Short-Term Investments Company (Global Series) plc (Investment Company with Variable Capital)

Transcription

1 Short-Term Investments Company (Global Series) plc (Investment Company with Variable Capital) Annual Report and Audited Financial Statements for the Year Ended 31 December 2015

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3 TABLE OF CONTENTS Page General Information Investment Advisers Report (US Dollar Liquidity Portfolio, Sterling Liquidity Portfolio and Euro Liquidity Portfolio)..3 Directors Report Statement of Directors Responsibilities Report of the Custodian Independent Auditors Report Statement of Financial Position Statement of Comprehensive Income Statement of Changes in Net Assets Attributable to Redeemable Participating Shareholders Notes to Financial Statements Portfolio Listing (US Dollar Liquidity Portfolio) Portfolio Listing (Sterling Liquidity Portfolio) Portfolio Listing (Euro Liquidity Portfolio) Statement of Significant Changes in Composition of Portfolio (Unaudited) (US Dollar Liquidity Portfolio).54 Statement of Significant Changes in Composition of Portfolio (Unaudited) (Sterling Liquidity Portfolio)...55 Statement of Significant Changes in Composition of Portfolio (Unaudited) (Euro Liquidity Portfolio)

4 GENERAL INFORMATION Short-Term Investments Company (Global Series) plc (the Company ) is constituted as an umbrella fund insofar as the share capital of the Company (the Shares ) is divided into different series of Shares, with each series representing a portfolio of assets which comprise a separate fund (a Portfolio ). At 31 December 2015 three series of Shares have been issued - the US Dollar Liquidity Portfolio, the Sterling Liquidity Portfolio and the Euro Liquidity Portfolio. Shares in the US Dollar Liquidity Portfolio series have been issued in seven classes - the Institutional Class, the Select Class, the Reserve Class, the Corporate Class, the Command Class, the Investor Class and the Institutional Accumulation Class. Shares in the Sterling Liquidity Portfolio have been issued in five classes - the Institutional Class, the Select Class, the Corporate Class, the Command Class and the Institutional Accumulation Class. Shares in the Euro Liquidity Portfolio have been issued in six classes - the Institutional Class, the Select Class, the Reserve Class, the Corporate Class, the Command Class and the Institutional Accumulation Class. Directors: Brian Collins ^(Irish) resigned 30 June 2015 Karen Dunn Kelley (American) Cormac O Sullivan (Irish) John Rowland (British) resigned 2 March 2015 Leslie Schmidt (American) resigned 19 May 2015 Douglas Sharp (Canadian) appointed Chairman 19 May 2015 Dr. Sybille Hofmann (German) appointed 20 April 2015 William Manahan ^(Irish) appointed 25 June 2015 Manager: Investment Adviser: Investment Adviser and Distributor: Legal Advisers: ^ Independent Director Invesco Global Asset Management DAC* Central Quay Riverside IV Sir John Rogerson s Quay Dublin 2 Ireland Invesco Advisers, Inc Peachtree Street, N.E. Atlanta, Georgia United States of America Invesco Global Liquidity (a division of Invesco Asset Management Limited in the UK) Registered Office Perpetual Park Perpetual Park Drive Henley-on-Thames Oxfordshire RG9 1HH United Kingdom Matheson 70 Sir John Rogerson s Quay Dublin 2 Ireland Registered Office: Registered Number: Administrator and Registrar: Custodian: Secretary to the Company and the Manager Independent Auditor: Central Quay Riverside IV Sir John Rogerson s Quay Dublin 2 Ireland BNY Mellon Fund Services (Ireland) Designated Activity Company Guild House Guild Street International Financial Services Centre Dublin 1 Ireland BNY Mellon Trust Company (Ireland) Limited Guild House Guild Street International Financial Services Centre Dublin 1 Ireland Invesco Asset Management Limited Registered Office Perpetual Park Perpetual Park Drive Henley-on-Thames Oxfordshire RG9 1HH United Kingdom PricewaterhouseCoopers One Spencer Dock North Wall Quay Dublin 1 Ireland Sponsoring Broker: J & E Davy Davy House 49 Dawson Street Dublin 2 Ireland *Effective 11 April 2016 the Manager changed its name from Invesco Global Asset Management Limited to Invesco Global Asset Management DAC (Designated Activity Company) 2

5 INVESTMENT ADVISERS REPORT US DOLLAR LIQUIDITY PORTFOLIO Market Recap With the ending of the Asset Purchase Programme ( APP ) in Q the market focus for 2015 switched to when the Federal Reserve Open Market Committee ( FOMC ) might look to increase its target rate. This was a key focus for a number of reasons; the last US hike was back in 2006, outside of the US there were still concerns about the growth outlook and many Emerging economies could be materially disrupted by a stronger US$ as a result of US interest rate increases. Throughout the year the Fed Chairperson, Janet Yellen, aimed to communicate very clearly to the market about the potential timing and particularly the pace of rate increases alongside the economic indicators that it was closely monitoring, namely the labour market and the inflation outlook. To help the FOMC communicate, on a quarterly basis, it also published what has become known as the Fed Dots. In this publication each FOMC member estimated, on an anonymous basis, where they felt the Fed rate would be for the next 2-3 years. The first sign that the timing of a rate hike was approaching was when the Fed, at the 17-18th March meeting, removed the phrase that referred to being patient in beginning to normalise policy. The Fed had previously indicated that patient was at least two months suggesting to some that the first hike could come by June However, the Fed also stated at this meeting that inflationary pressures were still subdued and made reference to the recent strengthening of the US$, which had appreciated by more than 10% on a trade weighted basis in the prior three months. As a result markets decided that it was unlikely there would be a rate increase before September Notwithstanding the relatively clear communications from Fed statements it was clear that amongst the FOMC members there was a wide divergence of views which meant Janet Yellen had to tread a fine line ensuring the market did not get confused about the varying emphasis and particular factors that individual members were commenting on. Economic data continued to improve through the second half of 2015 with the greatest