Kleinwort Benson Elite PCC Limited. Annual Report and Audited Financial Statements For the year ended 31 July 2016

Transcription

1 Kleinwort Benson Elite PCC Limited Annual Report and Audited Financial Statements For the year ended 31 July 2016 Guernsey Registered Company Number: 42365

2 Kleinwort Benson Elite PCC Limited Annual Report and Audited Financial Statements For the year ended 31 July 2016 Guernsey Registered Company Number: Contents Investor Information 3 Alternative Investment Manager s Report 7 Directors Report 13 Custodian Report 18 Independent Auditor s Report 19 Statement of Return 20 Statement of Change in Net Assets Attributable to Shareholders 20 Balance Sheet 24 Notes to the Financial Statements 28 Cell Portfolio of Investments 62 Cell Summary of Material Portfolio Changes 71 Alternative Investment Managers Directive 78 2

3 Investor Information General information The Company was incorporated as a company with limited liability in Guernsey on 30 September 2004 and is authorised by the Guernsey Financial Services Commission ( GFSC ) as a Class B Scheme under The Protection of Investors (Bailiwick of Guernsey) Law, The Company is an open-ended investment Protected Cell Company governed by the provisions of The Companies (Guernsey) Law, 2008 ( The Law ). The assets of each cell are held in a segregated portfolio. Persons investing and dealing in a cell of the Company only have recourse to the assets attributable to that particular Cell. They have no recourse to the assets of any other Cell, except as provided under the Law against any non-cellular assets of the Company. Therefore under Guernsey Law the assets of any series cell are not exposed to the liabilities of other series within the umbrella structure. Principal activity and investment objective The investment philosophy of the Company is to achieve long-term capital growth, income or total return (depending on the specific objectives of each Cell) including investing through wholly-owned subsidiaries of such Cells in portfolios specific to the Cells. The Company currently has eleven active Cells which include multiple share classes. Thirty two classes within ten of the Cells, are listed on the Channel Islands Securities Exchange ( CISE ). The functional and reporting currency of the Company and of each Cell is pounds sterling except for Kleinwort Benson Elite USD which is United States dollar as well as Kleinwort Benson Elite EUR and Kleinwort Benson Elite EUR Fixed Income which are in Euros. The Cells Kleinwort Benson Elite Sterling Fixed Income This was launched on 28 April 2006 and was formerly known as Kleinwort Benson Elite Sterling Income. The investment objective of the Cell is primarily to produce returns by way of income with the possibility of capital growth over the medium to long term with low volatility through a portfolio of fixed income and cash investments. The Cell will seek to achieve its objective through a diversified portfolio of predominantly sterling denominated securities, bonds, notes or negotiable instruments issued or guaranteed by sovereign or corporate borrowers within the member states of the Organisation for Economic Co-operation and Development (OECD). The Alternative Investment Manager may also choose to hold collective investment schemes, cash, money market instruments and other instruments (such as, but not limited to, warrants, convertible preference shares and structured products) as the Alternative Investment Manager may consider appropriate in achieving the overall objective of the Cell. The Cell may use derivatives for investment purposes as well as for efficient portfolio management. Kleinwort Benson Elite Balanced This was launched on 3 October 2005, the investment objective of the Cell is to achieve long term equity returns with a moderate level of risk through a well diversified portfolio across asset classes. The Cell will seek to achieve its objective by investing directly in a range of equities, bonds, money market instruments, derivative instruments, forward transactions, collective investment schemes and other instruments as the Alternative Investment Manager may consider appropriate in achieving the overall objective of the Cell. The Cell may use derivatives for investment purposes as well as for efficient portfolio management. Kleinwort Benson Elite Conservative This was launched on 3 August 2005, the investment objective of the Cell is to achieve consistent returns with a low level of risk through a well diversified portfolio across asset classes. The Cell will seek to achieve its objective by investing directly in a range of equities, bonds, money market instruments, derivative instruments, forward transactions, collective investment schemes and other instruments as the Alternative Investment Manager may consider appropriate in achieving the overall objective of the Cell. The Cell may use derivatives for investment purposes as well as for efficient portfolio management. Kleinwort Benson Elite Growth This was launched on 11 September 2007 the investment objective of the Cell is to outperform equity returns with equity-like risk through a well diversified portfolio across asset classes. The Cell will seek to achieve its objective by investing directly in a range of equities, bonds, money market instruments, derivative instruments, forward transactions, collective investment schemes and other instruments as the Alternative Investment Manager may consider appropriate in achieving the overall objective of the Cell. The Cell may use derivatives for investment purposes as well as for efficient portfolio management. 3

