where hedging of this kind is undertaken, the respective Investment Managers may engage, for the exclusive account of such share class, in currency forwards, currency futures, currency option transactions and swaps in order to preserve the value of the reference currency against the Fund currency. Where undertaken, the effects of this hedging will be reflected in the Asset and, therefore, in the performance of such additional share class. Similarly, any expenses arising from such hedging transactions will be borne by the class in relation to which they have been incurred. The classes of share available for each Fund are set out in detail in the current prospectus. The Directors may decide from time to time for some or all of the Bond Funds to issue duration hedged share classes. Duration hedged share classes utilise hedging strategies that seek to reduce the share class' sensitivity to changes in interest rate movements. There is no assurance that these hedging strategies will be successful. Where undertaken, the effects of this hedging will be reflected in the Asset and, therefore, in the performance of the share class. Similarly, any expenses arising from such hedging transactions will be borne by the duration hedged share class. The performance of the duration hedged share classes may underperform other share classes in the Bond Funds depending on interest rate movements. Duration hedged share classes can be issued in relation to any type of available share classes of Bond Funds. The naming convention used for the share classes is as follows: A Acc for base currency share class; A Acc CCY for a multicurrency share class; A Acc CCY Hedged for a hedged share class. Initial Charge The Management Company and Distributors are entitled to the initial charge, which can be partly or fully waived at the Directors discretion. A Shares * Initial * charge of up to of the Asset per Share As of 2 April 2013 the initial charges will be as follows: - Equity Funds: Initial charge of up to of the Asset per Share - Asset Allocation Funds: Initial charge of up to of the Asset per Share - Multi-Asset Funds: * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review. Initial charge of up to of the Asset per Share of Funds Asian Diversified Growth, Global Multi-Asset Income, Global Diversified Growth and Japan DGF

19 International Selection Fund Semi-Annual Report 30 June 2013 Notes to the Financial Statements Page 17 Initial Charge * Initial * charge of up to of the Asset per Share of Funds Global Dynamic Balanced and Wealth Preservation * Initial charge of up to of the Asset per Share of Fund Global Conservative - Multi Manager Funds: Initial charge of up to of the Asset per Share of Fund Growth Portfolio Initial charge of up to of the Asset per Share of Fund Balanced Portfolio Initial charge of up to of the Asset per Share of Fund Conservative Portfolio Initial charge of up to of the Asset per Share of Fund Emerging Europe Debt - Absolute Return Funds: Absolute Return Initial charge of up to of the Asset per Share of Funds Asian Bond Absolute Return and Emerging s Debt Absolute Return - Bond Funds: Initial charge of up to of the Asset per Share - Liquidity Funds: None - Currency Funds: Initial charge of up to of the Asset per Share A1 Shares Initial charge of up to of the Asset per Share As of 2 April 2013 the initial charges will be as follows: - Equity Funds: Initial charge of up to of the Asset per Share - Asset Allocation Funds: Initial charge of up to of the Asset per Share Initial charge of up to of the Asset per Share of Funds Asian Diversified - Multi-Asset Funds: Growth, Global Multi-Asset Income, Global Diversified Growth and Japan DGF Initial charge of up to of the Asset per Share of Funds Global Dynamic Balanced and Wealth Preservation * Initial charge of up to of the Asset per Share of Fund Global Conservative - Multi Manager Funds: Initial charge of up to of the Asset per Share of Fund Growth Portfolio Initial charge of up to of the Asset per Share of Fund Balanced Portfolio Initial charge of up to of the Asset per Share of Fund Conservative Portfolio Initial charge of up to of the Asset per Share of Fund Emerging Europe Debt - Absolute Return Funds: Absolute Return Initial charge of up to of the Asset per Share of Funds Asian Bond Absolute Return and Emerging s Debt Absolute Return - Bond Funds: Initial charge of up to of the Asset per Share - Liquidity Funds: None - Currency Funds: Initial charge of up to of the Asset per Share C and E Shares Initial charge of up to of the Asset per Share B, B1, D, I, J and X Shares No initial charge * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review.