evidence of this being observed in the labour market where the headline unemployment rate continued to fall ending the year at 5%. The other part of the FOMC mandate, namely inflation, was still signalling much more caution with core-personal Consumption Expenditure having fallen since mid-2012 from 2% to 1.3% by the end of Notwithstanding the still benign inflation prints but recognising inflation is a lagging indicator, by early September, many market participants expected a 25 basis points increase in the Federal Funds rate at the FOMC meeting on the 17th September. Although running into the FOMC meeting, on the 17th September, US economic data remained relatively solid the market became focussed on growth worries in China and the increased volatility on their exchange rate. In early August a sharp fall in the value of the Renminbi against the US Dollar saw stock markets plummet in China with the Shanghai Shenzhen CSI 300 Index falling more than 20% in the month before the FOMC meeting. These moves, however, were not limited to China and there was materially increased volatility in many risk assets with, for example, a fall of more than 7% in the S&P500 Index between mid-august 2015 and the 17th September FOMC meeting. In the end, despite the still robust economic picture in the US, the FOMC left rates on hold at their meeting on the 17th September. In the FOMC statement it cited concerns on the global economic outlook and near-term downward pressures on inflation. Initially, the reaction to no hike at the 17th September FOMC meeting saw further weakness in the prices of many risk assets, the S&P 500 fell more than 5% by the end of September as markets speculated there were more problems in the US economy. However, for the remainder of the second half of 2015 there was a marked improvement in global risk assets and, although volatility was still higher than had been the case in the first half of 2015, it had eased and prices steadily improved. Many ascribed this to the fact that investors felt the US would now maintain its zero interest rate policy for longer and in a search for yield, moved funds into riskier assets again. Another way of looking at the factors driving the FOMC thought process was that the increased volatility and fall in risk asset (for example Equity and Corporate Bonds) prices tightened financial conditions ( FCI ) in the US to levels last seen in mid-2012, a time when many investors were contemplating the collapse of the Eurozone project. The FOMC likely took the view that with elevated FCI levels and no signs of domestic inflation they had time to reassess the timing of the first rate increase. By early December FCI levels had eased significantly and gave them confidence to start gradually moving away from their seven year period of zero interest rate policy. On the 16th December the FOMC finally delivered, increasing the Federal Funds Rate to 0.5%. To be precise the rate is a range with a lower and upper bound. Prior to the increase the range was 0% to 0.25%, post, it moved to a range 0.25% to 0.5%. The statement included the sentence the Committee judges that there has been considerable improvement in labour market conditions this year... reasonably confident that inflation will rise, over the medium term, to its 2% objective and recognizing the time it takes for policy actions to affect future economic outcomes. The FOMC also published its latest quarterly projections, where each FOMC voting member projects their expected Fed Fund rate (known as the Fed dots ) would be going forward. For the time periods Q the range, for their forecasts, was %, % and % respectively. The market had a considerably lower trajectory with 0.9%, 1.4% and 1.5% respectively as it still had ongoing concerns over the outlook for China and scepticism that US inflation would move back to the FOMC s target of 2% with current global disinflation still present, especially when the price of oil had fallen almost 50% in the second half of Your Investment Portfolios The US Dollar Liquidity Portfolio invests in high quality US dollar denominated short-term money market instruments such as commercial paper, asset-backed commercial paper, certificates of deposits, medium term notes, and selected repurchase agreements. 3

6 INVESTMENT ADVISERS REPORT (continued) STERLING LIQUIDITY PORTFOLIO Market Recap As in 2014, 2015 saw the Bank of England's ( BoE ) Monetary Policy-setting Committee ( MPC ) leave the UK Bank rate at 0.50% and the size of the Asset Purchases ( AP ) programme unchanged at 375bn. Three month LIBOR averaged 0.57% 3bps higher than 2014 albeit with a good deal more volatility than 2014 as interest rate expectations ebbed and flowed. Although rates remained on hold, two MPC members Ian McCafferty and Martin Weale had been calling for a 0.25% increase since August 2014, however at the January 2015 meeting they both removed their call but by August 2015 McCafferty returned to calling for a 0.25% increase and maintained this position throughout the remainder of The February Quarterly Inflation Report ( QIR ) was a bit of a watershed moment raising the possibility that headline inflation could turn negative. This indeed proved to be correct and headline April consumer price inflation hit -0.1% YoY. This was very short lived, however and the following month rose back to 0.1% YoY. The May QIR did not reveal any particularly new thinking from the BoE but post the May General Election black-out period for MPC members to release speeches, it appeared evident that the majority would like to raise rates in the coming months but still prefer to err on the side of being too late rather than too early. Outside of this core lay the most dovish, Andy Haldane (Chief Economist), who did not rule out the risk of a cut. Overall during H economic data continued to show a steady improvement, most notably in respect of the labour market. The May General Election produced a surprise overall majority for the Conservative Party, albeit a slim one. One key impact from the result of the May General Election was the promise to hold, by the end of 2017, a referendum on the UK s membership of the EU (known as Brexit ). It is more likely that this will be held by the end of 2016 and many businesses will no doubt be grateful for the reduction in the uncertainty of any outcome if it is held sooner rather than