Distribution Number 23

Transcription

1 Distribution Number 23 Legal & General Ethical Trust Annual Manager s Report for the year ended 12 December 2016

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3 Contents Page Number Manager s Investment Report* Authorised Status* Directors Statement Statement of the Manager s Responsibilities Statement of the Trustee s Responsibilities Report of the Trustee Portfolio Statement* Independent Auditors Report Statement of Total Return Statement of Change in Net Assets attributable to Unitholders Balance Sheet Notes to the Financial Statements Distribution Tables Trust Information* Risk and Reward Profile* General Information* * These collectively comprise the Authorised Fund Manager s Report. 1

4 Manager s Investment Report Investment Objective and Policy The investment objective of this Trust is to secure capital growth from a portfolio of securities for companies whose business conforms to a range of ethical and environmental guidelines. Securities representing all such companies in the FTSE 350 Index will be held with weightings generally proportionate to their market capitalisation. From time to time non-index constituents and non-ethical stocks may be held as a result of a corporate action and these holdings will be sold or transferred as soon as reasonably practical. Companies will be considered eligible unless they are involved in the following activities: Animal testing Military nature of involvement Gambling Non-sustainable Timber Health & safety convictions Nuclear power Countries with poor human Ozone depleting chemicals rights records Pornography Intensive farming Tobacco Investment Trusts Water pollution Independent monitoring of companies is carried out by Ethical Investment Research Services ( EIRIS ) based on the criteria above. Manager s Investment Report During the year under review, the bid price of the Trust s R-Class distribution units increased by 0.48%. Although there is no published Index for those companies assessed as eligible by EIRIS, for comparison, over the review year, the FTSE 350 Index (excluding Investment Trusts) increased by 13.71%; similarly, the broader based FTSE All-Share Index (excluding Investment Trusts) increased by 13.63% (Source: Bloomberg). Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up. Market/Economic Review Global equity markets have been volatile over the last 12 months, recording heavy losses during the opening weeks of 2016, on concerns over the economic outlook for China and further weakness in commodity markets. The performance of major oil producers and mining stocks has mirrored commodity prices, with the oil price plummeting to below $30/barrel, its lowest level since 2004 in February 2016, before rebounding in the latter part of the year. As a result, energy companies continue to place a strong emphasis on cost cutting to maintain profit margins. In the aftermath of the UK vote to leave the European Union in the June referendum, Sterling fell to a 31-year low against the US Dollar. UK equities initially fell before being led higher by globally focused large cap stocks, while share prices of more domestically focused mid-cap and smaller companies were weaker in comparison. 2

5 Manager s Investment Report continued The Trust s selection process excludes the Tobacco and Military industries, while the Oil & Gas, Beverages and Pharmaceuticals & Biotechnology sectors are markedly underweight. Such exclusions are compensated for by an increased presence in Life Insurance, Mobile Telecommunications and Financial sectors. There are three principal reasons for changes to the distribution of investments in the Trust: first, changes in the list of companies which meet the ethical criteria; second, changes in the FTSE 350 Index (excluding Investment Trusts) at its quarterly review; and finally, changes due to corporate activity and takeovers. FTSE rebalances the Index every quarter and companies added to the Index are only added to the Trust once confirmation of their acceptability for inclusion is received from EIRIS. There were four Index reviews during the period. At the quarterly Index review in December 2015, there were four additions and five deletions. Worldpay, Ibstock and Hastings Group Holdings were new stocks added to the FTSE All-Share universe, whilst Assura was a promotion from the FTSE SmallCap Index; all of these stocks were subsequently assessed as eligible by EIRIS. These companies replaced Foxtons, Hunting, Premier Oil, Petra Diamonds and Kaz Minerals, which were all demoted to the FTSE SmallCap Index. At the quarterly Index review in March 2016, there were four additions and four deletions. Paysafe, McCarthy & Stone and Softcat were new stocks added to the FTSE All-Share universe, whilst Kaz Minerals was a promotion from the FTSE SmallCap Index; all of these stocks were subsequently assessed as eligible by EIRIS. These companies replaced Enterprise Inns, Poundland, Nostrum Oil & Gas (all demoted to the FTSE SmallCap Index) and 888 Holdings (which was deleted from the FTSE All-Share Universe, and remains classified as unacceptable by EIRIS). At the quarterly Index review in June 2016, there were seven additions and six deletions. Most notable additions were CYBG, Metro Bank and Hill & Smith; all of these stocks were subsequently assessed as eligible by EIRIS apart from Smurfit Kappa Group and Countryside Properties. The additions replaced Melrose, Northgate, Ophir Energy, Interserve, Lookers and Jimmy Choo. At the quarterly Index review in September 2016, there were two additions and two deletions. Of the additions only Hunting was subsequently assessed as eligible by EIRIS whilst GVC was deemed unacceptable. These companies replaced Pendragon and Circassia Pharmaceuticals. There was significant cross-border merger and acquisition (M&A) activity that impacted the Trust outside the Index reviews. These included HellermannTyton s deletion in December, following its acquisition by Delphi Automotive (US, non-index constituent); Pace (also in December), following its acquisition by Arris (US, non-index constituent); Telecity in January, following its acquisition by Equinix (US, non-index constituent); Amlin in February, following its acquisition by Mitsui Sumitomo Insurance Company 3