4 Investor Information (continued) 4 Kleinwort Benson Elite Equity This was launched on 12 October 2012, the investment objective of the Cell is to maximise capital growth over medium to long term. The Cell will seek to achieve its objective through a diversified portfolio of predominantly international equity based securities. The Alternative Investment Manager may also choose to hold collective investment schemes, cash, money market instruments and other instruments (such as, but not limited to, warrants, convertible preference shares and structured products) as the Alternative Investment Manager may consider appropriate in achieving the overall objective of the Cell. The Cell may use derivatives for investment purposes as well as for efficient portfolio management. Kleinwort Benson Elite Sterling The Cell has been established as a feeder fund which will invest exclusively in the sterling A Shares of the HSBC Sterling Liquidity, a sub-fund of the HSBC Global Liquidity plc ( Underlying ) and was launched on 12 October The investment objective of the Underlying is to provide investors with security of capital and daily liquidity together with an investment return which is comparable to normal pounds sterling denominated money market interest rates. Kleinwort Benson Elite EUR The Cell has been established as a feeder fund which will invest exclusively in the euro A Shares of the HSBC Euro Liquidity, a sub-fund of the HSBC Global Liquidity plc ( Underlying ) and was launched on 12 October The investment objective of the Underlying is to provide investors with security of capital and daily liquidity together with an investment return which is comparable to normal euro denominated money market interest rates. Kleinwort Benson Elite US Dollar The Cell has been established as a feeder fund which will invest exclusively in the US dollar A Shares of the HSBC US Dollar Liquidity, a sub-fund of the HSBC Global Liquidity plc ( Underlying ) and was launched on 12 October The investment objective of the Underlying is to provide investors with security of capital and daily liquidity together with an investment return which is comparable to normal US dollar denominated money market interest rates. Kleinwort Benson Elite Bond This was launched on 12 October 2012, the investment objective of the Cell is to maximise total returns over the medium to long term whilst generating income through a portfolio of fixed income and cash investments. The Cell will seek to achieve its objective through a diversified portfolio of predominantly international bonds and Government securities. The Alternative Investment Manager may also choose to hold collective investment schemes, cash, money market instruments and other instruments (such as, but not limited to, warrants, convertible preference shares and structured products) as the Alternative Investment Manager may consider appropriate in achieving the overall objective of the Cell. The Cell may use derivatives for investment purposes as well as for efficient portfolio management. Kleinwort Benson Elite EUR Fixed Income This was launched on 12 October 2012, the investment objective of the Cell is primarily to produce returns by way of income with the possibility of capital growth over the medium to long term with low volatility through a portfolio of fixed income and cash investments. The Cell will seek to achieve its objective through a diversified portfolio of predominantly euro denominated securities, bonds, notes or negotiable instruments issued or guaranteed by sovereign or corporate borrowers within the member states of the Organisation for Economic Co-operation and Development (OECD). The Alternative Investment Manager may also choose to hold collective investment schemes, cash, money market instruments and other instruments (such as, but not limited to, warrants, convertible preference shares and structured products) as the Alternative Investment Manager may consider appropriate in achieving the overall objective of the Cell. The Cell may use derivatives for investment purposes as well as for efficient portfolio management. Kleinwort Benson Elite Trojan The Participating Share share class of this holds illiquid investment assets in EEA Life Settlements. If the cash flow is sufficient the Directors will consider making further distributions to shareholders.