20 Page 18 International Selection Fund Semi-Annual Report 30 June 2013 Notes to the Financial Statements Distribution Charge A, C, E, I, J and X Shares No distribution charge B Shares * Equity Funds Distribution charge of 0.60 per annum of the net assets of Funds Absolute Return Funds Distribution charge of 0.50 per annum of the net assets of Funds Bond Funds Distribution charge of 0.50 per annum of the net assets of Funds with the exception of: 0.10 per annum of the net assets of EURO Short Term Bond Liquidity Funds Distribution charge of 0.10 per annum of the net assets of Funds with the exception of: 0.00 per annum of the net assets of US Dollar Liquidity Currency Funds Distribution charge of 0.50 per annum of the net assets of Funds Asset Allocation Funds Distribution charge of 0.60 per annum of the net assets of Funds Multi-Asset Funds 0.50 per annum of the net assets of Fund Wealth Preservation ** 0.60 per annum of the net assets of Funds with the exception of the net assets of Funds Global Multi-Asset Income, Global Dynamic Balanced and Asian Diversified Growth 0.80 per annum of the net assets of Global Diversified Growth D Shares *** Distribution charge of 1.00 per annum of the net assets of Funds A1 Shares *** Distribution charge of 0.50 per annum of the net assets of Funds with the exception of: 0.60 per annum of the net assets of Multi Manager Funds 0.10 per annum of the net assets of EURO Liquidity 0.00 per annum of the net assets of US Dollar Liquidity B1 Shares *** Distribution charge of 1.25 per annum of the net assets of Funds (including a shareholder servicing fee of 0.25 p.a.) with the exception of: 1.30 per annum of the net assets of Balanced Portfolio and Growth Portfolio 1.15 per annum of the net assets of Conservative Portfolio 0.60 per annum of the net assets of Global Conservative Minimum Subscription, Minimum Additional Subscription and Minimum Holding In accordance with the provisions of the current prospectus, minimum amounts for subscription, additional subscription and holding are as follows: A, A1, B, B1 and D Shares The minimum initial subscription, additional subscription and holding amount is EUR 1,000 or 1,000 or their near equivalent in any other freely convertible currency. **** C and E Shares The minimum initial subscription and holding amount is EUR 500,000 or 500,000 or their near equivalent in any other freely convertible currency. The minimum additional subscription amount is EUR 250,000 or 250,000 or their near equivalent in any other freely convertible currency. **** E Shares will only be available, with prior agreement of the Management Company. I & J Shares The minimum initial subscription and holding amount is EUR 5,000,000 or 5,000,000 or their near equivalent in any other freely convertible currency. The minimum additional subscription amount is EUR 2,500,000 or 2,500,000 or their near equivalent in any other freely convertible currency. **** I shares will only be offered to investors who, at the time the relevant subscription order is received, are clients of s with an agreement covering the charging structure relevant to the clients investments in such shares and who are Institutional Investors. J Shares will only be offered to and can only be acquired by Japanese Fund of Funds, which are Institutional Investors. X Shares The minimum initial subscription and holding amount is EUR 25,000,000 or 25,000,000 or their near equivalent in any other freely convertible currency. The minimum additional subscription amount is EUR 12,500,000 or 12,500,000 or their near equivalent in any other freely convertible currency. **** X shares will only be available, with prior agreement of the Management Company, to institutional investors, as may be defined from time to time by the guidelines or recommendations issued by the Luxembourg supervisory authority. Further details on specific features of the different classes of shares and the conditions under which initial and distribution fees are calculated can be found in the current prospectus. * Distribution charges in respect of B shares are payable quarterly. The Fund Emerging Europe Debt Absolute Return (currently classified as a Bond Fund) was renamed Wealth Preservation EUR and reclassified as a Multi-Asset Fund from 1 July The B Shares Distribution Charge for Wealth Preservation EUR will be ** Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review. *** Distribution charges in respect of A1, B1 and D shares are paid at such intervals, as may be agreed upon from time to time between the Company and those Distributors that are appointed specifically for the purpose of distributing such shares. **** These minima may be waived from time to time at the discretion of the Directors.