6 Manager s Investment Report continued (Japan, non-index constituent); Al Noor following its merger with Mediclinic Int l (South Africa, now listed in the FTSE 100 Index as Mediclinic Int l, and which was also added to the Index in February following Al Noor s deletion); Cable & Wireless in May, following its acquisition by Liberty Global (US, non-index constituent), ARM Holdings which was deleted from the Index in September following its acquisition by SoftBank (Japan, non-index constituent) for 23bn; beverage can distributer Rexam taken over by Ball Corp in the US; and retailer Darty bought by the French company FNAC. Cross border M&A activity occurring outside of the reviews as a result of acquisitions by Index constituents included Shire s (a FTSE 100 Index constituent) acquisition of Baxalta (US, non-index constituent) in June. There were deletions occurring outside of the reviews, as a result of M&A activity between Index constituents; these included Home Retail Group which was acquired by Sainsbury s (constituent) who consequently increased their freely available market capitalisation. During the review year, further activity in the ethical screening resulted in both Essentra and Relx becoming unacceptable, whilst McCarthy & Stone, Paysafe and Softcat all became acceptable. The three largest stocks in the Trust at the end of the review year were Vodafone (6.14%), Prudential (4.71%) and Lloyds Banking Group (4.60%). Outlook In the immediate aftermath of the EU referendum, domestic political uncertainty diminished with; the quick appointment of a new Prime Minister, a more measured approach to EU relations and the speedy reduction of interest rates to 0.25% by the Bank of England. In the fourth quarter of 2016, Trump s election as the next US president and Renzi s referendum defeat has taken the spotlight from Brexit uncertainty. Nonetheless, UK economic data continues to surprise to the upside and it s becoming increasingly clear that the hit to activity from Brexit is much smaller than initially feared. The latest upside surprise, came from the Manufacturing PMI, which rebounded to This is noteworthy as it was one of the most important negative outliers of post Brexit data and part of the Bank of England s argument for cutting rates. With a new government and a new Chancellor, a clean sheet of paper reduces the need to stick to previous austerity promises. In the autumn budget, the Chancellor has clearly favoured longer-term infrastructure rather than some of the quick giveaways he could have opted for such as VAT cuts, income tax cuts or stamp duty changes. This policy should help boost growth in the medium to long term but the consequences of the fall in the exchange rate is expected to be felt more strongly during 2017 raising questions about future growth expectations. Given this backdrop of uncertainty the Trust remains well positioned to capture the performance of the Index. Legal & General Investment Management Limited (Investment Adviser) 30 December

7 Authorised Status Authorised Status This Trust is an Authorised Unit Trust Scheme as defined in section 243 of the Financial Services and Markets Act 2000 and is a UCITS Retail Scheme within the meaning of the FCA Collective Investment Schemes sourcebook. Directors Statement We hereby certify that this Manager s Report has been prepared in accordance with the requirements of the FCA Collective Investment Schemes sourcebook. A. J. C. Craven S. D. Thomas (Director) (Director) Legal & General (Unit Trust Managers) Limited 1 February

8 Statement of Responsibilities Statement of the Manager s Responsibilities The Manager of the Trust is required by the FCA Collective Investment Schemes sourcebook (COLL) to prepare financial statements for each accounting period which give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the net revenue and the net capital gains or losses on the Scheme property for the accounting period, and the financial position of the Trust at the end of that period. In preparing these financial statements, the Manager is required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are prudent and reasonable; state whether applicable Accounting Standards have been followed, subject to any material departure disclosed and explained in the financial statements; and prepare the financial statements on the basis that the Trust will continue in operation unless it is inappropriate to presume this. The Manager is also required to manage the Trust in accordance with the Trust Deed, the Prospectus and the COLL, maintain proper accounting records to enable them to ensure that the financial statements comply with the Statement of Recommended Practice for UK Authorised Funds issued by The Investment Association in May 2014 and the COLL and take in these respects reasonable steps for the prevention and detection of fraud and other irregularities. 6

9 Statement of Responsibilities continued Statement of the Trustee s Responsibilities The Depositary in its capacity as Trustee of Legal & General Ethical Trust must ensure that the Trust is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook, the Financial Services and Markets Act 2000, as amended, (together the Regulations ), the Trust Deed and Prospectus (together the Scheme documents ) as detailed below. The Depositary must in the context of its role act honestly, fairly, professionally, independently and in the interests of the Trust and its investors. The Depositary is responsible for the safekeeping all of custodial assets and maintaining a record of all other assets of the Trust in accordance with the Regulations. The Depositary must ensure that: the Trust s cash flows are properly monitored and that cash of the Trust is booked in cash accounts in accordance with the Regulations; the sale, issue, repurchase, redemption and cancellation of units are carried out in accordance with the Regulations; the value of units of the Trust are calculated in accordance with the Regulations; any consideration relating to transactions in the Trust s assets is remitted to the Trust within the usual time limits the Trust s income is applied in accordance with the Regulations; and the instructions of the Authorised Fund Manager ( the AFM ), which is the UCITS Management Company, are carried out (unless they conflict with the Regulations). The Depositary also has a duty to take reasonable care to ensure that the Trust is managed in accordance with the Regulations and the Scheme documents of the Trust in relation to the investment and borrowing powers applicable to the Trust. 7