later. In the August QIR Mark Carney, the BoE Governor, highlighted the fall in CPI inflation but noted that around 75% of the deviation in inflation from their 2% target was due to energy prices, suggesting that if domestic growth came in line with their expectations they could look through the near term fall in inflation and still increase the Bank Rate despite the current low level of inflation. This would be consistent with their policy of not increasing the Bank Rate even when CPI hit 5.2% in late 2011, well above target, primarily driven, at the time, by the weakness of the UK s trade weighted currency and the rise in oil prices. The November QIR was to some extent a bit of a change in emphasis. Heading into this meeting some investors had, following the comments from Mark Carney in August, expected the BoE to push back on market expectations for the first rise in the Bank Rate for Q Instead of downplaying the fall in inflation however the QIR focussed on increased risks to the global economic backdrop. The market reaction to this more sanguine outlook for the timing of interest rate hikes than the August QIR was minimal suggesting that the BoE/Mark Carney had lost an element of credibility over the last couple of years and markets were now listening less to them and more to the economic fundamentals. In focusing on the economic fundamentals the UK has, like the US, seen a marked improvement in its headline unemployment rate which has fallen from a peak of 8.5%, in late 2011, to 5.2% in the latest data published on 16th December. This is where the similarities between the UK and US end; there are many key differences. Firstly, average earnings have remained very stable. This may be down to the large pool of labour available to UK employers from the wider European region but also due to the fact that many workers are staying on in employment longer so increasing the age range of the available pool compared with historic levels. The BoE have recently made reference to the potential for the low, current and expected level of headline inflation to have a dampening effect on pay awards. Secondly, the UK economy still has a large fiscal austerity programme to implement. Thirdly, the UK is a very open economy and is dependent for a large proportion of its exports to the Euro area; the ongoing weakness in the Euro area will therefore be a hindrance to growth. This is also why the BoE made many references to the downside risks to growth from an increase in trade-weighted Sterling. This had been up almost 9% by the middle of 2015 but had fallen to an increase of only 2.6% over 2015 as a whole as rate expectations were pushed further back during the second half of Some would point to the strength of house prices as a need for the BoE to start raising rates but it has historically viewed this as a blunt tool and preferred to enact macro prudential measures such as limiting loan to income ratios in an effort to stop the housing market overheating. Finally, the uncertainty over Brexit is something that may be postponing an increase in interest rates. Businesses may well be delaying investment and hiring plans until clarity is known on the likely outcome. At this stage a referendum is scheduled for late 2016 but could get pushed into 2017 further increasing uncertainty and dampening potential economic growth. By the end of 2015 market expectations for the first rate increase had settled for Q Your Investment Portfolio The Sterling Liquidity Portfolio invests in high quality sterling denominated money market instruments such as commercial paper, certificates of deposits, time deposits and asset-backed commercial paper. 4

7 INVESTMENT ADVISERS REPORT (continued) EURO LIQUIDITY PORTFOLIO Market Recap The first of the meeting of the European Central Bank s ( ECB ) policy-setting committee in 2015, on the 22nd January, was ground breaking in that the market finally got what it had long been waiting for, namely, Quantitative easing ( QE ). In the announcement the ECB surprised to the upside with a larger than expected 1.1trn Asset Purchase Programme ( APP ) covering both public and private securities. The statement revealed that the buying would continue until at least September 2016, or further if required, until inflation expectations were back in line with the ECB s target of close to but below 2%. This saw a dramatic response from the market with an immediate sharp drop in the Euro. Excess liquidity has also stayed high with further take up of the ECB s Targeted Longer-Term Refinancing Operations ( TLTRO ) programme driving three-month Euribor to a new low of -1.5bps by the end of June. Euribor averaged 2bps in H compared with more than 12bps in H The APP had an impact not only on money market securities but on longer term securities, 30yr German government bond yields fell 80bps and at one stage traded more than 70bps below 30yr Japanese government bond yields. Following the aggressive balance sheet expansion, namely full blown QE, announced in Q1, the second quarter was, as to be expected, much quieter with the market focused on monitoring the buying programme across the various national central banks. The initial positive reaction to the ECB s QE program, that saw 10yr German Government Bond yields fall to an historic low of 7 basis points early in Q2, then saw a very sharp reversal and led to what became known as the Bund tantrum and saw investors lose most of their gains made in Q1 from longer duration European funds. To some extent the Bund tantrum was a sideshow compared to the negotiations between the Troika (ECB, IMF & European Commission) and Greece concerning the receipt of further bailout payments in exchange for Greece undertaking agreed economic reforms. These negotiations initially looked to be moving along quite well but quickly became acrimonious and on the 27th June fell into chaos when Greece decided to call a referendum on whether they should accept the terms being offered to them. A deal was finally agreed on the 14th August when a 3-year 86bn bailout was approved. The issue is unlikely to go away completely as the IMF continue to make the point that without further debt relief, the new deal will not be sustainable based on Greece s projected economic growth profile. There is also the risk that when the time comes to implement the conditions of the bailout, such as pension