LGIM Liquidity Funds plc (An Investment Company with Variable Capital)

Transcription

1 (An Investment Company with Variable Capital) for the period ended 30 June 2017

2 Table of Contents Page General Information 2 Investment Manager s Report 3 Financial Statements Statement of Financial Position 7 Statement of Financial Position 2016 Comparative 8 Statement of Comprehensive Income 9 Statement of Comprehensive Income 2016 Comparative Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares 2016 Comparative Notes to Financial Statements Portfolio Listing Sterling Liquidity Fund Portfolio Listing US Dollar Liquidity Fund Portfolio Listing Sterling Liquidity Plus Fund Portfolio Listing Euro Liquidity Fund Statement of Significant Changes in Composition of Portfolio Sterling Liquidity Fund Statement of Significant Changes in Composition of Portfolio US Dollar Liquidity Fund Statement of Significant Changes in Composition of Portfolio Sterling Liquidity Plus Fund Statement of Significant Changes in Composition of Portfolio Euro Liquidity Fund Unaudited Appendix Securities Financing Transactions Sterling Liquidity Fund Securities Financing Transactions US Dollar Liquidity Fund

3 General Information Directors Tom Finlay (Irish) * David Dillon (Irish) ** Brian Wilkinson (Irish) * Lee Toms (British) ** * Independent non-executive directors ** Non-executive director Audit Committee Investment Manager Legal & General Investment Management Limited One Coleman Street London EC2R 5AA United Kingdom Depositary Northern Trust Fiduciary Services (Ireland) Limited George s Court Townsend Street Dublin 2 Ireland Independent Auditors PricewaterhouseCoopers Chartered Accountants and Registered Auditors One Spencer Dock North Wall Quay Dublin 1 Ireland Administrator and Transfer Agent Northern Trust International Fund Administration Services (Ireland) Limited George s Court Townsend Street Dublin 2 Ireland Company Secretary Tudor Trust Limited 33 Sir John Rogerson s Quay Dublin 2 Ireland Sponsoring Broker and Irish Legal Advisers Dillon Eustace 33 Sir John Rogerson s Quay Dublin 2 Ireland Registered Office 33 Sir John Rogerson s Quay Dublin 2 Ireland Sub-Custodian The Northern Trust Company 50 Bank Street Canary Wharf London E14 5NT Tax Advisors KPMG 1 Harbourmaster Place International Financial Services Centre Dublin 1 Ireland Registered Number

4 LGIM Sterling Liquidity Fund Performance Review LGIM Liquidity Funds plc Investment Manager s Report Over the 6-month review period, the Fund returned 0.18% (gross), compared to the 0.06% return of the benchmark (the 7-day London Interbank Bid Rate ( LIBID )). Market Overview Sterling money market rates fell slightly during the first half of 2017 with the 3-month Sterling LIBOR rate ending June at 0.31%. In its February quarterly assessment of the UK economy, the Bank of England highlighted an improving global outlook and raised its forecast for the UK economy sharply higher, predicting growth of 2% in 2017 well above the previous forecast of 1.4% back in November. Inflation accelerated to 2.3% in February, the highest since September 2013, driven by rising oil prices and the weakness of Sterling. In the economic assessment released in May, the Bank of England forecast that inflation would continue to rise above its 2% target over the coming months before peaking at just below 3% in the fourth quarter. The bank delivered a cautious UK economic outlook predicting living standards would fall this year as higher inflation outstrips wage growth. As the review period ended, Governor Mark Carney indicated the Bank of England might need to raise interest rates if business investment begins to rise, offsetting weaker consumption. Accordingly, the markets are now pricing in a greater likelihood of a 0.25% hike in interest rates, effectively a reversal of the stimulus delivered by the rate cut last August in the wake of the EU referendum result, by the end of Portfolio Review The Fund remains invested in a diverse range of high quality and liquid issues, incorporating the potential re-pricing of the money market curve to ensure liquidity of holdings. Market Outlook Looking ahead, although headline inflation is now approaching the 3% mark we expect earnings growth to remain subdued as businesses use increasing economic uncertainty and the onset of Brexit negotiations as a reason to keep wages under firm control. On fiscal policy, the medium-term projections for deficit reduction appear unrealistic, particularly in view of the inconclusive outcome to the general election and growing pressure on the Conservative-led administration to loosen policy and ease public sector spending cuts. As Brexit talks progress, we expect the UK to leave the single market but negotiate several sector-by sector deals during the transition period. With the UK economy expected to slow over 2017, we believe the Bank of England will leave monetary policy unchanged until Legal & General Investment Management Limited July

5 LGIM US Dollar Liquidity Fund Performance Review LGIM Liquidity Funds plc Investment Manager s Report (continued) Over the 6-month review period, the Fund returned 0.49% (gross), compared to the 0.38% return of the benchmark (7- day Dollar LIBID). Market Overview US Dollar money market rates rose in the first half of 2017, with the 3-month US Dollar Libor rate ending June at 1.3%. With further evidence that inflationary pressures are rising, as the headline consumer price index accelerated to its highest level for nearly four years in January, Federal Reserve (Fed) chair Janet Yellen cautioned that it might be unwise for the central bank to wait too long before raising interest rates again. This led investors to factor in an additional rate hike at the Fed s monetary policy meeting in March, with some expectation that the US central bank would also signal a more aggressive tightening of monetary policy. In the event, the Fed sanctioned a 0.25% rise in interest rates in March to 1.00%, while maintaining its previous guidance for two further rate hikes later this year as the central bank s economic and monetary policy outlook had not changed substantially since December. The monthly personal consumption expenditures price index (PCE) released at the end of March, edged above the Fed s 2% target year-on-year during February. In the second quarter of the year, the increase in Dollar money market rates broadly reflected guidance on US monetary policy. The Fed raised interest rates by a further 0.25% in June increasing the Fed Funds rate to between 1 and 1.25%. The US central bank also confirmed its forecast for a further rate rise this year and three additional hikes in However, the Fed downplayed the recent decline in inflation as temporary, attaching greater importance to the strength of the labour market which is expected to reignite earnings growth and push inflation up to its official 2% target. Portfolio Review The Fund remains invested in a diverse range of high quality and liquid issues, incorporating the potential re-pricing of the money market curve to ensure liquidity of holdings. Market Outlook Looking at the outlook for US economic growth and interest rates, we expect growth to pick up during the second quarter as inventories normalise and settle around 2.5% into mid-2018 aided by some modest tax cuts. This should provide a further boost to disposable incomes, which have been improving of late reflected in the recent recovery in consumer spending. However, we expect corporate profits to come under renewed pressure as the labour market tightens over the next few quarters. Recent guidance from the Fed has noted the weakness of core inflation in recent months, but the prevailing view is that this is likely to prove transitory as the labour market continues to tighten. We expect the Fed to sanction a further interest rate hike this year, with the US central bank set to begin shrinking its balance sheet as it starts to unwind its asset purchase programme. Legal & General Investment Management Limited July