10 Report of the Trustee Report of the Trustee to the Unitholders of the Legal & General Ethical Trust ( the Trust ) for the year ended 12 December 2016 Having carried out such procedures as we considered necessary to discharge our responsibilities as Depositary of the Trust, it is our opinion, based on the information available to us and the explanations provided, that, in all material respects the Trust, acting through the AFM: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Trust s units and the application of the Trust s income in accordance with the Regulations and the Scheme documents of the Trust; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Trust in accordance with the Regulations and the Scheme documents of the Trust. Northern Trust Global Services Limited UK Trustee and Depositary Services 1 February

11 Portfolio Statement Portfolio Statement as at 12 December 2016 All investments are in ordinary shares. The percentages in brackets show the equivalent sector holdings at 12 December Holding/ Market % of Nominal Value Net Value Investment Oil & Gas Producers 0.51% (0.40%) Assets 207,897 Cairn Energy 470, ,043 Tullow Oil 1,114, ,584, Oil Equipment, Services & Distribution 0.09% (0.04%) 44,681 Hunting 280, Chemicals 0.97% (0.88%) 69,640 Johnson Matthey 2,097, ,197 Synthomer 360, ,424 Victrex 545, ,003, Forestry & Paper 0.67% (0.55%) 131,542 Mondi 2,077, Industrial Metals & Mining 0.15% (0.04%) 169,312 Evraz 453, Mining 2.01% (1.12%) 55,107 African Barrick Gold 218, ,901 Antofagasta 993, ,386 Centamin Egypt 498, ,096 Fresnillo 705, ,000 Hochschild Mining 194, ,958 Kaz Minerals 378, ,000 Petra Diamonds 314, ,326 Polymental International 670, ,516 Randgold Resources 1,930, ,856 Vedanta Resources 327, ,231, Construction & Materials 2.78% (1.90%) 299,116 CRH 8,049, ,086 Ibstock 168, ,716 Keller Group 206, ,168 Polypipe Group 198, ,622, General Industrials 0.87% (1.31%) 117,972 RPC Group 1,268, ,784 Smith (DS) 1,426, ,694, Electronic & Electrical Equipment 0.80% (0.81%) 134,432 Halma 1,213, ,744 Renishaw 337, ,948 Spectris 938, ,490,

12 Portfolio Statement continued 10 Holding/ Nominal Value Investment Market Value % of Net Assets Industrial Engineering 1.66% (1.25%) 69,187 Bodycote 432, ,047 Hill & Smith 328, ,265 IMI 996, ,169 Rotork 783, ,074 Spirax-Sarco Engineering 1,150, ,265 Weir Group 1,452, ,143, Industrial Transportation 0.62% (0.54%) 8,733 Clarkson 183, ,224 James Fisher & Sons 245, ,611 Royal Mail 1,498, ,927, Support Services 8.17% (7.41%) 209,449 AA 583, ,870 Bunzl 2,489, ,419 Capita Group 1,125, ,596 Diploma 420, ,636 Electrocomponents 758, ,575 Experian 5,161, ,061 Grafton Group 444, ,128 Hays 751, ,516 Homeserve 511, ,506 Howden Joinery Group 811, ,387 Intertek Group 1,935, ,539 Michael Page International 429, ,598 Mitie Group 312, ,975 PayPoint 240, ,706 Paysafe 652, ,288 Rentokil Initial 1,391, ,763 Travis Perkins 1,271, ,609 Wolseley 4,505, ,541 Worldpay 1,544, ,342, Beverages 0.58% (0.59%) 32,911 A.G. Barr 160, ,198 Britvic 485, ,887 Coca-Cola HBC 1,159, ,805, Food Producers 0.72% (0.69%) 18,504 Cranswick 410, ,571 Dairy Crest Group 296, ,080 Greencore Group 339, ,209 Greencore Rights 77, ,244 Tate & Lyle 1,104, ,229, Household Goods & Home Construction 2.29% (2.78%) 358,218 Barratt Developments 1,643, ,307 Bellway 1,072, ,347 Berkeley Group 1,275, ,828 Bovis Homes Group 424,

13 Portfolio Statement continued Holding/ Market % of Nominal Value Net Value Investment Assets Household Goods & Home Construction (cont.) 89,305 Crest Nicholson Holdings 413, ,824 McCarthy & Stone 168, ,243 Redrow Group 332, ,175,537 Taylor Wimpey 1,783, ,113, Personal Goods 1.03% (0.85%) 159,262 Burberry Group 2,314, ,324 PZ Cussons 335, ,292 Supergroup 297, ,881 Ted Baker 260, ,206, Health Care Equipment & Services 1.96% (1.58%) 141,768 Mediclinic International 1,044, ,572 NMC Health 328, ,174 Smith & Nephew 3,730, ,908 Spire Healthcare Group 363, ,225 United Drug 612, ,080, Pharmaceuticals & Biotechnology 5.70% (4.07%) 137,783 BTG 776, ,392 Dechra Pharmaceuticals 461, ,760 Genus 388, ,048 Hikma Pharmaceuticals 822, ,026 Indivior 759, ,220 Shire 14,138, ,021 Vectura Group 342, ,689, Food & Drug Retailers 3.31% (2.63%) 38,037 Greggs 357, ,611 Morrison (Wm) Supermarkets 1,736, ,054 Ocado Group 382, ,402 Sainsbury (J) 1,488, ,937,756 Tesco 6,310, ,274, General Retailers 4.03% (4.83%) 57,858 AO World 106, ,672 B&M European Value Retail 620, ,641 Brown (N) Group 117, ,467 Card Factory 235, ,144 Debenhams 271, ,649 DFS Furniture 135, ,742 Dignity 424, ,472 Dixons Carphone 1,299, ,555 Dunelm Group 274, ,787 Halfords Group 272, ,970 JD Sports Fashion 450, ,448 Just Eat 1,171, ,309 Kingfisher 2,750, ,303 Next 2,471,