reform, Greece will have political difficulty in meeting their pre-agreed commitments. The next major event was the decision by the ECB, on the 3rd December, to cut the interest rate on the deposit facility by 0.1% to -0.3%. The interest rates on the main refinancing operation and on the marginal lending facility were left unchanged at 0.05% and 0.3% respectively. In addition the ECB also announced an extension of its APP by six months, taking it until the end of March 2017, or beyond if necessary to achieve their stated inflation target of close to but below 2% over the medium term. The decision was a disappointment to markets where the expectation was for a cut to at least -0.4% for the deposit facility and an extension of the type of asset classes that the ECB would purchase under its APP. A number of comments from various ECB voting members, ahead of the meeting on the 3rd December, had suggested more aggressive action would be taken. As a result market expectations for inflation fell below the levels when the ECB first started cutting in June 2014, implying that the ECB will need to take more action in the coming months. Despite the Greek turmoil, weaker China growth (a key export market for the Euro area), the VW emissions scandal and concerns over refugee migration, the Euro area economy remained relatively stable with the key composite Purchasing Managers Indices (PMI) staying around the 54 level, consistent with annualised quarterly growth of around 1.5%, this is not far below likely trend growth for the region. The key concern for the ECB remains the difficulty in stimulating lending growth not helped by the high level of real yields, partly a function of the very low levels for inflation expectations that are materially below the ECB s target of, close to, but just below 2%. The ECB rates cuts have weakened the Euro trade weighted exchange rate but with currency weakness in some of its key Asian export markets this has not been as effective as it would have liked; the sharp fall in oil prices has also worked against the ECB s reflationary policies. One successful part of ECB policy in 2015 has been its ongoing TLTRO programme which has seen excess liquidity increase steadily from 250bn at the start of 2015 to reach just over 650bn by the end of the year and well on its way to reaching at least 1 trillion by the end of the programme. This has resulted in a downward spiral in Euro money market rates. EONIA has fallen from -8bps at the start of 2015 to -24bps by the end of the year (excluding the sharp year-end spike). In terms of money market rates, for instruments such as commercial paper, a typical 3-month A-1+ issuer, at the end of 2015, was paying a yield of around -40bps. Your Investment Portfolio The Euro Liquidity Portfolio invests in high quality euro denominated money market instruments such as commercial paper, certificates of deposits, time deposits and asset-backed commercial paper. RATINGS The US Dollar and Sterling Liquidity Portfolios are rated Aaa-mf/MR1+ by Moody's Investor Services Limited, AAAm by Standard and Poor's and AAA/V1+ by Fitch Ratings, while the Euro Liquidity Portfolio is rated AAAm by Standard and Poor's and AAA/V1+ by Fitch Ratings. OUR COMMITMENT Invesco is committed to customer service and an investment objective that seeks to maximise current income while preserving capital and maintaining liquidity. As always, we are ready to respond to your comments about this report and any questions you may have about the Portfolios. Please call Invesco in London at Invesco Global Liquidity (A division of Invesco Asset Management Limited) Date: 20 January

8 DIRECTORS REPORT The Directors submit their annual report together with the audited financial statements for the year ended 31 December Principal activities and review of the business The Company is authorised by the Central Bank of Ireland (the Central Bank ) as an Undertaking for Collective Investments in Transferable Securities ( UCITS ) pursuant to the European Communities (Undertakings for Collective Investments in Transferable Securities) Regulations, 2011 (as amended) and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2015 (the UCITS Regulations ). The primary objective of each Portfolio is to maximise current income, consistent with the preservation of principal and liquidity, and to aim to provide a return in line with money market rates. The investment objective of the US Dollar Liquidity Portfolio is to provide as high a level of current income in US Dollars as is consistent with the preservation of capital and liquidity by investing in a diversified portfolio of US Dollar-denominated money market instruments considered by the Investment Adviser to be of high quality. The investment objective of the Sterling Liquidity Portfolio is to provide investors with as high a level of current income in Pounds Sterling as is consistent with the preservation of capital and liquidity by investing in a diversified portfolio of primarily Sterling-denominated money market instruments considered by the Investment Adviser to be of high quality. The investment objective of the Euro Liquidity Portfolio is to provide investors with as high a level of current income in Euro as is consistent with the preservation of capital and liquidity by investing in a diversified portfolio of primarily Euro-denominated money market instruments considered by the Investment Adviser to be of high quality. At the date of the Directors report, the Directors are not aware of any contingent liabilities. Assets, profits and dividends At the year-end the US Dollar Liquidity Portfolio net assets attributable to redeemable participating Shareholders amounted to US$3,695,853,272 (2014: US$4,652,906,290) with net investment income for the year of US$2,809,897 (2014: US$1,307,681); the Sterling Liquidity Portfolio net assets attributable to redeemable participating Shareholders amounted to 849,920,495 (2014: 910,562,879) with net investment income for the year of 3,243,332 (2014: 2,488,860) and the Euro Liquidity Portfolio net assets attributable to redeemable participating Shareholders amounted to 551,230,504 (2014: 451,073,964) with net investment loss for the year of (152,898) (2014: net investment income of 59,174). The net income will continue to be declared daily as a dividend for the Institutional Classes, the Select Classes, the