6 LGIM Sterling Liquidity Plus Fund Performance Review LGIM Liquidity Funds plc Investment Manager s Report (continued) Over the 6-month review period, the Fund returned 0.36% (gross), compared to the 0.17% return of the benchmark (the 3-month London Interbank Offer Rate ( LIBOR )). Market Overview Sterling money market rates fell slightly during the first half of 2017 with the 3-month Sterling LIBOR rate ending June at 0.31%. In its February quarterly assessment of the UK economy, the Bank of England highlighted an improving global outlook and raised its forecast for the UK economy sharply higher, predicting growth of 2% in 2017 well above the previous forecast of 1.4% back in November. Inflation accelerated to 2.3% in February, the highest since September 2013, driven by rising oil prices and the weakness of Sterling. In the economic assessment released in May, the Bank of England forecast that inflation would continue to rise above its 2% target over the coming months before peaking at just below 3% in the fourth quarter. The bank delivered a cautious UK economic outlook predicting living standards would fall this year as higher inflation outstrips wage growth. As the review period ended, Governor Mark Carney indicated the Bank of England might need to raise interest rates if business investment begins to rise, offsetting weaker consumption. Accordingly, the markets are now pricing in a greater likelihood of a 0.25% hike in interest rates, effectively a reversal of the stimulus delivered by the rate cut last August in the wake of the EU referendum result, by the end of Portfolio Review The Fund is conservatively positioned in terms of both interest rate and credit risk versus its permitted range, and activity has focused where value remains in nine to twelve month certificates of deposit/ commercial paper and shortdated floating rate notes. Market Outlook Looking ahead, although headline inflation is now approaching the 3% mark we expect earnings growth to remain subdued as businesses use increasing economic uncertainty and the onset of Brexit negotiations as a reason to keep wages under firm control. On fiscal policy, the medium-term projections for deficit reduction appear unrealistic, particularly in view of the inconclusive outcome to the general election and growing pressure on the Conservative-led administration to loosen policy and ease public sector spending cuts. As Brexit talks progress, we expect the UK to leave the single market but negotiate several sector-by sector deals during the transition period. With the UK economy expected to slow over 2017, we believe the Bank of England will leave monetary policy unchanged until Legal & General Investment Management Limited July

7 LGIM Euro Liquidity Fund Performance Review LGIM Liquidity Funds plc Investment Manager s Report (continued) Over the review period since launch of the Fund on 20 June 2017, the Fund returned -0.02%, compared to the -0.01% return of the benchmark (the 7-day Euro LIBID). Market Overview Euro money market rates remained in negative territory, with little moves of note over the review period. The 3-month Euro LIBOR rate ended June at -0.37%. While there was little immediate effect on very short-term Euro money market rates, overall yields rose notably in the final few days of the quarter on the back of hawkish central bank comments, particularly in the UK and mainland Europe. In the UK, Mark Carney, Governor of the Bank of England, indicated at the end of the quarter that some removal of monetary policy stimulus is likely to become necessary, while in Europe, European Central Bank President (ECB) Mario Draghi commented that deflationary forces have been replaced by reflationary ones. Both of these remarks increased market expectations of near-term UK and Eurozone rate rises. Portfolio Review The Fund is invested in a diverse range of high quality and liquid issues, incorporating the potential re-pricing of the Euro money market curve to ensure liquidity of holdings. Market Outlook Our base case for stimulus by the ECB remains unchanged, with 60 billion a month of quantitative easing expected in Europe until the end of December By the end of the year (either September but now possibly also in October), we believe that the ECB could announce a step-wise tapering of easing to occur in We do not expect the ECB to alter the sequencing of monetary policy normalisation. In other words, we believe that interest rates will only rise after asset purchases end. Legal & General Investment Management Limited July