14 Portfolio Statement continued Holding/ Nominal Value Investment Market Value % of Net Assets General Retailers (cont.) 132,265 Pets at Home Group 306, ,973 Saga 763, ,784 Sports Direct International 276, ,060 WH Smith 564, ,513, Media 6.94% (5.80%) 58,935 Ascential 155, ,531 Auto Trader Group 1,440, ,937 BSkyB 3,831, ,215 Entertainment One 305, ,457 Euromoney Institutional Investor 175, ,975 Informa 1,957, ,374,310 ITV 2,554, ,155 Moneysupermarket.com Group 537, ,845 Rightmove 1,251, ,778 United Business Media 1,047, ,677 WPP 8,001, ,052 Zoopla Property Group 269, ,528, Travel & Leisure 5.68% (6.36%) 66,183 Carnival 2,677, ,722 Cineworld Group 390, ,613 Domino's Pizza UK & Ireland 607, ,842 easyjet 880, ,119 FirstGroup 444, ,854 Go-Ahead Group 345, ,639 Greene King 768, ,429 Intercontinental Hotels Group 2,414, ,256 International Consolidated Airlines Group 2,623, ,477 Marston s 285, ,937 Merlin Entertainments 1,098, ,920 Millennium & Copthorne Hotels 203, ,740 Mitchells & Butlers 198, ,148 National Express 505, ,085 Restaurant Group 249, ,338 SSP Group 642, ,610 Thomas Cook Group 471, ,282 Wetherspoon (JD) 240, ,168 Whitbread 2,294, ,010 Wizz Air 292, ,633, Fixed Line Telecommunications 3.59% (5.05%) 3,023,355 BT Group 10,569, ,705 TalkTalk Telecom Group 316, ,873 Telecom Plus 248, ,134, Mobile Telecommunications 6.52% (7.11%) 162,807 Inmarsat 1,192, ,589,949 Vodafone Group 19,040, ,233,

15 Portfolio Statement continued Holding/ Market % of Nominal Value Net Value Investment Assets Electricity 1.89% (1.77%) 145,848 Drax Group 448, ,897 Scottish & Southern Energy 5,407, ,856, Gas, Water & Multi-utilities 4.02% (4.03%) 1,363,522 National Grid 12,465, Banks 6.26% (6.56%) 69,192 Aldermore Group 156, ,264 Bank of Georgia Holdings 401, ,284 CYBG 847, ,244,001 Lloyds Banking Group 14,271, ,507 Metro Bank 830, ,173,275 Royal Bank of Scotland 2,544, ,161 Shawbrook Group 99, ,911 Virgin Money Holdings 274, ,427, Nonlife Insurance 1.98% (2.30%) 72,586 Admiral Group 1,308, ,430 Beazley 723, ,716 Direct Line Insurance Group 1,753, ,567 Esure Group 188, ,596 Hastings Group Holdings 229, ,697 Hiscox 1,015, ,749 Jardine Lloyd Thompson Group 446, ,730 Lancashire Holdings 478, ,142, Life Insurance 10.47% (10.32%) 1,459,109 Aviva 6,973, ,397 Just Retirement Group 248, ,144,332 Legal & General Group 5,169, ,447 Phoenix Group 999, ,629 Prudential 14,615, ,413 St James's Place Capital 1,861, ,993 Standard Life 2,630, ,497, Real Estate Investment & Services 0.90% (1.23%) 245,241 Capital & Counties Properties 729, ,496 CLS Holdings 85, ,036 Countrywide 94, ,676 Daejan Holdings 103, ,110 Grainger Trust 374, ,646 Kennedy Wilson Europe Real Estate 419, ,283 Savills 326, ,380 St Modwen Properties 217, ,729 Unite Group 448, ,799, Real Estate Investment Trusts 4.33% (5.11%) 595,394 Assura 342, ,712 Big Yellow Group 336, ,578 British Land 2,257,