Reserve Classes, the Corporate Classes, the Command Classes and the Investor Classes. The net income attributable to the Institutional Accumulation Classes will not be distributed but will be retained within the classes and shall be reflected in the Net Asset Value per redeemable participating Share. Risk management objectives and policies The primary objective of each Portfolio is to maximise current income, consistent with the preservation of principal and liquidity, and to aim to provide a return in line with money market rates. The individual Portfolios investment objective is to provide investors with as high a level of current income as is consistent with the preservation of capital and liquidity by investing in a diversified portfolio of money market instruments considered by the Investments Advisers to be of high quality. Investment strategies in the Company carry with them a degree of risk including, but not limited to, the risks referred to in Note 11 of these financial statements. The Net Asset Value of each Portfolio may also be affected by uncertainties such as international, political and economic developments, changes in government policies, the possible imposition of withholding taxes on payments of principal or interest income on certificates of deposit, deposits with credit institutions or other relevant obligations held by the Portfolio, or restrictions on foreign investment and other developments in applicable laws and regulations. For a description of the risks and how they are managed, please see Note 11. Future developments The Company will continue its investment objective of providing shareholders with a competitive level of current income consistent with the protection of investor capital and liquidity. The Company has also scheduled changes to the share redemption mechanism and further amendments to the memorandum and articles of the Company in respect of thresholds to close a fund or share class. Events during the year Please refer to Note 18 for details of the significant events that occurred during the year. Subsequent events Please refer to Note 19 for details of the significant events that occurred after the year end. Directors, Secretary and their interests Neither the Directors and their families, nor the Secretary, had any interests in the shares of the Company during the year ended 31 December 2015 or 31 December Statement on Relevant Audit Information So far as each Director is aware, there is no relevant audit information of which the Company s statutory auditors are unaware. The Directors have taken all steps that ought to have been taken by a director in order to make himself/herself aware of any relevant audit information and to establish that the Company s auditors are aware of that information. 6

9 DIRECTORS REPORT (continued) Adequate Accounting Records The Directors are responsible for ensuring that adequate accounting records as outlined in Section 281 of the Companies Act, 2014 are kept by the Company. To achieve this, the Directors have appointed an experienced administrator to ensure compliance with the requirements of Section 281 of the Companies Act, These accounting records are maintained at the administrator s office. Independent Auditors The Independent Auditors, PricewaterhouseCoopers, have indicated their willingness to remain in office in accordance with Section 383(2) of the Companies Act, Statement of Corporate Governance General Principles and Compliance The Board of Directors (the Board ) is committed to maintaining high standards of corporate governance and is accountable to shareholders for the governance of the Company s affairs. Throughout the year under review, the Company has complied with all aspects of the voluntary Corporate Governance Code issued by Irish Funds for Irish Collective Investment Schemes (the IF Code ). The IF Code is available at Composition of the Board The IF Code requires a majority of the Board to be non-executive directors, at least one of whom should be an independent non-executive director. As at the year end, the Board comprises five Directors, all of whom are non-executive. William Manahan is considered to be an independent non-executive director. William Manahan and Cormac O Sullivan are Irish residents and are therefore reasonably available to meet the Central Bank at short notice, if so required. Douglas Sharp is the Chairman of the Company. The Directors have a range of financial and investment management skills and experience relevant to the direction and control of the Company. Brief biographical details of the Directors can be found on pages 8 to 9. Directors Independence The Board has considered the independence of William Manahan and, in addition to meeting the criteria for independence laid down by the IF Code, is satisfied that Mr. Manahan s actions on behalf of the Company demonstrate that he remains independent. Directors Commitment The Board recognises the importance of ensuring that all Directors are able to allocate sufficient time to the Company in order to discharge their responsibilities effectively. As part of the selection and appointment process, potential Directors are provided with an assessment of the time commitment expected (including an estimate of the time required for additional or ad hoc matters) to undertake the requirements of the role. Potential Directors are required to confirm that they have sufficient time to undertake the requirements of the role and to disclose all other significant commitments they have. Once Directors are appointed to the Board, they must disclose any changes to their significant commitments as and when they arise. The significant commitments of the Directors can be found in their individual biographies on pages 8 to 9. Appointment and Tenure of Directors The Board is responsible for reviewing the size, structure and composition of the Board and considering any changes or new appointments. The Board considers that diversity in its membership is beneficial and therefore seeks to ensure that the Board s size, structure and composition, including skills, knowledge, experience and diversity is sufficient for the effective direction and control of the Company. The Directors do not have a formal service contract with the Company. Directors terms and conditions of appointment are set out in letters of appointment, which are available for