5 Investor Information (continued) Cells and Class Names Kleinwort Benson Elite Sterling Fixed Income : A Income Reporting Shares* B Income Reporting Shares* Kleinwort Benson Elite Balanced : A GBP Income Reporting Shares* A GBP Reinvest Reporting Shares* B GBP Income Reporting Shares* A USD Accumulating Reporting Shares* A USD Accumulating Non-reporting Shares* A EUR Accumulating Reporting Shares* B USD Accumulating Non-reporting Shares* B EUR Accumulating Non-reporting Shares* B GBP Accumulating Non-reporting Shares* Kleinwort Benson Elite Bond B GBP Accumulating Non-reporting Shares* Kleinwort Benson Elite EUR Fixed Income B EUR Income Reporting Shares* Kleinwort Benson Elite Trojan Participating Shares (suspended) *These share classes are listed on the CISE. Kleinwort Benson Elite Conservative : A GBP Income Reporting Shares* B GBP Income Reporting Shares* A EUR Accumulating Reporting Shares* B USD Accumulating Non-reporting Shares* B EUR Accumulating Non-reporting Shares* B GBP Accumulating Non-reporting Shares* Kleinwort Benson Elite Growth : A GBP Income Reporting Shares* A GBP Reinvest Reporting Shares* B GBP Income Reporting Shares* A USD Accumulating Reporting Shares* B USD Accumulating Non-reporting Shares* B EUR Accumulating Non-reporting Shares* B GBP Accumulating Non-reporting Shares* Kleinwort Benson Elite Equity A GBP Income Reporting Shares* A GBP Reinvest Reporting Shares* B GBP Accumulating Non-reporting Shares* Kleinwort Benson Elite GBP B GBP Accumulating Non-reporting Shares* Kleinwort Benson Elite EUR B EUR Accumulating Non-reporting Shares* 5 Kleinwort Benson Elite USD B USD Accumulating Non-reporting Shares*

6 Investor Information (continued) Directors R Phillips (Chairman) Ground Floor Dorey Court Admiral Park St Peter Port Guernsey GY1 2HT Custodian BNP Paribas Securities Services SCA Guernsey Branch BNP Paribas House St Julian s Avenue St Peter Port Guernsey GY1 1WA 6 A Moorshead Ground Floor Dorey Court Admiral Park St Peter Port Guernsey GY1 2HT M Maubec Ground Floor Dorey Court Admiral Park St Peter Port Guernsey GY1 2HT M Bright Ground Floor Dorey Court Admiral Park St Peter Port Guernsey GY1 2HT Registered Office Ground Floor Dorey Court Admiral Park St Peter Port Guernsey GY1 2HT Administrator, Company Secretary, Designated Manager, Registrar and Sponsor to the CISE Listing JTC Solutions (Guernsey) Limited Ground Floor Dorey Court Admiral Park St Peter Port Guernsey GY1 2HT Independent Auditor Deloitte LLP Regency Court Glategny Esplanade St Peter Port Guernsey GY1 3HW Legal Advisers Carey Olsen PO Box 98 Carey House Les Banques St Peter Port Guernsey GY1 4BZ Alternative Investment Manager Kleinwort Benson (Channel Islands) Investment Management Limited Dorey Court Admiral Park St Peter Port Guernsey GY1 2HT Sub-Investment Manager Kleinwort Benson Bank Limited 14 St George Street London W1S 1FE

7 Alternative Investment Manager s Report Kleinwort Benson Elite Conservative Performance The fund rose 5.0% over the 12-month period ending 31 July Global equity markets were up 17% over the period in GBP terms, benefiting from the devaluation of sterling post Brexit, compared to the UK equity market returning only 3.8%; UK conventional Gilts rose 14%. Portfolio activity The six months ending in July have been a tumultuous one for markets; initially recovering from the sell-off in January, followed by the volatility post Brexit. Overall the major equity bellwethers such as the FTSE 100 and the S&P 500 were up 11% and 12%, respectively. However government bonds were also well supported, with 7 to 10 year gilts up over 7%. The period experienced a terrible start. Echoing the domino effect witnessed in much of 2015, a sell-off triggered by a steep fall in Chinese equities led to rampant global speculation on the economic growth prospects for China. Brent crude traded near $30 per barrel in February, its lowest price in over a decade. Seemingly in lockstep, global equities were down over 10% on a year-to-date basis in February, and dangerously close to entering bear market territory. The market wobble led to the US Federal Reserve (Fed) setting a more dovish tone than originally expected, proving quite supportive to bonds. Unexpectedly, oil prices received a fillip as rumours of a production freeze started making rounds in February. Just as markets were beginning to stabilize, once again, a sense of apprehension was renewed as a result of the UK voting to leave the European Union (EU), or Brexit, on June 23. While this event has myriad unravelling consequences for markets, the most immediate impact was to Sterling, which fell by 11% by the end of June. This ironically led, after a few anxious days, to a rally in the FTSE 100, given that largely international operations of its global companies will be supported by a weak pound. However, the volatility also caused a rush for safe haven-gilts. Indeed, following the Referendum, July proved to be another strong month for both global equities and bonds. At the beginning of January we made a number of changes to the management of fund. For a number of years we primarily used passive investments to deliver our target asset allocation for the fund. After detailed analysis we decided to include active managers in the portfolio, but only where they can demonstrate they have consistently added value. Where we