16 Portfolio Statement continued Holding/ Nominal Value Investment Market Value % of Net Assets Real Estate Investment Trusts (cont.) 331,417 Capital Shopping Centres 889, ,068 Derwent London 954, ,117 Great Portland Estates 799, ,394 Hammerson 1,548, ,638 Hansteen Holdings 292, ,472 Land Securities 2,831, ,513 London & Stamford Property 283, ,270 Redefine International 167, ,281 Safestore Holdings 247, ,247 SEGRO 1,307, ,719 Shaftesbury 880, ,975 Workspace Group 313, ,452, Financial Services 6.19% (5.99%) 347,255 3i Group 2,356, ,695 Aberdeen Asset Management 932, ,673 Allied Minds 192, ,088 Ashmore Group 399, ,615 Brewin Dolphin 277, ,397 Close Brothers Group 687, ,162 CMC Markets 34, ,502 Hargreaves Lansdown 1,068, ,389 Henderson Group 890, ,897 ICAP 892, ,327 Intermediate Capital 688, ,935 International Personal Finance 140, ,061 Investec 1,222, ,017 IP Group 336, ,848 John Laing Group 380, ,077 Jupiter Fund Management 648, ,358 London Stock Exchange 3,118, ,080 Man Group 651, ,500 Onesavings Bank 102, ,544 Paragon Group 389, ,486 Provident Financial 1,438, ,832 Rathbone Brothers 354, ,899 Schroders 1,198, ,717 SVG Capital 409, ,503 Tullett Prebon 389, ,200, Software & Computer Services 1.80% (1.70%) 23,086 Aveva Group 409, ,648 Computacenter 217, ,949 Fidessa Group 341, ,692 Micro Focus International 1,690, ,604 NCC Group 187, ,905 Sage Group 2,418, ,442 Softcat 108, ,048 Sophos Group 206, ,579, Technology Hardware & Equipment 0.05% (2.07%) 101,361 Laird 156,

17 Portfolio Statement continued Market % of Value Net Assets Portfolio of investments 308,873, Net other assets 1,431, Total net assets 310,304, % Total purchases for the year: 69,396,564 Total sales for the year: 50,853,394 15

18 Independent Auditors Report Independent Auditors Report to the Unitholders of Legal & General Ethical Trust (the Trust ) Report on the financial statements Our opinion In our opinion, Legal & General Ethical Trust s financial statements, (the financial statements ): give a true and fair view of the financial position of the Trust as at 12 December 2016 and of the net revenue and the net capital gains of the scheme property of the Trust for the year then ended; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, the Statement of Recommended Practice for UK Authorised Funds, the Collective Investment Schemes sourcebook and the Trust Deed. What we have audited The financial statements, which are prepared by Legal & General (Unit Trust Managers) Limited (the Authorised Fund Manager ), comprise: the balance sheet as at 12 December 2016; the statement of total return for the year then ended; the statement of change in net assets attributable to unitholders for the year then ended; the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information; and the distribution tables The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), the Statement of Recommended Practice Financial Statements of UK Authorised Funds issued by the Investment Management Association (the Statement of Recommended Practice for UK Authorised Funds ), the Collective Investment Schemes sourcebook and the Trust Deed. In applying the financial reporting framework, the Authorised Fund Manager has made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. 16

19 Independent Auditors Report continued Opinions on matters prescribed by the Collective Investment Schemes sourcebook In our opinion: we have obtained all the information and explanations we consider necessary for the purposes of the audit; and the information given in the Authorised Fund Manager s Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Other matters on which we are required to report by exception Propriety of accounting records and information and explanations received Under the Collective Investment Schemes sourcebook we are required to report to you if, in our opinion: proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Responsibilities for the financial statements and the audit Our responsibilities and those of the Authorised Fund Manager As explained more fully in the Authorised Fund Manager s Responsibilities Statement set out on page 6, the Authorised Fund Manager is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Trust s unitholders as a body in accordance with paragraph of the Collective Investment Schemes sourcebook and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 17

20 Independent Auditors Report continued What an audit of financial statements involves We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ( ISAs (UK & Ireland) ). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Trust s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Authorised Fund Manager; and the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the directors judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Manager s Report (the Annual Report ) to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 1 February 2017 Notes: a) The maintenance and integrity of the Legal & General website is the responsibility of the Manager; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 18

21 Financial Statements Statement of Total Return for the year ended 12 December /12/16 12/12/15 Notes Income Net capital gains 3 1,259,655 15,078,212 Revenue 4 10,031,896 8,486,776 Expenses 5 (2,669,455) (2,770,631) Interest payable and similar charges 7 (591) (67) Net revenue before taxation 7,361,850 5,716,078 Taxation 6 (13,507) (5,167) Net revenue after taxation for the year 7,348,343 5,710,911 Total return before distributions 8,607,998 20,789,123 Distributions 7 (7,353,817) (5,729,949) Change in net assets attributable to Unitholders from investment activities 1,254,181 15,059,174 Statement of Change in Net Assets attributable to Unitholders for the year ended 12 December /12/16 12/12/15 Opening net assets attributable to Unitholders 290,038, ,091,452 Amounts received on issue of units 42,670,888 31,673,564 Amounts paid on cancellation of units (26,549,973) (14,981,905) 16,120,915 16,691,659 Change in net assets attributable to Unitholders from investment activities 1,254,181 15,059,174 Retained distributions on accumulation units 2,891,194 2,195,889 Unclaimed distributions 243 Closing net assets attributable to Unitholders 310,304, ,038,417 19

22 Financial Statements continued Balance Sheet as at 12 December /12/16 12/12/15 Notes ASSETS Fixed assets: Investments 308,873, ,075,448 Current assets: Debtors 8 1,357,461 1,265,454 Cash and bank balances 9 2,844,415 1,656,903 Total assets 313,075, ,997,805 LIABILITIES Creditors: Bank overdrafts 9 (139,636) Distributions payable (1,848,768) (1,509,709) Other creditors 10 (921,933) (310,043) Total liabilities (2,770,701) (1,959,388) Net assets attributable to Unitholders 310,304, ,038,417 20