8 Statement of Financial Position as at 30 June 2017 Sterling Liquidity US Dollar Liquidity Sterling Liquidity Euro Liquidity *Company Fund Fund Plus Fund Fund** Total Notes GBP USD GBP EUR GBP Current Assets Financial assets at fair value through profit or loss 2/4 27,842,720,669 1,019,991, ,288, ,921,000 29,363,286,901 Cash 2/3 1,499 1,634-1,742 4,287 Securities sold receivable 50,004,016-15,037,165-65,041,181 Subscriptions receivable - - 1,500,003 1,500,003 Accrued income 2 10,111, , , ,912,903 Other assets 195, ,713 Total Current Assets 27,903,033,856 1,020,403, ,330, ,922,780 29,440,940,988 Current Liabilities Bank overdraft 2/3 - - (18,910) - (18,910) Accrued expenses 5 (894,608) (40,890) (78,076) (162) (1,004,306) Distribution payable 6 (7,537,888) (922,361) - - (8,229,119) Total Current Liabilities (excluding net assets attributable to holders of redeemable participating shares) (8,432,496) (963,251) (96,986) (162) (9,252,335) Net assets attributable to holders of redeemable participating shares 13 27,894,601,360 1,019,440, ,233, ,922,618 29,431,688,653 Redeemable participating shares in issue - Class ,872,532, ,023, , ,922,618 - Class 2 7 4,000, Class ,203, ,417, Class 4 7 6,637,865,454 30,000, ,206 - Net Asset Value per redeemable participating share - Class US$1.00 1, Class Class US$ Class US$1.00 1, *Includes US Dollar Liquidity figures converted at the closing exchange rate of 1=US$ and Euro Liquidity figures converted at the closing exchange rate of 1= The Sterling Liquidity Plus Fund holds shares in the Sterling Liquidity Fund (cross holdings). The value of these holdings are reflected at fair value within the Sterling Liquidity Plus Fund figures, however, to avoid double counting at the Company Total level, the value of these cross holdings have been removed from the consolidated total line. At the period end, the value of the Sterling Liquidity Plus Fund holding in Sterling Liquidity Fund was 71,457,611. Accrued income and Distributions payable Company totals have been amended to avoid double counting on cross holdings. The amount by which the Company totals have been amended by in both instances is a reduction of 18,850. ** The Euro Liquidity Fund launched on 20 June The accompanying notes on pages 13 to 28 form an integral part of these financial statements. 7

9 Statement of Financial Position as at 31 December 2016 Sterling Liquidity US Dollar Liquidity Sterling Liquidity Plus *Company Fund Fund Fund** Total Notes GBP USD GBP GBP Current Assets Financial assets at fair value through profit or loss 2/4 25,388,133,200 1,097,196, ,406,730 26,620,808,248 Cash 2/3 26,504,243 46,527 58,229 26,600,126 Accrued income 2 11,844, , ,498 12,670,186 Other assets Total Current Assets 25,426,481,670 1,097,948, ,730,457 26,660,078,607 Current Liabilities Accrued expenses 5 (1,265,431) (95,189) (78,605) (1,421,072) Distribution payable 6 (8,652,144) (764,678) - (9,260,410) Total Current Liabilities (excluding net assets attributable to holders of redeemable participating shares) (9,917,575) (859,867) (78,605) (10,681,482) Net assets attributable to holders of redeemable participating shares 13 25,416,564,095 1,097,088, ,651,852 26,649,397,125 Redeemable participating shares in issue - Class ,075,007, ,615, Class 2 7 1,665, Class ,929, ,473, Class 4 7 5,006,962,605 20,000, ,072 - Class ,000 Net Asset Value per redeemable participating share - Class US$ Class Class US$ Class US$1.00 1, Class , *Includes US Dollar Liquidity figures converted at the closing exchange rate of 1=US$ for the year ended 31 December The Sterling Liquidity Plus Fund holds shares in the Sterling Liquidity Fund (cross holdings). The value of these holdings are reflected at fair value within the Sterling Liquidity Plus Fund figures, however, to avoid double counting at the Company Total level, the value of these cross holdings have been removed from the consolidated total line. At the period end, the value of the Sterling Liquidity Plus Fund holding in Sterling Liquidity Fund was 25,681,620. Accrued income and Distributions payable Company totals have been amended to avoid double counting on cross holdings. The amount by which the Company totals have been amended by in both instances is a reduction of 10,580. ** The Sterling Liquidity Plus Fund launched on 06 September The accompanying notes on pages 13 to 28 form an integral part of these financial statements. 8

10 Statement of Comprehensive Income Sterling Liquidity US Dollar Liquidity Sterling Liquidity Euro Liquidity *Company Fund Fund Plus Fund Fund** Total Notes GBP USD GBP EUR GBP Investment Income Investment income 2(a) 51,031,291 4,506,976 1,573,016 (18,644) 56,067,962 Income from redemptions 2(b) ,806 16,353 Realised gain on investments 2(a) 1,772,813 27, ,596-1,994,439 Unrealised gain on investments , ,448 Total Investment Income 52,804,104 4,534,718 2,206, ,512,202 Less: Operating expenses 8 (4,458,031) (242,994) (424,480) (162) (5,075,612) Reimbursement by Investment Manager 2/8-39,022 6,484-37,471 Net Investment Income 48,346,073 4,330,746 1,788,064-53,474,061 Finance Costs Distributions to holders of redeemable participating shares 6 (48,346,073) (4,330,746) - - (51,685,997) Change in net assets attributable to holders of redeemable participating shares from operations - - 1,788,064-1,788,064 *Includes US Dollar Liquidity figures converted at the average exchange rate of 1=US$ and Euro Liquidity figures converted at the average exchange rate of 1= As a result of cross holdings, to avoid double counting, the Investment income and Distributions to holders of redeemable participating shares have been amended by 99,116. In both instances, the values have been decreased. ** The Euro Liquidity Fund launched on 20 June There were no gains or losses other than those dealt with in the Statement of Comprehensive Income. All activities relate to continuing operations. The accompanying notes on pages 13 to 28 form an integral part of these financial statements. 9

11 Statement of Comprehensive Income for the period ended 30 June 2016 Sterling Liquidity US Dollar Liquidity *Company Fund Fund Total Notes GBP USD GBP Investment Income Investment income 2(a) 69,598,168 2,719,774 71,497,491 Realised gain on investments 2(a) 1,572,294 6,111 1,576,562 Total Investment Income 71,170,462 2,725,885 73,074,053 Less: Operating expenses 8 (3,438,593) (292,832) (3,643,090) Reimbursement by Investment Manager 2/8-20,193 14,102 Net Investment Income 67,731,869 2,453,246 69,445,065 Finance Costs Distributions to holders of redeemable participating shares 6 (67,731,869) (2,453,246) (69,445,065) Change in net assets attributable to holders of redeemable participating shares from operations *Includes US Dollar Liquidity figures converted at the average exchange rate of 1= for the period ended 30 June There were no gains or losses other than those dealt with in the Statement of Comprehensive Income. All activities relate to continuing operations. The accompanying notes on pages 13 to 28 form an integral part of these financial statements. 10