are unable to identify active managers that can consistently outperform (a challenge in particular for US equity and UK gilt implementation), we will continue with a passive allocation. We consider that this blended approach will generate the best possible returns for holders of the fund. Historically the fund has had a UK bias in its equity allocation; this was changed to a Global approach, reducing the UK equity exposure as a result. This decision gives us the flexibility to invest in the most attractive markets, enhancing potential returns, avoiding some of the intrinsic UK market risks experienced in recent years. In May we took the decision to remove the fund s UK commercial property exposure, adding an allocation to commodities in its place. We also further reduced the UK equity holdings adding Asian and Japanese positions with the proceeds. Taken together these changes, since the start of the year, have significantly reduced our UK equity exposure which proved beneficial, post the Brexit vote, for the fund. Kleinwort Benson Elite Balanced Performance The fund rose 6.5% over the 12-month period ending 31 July Global equity markets were up 17% over the period in GBP terms, benefiting from the devaluation of sterling post Brexit, compared to the UK equity market returning only 3.8%; UK conventional Gilts rose 14%. Portfolio activity The six months ending in July have been a tumultuous one for markets; initially recovering from the sell-off in January, followed by the volatility post Brexit. Overall the major equity bellwethers such as the FTSE 100 and the S&P 500 were up 11% and 12%, respectively. However government bonds were also well supported, with 7 to 10 year gilts up over 7%. The period experienced a terrible start. Echoing the domino effect witnessed in much of 2015, a sell-off triggered by a steep fall in Chinese equities led to rampant global speculation on the economic growth prospects for China. Brent crude traded near $30 per barrel in February, its lowest price in over a decade. Seemingly in lockstep, global equities were down over 10% on a year-to-date basis in February, and dangerously close to entering bear market territory. The market wobble led to the US Federal Reserve (Fed) setting a more dovish tone than originally expected, proving quite supportive to bonds. Unexpectedly, oil prices received a fillip as rumours of a production freeze started making rounds in February. Just as markets were beginning to stabilize, once again, a sense of apprehension was renewed as a result of the UK voting the leave the European Union (EU), or Brexit, on June 23. While this event has myriad unravelling consequences for markets, the most immediate impact was to Sterling, which fell by 11% by the end of June. This ironically led, after a few anxious days, to a rally in the FTSE 100, given that largely international operations of its global companies will be supported by a weak pound. However, the volatility 7

8 Alternative Investment Manager s Report (continued) 8 also caused a rush for safe haven-gilts. Indeed, following the Referendum, July proved to be another strong month for both global equities and bonds. At the beginning of January we made a number changes to the management of fund. For a number of years we primarily used passive investments to deliver our target asset allocation for the fund. After detailed analysis we decided to include active managers in the portfolio, but only where they can demonstrate they have consistently added value. Where we are unable to identify active managers that can consistently outperform (a challenge in particular for US equity and UK gilt implementation), we will continue with a passive allocation. We consider that this blended approach will generate the best possible returns for holders of the fund. Historically the fund has had a UK bias in its equity allocation; this was changed to a Global approach, reducing the UK equity exposure as a result. This decision gives us the flexibility to invest in the most attractive markets, enhancing potential returns, avoiding some of the intrinsic UK market risks experienced in recent years. In May we took the decision to remove the fund s UK commercial property exposure, adding an allocation to commodities in its place. We also further reduced the UK equity holdings adding Asian and Japanese positions with the proceeds. Taken together these changes, since the start of the year, have significantly reduced our UK equity exposure which proved beneficial post the Brexit vote for the fund. Kleinwort Benson Elite Growth Performance The fund rose 8.9% over the 12-month period ending 31 July Global equity markets were up 17% over the period in GBP terms, benefiting from the devaluation of sterling post Brexit, compared to the UK equity market returning only 3.8%; UK conventional Gilts rose 14%. Portfolio activity The six months ending in July have been a tumultuous one for markets; initially recovering from the sell-off in January, followed by the volatility post Brexit. Overall the major equity bellwethers such as the FTSE 100 and the S&P 500 were up 11% and 12%, respectively. However government bonds were also well supported, with 7 to 10 year gilts up over 7%. The period experienced a terrible start. Echoing the domino effect witnessed in much of 2015, a sell-off triggered by a steep fall