23 Notes to the Financial Statements 1. Statement of Compliance The Financial Statements have been prepared in compliance with UK Financial Reporting Standard 102 (FRS 102) and in accordance with the Statement of Recommended Practice for UK Authorised Funds issued by the Investment Association in May 2014 (2014 SORP). 2. Summary of Significant Accounting Policies (a) Basis of Preparation The Financial Statements have been prepared on a going concern basis, under the historical cost convention as modified by the revaluation of certain financial assets and liabilities measured at fair value through profit or loss. The Trust has adopted FRS 102 and the 2014 SORP. This has resulted in some presentational changes to the primary statements; enhanced disclosures surrounding the transaction costs and risk exposure and additional disclosure in respect of the valuation techniques used for the financial instruments. The net total return and the net assets attributable to unitholders remain unchanged and no comparative figures for the previous accounting period have been restated. The Trust has early adopted the amendment to FRS 102 in respect of the fair value hierarchy/valuation techniques disclosure. The principal accounting policies which have been applied consistently are set out below. (b) Functional and Presentation Currency The functional and presentation currency of the Trust is Sterling. (c) Recognition of revenue Revenue from quoted equities and non-equity shares is recognised net of attributable tax credits when the security is quoted ex-dividend. Overseas revenue is shown gross of withholding tax, with the taxation included within the taxation charge. Underwriting commission is taken to revenue and recognised when the issue takes place, except where the Trust is required to take up all or some of the shares underwritten, in which case an appropriate proportion of the commission is deducted from the cost of those shares. Special dividends are treated either revenue or capital depending on the facts of each particular case. All other revenue is recognised on an accruals basis. (d) Treatment of expenses All expenses (other than those relating to the purchase and sale of investments,) are charged against revenue on an accruals basis. 21

24 Notes to the Financial Statements continued (e) Distribution Policy The policy is to distribute all available revenue, after deduction of those expenses which are chargeable in calculating the distribution. In order to conduct a controlled dividend flow, interim distributions will be at the Manager s discretion, up to a maximum of the distributable revenue for the period. All remaining revenue is distributed in accordance with the COLL. The ordinary element of stock dividends is treated as revenue and forms part of the distribution, which is in accordance with the COLL. In the case of an enhanced stock dividend, the value of the enhancement is treated as capital and does not form part of the distribution. Distributions which have remained unclaimed by Unitholders for over six years are credited to the capital property of the Trust. (f) Basis of valuation of investments All investments are valued at their fair value as at 12 noon on 12 December 2016, being the last working day of the accounting year. The fair value for non-derivative securities is bid market price, excluding any accrued interest. Where values cannot be readily determined, the securities are valued at the Manager s best assessment of their fair and reasonable value. (g) Taxation Provision is made for taxation at current rates on the excess of investment revenue over expenses, with relief for overseas taxation taken where appropriate. Deferred tax is provided for on all timing differences that have originated but not reversed by the balance sheet date, other than those differences that are regarded as permanent. Any liability to deferred tax is provided for at the average rate of tax expected to apply. (h) Foreign exchange Transactions in foreign currencies are translated at the rate of exchange ruling on the date of the transaction. Where applicable, assets and liabilities denominated in foreign currencies are translated into Sterling at the rates of exchange ruling at 12 noon on 12 December 2016, being the last working day of the accounting year. 22

25 Notes to the Financial Statements continued 3. Net capital gains 12/12/16 12/12/15 The net capital gains during the year comprise: Non-derivative securities 1,254,915 15,078,672 Forward currency contracts (279) Currency gains/(losses) 4,740 (181) Net capital gains 1,259,655 15,078, Revenue 12/12/16 12/12/15 UK Franked dividends 8,407,163 7,078,348 Non-taxable overseas dividends 741, ,525 Property distributions 387, ,270 Underwriting commission 5,138 3,924 UK stock dividends 402, ,177 Overseas stock dividends 83, ,581 Bank interest 4,378 2,951 10,031,896 8,486, Expenses 12/12/16 12/12/15 Payable to the Manager, associates of the Manager and agents of either of them: Manager s periodic fee 1,127,477 Fund management fees 2,669,455 1,484,667 Registration fees 158,487 2,669,455 2,770,631 * Audit fees of 8,000 plus VAT of 1,600 have been borne by the Manager out of its fund management fee in the current period. In the prior period, the total audit fee was 7,410 plus VAT of 1,