21 International Selection Fund Semi-Annual Report 30 June 2013 Notes to the Financial Statements Page 19 Asset Calculation of Asset per Share The Asset per share of each class is calculated on each Dealing Day in the currency of the relevant class. It is calculated by dividing the Asset attributable to each class, being the proportionate value of its assets less its liabilities, by the number of shares of such class then in issue. The resulting sum is rounded to the nearest two decimal places. Further details on rules that apply in valuing total assets can be found in the current prospectus. Valuation of the of the Company The value of securities, financial derivative instruments and assets is determined on the basis of the last available price on the stock exchange or any other regulated market on which those securities or assets are traded or admitted for trading. Where such securities or other assets are quoted or dealt in on more than one stock exchange or any other regulated market, the Directors shall make regulations for the order of priority in which stock exchanges or other regulated markets shall be used for the provision of prices of securities or other assets. If a security is not traded on or admitted to any official stock exchange or any other regulated market or, in the case of securities so traded or admitted, the last available price does not reflect their true value, the Directors are required to proceed on the basis of their expected sales price, which shall be valued with prudence and in good faith. Financial derivative instruments, which are not listed on any official stock exchange or any other regulated market, are valued in accordance with market practice. The swaps are valued at their fair value based on the underlying securities (at close of business or intraday) as well as on the characteristics of the underlying commitments. Units or shares in undertakings for collective investments are valued on the basis of their last available net asset value. Liquid assets and money market instruments held within the liquidity Funds are usually valued on an amortised cost basis. The value of any cash in hand or on deposit, bills and demand notes and accounts receivable, prepaid expenses, cash dividends and interest declared or accrued as aforesaid and not yet received shall be deemed to be the full amount thereof, unless in any case the same is unlikely to be paid or received in full, in which case the value thereof shall be arrived at after making such discount as the Company may consider appropriate in such case to reflect the true value thereof. Any assets or liabilities in currencies other than the base currencies of the Funds will be converted using the relevant spot rate quoted by a bank or other responsible financial institution. If any of the aforesaid valuation principles do not reflect the valuation method commonly used in specific markets or if any such valuation principles do not seem accurate for the purpose of determining the value of the Company s assets, the Directors may fix different valuation principles in good faith and in accordance with generally accepted valuation principles and procedures. The Directors are authorised to apply other appropriate valuation principles for the assets of the Funds and/or the assets of a given class if the aforesaid valuation methods appear impossible or inappropriate due to extraordinary circumstances or events. As at 28 June 2013, fair valuation was applied to the following securities: Security Name Fund Anglo Irish Bank corp EUR0.16 Bumi PLC ord GBP0.01 Bumi PLC ord GBP0.01 Caja de Ahorros Del Chaoda Modern Agriculture Daqing Dairy Hldgs LTD Fook Woo Group Hldgs LTD Jurong technologies industrial corp sgd0.10 Longtop Financial Neo Holdings KRW100 Parmalat Finanziaria EUR1 Parmalat Finanziaria EUR1 Parmalat Finanziaria EUR1 Peace mark(hldgs) HKD0.10 Sharps sp i nim 2006-he3n na /Jun/2036 Shengli Oil & Gas Pipe SNS Bank nv /20 SNS bank nv var SNS Bank nv var SNS Reaal Groep nv SNS Reaal Groep nv QEP Global Core QEP Global Active QEP Global Blend QEP Global Core QEP Global Active QEP Global Blend Asian Smaller Companies QEP Global Active Hong Kong Equity Global Emerging s EURO Equity Italian Equity European Equity Alpha European Equity Alpha Strategic Bond Shroder China Opportunities Shroder Global Bond Shroder EURO High Yield Global High Yield QEP Global Active QEP Global Blend