inspection at the registered office of the Company and will be available at the 2016 Annual General Meeting ( AGM ). The Secretary The Board has direct access to the advice and services of the Secretary, Invesco Asset Management Limited, which is responsible for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The Secretary is also responsible to the Board for ensuring timely delivery of information and reports and that the statutory obligations of the Company are met. Additionally, the Secretary is responsible for advising the Board, through the Chairman, on all governance matters. Conflicts of Interest A Director must avoid a situation where he or she has an interest that conflicts with the Company s interests. In any matter for consideration before the Board where a Director believes that a conflict may arise affecting him or her, then unless otherwise generally agreed in accordance with the provisions of the Companies Act, 2014, he or she shall disclose such conflict to the Board before the issue is considered by the Board. The Directors have the authority to authorise potential conflicts of interest. Firstly, only Directors who have no interest in the matter being considered are able to take the relevant decision, and secondly, in taking the decision the Directors must act in a way they consider, in good faith, will be most likely to promote the Company s success. The Directors have declared any potential conflicts of interest to the Company. 7

10 DIRECTORS REPORT (continued) Directors Development Prior to his or her appointment each new Director is fully briefed as to his or her responsibilities and is continually updated throughout his or her office on industry and regulatory matters. The Manager and Board have a programme of induction training for newly appointed Directors. They have also put arrangements in place to address ongoing training requirements of Directors, which includes regular briefings from, amongst others, key members of the Manager s staff, the auditors, investment strategists, trustees and legal advisors regarding any proposed product developments or changes in laws or regulations that could affect the Company. Board and Directors Performance Appraisal The IF Code requires the Board to undertake a review of the overall performance of the Board and that of individual Directors annually with a formal documented review taking place at least once every three years. The Board carried out its first formal documented review in September In 2015,the Board carried out an informal review by way of one to one discussions between the Chairman and each individual Director covering the performance of the individual directors, the Chairman and the collective Board. The findings indicated that the Directors individually, and the Board as a whole, continued to function efficiently, that the composition of the Board is appropriately aligned to the Company s activities and that the Directors are able to effectively discharge their responsibilities to the Company and its Shareholders. Board Responsibilities The Board is responsible for the Company s overall direction and strategy and to this end it reserves the decision making power on issues such as the determination of medium and long term goals, reviewing managerial performance, organisational structure and capital needs and commitments to achieve the Company s strategic goals. To achieve these responsibilities, the Board meets on a quarterly basis to review the operations of the Company, address matters of strategic importance and to receive reports from the Manager, the Administrator and the Custodian. However, a Director or the Secretary may, on the requisition of a Director, at any time summon a meeting of the Directors. Additional ad-hoc meetings are convened as required. The Board is supplied with information in a timely manner and in a form and of a quality appropriate to enable it to discharge its duties. The Board also approves the Prospectus, circulars to shareholders, listing particulars and other relevant legal documentation. A formal schedule of matters specifically reserved for decision by the Board has been defined. The Directors also have access to the advice and services of the Secretary, external counsel and the resources of the Manager should they be needed. Where necessary, in the furtherance of their duties, the Board and individual Directors may seek independent professional advice at the expense of the Company. Any Director who resigns their position is obliged, if appropriate, to confirm to the Board and the Central Bank that the resignation is not connected with any issues with or claims against the Company. Furthermore, any Director who has concerns about the running of the Company or a proposed course of action may provide a written statement to the Chairman outlining his or her concerns for circulation to the Board or alternatively may have his or her concerns formally recorded in the minutes of a Board meeting. Decisions arising at any meeting of the Directors are determined by a majority of votes. In the case of an equality of votes, the Chairman has a second or casting vote. The quorum necessary for the transaction of business at a meeting of the Directors is two, provided that if a majority of the Directors present are resident outside Ireland, the Directors present, irrespective of their number, shall not constitute a quorum, other than for the purposes of filling vacancies in their number or for summoning general meetings of the Company, but not for any other purpose. The Company has maintained appropriate Directors and officers liability insurance cover throughout the year. Directors Biographies: Karen Dunn Kelley Karen Dunn Kelley (American) is a senior managing director of Investments. She is responsible for Invesco s fundamental equities business, global asset allocation, quantitative strategies, global equities investment teams, equity trading and investment administration. She also leads the Office of Investments at Invesco. She is also co-chair of the Investors Forum, a member of Invesco s Worldwide Institutional Strategy Committee, president and principal executive officer of Short-Term Investments Trust and AIM Treasurer s Series Trust (Invesco Treasurer s Series Trust). Additionally, she serves on the boards for the Short-Term Investments Company (Global Series) plc, Invesco Global