26 Notes to the Financial Statements continued 6. Taxation (a) Analysis of taxation charge in year 12/12/16 12/12/15 Overseas tax 13,507 5,167 Current tax [note 6(b)] 13,507 5,167 Deferred tax [note 6(c)] Total taxation 13,507 5,167 (b) Factors affecting taxation charge for the year The current tax charge excludes capital gains and losses for the reason that Authorised Unit Trusts are not subject to Corporation Tax on these items. Current tax differs from taxation assessed on net revenue before taxation as follows: Net revenue before taxation 7,361,850 5,716,078 Net revenue before taxation multiplied by the applicable rate of Corporation Tax at 20% (2015: 20%) 1,472,370 1,143,216 Effects of: Overseas tax 13,507 5,167 Revenue not subject to taxation (1,920,134) (1,633,015) Excess unutilised management expenses 447, ,799 Current tax 13,507 5,167 (c) Provision for deferred tax There is no deferred tax provision in the current or preceding year. At the year-end, there is a potential deferred tax asset of 3,739,765 (12 December 2015: 3,292,001) due to surplus management expenses. It is unlikely, that the Trust will generate sufficient taxable profits in the future to utilise this amounts and therefore no deferred tax asset has been recognised (12 December 2015: same). 24

27 Notes to the Financial Statements continued 7. Distributions The distributions take account of revenue received on the creation of units and revenue deducted on the cancellation of units and comprise: 12/12/16 12/12/15 Interim distribution 4,276,014 3,341,980 Final distribution 3,123,927 2,469,370 7,399,941 5,811,350 Add: Revenue deducted on cancellation of units 117,577 41,092 Less: Revenue received on creation of units (163,701) (122,493) Distributions for the year 7,353,817 5,729,949 Interest payable and similar charges Bank overdraft interest ,354,408 5,730,016 The differences between the net revenue after taxation and the distributions for the year are as follows: 12/12/16 12/12/15 Net revenue after taxation for the year 7,348,343 5,710,911 Equalisation uplift 5,474 19,038 Distributions for the year 7,353,817 5,729, Debtors 12/12/16 12/12/15 Amounts receivable for creation of units 258, ,977 Accrued revenue 1,087, ,869 Recoverable overseas tax 10,202 9,608 PID tax recoverable 1,088 1,357,461 1,265, Net uninvested cash 12/12/16 12/12/15 Cash and bank balances 2,844,415 1,656,903 Bank overdrafts (139,636) Net uninvested cash 2,844,415 1,517,267 25

28 Notes to the Financial Statements continued 10. Creditors 12/12/16 12/12/15 Amounts payable for cancellation of Units 573, ,823 Purchases awaiting settlement 42,157 90,129 Accrued expenses 305,796 90, , , Contingent liabilities and outstanding commitments Contingent liabilities and outstanding commitments at the balance sheet date were: 12/12/16 12/12/15 Commitments on rights issues 157,910 Total 157, Financial Instruments and Associated Risks The investments of a Trust in financial securities and derivatives are subject to normal market fluctuations and other risks inherent in investing in such instruments. Legal & General (Unit Trust Managers) Limited (UTM) is the Authorised Fund Manager and has responsibility for ensuring appropriate risk management processes are implemented for each Unit Trust. The UTM Board has delegated the risk oversight function to the Fund Manager Oversight Committee (FMOC), a committee of the Legal & General Investment Management (Holdings) Limited (LGIMH) Board that meets monthly. The primary objective of the FMOC is to ensure proper oversight of the investment management activities and associated services performed by LGIM, its delegates and other Fund Managers, under the Investment Management Agreement (IMA), on behalf of UTM in its capacity as Authorised Fund Manager. The committee consists of senior members of LGIMH and UTM, including members of the UTM Board. Other senior staff members are also in attendance, as required by the agenda. Each Trust has Investment Guidelines, an Investment Objective and Investment Restrictions, against which the fund manager will operate. These are set out in Schedule 1 of the IMA between LGIM and UTM. The Schedule is maintained by each fund manager, reviewed by the LGIM Operational Risk and Compliance Teams and approved senior members of UTM on behalf of the UTM board. The Schedule provides the detail needed to determine the risk profile for each fund. Fund managers are not permitted to invest into any new instruments without first gaining approval from UTM. The Investment Objective and Policy of this Trust is detailed on page 2. 26

29 Notes to the Financial Statements continued (a) Market Risk arising from other price risk Market Risk arises mainly from uncertainty about future prices. It represents the potential loss the Trust may suffer through holding market positions in the face of market movements. Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar instruments traded in the market. The assets held by the Trust can be seen in the Portfolio Statement starting on page 9. Movements in the prices of these investments result in movements in the performance of the Trust. The Manager adheres to the investment guidelines established in the Trust Deed, the Prospectus, the COLL and the Trust s IOG, and in this way, monitors and controls the exposure to risk from any type of security, sector or issuer. At 12 December 2016, if the price of the investments held by the Trust increased or decreased by 5%, with all other variables remaining constant, then the net assets attributable to unitholders would increase or decrease by approximately 15,443,667 (12 December 2015: 14,453,772). (b) Interest Rate Risk Interest Rate Risk is the risk of movements in the value of financial instruments as a result of fluctuations in interest rates. The Trust s only interest bearing financial instruments were its bank balances and overdraft facilities as disclosed in note 9. Cash is deposited and overdraft facilities utilised on normal commercial terms and earn or bear interest based on LIBOR or its overseas equivalent. (c) Foreign Currency Risk Foreign Currency Risk is the risk of movements in the value of financial instruments as a result of fluctuations in exchange rates. This risk may be managed by the use of forward currency contracts or currency futures as necessary. At the year end, the Trust had no significant exposures to currencies other than Sterling. 27