12 Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares Sterling Liquidity US Dollar Liquidity Sterling Liquidity Euro Liquidity *Company Fund Fund Plus Fund Fund** Total Notes GBP USD GBP EUR GBP Net assets attributable to holders of redeemable participating shares at beginning of period 25,416,564,095 1,097,088, ,651,852-26,649,397,125 Foreign currency translation adjustment (40,515,719) Proceeds from redeemable participating shares issued 7 80,229,148,329 5,797,573, ,498, ,185,695 85,374,707,905 Reinvested distributions 7 36,545,368 3,151, ,047,918 Cost of redeemable participating shares redeemed 7 (77,787,656,432) (5,878,372,896) (11,704,833) (160,263,077) (82,592,736,640) Change in net assets attributable to holders of redeemable participating shares from operations - - 1,788,064-1,788,064 Net assets attributable to holders of redeemable participating shares at end of period 27,894,601,360 1,019,440, ,233, ,922,618 29,431,688,653 *Includes US Dollar Liquidity figures converted at the average exchange rate of 1=US$ and Euro Liquidity figures converted at the average exchange rate of 1= As a result of cross holdings, to avoid double counting, the Proceeds from redeemable participating shares issued has been amended by 59,762,122 and Cost of redeemable participating shares redeemed has been amended by 13,986,130. In both cases, the values have been decreased. The differential has been taken to the Foreign currency translation adjustment line. ** The Euro Liquidity Fund launched on 20 June The accompanying notes on pages 13 to 28 form an integral part of these financial statements. 11

13 Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares for the period ended 30 June 2016 Sterling Liquidity US Dollar Liquidity *Company Fund Fund Total Notes GBP USD GBP Net assets attributable to holders of redeemable participating shares at beginning of period 20,889,128, ,624,223 21,442,506,701 Foreign currency translation adjustment ,277,634 Proceeds from redeemable participating shares issued 7 75,289,342,252 4,872,333,763 78,691,880,735 Reinvested distributions 7 46,699,061 1,806,801 47,960,820 Cost of redeemable participating shares redeemed 7 (70,791,027,736) (4,380,862,154) (73,850,352,649) Change in net assets attributable to holders of redeemable participating shares from operations Net assets attributable to holders of redeemable participating shares at end of period 25,434,142,081 1,308,902,633 26,413,273,241 *Includes US Dollar Liquidity figures converted at the average exchange rate of 1= for the period ended 30 June The accompanying notes on pages 13 to 28 form an integral part of these financial statements. 12

14 Notes to the Financial Statements 1. Establishment LGIM Liquidity Funds plc (the Company ) was incorporated as an open-ended investment company with variable capital and segregated liability under the laws of Ireland on 6 November The Company is authorised by the Central Bank as an Undertaking for Collective Investment in Transferable Securities pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 ( the UCITS Regulations ) (as amended) and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations, 2015 ("the Central Bank UCITS Regulations"). The Company is structured as an umbrella fund and may comprise several portfolios of assets. The share capital of the Company ( Shares ) may be divided into different classes of shares ( Funds ) each representing a separate portfolio of assets and further sub-divided, to denote differing characteristics attributable to particular Shares, into Classes. As at 30 June 2017, there are four sub-funds in existence, the Sterling Liquidity Fund, the US Dollar Liquidity Fund, the Sterling Liquidity Plus Fund and the Euro Liquidity Fund (each a Fund, together the Funds ). As at 30 June 2017, the Company has issued four classes of shares in the Sterling Liquidity Fund, three share classes in the US Dollar Liquidity Fund, two share classes in the Sterling Liquidity Plus Fund and one share class in the Euro Liquidity Fund. The investment objective of the Sterling Liquidity Fund, US Dollar Liquidity Fund and Euro Liquidity Fund is to provide capital stability, liquidity and income through investment in a diversified portfolio of high credit quality short term fixed income and variable rate securities including but not limited to certificates of deposit, fixed and floating rate notes, fixed rate commercial paper and bonds listed or traded on one or more Recognised Exchange. The investment objective of the Sterling Liquidity Plus Fund is to preserve capital and to generate income. In addition, the Sterling Liquidity Fund, US Dollar Liquidity Fund, Sterling Liquidity Plus Fund and Euro Liquidity Fund will seek to obtain and maintain a triple - A rating from at least one internationally recognised rating agency (for example, AAAm/AAAf by Standard & Poor s or AAAmmf rating by Fitch). The Sterling Liquidity Fund was listed on the Irish Stock Exchange and commenced trading on 10 January The US Dollar Liquidity Fund was listed on the Irish Stock Exchange and commenced trading on 22 September The Euro Liquidity Fund was listed on the Irish Stock Exchange and commenced trading on 20 June The Company converted to self-managed status on 5 April Significant Accounting Policies (a) Basis of Accounting The condensed financial statements for the financial period end 30 June 2017, are prepared under the requirements of Financial Reporting Standard 104 ( FRS 104 ) Interim Financial Reporting. The same accounting policies and methods of computation followed in the most recent annual financial statements have been used in the preparation of the interim financial statements. The financial statements for the financial year ended 31 December 2016 were prepared under Financial Reporting Standard 102 ( FRS 102 ) The Financial Reporting Standard applicable in the UK and Republic of Ireland. The Company meets all the conditions set out in FRS 102, Section 7, and consequently has availed of the exemption available to certain funds not to prepare a statement of cash flows. These condensed interim financial statements do not include all the information required for full annual financial statements prepared under FRS 102. (b) Net Negative Income If on any Business Day, the Directors determine that net investment income in any Class of a Stable NAV Fund is negative, the Directors may seek to stabilise the Net Asset Value per Share of that Class by redeeming Shares in that Class and retaining within that Class the value attributable to the redeemed Shares (as opposed to paying redemption proceeds to Shareholders) to offset the net negative yield for that Class. The Net Asset Value per Share of the relevant Class of the Stable NAV Fund will therefore remain stable but the pro-rata number of Shares held by each Shareholder in that Class will be reduced, reflecting a loss of capital to Shareholders in that Class. 13