Management Co. Ltd and Invesco Mortgage Capital Inc. Ms. Dunn Kelley joined Invesco in 1989 as a money market portfolio manager, and in 1992, she was named chief money market and government officer. In April 2007, she was named chief executive officer of Invesco s newly combined fixed income and cash management teams. Ms. Dunn Kelley began her career at Drexel Burnham Lambert in 1982 on the Fixed Income High Grade Retail Desk, and in 1986, she joined Federated Investors (Pittsburgh) in the Fixed Income Division. Ms. Dunn Kelley graduated magna cum laude with a B.S. from the Villanova University College of Commerce and Finance. She is a member of the Women s Bond Club of New York and a founding member of the Invesco Women s Network. She is also involved in a number of boards and activities in Pittsburgh Cormac O Sullivan Cormac O Sullivan (Irish) is Head of the Program Management Office (Europe), part of a global group, which provides project management consultancy and support across the Invesco organisation. Mr. O Sullivan joined Invesco in 2000 and has served in various management roles and capacities. In 2010 he was appointed Head of the Dublin Office with responsibility for the effective oversight and coordination of risk, controls and communications of that office. He is a member of EMEA Operations Management Group. Mr. O Sullivan is a Director of Invesco Global Asset Management DAC, an Irish management company. He is also a Director of a number of Invesco promoted funds. Prior to joining Invesco in 2000, Mr. O Sullivan worked with the Bank of Ireland in a number of progressive roles within their information technology division. Mr. O Sullivan is a member of the Institute of Bankers in Ireland. 8

11 DIRECTORS REPORT (continued) Directors Biographies (continued): Douglas Sharp (Chairman effective 19 May 2015) Douglas Sharp (Canadian) is the head of EMEA Retail for Invesco. In this role, he leads the retail business across the UK, Continental Europe and the Middle East, including direct responsibility for sales, marketing and product development efforts. Mr. Sharp is also responsible for the Exchange-Traded Fund business across EMEA. Prior to this role, he served as the head of Cross-border Retail, and was also the head of Strategy and Business Planning for Invesco. Mr. Sharp joined Invesco from the strategy consulting firm McKinsey & Co. where he served clients in the financial services, energy and logistics sectors. Mr. Sharp earned an MBA from the Tuck School of Business at Dartmouth College, a master s degree in accounting from Georgia State University, and a BA in economics from McGill University. Mr. Sharp was appointed chairman of the Company effective 19 May Dr. Sybille Hofmann Sybille Hofmann (German) is responsible for the effective coordination of operational activity supporting the Invesco EMEA Business. She oversees the outsourced Transfer Agency and Fund Accounting as well as general delegation and is a director of a number of Invesco promoted funds. Between July 2012 and February 2015 she led the European Risk function and held a number of other responsibilities within Invesco before, including Chief Administration Officer for Administration, Risk Management roles for Operations & Technology and Non-North-America and Chief Operations & Services Officer at Invesco Continental Europe. Prior to joining Invesco in 2003, Dr. Hofmann spent twelve years working in a variety of roles at Deutsche Bank in Frankfurt and London. She studied Mathematics and Physics at the University of Bayreuth (Germany), where she completed her Doctorate in Mathematics. Sybille also holds an MBA from Henley Management College (UK). Dr. Hofmann was appointed as a Director of the Company effective 20 April William Manahan (Independent Director) William Manahan (Irish) has spent over thirty years in Asset Management and Asset Servicing as a Sales and Services Manager for Bank of Ireland Asset Management and was a founding Director of Bank of Ireland Securities Services. As CEO of Bank of Ireland Securities Services he set strategic direction for the business, agreed and delivered on specific goals and increased profitability on an annual basis. More recently he has acted as a Risk Advisor to the Central Bank of Ireland. Mr. Manahan is a past council member of the Irish Funds Industry Association and past Chairman of the association through He currently acts as an independent Non-Executive Director to Fund companies. Mr. Manahan was appointed as a Director of the Company effective 25 June Internal Control and Risk Management Systems in Relation to Financial Reporting The Board has the ultimate responsibility for the management and supervision of the Company, including oversight of the risk management function. The Board meets on a regular basis, at least quarterly, to oversee the general management, including oversight of the risk management function so that all applicable laws pertaining to the Company and Portfolios under management can be identified, monitored and managed at all times, including review of reports from the Manager, Administrator and Custodian to the Company. The Board is also responsible for ensuring that financial information published or used within the business is reliable, and for regularly monitoring compliance with regulations governing the operation of the Company. The Board regularly reviews the effectiveness of the internal control systems in order to identify, evaluate and manage the Company s significant risks. As part of this process, there are procedures designed to capture and evaluate any failings or weaknesses. Should a case be categorised by the Board as significant, procedures exist to ensure that necessary action is taken to remedy the failings. The Board is not aware of any significant failings or weaknesses in internal control arising in the year under review. As the management and administration of the Company is delegated to the Manager, Administrator and Custodian, the control processes of the risks identified, covering financial, operational, compliance and risk management, are embedded in the operations of the Manager, Administrator and Custodian. There is a monitoring and reporting process to review these controls, which has been in place throughout the year under review and up to the date of this report, carried out by the Manager s corporate audit department. It