30 Notes to the Financial Statements continued (d) Credit Risk Credit Risk is the risk of suffering financial loss as a result of counterparty to a financial transaction being unable to fulfil their financial obligations as they fall due. This risk is managed by appraising the credit profile of financial instruments and issuers in line with the Trust s investment objective and policy. (e) Liquidity Risk Liquidity Risk relates to the capacity to meet liabilities as they fall due. The primary source of this risk to the Trust is the liability to Unitholders for any cancellation of units. This risk is minimised by holding a large proportion of readily realisable assets, cash balances and via access to overdraft facilities. (f) Derivative Risk - Sensitivity Analysis Derivative Risk arises from uncertainty about future market movements. This risk is managed by the policies shown within Market risk. At the balance sheet date, no derivatives were held that could impact the Trust in a significant way (12 December 2015: same). 28

31 Notes to the Financial Statements continued (g) Fair value There is no material difference between the value of the financial assets and liabilities, as shown in the financial statements, and their fair value. The Statement of Recommended Practice for Financial Statements of UK Authorised Funds issued by the Investment Management Association in May 2014, and subsequently amended by Financial Reporting Exposure Draft 62 (FRED62), requires the classification of the Trust s financial instruments held at the year-end into a 3 tiered fair value hierarchy. The 3 tiers of the hierarchy and the classification of the Trust s financial instruments as at the balance sheet date were: 12/12/16 Assets Liabilities Valuation technique Level 1 308,873,532 Level 2 Level 3 Total 308,873,532 12/12/15 Assets Liabilities Valuation technique Level 1 289,075,448 Level 2 Level 3 Total 289,075,448 Level 1 The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date. Level 2 Inputs other than quoted prices included within Level 1 that are observable (i.e., developed using market data) for the asset or liability, either directly or indirectly. Level 3 Inputs are unobservable (i.e., for which market data is unavailable) for the asset or liability. 29

32 Notes to the Financial Statements continued 13. Portfolio transaction costs 12/12/16 Value Commissions Taxes Total Purchases % 000 % 000 Equities 69, ,397 Total 69, ,397 12/12/16 Value Commissions Taxes Total Sales % 000 % 000 Equities 50,867 (13) 0.03 (1) ,853 Total 50,867 (13) 0.03 (1) ,853 Commissions and taxes as % of average net assets Commissions 0.01% Taxes 0.09% 12/12/15 Value Commissions Taxes Total Purchases % 000 % 000 Equities 45, ,965 Total 45, ,965 12/12/15 Value Commissions Taxes Total Sales % 000 % 000 Equities 27,371 (7) ,364 Total 27,371 (7) ,364 Commissions and taxes as % of average net assets Commissions 0.01% Taxes 0.07% Transaction costs consist of expenses incurred in the process of the purchase and sales of securities above the cost of the securities. The average portfolio dealing spread, including the effect of foreign exchange, as at the balance sheet date was 0.08% (12 December 2015: 0.11%). 30

33 Notes to the Financial Statements continued 14. Unit classes The Trust currently has three unit classes: R-Class, I-Class and F-Class. The fund management fee on each unit class can be found on page 42. The net asset value per unit of each unit class and the number of units in each class are given in the comparative tables on pages 35 to 40. The distributions per unit class are given in the distribution tables on page 33. All classes have the same rights on winding up. R-Class Distribution Accumulation Opening Units 225,337,427 89,315,959 Units issued 14,273,093 1,649,736 Units cancelled (17,320,966) (5,400,692) Units converted (1,082,253) (4,664,743) Closing Units 221,207,301 80,900,260 I-Class Distribution Accumulation Opening Units 74,373,793 38,798,246 Units issued 25,361,422 19,275,011 Units cancelled (10,011,904) (6,164,209) Units converted 1,081,860 4,304,272 Closing Units 90,805,171 56,213,320 F-Class Distribution Accumulation Opening Units 159, ,042 Units issued 17,235 Units cancelled (57,918) Units converted 3,406 Closing Units 159, ,765 31

34 Notes to the Financial Statements continued 15. Ultimate controlling party and related party transactions The Manager and Trustee are regarded as controlling parties of the Trust by virtue of having the ability to act in concert in respect of Trust operations. The ultimate controlling parties of the Manager and Trustee are Legal & General Group Plc and Northern Trust Global Services Limited, respectively. These entities and their subsidiaries are also related parties of the Trust. Legal & General (Unit Trust Managers) Limited acts as the principal on all the transactions of the units in the Trust. The aggregated monies received through creations or paid on cancellations are disclosed in the statement of change in net assets attributable to unitholders. At the year end, the Manager and its associates held 35.53% (39.38% as at 12 December 2015) of the Trust s units in issue. There were no units held by the Trustee or its associates. Details of all other material related party transactions during the year and any payment amounts outstanding at the balance sheet date are disclosed in notes 5, 7, 8 and 10 to the financial statements, the statement of change in net assets attributable to unitholders. Within note 10, accrued of 305,796 ( 90,091 as at 12 December 2015) are due to Manager. 16. Post balance sheet market movements As at the close of business on the balance sheet date, the net asset value per R-Class distribution unit was 60.00p. The net asset value per R-Class distribution unit as at 12 noon on 31 January 2017 was 61.05p. This represents an increase of 1.75% from the year end value. 32