in Chinese equities led to rampant global speculation on the economic growth prospects for China. Brent crude traded near $30 per barrel in February, its lowest price in over a decade. Seemingly in lockstep, global equities were down over 10% on a year-to-date basis in February, and dangerously close to entering bear market territory. The market wobble led to the US Federal Reserve (Fed) setting a more dovish tone than originally expected, proving quite supportive to bonds. Unexpectedly, oil prices received a fillip as rumours of a production freeze started making rounds in February. Just as markets were beginning to stabilize, once again, a sense of apprehension was renewed as a result of the UK voting the leave the European Union (EU), or Brexit, on June 23. While this event has myriad unravelling consequences for markets, the most immediate impact was to Sterling, which fell by 11% by the end of June. This ironically led, after a few anxious days, to a rally in the FTSE 100, given that largely international operations of its global companies will be supported by a weak pound. However, the volatility also caused a rush for safe haven-gilts. Indeed, following the Referendum, July proved to be another strong month for both global equities and bonds. At the beginning of January we made a number changes to the management of fund. For a number of years we primarily used passive investments to deliver our target asset allocation for the fund. After detailed analysis we decided to include active managers in the portfolio, but only where they can demonstrate they have consistently added value. Where we are unable to identify active managers that can consistently outperform (a challenge in particular for US equity and UK gilt implementation), we will continue with a passive allocation. We consider that this blended approach will generate the best possible returns for holders of the fund. Historically the fund has had a UK bias in its equity allocation; this was changed to a Global approach, reducing the UK equity exposure as a result. This decision gives us the flexibility to invest in the most attractive markets, enhancing potential returns, avoiding some of the intrinsic UK market risks experienced in recent years. In May we took the decision to remove the fund s UK commercial property exposure, adding an allocation to commodities in its place. We also further reduced the UK equity holdings adding Asian and Japanese positions with the proceeds. Taken together these changes, since the start of the year, have significantly reduced our UK equity exposure which proved beneficial post the Brexit vote for the fund.

9 Alternative Investment Manager s Report (continued) Kleinwort Benson Elite Sterling Fixed Income Performance During the period the fund returned 6.3% and its current benchmark returned 13.9%. Portfolio activity Over the past year there have been significant macro and geopolitical events that have and are likely to change the UK s and global economic environment for the foreseeable future. Throughout the summer of 2015 bond markets were beneficiaries of renewed concerns over the stability of the Chinese economy and the associated contagion from any marked slowdown. Furthermore the debate as to when the US Federal Reserve would sanction an increase in interest rates was very much alive and the sell-off in global energy markets continued. Following a period of relatively robust US economic data the Federal Reserve (Fed) finally raised short-term interest rates, the first time since the financial crisis, signalling a vote of confidence in the strength of the US economy, sparking a sell-off in bond yields. The beginning of 2016 was tumultuous for risk-assets. The FTSE 100 and the S&P 500 ended the January down 2.5% and 5.1%, respectively; however, both indices had been down over 10% at various stages in the month. Conversely, UK and US 10-year government bonds rallied as yields fell significantly. February was a month where the bond markets clearly demonstrated negative correlation with equity markets. Early February saw a continuation of a flight to safety with yields falling to record lows; UK 10 Gilt yields fell to an all-time low of 1.30%, 10 yr US treasury yields fell to their lowest for a year to 1.66%. As equity markets staged a strong mid-month recovery, risk was back in favour, yields rose accordingly to end the month at 1.74% and 1.34% in the US and UK respectively. In Europe, as a continued expression of the problems facing the region, 10yr German Bunds traded at 0.11% by the end of the month. During early spring, as the date of the UK referendum on European Union membership neared, sterling volatility increased over the outcome of the closely fought Brexit campaign. In the end, coming as a surprise to many, the UK voted to leave the EU sending the pound sharply lower and UK equities into turmoil. UK equities initially fell sharply only for the predominantly international focused FTSE100 to rally following the near 10% decline in sterling, whereas the more domestic oriented FTSE250 performed less well. UK consumer confidence saw its sharpest one-month drop since December In updating its World Economic Outlook, the IMF revised its growth forecast for the UK to 1.7% and 1.3% for 2016 and 2017 respectively. Bank of England governor, Mark Carney, was very clear in