15 3. Cash Balances and Bank Overdrafts LGIM Liquidity Funds plc Notes to the Financial Statements (continued) Cash balances and overdrafts are held with The Northern Trust Company on behalf of Northern Trust Fiduciary Services (Ireland) Limited, the Depositary. The Funds hold Time Deposits with Australia and New Zealand Banking Group, Bank of China, Bank of Montreal, Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, BRED Banque Populaire, Credit Agricole Corporate and Investment Bank, DZ Bank, Government of the United Kingdom, Lloyds Bank, National Bank of Abu Dhabi, National Bank of Canada, Oversea-Chinese Banking Corporation, Rabobank International, Rabobank Nederland, Societe Generale, Standard Chartered Bank, and Sumitomo Mitsui Banking Corporation. The Funds hold Reverse Repurchase Agreements with Bank of Nova Scotia, BNP Paribas, Citigroup, HSBC Bank and Merrill Lynch. Details of the Time Deposits and Reverse Repurchase Agreements are shown in the Portfolio Listings on pages 28 to Financial Assets at Fair Value Through Profit or Loss 30 June June June June June 2017 Sterling Liquidity US Dollar Liquidity Sterling Liquidity Euro Liquidity Company Fund Fund Plus Fund Fund* Total GBP USD GBP EUR GBP Designated as at fair value through profit or loss: - Certificates of Deposit 12,080,054, ,180, ,867,284-12,486,857,594 - Commercial Paper 4,098,926, ,553,777 74,893,000-4,362,090,035 - Corporate Bonds 2,533,930,813 32,904, ,170,949-2,886,433,098 - Government Bonds 810,305, ,305,275 - Time Deposits 4,919,503, ,284,000 61,900, ,921,000 5,379,054,649 - Reverse Repurchase Agreements 3,400,000,000 35,000, ,426,944,820 - Investment Funds - 15,069,689 71,457,611-11,601,430 27,842,720,669 1,019,991, ,288, ,921,000 29,363,286, December December December December 2016 Sterling Liquidity US Dollar Liquidity Sterling Liquidity Company Fund Fund Plus Fund Total GBP USD GBP GBP Designated as at fair value through profit or loss: - Certificates of Deposit 12,824,523, ,853, ,442,969 13,274,377,630 - Commercial Paper 3,486,308, ,788,491 47,903,848 3,729,889,318 - Corporate Bonds 3,093,903,422 29,999, ,378,293 3,272,559,620 - Government Bonds 1,417,330, ,417,330,297 - Time Deposits 3,766,068, ,509,000-4,082,103,029 - Reverse Repurchase Agreements 800,000,000 40,000, ,371,600 - Investment Funds - 15,046,218 25,681,620 12,176,754 25,388,133,200 1,097,196, ,406,730 26,620,808,248 * The Euro Liquidity Fund launched on 20 June Accrued Expenses and Other Payables 30 June June June June June 2017 Sterling Liquidity US Dollar Liquidity Sterling Liquidity Euro Liquidity Company Fund Fund Plus Fund Fund Total GBP USD GBP EUR GBP Management fees - Class 1 137,007 7, ,394 - Class Class 3 53,337 30, ,131 - Class 4 596,580 2,630 77, ,097 Directors' fees and expenses 33, ,790 Audit fees 14, ,788 Other expenses 58, ,405 Total accrued expenses 894,608 40,890 78, ,004,306 14

16 5. Accrued Expenses and Other Payables (continued) Notes to the Financial Statements (continued) 31 December December December December 2016 Sterling Liquidity US Dollar Liquidity Sterling Liquidity Company Fund Fund Plus Fund Total GBP USD GBP GBP Management fees - Class 1 262,859 17, ,904 - Class Class 3 79,817 77, ,230 - Class 4 812, , ,838 - Class Directors' fees and expenses 15, ,488 Audit fees 31, ,865 Other expenses 62, ,677 Total accrued expenses 1,265,431 95,189 78,605 1,421, Distributions 30 June June June June June 2017 Sterling Liquidity US Dollar Liquidity Sterling Liquidity Euro Liquidity Company Fund Fund Plus Fund Fund* Total GBP USD GBP EUR GBP Distributions paid during the period 40,808,185 3,408, ,456,878 Distributions payable at period end 7,537, , ,229,119 Total distributions paid and payable 48,346,073 4,330, ,685, June June June 2016 Sterling Liquidity US Dollar Liquidity Company Fund Fund Total GBP USD GBP Distributions paid during the period 56,151,804 1,908,749 57,457,686 Distributions payable at period end 11,580, ,497 11,987,379 Total distributions paid and payable 67,731,869 2,453,246 69,445,065 * The Euro Liquidity Fund launched on 20 June Redeemable Participating Shares Redeemable participating shares are redeemable at the shareholder s option and are classified as financial liabilities. The participating shares can be put back to the portfolio on any dealing day for cash equal to a proportionate share of the portfolio s net asset value. The authorised share capital of the Company is 500 billion shares of no par value. Each of the shares of each Fund entitles the holder (the Shareholder ) to attend and vote at all meetings held by the Company, as well as participate equally on a pro rata basis in the distributions (if any) and net assets of the Company attributable to the relevant Fund. As at 30 June 2017 and 31 December 2016, 2 non-participating shares of 1 each were in issue which were taken by the subscribers to the Company and are held by the Investment Manager. Non-participating Shares do not entitle the holders thereof to any distribution and on a winding up entitle the holders thereof to receive the amount paid up thereon but do not otherwise entitle them to participate in the assets of the Company. The Directors have the power to allot shares in the capital of the Company on such terms and in such manner as they may think fit. The Directors reserve the right to differentiate between Shareholders and to waive or reduce the Minimum Subscription, Minimum Holding and Minimum Transaction Size for certain investors. 15