is not necessary for the Company to have its own internal audit function because all of the management and administration of the Company is delegated to the Manager, Administrator and Custodian. The Board recognises that these control systems can only be designed to manage rather than eliminate the risk of failure to achieve fund objectives, and to provide reasonable, but not absolute, assurance against material misstatement or loss, and relies on the operating controls established by the service providers. During the year ended 31 December 2015, the Board was responsible for the review and approval of the annual financial statements as set out in the Statement of Directors Responsibilities. It is a statutory requirement that the annual financial statements are audited by one or more persons empowered to audit accounts in accordance with the Companies Act, 2014 and in this regard the Board, on the Company s behalf, engages the independent auditor. The annual financial statements of the Company are produced by the Administrator, reviewed by the Manager and presented to the Board. The Board ensures that records are correctly maintained to support the production of the annual financial statements. As part of its review procedures the Board receives presentations from relevant parties including consideration of Irish accounting standards and their impact on the annual financial statements, and presentations and reports on the audit process. Once the annual financial statements are approved by the Board, the annual financial statements are filed with the Central Bank and the Irish Stock Exchange. 9

12 DIRECTORS REPORT (continued) Shareholder Relations Shareholder relations are given high priority by the Board and the Manager. Direct contact with shareholders is usually through the Manager who then reports back to the Directors and this is normally the main forum through which the Directors develop an understanding of the views of major shareholders. However, the Directors are always available to discuss any concerns or views of shareholders. The Company also communicates to shareholders through the annual and half-yearly financial statements, which aim to provide shareholders with a full understanding of the Company s activities and its results. All shareholders are encouraged to attend the AGM to discuss the business tabled and to exercise their voting rights. Shareholders wishing to lodge questions in advance of the AGM are invited to do so, either on the reverse of the proxy card, via the Company s website or in writing to the Secretary at the address given on page 2. Shareholder Meetings and Shareholder Rights Shareholder meetings are governed by the Article of Association (the Articles ) and the Companies Act, Although the Directors may convene an extraordinary general meeting ( EGM ) of the Company at any time, the Directors are required to convene an AGM within fifteen months of the date of the previous AGM provided that an AGM is held once in each year within six months of the financial year end of the Company. If at any time, there are not sufficient Directors capable of forming a quorum, any Director or one Shareholder of the Company may convene an EGM in the same manner as nearly as possible as that in which general meetings may be convened by the Directors. At least twenty-one clear days' notice shall be given for all general meetings, except an EGM at which no Special Resolution is to be considered, in which case not less than fourteen clear days notice shall be given. A Shareholder entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of him and that a proxy need not also be a Shareholder. No business shall be transacted at any general meeting unless a quorum is present. Two Shareholders present either in person or by proxy shall be a quorum for a general meeting. If within half an hour after the time appointed for a meeting a quorum is not present, the meeting, if convened on the requisition of or by Shareholders, shall be dissolved. In any other case it shall stand adjourned to the same day in the next week, at the same time and place or to such other day and at such other time and place as the Directors may determine. At any general meeting, a resolution shall be decided on a show of hands unless before or upon the declaration of the result of the show of hands a poll is demanded by the chairman or by at least three Shareholders present in person or by proxy or any Shareholders present representing at least one tenth of the total voting rights of all the Shareholders concerned having the right to vote at the meeting or a Shareholder or Shareholders holding shares conferring the right to vote at the meeting, being shares on which an aggregate sum has been paid up equal to not less than ten per cent of the total sum paid up on all the shares conferring that right. In the case of an equality of votes, the chairman of the meeting shall be entitled to a second or casting vote. Subject to any special rights or restrictions attached to any class of shares: (i) on a show of hands every Shareholder holding Participating Shares who is present in person or by proxy shall have one vote and the Shareholder or Shareholders as the case may be holding Subscriber Shares present in person or by proxy shall only have one vote in respect of all the Subscriber Shares; (ii) on a poll of all the Shareholders, every Shareholder present in person or by proxy shall be entitled to one vote in respect of his holding of Subscriber Shares and to one vote in respect of each whole Participating Share held by him and a proportional fractional vote in respect of each fractional Share held by him. On a poll votes may be given either personally or by proxy. Connected Party Transactions The Directors are satisfied that there are arrangements (evidenced by written procedures) in place, to ensure that the obligations set out in Chapter 10 of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2015 are applied to all transactions with connected parties. The Directors are satisfied that transactions with connected parties entered into during the year complied with these obligations. A connected party is defined as the manager, trustee, investment adviser and/or associated or group companies of these. Approved on behalf of the Board Cormac O Sullivan Director Date: 20 April 2016 William Manahan Director 10