that interest rates would fall in the summer. July s MPC s meeting passed without action, leaving August s meeting the likely time at which to cut. With an uncertain future for the UK s economy and forecasts a vote in favour of Brexit would cause a DIY recession, Moody s ratings agency cut the UK s AAA ratings status. With the Bank of England s plan to provide further monetary support, UK government 10yr bond yields fell sharply to all-time lows of 0.68%. The continuation of the long-run bull market in bonds and despite our continued cautious approach to bonds markets the fund still provided a strong return of 6.3%. This was behind the fund s benchmark which returned 13.9% reflecting the more than double the length of average maturity and hence double the volatility. The decline in the value of sterling had little direct impact on the fund as we invest fully in sterling assets. Kleinwort Benson Elite EUR Fixed Income Performance During the period the fund returned 3.7% and its current benchmark returned 6.3%. Portfolio activity Over the past year there have been significant macro and geopolitical events that have and are likely to change the UK s and global economic environment for the foreseeable future. Throughout the summer of 2015 bond markets were beneficiaries of renewed concerns over the stability of the Chinese economy and the associated contagion from any marked slowdown. Furthermore the debate as to when the US Federal Reserve would sanction an increase in interest rates was very much alive and the sell-off in global energy markets continued. Following a period of relatively robust US economic data the Federal Reserve (Fed) finally raised short-term interest rates, the first time since the financial crisis, signalling a vote of confidence in the strength of the US economy, sparking a sell-off in bond yields. The beginning of 2016 was tumultuous for risk-assets. The FTSE 100 and the S&P 500 ended the January down 2.5% and 5.1%, respectively; however, both indices had been down over 10% at various stages in the month. Conversely, UK and US 10 year government bonds rallied as yields fell significantly. 9

10 Alternative Investment Manager s Report (continued) 10 February was a month where the bond markets clearly demonstrated negative correlation with equity markets. Early February saw a continuation of a flight to safety with yields falling to record lows; UK 10 Gilt yields fell to an all-time low of 1.30%, 10 year US treasury yields fell to their lowest for a year to 1.66%. As equity markets staged a strong mid-month recovery, risk was back in favour, yields rose accordingly to end the month at 1.74% and 1.34% in the US and UK respectively. In Europe, as a continued expression of the problems facing the region, 10 year German Bunds traded at 0.11% by the end of the month. During early spring, as the date of the UK referendum on European Union membership neared, sterling volatility increased over the outcome of the closely fought Brexit campaign. In the end, coming as a surprise to many, the UK voted to leave the EU sending the pound sharply lower and UK equities into turmoil. UK equities initially fell sharply only for the predominantly international focused FTSE100 to rally following the near 10% decline in sterling, whereas the more domestic oriented FTSE250 performed less well. UK consumer confidence saw its sharpest one-month drop since December In updating its World Economic Outlook, the IMF revised its growth forecast for the UK to 1.7% and 1.3% for 2016 and 2017 respectively. Bank of England governor, Mark Carney, was very clear in that interest rates would fall in the summer. July s MPC s meeting passed without action, leaving August s meeting the likely time at which to cut. With an uncertain future for the UK s economy and forecasts a vote in favour of Brexit would cause a DIY recession, Moody s ratings agency cut the UK s AAA ratings status. With the Bank of England s plan to provide further monetary support, UK government 10yr bond yields fell sharply to all-time lows of 0.68%. As UK bond yields declined to record lows, so did those of the EU. EU Benchmark 10 year government bonds fell to a record low of -0.19% amid concern the Brexit vote would spark a round of regional referendums that could tear the Union apart. Uncertainty surrounding the economic impact of the UK leaving the EU also weighed on sentiment. The continuation of the long-run bull market in bonds and despite our continued cautious approach to bonds markets the fund still provided a strong return of 3.7%. This was behind the fund s benchmark which returned 6.3% reflecting the longer duration profile. Kleinwort Benson Bond Performance During the period the fund returned 7.5% and its current benchmark returned 28.6%. Portfolio activity Over the past year there have been significant macro and geopolitical events that have and are likely to change the UK s and global economic environment for the foreseeable future. Throughout the summer of 2015 bond markets were beneficiaries of renewed concerns over the stability of the Chinese economy and the associated contagion from any marked slowdown. Furthermore the debate as to when the US Federal Reserve would sanction an increase in interest rates was very much alive and the sell-off in global energy markets continued. Following a period of relatively