17 7. Redeemable Participating Shares (continued) LGIM Liquidity Funds plc Notes to the Financial Statements (continued) As at 30 June 2017, Legal and General Assurance (Pensions Management) Ltd held 16.04% (31 December 2016: 17.41%) of the issued share capital of the Sterling Liquidity Fund and 13.01% (31 December 2016: 10.09%) of the US Dollar Liquidity Fund. LGIM (Ireland) Risk Management Solutions Plc held 15.82% (31 December 2016: 17.89%) of the issued share capital of the Sterling Liquidity Fund and 27.81% of the issued share capital of the Euro Liquidity Fund. Legal and General Assurance (Society) Ltd held 14.28% (31 December 2016: 12.33%) of the issued share capital of the Sterling Liquidity Fund, 10.46% (31 December 2016: 5.70%) of the US Dollar Liquidity Fund and 55.92% (31 December 2016: 54.08%) of the Sterling Liquidity Plus Fund. Legal and General Finance Plc held 34.16% (31 December 2016: 35.12%) of the issued share capital of the Sterling Liquidity Plus Fund. Legal and General SICAV Fund held 13.53% of the issued share capital of the Euro Liquidity Fund. As at 30 June 2017, National Grid UK Pension Scheme Trustee Ltd held 3.06% of the issued shares in the LGIM USD Liquidity Fund (31 December 2016: 20.57%). Please see Note 9, Significant Agreements and Related Parties, in regards to the different fee rates charged on each class for Management fees, and Note 8, Operating Expenses, for the fees paid by the Investment Manager on behalf of the US Dollar Liquidity Fund and Sterling Liquidity Plus Fund. Voting Rights Every Shareholder or holder of non-participating shares present in person or by proxy who votes on a show of hands shall be entitled to one vote. On a poll every Shareholder present in person or by proxy shall be entitled to one vote in respect of each Share held by him and every holder of non-participating shares shall be entitled to one vote in respect of all nonparticipating shares held by him. A Shareholder entitled to more than one vote need not cast all his votes or cast all the votes he uses in the same way. The rights listed apply regardless of class. Distribution on Winding Up Shares in each Fund are entitled to participate equally in the profits and distributions of that Fund and in its assets in the event of termination. Sterling Liquidity Fund Redeemable Participating Shares 30 June June June June 2017 Class 1 Class 2 Class 3 Class 4 Shares in issue at beginning of the period 20,075,007,226 1,665, ,929,264 5,006,962,605 Shares issued 61,470,833,151 4,550,000 1,187,845,801 17,565,919,377 Distributions reinvested 31,988,825-6,183 4,550,360 Shares redeemed (60,705,296,678) (2,215,000) (1,140,577,866) (15,939,566,888) Shares in issue at 30 June ,872,532,524 4,000, ,203,382 6,637,865,454 Redeemable Participating Shares 31 December December December December 2016 Class 1 Class 2 Class 3 Class 4 Shares in issue at beginning of the year 15,165,263, ,328,685 5,430,536,199 Shares issued 129,833,403,188 5,480,000 4,319,303,270 24,498,837,951 Distributions reinvested 77,207, ,959,798 Shares redeemed (125,000,867,372) (3,815,004) (4,279,702,732) (24,936,371,343) Shares in issue at 31 December ,075,007,226 1,665, ,929,264 5,006,962,605 16

18 7. Redeemable Participating Shares (continued) US Dollar Liquidity Fund LGIM Liquidity Funds plc Notes to the Financial Statements (continued) Redeemable Participating Shares 30 June June June 2017 Class 1 Class 3 Class 4 Shares in issue at beginning of the period 744,615, ,473,450 20,000,000 Shares issued 5,218,479, ,093,420 20,000,000 Distributions reinvested 2,963, ,272 - Shares redeemed (5,243,034,764) (625,338,132) (10,000,000) Shares in issue at 30 June ,023, ,417,010 30,000,000 Redeemable Participating Shares 31 December December December 2016 Class 1 Class 3 Class 4 Shares in issue at beginning of the year 451,436, ,188,003 - Shares issued 9,021,347,752 1,474,912,398 20,000,000 Distributions reinvested 4,234, ,930 - Shares redeemed (8,732,403,468) (1,507,257,881) - Shares in issue at 31 December ,615, ,473,450 20,000,000 Sterling Liquidity Plus Fund Redeemable Participating Shares 30 June June June 2017 Class 1 Class 4 Class 5 Shares in issue at beginning of the period - 367,072 3,000 Shares issued 109, ,134 3,400 Distributions reinvested Shares redeemed (5,300) - (6,400) Shares in issue at 30 June , ,206 - Redeemable Participating Shares 31 December December December 2016 Class 1 Class 4 Class 5 Shares in issue at beginning of the period Shares issued 200, ,072 3,000 Distributions reinvested Shares redeemed (200,074) - - Shares in issue at 31 December ,072 3,000 17