22 Page 20 International Selection Fund Semi-Annual Report 30 June 2013 Notes to the Financial Statements Asset Valuation of the of the Company Security Name Fund Teton advisors inc Valeura energy inc wt exp Ya hsin ind co TWD10 QEP Global Core Global High Yield QEP Global Active Fair Pricing In accordance with the provisions of the current prospectus, fair value pricing may be implemented to protect the interests of the Company s shareholders against market timing practices. Accordingly, if a Fund is primarily invested in markets that are closed for business at the time the Fund is valued, the Directors may, during periods of market volatility and by derogation from the provisions above under Calculation of Asset per share, cause the Fund Administrator to allow for the Asset per share to be adjusted to reflect more accurately the fair value of the Fund s investments at the point of valuation. The level of adjustment is based upon the movement in a chosen surrogate up until the point of valuation, provided that such movement exceeds the threshold as determined by the Directors for the relevant Fund. The surrogate will usually be in the form of a futures index but might also be a basket of securities, which the Directors believe is strongly correlated to and representative of the performance of the Fund. Where an adjustment is made as per the foregoing, it is applied consistently to all classes of shares in the same Fund. During the period under review, fair value pricing was applied to 15 Funds. The Directors, however, reserve the right to extend the implementation of fair value pricing in respect of other Funds whenever they deem it appropriate. The Funds in relation to which fair value pricing was applied during the period under review as well as details of the relevant reference indices, thresholds and surrogates are shown below: Fund Threshold Surrogate Brazilian Equity 0.50 Bovespa Futures Global Climate Change Equity 0.50 S&P 500 Futures Global Demographic Opportunities 0.50 S&P 500 Futures Global Dividend Maximiser 0.50 S&P 500 Futures Global Energy 0.50 S&P 500 Futures Global Equity 0.50 S&P 500 Futures Global Equity Alpha 0.50 S&P 500 Futures Global Equity Yield 0.50 S&P 500 Futures Global Property Securities 0.50 S&P 500 Futures Global Resources Equity 0.50 S&P 500 Futures Global Smaller Companies 0.50 S&P 500 Futures Japanese Equity 0.50 Nikkei 225 Futures Japanese Equity Alpha 0.50 Nikkei 225 Futures Japanese Opportunities 0.50 Nikkei 225 Futures Japanese Smaller Companies 0.50 Nikkei 225 Futures Latin American 0.50 S&P 500 Futures QEP Global Active 0.50 S&P 500 Futures QEP Global Core 0.50 S&P 500 Futures QEP Global Quality 0.50 S&P 500 Futures US Equity Alpha 0.50 S&P 500 Futures US Large Cap 0.50 S&P 500 Futures US Small & Mid-Cap Equity 0.50 S&P 500 Futures US Smaller Companies 0.50 S&P 500 Futures On 28 June 2013, the last working date of the period under review, the following Funds were adjusted. Fund Currency Total Adjustment Brazilian Equity ( 82,293 ) Japanese Equity JPY ( 834,794,142 ) Japanese Equity Alpha JPY ( 41,872,607 ) Japanese Opportunities JPY ( 32,398,752 ) Japanese Smaller Companies JPY ( 76,558,173 ) QEP Japanese Core JPY ( 104,801,022 )

23 International Selection Fund Semi-Annual Report 30 June 2013 Notes to the Financial Statements Page 21 Exchange Rates The exchange rates used for the valuation of the Asset are: 1 EUR = ; 1 EUR = GBP; 1 EUR = CHF; 1 EUR = JPY; 1 EUR = HKD; 1 EUR = Renminbi. Swing Pricing Adjustment A Fund may suffer dilution of the Asset per Share due to investors buying or selling Shares in a Fund at a price that does not reflect the dealing and other costs that arise when security trades are undertaken by the Investment Manager to accommodate cash inflows or outflows. In order to counter this impact, a Swing Pricing mechanism may be adopted to protect the interests of Shareholders of the Fund. If on any Valuation Date, the aggregate net transactions in Shares of a Fund exceed a pre-determined threshold, as determined and reviewed for each Fund on a quarterly basis by the Management Company, the Asset per Share may be adjusted upwards or downwards to reflect net inflows and net outflows respectively. The net inflows and net outflows will be determined by the Management Company based on the latest available information at the time of calculation of the Asset per Share. The Swing Pricing mechanism may be applied across all Funds. The extent of the price adjustment will be set by the Management Company to reflect dealing and other costs. Such adjustment may vary from Fund to Fund and will not exceed 2 of the original Asset per Share. The swing pricing mechanism has been applied to the Company s Funds since 12 January On 28 June 2013, the last working day of the period under review, swing pricing adjustments were applied to 6 Funds. The official Asset s per share of these Funds following the application of the swing pricing adjustment on that date are shown in the following table. All other financial information stated in this report is shown before any adjustments for swing pricing. Asian Smaller Companies Currency Absolute Return EUR EURO Liquidity European Smaller Companies Global Multi-Asset Income Taiwanese Equity EUR EUR EUR Asset per Share (including swing pricing adjustment) as at 28 June 2013 Class A Acc Class A Acc (HKD) Class A Dis Class A Dis (HKD) Class A1 Acc Class A1 Acc () Class A1 Dis Class B Acc Class B Dis Class C Acc Class C Dis Class I Acc Class I Acc (JPY) Class I Dis Class J Dis Class A Acc EUR Hedged Class A Acc GBP Hedged Class A Dis AUD Hedged Class A Dis CNH Hedged Class A Dis EUR Hedged Class A Dis GBP Hedged Class A Dis SGD Hedged Class A1 Acc EUR Hedged Class A1 Dis EUR Hedged Class B Acc EUR Hedged Class B Dis EUR Hedged Class C Acc EUR Hedged Class C Acc GBP Hedged Class C Dis CHF Hedged Class C Dis EUR Hedged Class I Acc EUR Hedged Class I Acc GBP Hedged