robust US economic data the Federal Reserve (Fed) finally raised short-term interest rates, the first time since the financial crisis, signalling a vote of confidence in the strength of the US economy, sparking a sell-off in bond yields. The beginning of 2016 was tumultuous for risk-assets. The FTSE 100 and the S&P 500 ended the January down 2.5% and 5.1%, respectively; however, both indices had been down over 10% at various stages in the month. Conversely, UK and US 10 year government bonds rallied as yields fell significantly. February was a month where the bond markets clearly demonstrated negative correlation with equity markets. Early February saw a continuation of a flight to safety with yields falling to record lows; UK 10 Gilt yields fell to an all-time low of 1.30%, 10 year US treasury yields fell to their lowest for a year to 1.66%. As equity markets staged a strong mid-month recovery, risk was back in favour, yields rose accordingly to end the month at 1.74% and 1.34% in the US and UK respectively. In Europe, as a continued expression of the problems facing the region, 10 year German Bunds traded at 0.11% by the end of the month. During early spring, as the date of the UK referendum on European Union membership neared, sterling volatility increased over the outcome of the closely fought Brexit campaign. In the end, coming as a surprise to many, the UK voted to leave the EU sending the pound sharply lower and UK equities into turmoil. UK equities initially fell sharply only for the predominantly international focused FTSE100 to rally following the near 10% decline in sterling, whereas the more domestic oriented FTSE250 performed less well. UK consumer confidence saw its sharpest one-month drop since December In updating its World Economic Outlook, the IMF revised its growth forecast for the UK to 1.7% and 1.3% for 2016 and 2017 respectively. Bank of

11 Alternative Investment Manager s Report (continued) England governor, Mark Carney, was very clear in that interest rates would fall in the summer. July s MPC s meeting passed without action, leaving August s meeting the likely time at which to cut. With an uncertain future for the UK s economy and forecasts a vote in favour of Brexit would cause a DIY recession, Moody s ratings agency cut the UK s AAA ratings status. With the Bank of England s plan to provide further monetary support, UK government 10yr bond yields fell sharply to all-time lows of 0.68%. The is not managed with any particular focus on currency exposures; exposures are more a function of the bottom-up stock selection, though for prudent risk management purposes we tend to keep implied currency exposures within +/-10% of their natural weighting in global equity markets. For the period under review, the s resultant biases in currency exposures were additive also; particularly the s relative underweight to Japanese Yen and overweight exposures to US Dollar and Canadian Dollar. The continuation of the long-run bull market in bonds and despite our continued cautious approach to bonds markets the fund still provided a strong return of 7.5%. This was behind the fund s benchmark which returned 28.6% reflecting both the longer duration profile and a more international non-sterling currency allocation. Throughout 2016 bond 10 year bond yields fell sharply, for example sterling 10 year gilt yields fell from 1.99% to an all-time low of 0.52% post the Brexit vote, equating to capital gains of around 12%. Combine this with the immediate 11% in sterling post June s EU referendum vote and 15% for the year, the benchmark as indicated rose 28.6%. The benchmark is made up from a large basket of currencies, most notably USD (45%), Euro (23.5%) and Japanese Yen (18%) with sterling representing only 5% of the index. The sharp decline in sterling s value had a significant positive impact on short-term performance. The fund, interpreting the KB currency house views, had only a small non-sterling allocation resulting in a marginal positive impact on performance. Combined with our short duration strategy, one that is applied across all fixed income strategies, the fund also underperformed on a relative duration basis. Kleinwort Benson Equity Performance For the 12 months ending 31 July 2016, the returned +24.7% (GBP, net). This compares favourably to s peer group the Morningstar Global Large Cap index which returned +13.7% (GBP, net) over the same period. Portfolio activity As with last year, the strong positive performance and relative outperformance was primarily due to stock selection, though our regional allocations provided some additional benefit with allocations. Stock selection remains the primary driver of performance and as with previous periods was additive across most sectors. Selection within Industrials was especially strong, as steady positions in Waste Management Inc., Jack Henry Group, Cintas, and Lockheed Martin provided total returns ranging from +48 to +57% each in GBP terms. (Arguably, there is greater opportunity to outperform in the Industrials sector given the especially diverse nature of businesses classed as Industrials ; i.e., there is greater opportunity to select stocks that will behave in fundamentally different ways to the others.) Over the course of the year, we effected a number of changes in holdings, all based on our Quality-Value approach