19 7. Redeemable Participating Shares (continued) Euro Liquidity Fund LGIM Liquidity Funds plc Redeemable Participating Shares 30 June 2017 Class 1 Shares in issue at beginning of the period* - Shares issued 262,185,695 Distributions reinvested - Shares redeemed (160,263,077) Shares in issue at 30 June ,922,618 Notes to the Financial Statements (continued) * The Euro Liquidity Fund launched on 20 June Operating Expenses 30 June June June June June 2017 Sterling Liquidity US Dollar Liquidity Sterling Liquidity Euro Liquidity Company Fund Fund Plus Fund Fund Total GBP USD GBP EUR GBP Management fees - Class 1 776,300 39,488 1, ,110 - Class 2 1, ,996 - Class 3 241, , ,798 - Class 4 3,229,562 16, ,016-3,658,523 - Class Directors' fees and expenses 33, ,613 Audit fees 25,024 1, ,815 Company secretarial fees 12, ,837 Rating agency fees 46,940 32, ,131 Other expenses 91,887 3,825 5, ,121 4,458, , , ,075,612 Fees charged and reimbursed by the Investment Manager on behalf of the US Dollar Liquidity Fund are as follows: Directors insurance fees of nil (30 June 2016: USD197), Directors fees of USD294 (30 June 2016: USD979), audit fees of USD1,425 (30 June 2016: USD1,213), legal fees of USD1,775 (30 June 2016: USD1,049), Company Secretarial fees of USD472 (30 June 2016: nil), S&P Reporting fees of USD480 (30 June 2016: USD337), Fitch Reporting fees of nil (30 June 2016: USD13,395), Moody s Reporting fees of USD32,503 (30 June 2016: USD1,904), miscellaneous fees of USD987 (30 June 2016: USD726), Irish Stock Exchange fees of USD15 (30 June 2016: nil), Directors expense of USD23 (30 June 2016: nil), VAT fees of USD623 (30 June 2016: USD393), Central Bank of Ireland fees of USD68 (30 June 2016: nil) and Other Professional fees of USD357 (30 June 2016: nil). Fees charged and reimbursed by the Investment Manager on behalf of the Sterling Liquidity Plus Fund (launched 06 September 2016) are as follows: Directors fees of GBP295, audit fees of GBP659, legal fees of GBP4,324, Company Secretarial fees of GBP332, Irish Stock Exchange fees of GBP303, VAT fees of GBP515, Central Bank of Ireland fees of GBP24 and Other Professional fees of GBP32. 18

20 8. Operating Expenses (continued) LGIM Liquidity Funds plc Notes to the Financial Statements (continued) 30 June June June 2016 Sterling Liquidity US Dollar Liquidity Company Fund Fund Total GBP USD GBP Management fees - Class 1 725,891 48, ,923 - Class Class 3 282, , ,892 - Class 4 2,264,283-2,264,283 Directors' fees and expenses 25,692 1,176 26,513 Audit fees 14,879 1,213 15,726 Company secretarial fees 7,335-7,335 Rating agency fees 68,533 15,636 79,452 Other expenses 49,225 2,168 50,740 3,438, ,832 3,643, Significant Agreements & Related Parties The Company has entered into an agreement with Legal & General Investment Management Limited (The Investment Manager ). The Investment Manager for the Sterling Liquidity Fund, US Dollar Liquidity Fund and Euro Liquidity Fund are entitled to charge a fee up to 0.10% per annum of the net asset value of the Funds for Class 1, 0.20% for Class 2, 0.15% for Class 3, 0.10% for Class 4. The Investment Manager for the Sterling Liquidity Plus Fund is entitled to charge a fee up to 0.15% per annum of the net asset value of the Funds for Class 1, 0.25% for Class 2, 0.20% for Class 3, 0.15% for Class 4 and 0.25% for Class 5. The fee payable to the Investment Manager shall accrue daily and will be calculated as of the Net Asset Value of each Fund on the relevant Dealing Day and shall be payable monthly in arrears. The Investment Manager shall be responsible for discharging from its fee the fees payable to the Depositary, any Sub-Custodian (which shall be at normal commercial rates together with VAT, if any, thereon), the Administrator and the Distributor. The Company shall bear the cost of any value added tax applicable to any fees or other amounts payable to or by the Manager in the performance of its duties, all of which may be indirectly paid by the Company as vouched expenses. The Company entered into an agreement with Northern Trust International Fund Administration Services (Ireland) Limited (the Administrator ) and with Northern Trust Fiduciary Services (Ireland) Limited (the Depositary ) under which the Administrator and the Depositary receive a fee payable by the Manager of up to 1.25 basis points on a sliding scale, monthly in arrears based on the net asset value of each Fund subject to a minimum fee of 80,000. The Directors are entitled to charge a fee for their services at a rate determined by the Directors. A fee of EUR20,000 applies per director per year. Directors may be entitled to special remuneration if called upon to perform any special or extra services to the Company. All Directors will be entitled to reimbursement by the Company of expenses properly incurred in connection with the business of the Company or the discharge of their duties. Lee Toms was an employee of the Investment Manager (Legal & General Investment Management Limited) during the period and did not receive directors fees from the Funds. Investment Management fees for the period ended 30 June 2017 were GBP4,829,095 (30 June 2016: GBP3,463,324) and payable at the end of the period was GBP897,323 (31 December 2016: GBP1,311,041). During the period ended 30 June 2017, the Company paid Dillon Eustace GBP88,885 (30 June 2016: GBP27,635), a firm in which non-executive director David Dillon was a partner during the period. The fees were in respect of company secretarial and legal services. During the period ended 30 June 2017, the Company incurred directors fees and expenses of GBP33,613 (30 June 2016: GBP26,513) of which GBP24,870 (30 June 2016: GBP23,171) was director s remuneration. 19

21 9. Significant Agreements & Related Parties (continued) Notes to the Financial Statements (continued) Fees and expenses paid to the statutory auditors PricewaterhouseCoopers, in respect of the financial year, entirely relate to the audit of the financial statements of the Company. There were no fees and expenses paid in respect of other assurance, tax advisory or non-audit services provided by the auditors and 31 December Potential investors should refer to the Prospectus for further information in relation to Classes and any Paying Agent appointed by or on behalf of the Company together with the fees and out-of-pocket expenses of the Administrator, Depositary, Investment Manager and Distributor. Cash balances are held with The Northern Trust Company. Transactions during the period with Related Party shareholders on the Sterling Liquidity Fund for subscriptions are GBP36,727,825,726 (31 December 2016: GBP73,386,923,031) and redemptions are GBP35,837,143,098 (31 December 2016: GBP70,593,555,461). Transactions during the period with Related Party shareholders on the US Dollar Liquidity Fund for subscriptions are USD2,857,392,007 (31 December 2016: USD4,813,602,538) and redemptions are USD2,748,479,662 (31 December 2016: USD4,689,330,151). Transactions during the period with Related Party shareholders on the Sterling Liquidity Plus Fund for subscriptions are GBP337,542,623 (31 December 2016: GBP567,148,839) and redemptions are GBP8,702,724 (31 December 2016: GBP200,072,029). Transactions during the period with Related Party shareholders on the Euro Liquidity Fund for subscriptions are GBP153,114,226 and redemptions are GBP106,868,891. Related party shareholders are outlined in Note 7. The Sterling Liquidity Plus Fund held shares in Class 1 of the Sterling Liquidity Fund and executed purchases transactions amounting to GBP59,762,122 (30 June 2016: nil) and sales transactions amounting to GBP13,986,130 (30 June 2016: nil) during the period ended 30 June Dividend income of GBP99,116 (30 June 2016: nil) earned on the investment in the Sterling Liquidity Fund is included in Investment income in the Statement of Comprehensive Income. Any fees in respect of Class 1 of the Sterling Liquidity Fund are paid and rebated back to the Sterling Liquidity Plus Fund. 10. Connected Persons The Central Bank UCITS Regulations require that any transaction carried out with a UCITS by a management company or depositary to the UCITS, the delegates or sub-delegates of the management company or depositary, and any associated or group of such a management company, depositary, delegate or sub-delegate ( connected persons ) must be carried out as if negotiated at arm s length. Transactions must be in the best interests of the Shareholders. The Directors are satisfied that there are arrangements (evidenced by written procedures) in place, to ensure that the obligations set out in Regulation 41(1) of the Central Bank UCITS Regulations are applied to all transactions with connected persons, and are satisfied that transactions with connected persons entered into during the year complied with the obligations set out in Regulation 41(1) of the Central Bank UCITS Regulations. 11. Financial Instruments and Associated Risks Company Risk In pursuing its investment objectives the Company invests in transferable securities, primarily short-term fixed income and variable rate securities, with the aim of spreading risk. Investments in these securities expose the Company to varying risks including market, interest, liquidity, credit/counterparty and foreign currency risks. A description of the specific risks and the policies for managing these risks is included below. The Company has no global exposure to financial derivative instrument transactions as at 30 June 2017 and 31 December Market Risk Market risk embodies the potential for both losses and gains and includes interest rate risk and price risk. All instruments are held in the currency of the Funds so the Funds have no exposure to currency risk. 20

22 Notes to the Financial Statements (continued) 11. Financial Instruments and Associated Risks (continued) Market Risk (continued) The Investment Manager considers the asset allocation of the portfolio in order to minimise risk whilst continuing to follow the Funds investment objective which is to provide capital stability and income through investment in shortterm fixed income and variable rate securities. The Funds overall market position is monitored on a daily basis by the Investment Manager. The Funds investments are susceptible to market price risk arising from uncertainties about future prices of the instruments. The Funds market price risk is managed through diversification of the investment portfolio. The Funds will invest in transferable securities or instruments which are rated at least A1 by Standard & Poor s or equivalent by Moody's, Duff & Phelps or an equivalent rating agency. (a) Price Risk Price risk is the risk that the value of the instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate risk), whether caused by factors specific to an individual instrument, its issuer or all factors affecting all instruments traded in the market. The Investment Manager does not consider price risk to be a dominant risk factor affecting the Funds. This is due to the nature of the Sterling Liquidity Fund, US Dollar Liquidity Fund and Euro Liquidity Fund which are managed with a constant NAV ( CNAV ). However, if the market deteriorates significantly and credit spreads widen, the value of individual holdings in the Funds can drop below their par value. The Sterling Liquidity Plus Fund (as a variable NAV fund) is valued using a combination of mark to market value and amortised cost method, and is not subject to a maximum limit. We consider interest rate risk and credit risk to be the predominant risk factors affecting the Funds, as detailed in Note 11 (b) and (d). (b) Interest Rate Risk and Cashflow Risk The Company s investment portfolio consists of corporate bonds, government bonds, certificates of deposit, commercial paper, investment funds, time deposits and reverse repurchase agreements. As the Company invests in fixed income securities and floating rate securities any change to the relevant interest rates for particular securities may result in the Investment Manager being unable to secure similar returns on the expiry of contracts or the sale of securities. In addition, changes to prevailing interest rates or changes in expectations of future rates may result in an increase or decrease in the value of the securities held. In general, if interest rates rise, the value of the fixed income securities will decline. A decline in interest rates will, in general, have the opposite effect. Floating rate securities expose the fund to cashflow risk. All fixed income securities and floating rate securities, together with their coupon rate and maturity date, are disclosed in the Portfolio Listing. Interest rate risk arises from the effects of fluctuations in the prevailing levels of markets interest rates on the fair value of financial assets and liabilities and future cash flow. The Funds also hold a limited amount of short term cash instruments, cash and cash equivalents that expose the Funds to cash flow interest rate risk. (c) Liquidity Risk The main liquidity risks of the Company are associated with the need to satisfy shareholders requests for redemptions. The Company is exposed to daily cash redemptions of redeemable shares. Redeemable shares are redeemable on demand at the holder s option based on the Funds net asset value per share at the time of redemption. This risk is mitigated by the Company primarily investing in readily realisable securities listed or traded on recognised markets and in fixed deposits. The Company may only borrow on a temporary basis and the aggregate amount of such borrowings may not exceed 10% of the Net Asset Value of each Fund. Subject to this limit the Board of Directors (the Board ) may exercise all borrowing powers on behalf of the Company. In accordance with the provisions of the UCITS Regulations, the Company may charge its assets as security for such borrowings. The Directors did not exercise their borrowing power during the period or prior period. 21