to stock selection. In essence, as a stock either outperforms and becomes relatively expensive or begins to show signs of fundamental weakness, we look to close out the position and move on to something offering a better risk/return profile. While it is possible that at times there will be few stocks that look attractive per our approach to selection, we have not encountered this in the past year and continue to observe numerous attractive opportunities whenever seeking to reallocate capital. At present, the remains positioned with a significant overweight allocation to the Industrials sector, which again offers diverse opportunities. There remains also a lessor overweight exposure to the Utilities sector, but the s allocation of just 7.7% remains modest in the context of the wider portfolio. Looking forward, we should expect (as always) to see continued divergence of performance between the and the global equity market benchmark. In order to outperform the market, the must necessarily be different from the market, and so when selecting stocks and forming the s portfolio, we allow for significant deviations from the benchmark s stock, sector and country weights providing for genuine active portfolio management. 11

12 Alternative Investment Manager s Report (continued) Kleinwort Benson Trojan Performance The remains in the process of being wound up. The one remaining investment is EEA Life Settlements Run-Off Shares which in themselves are in the process of winding up. The assets held by EEA are life policies and are not readily tradeable. Only as EEA are able to find a buyer or policies mature are they able to return cash to shareholders. The underlying policies have experienced a much lower mortality rate than initially expected and this has both reduced the cash flows received and increased the premiums payable resulting in less cash flow available to shareholders in the short to medium term. Portfolio activity During the fourth quarter of 2015 EEA managed to negotiate the sale of approximately 25% of policies attributable to the Run-Off shareholders and the received a substantial cash flow which was distributed to shareholders at the rate of 17 pence per share in the first quarter of Also in the fourth quarter of 2015 Tullet Prebon, an institutional broker, announced that they were prepared to consider bidding to buy EEA Life Settlements Run-Off shares. The offer was delayed until after the distribution was made and our expectation that Tullet Prebon were likely to offer distressed prices was confirmed when they offered 26.69% of the March NAV. The investment managers did not consider it appropriate to accept this offer. A further offer was also made by Southey Capital, however at 29%-31% of April NAV the discount was still considered too much to offer value to the shareholders. Information supplied after the close of the financial year confirms that EEA will make another distribution to shareholders in the fourth quarter of 2016 following a number of policy maturities in August and September. If the cash flow is sufficient the Directors will consider making a further distribution to Shareholders. 12

13 Directors Report The Directors of Kleinwort Benson Elite PCC Limited (the Company ) are pleased to submit their annual report and the audited financial statements for the year ended 31 July 2016 with comparatives for the year ended 31 July Results and dividends The results for the year are shown in the statement of total return on pages 20 and 21. The previous annual financial statements were prepared under previous United Kingdom Generally Accepted Accounting Practice for the year ended 31 July The Company has transitioned to Financial Reporting Standard 102 The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland as at 1 August As a consequence, and as explained in the notes to the financial statements a number of accounting policies have changed to comply with FRS 102 and the Statement of Recommended Practice Financial Statements of UK Authorised s issued in May However this has had no impact on the results of the Company. The Directors are entitled, in their sole discretion, to declare and pay dividends. In accordance with the Cell Particulars, dividends can be declared on 31 January, 30 April, 31 July and 31 October in each year in respect of Kleinwort Benson Elite Sterling Fixed Income, Kleinwort Benson Elite EUR Fixed Income, Kleinwort Benson Elite Equity and Kleinwort Benson Elite Bond. Dividends can also be declared on 31 January and 31 July in each year in respect of Kleinwort Benson Elite Conservative and declared on 31 July each year in respect of Kleinwort Benson Elite Balanced and Kleinwort Benson Elite Growth. Dividend income will be distributed within two months of the relevant date (the Payment Date ) to all shareholders registered on the register at the record date. No dividends are declared by Kleinwort Benson Elite GBP, Kleinwort Benson Elite EUR, Kleinwort Benson Elite USD and Kleinwort Benson Elite Global Trojan. Under Guernsey law, companies can pay dividends in excess of accounting profit provided they satisfy the solvency test prescribed under the Law. The solvency test considers whether a company is able to pay its debts when they become due and whether the value of a company s assets are greater than its liabilities after any dividend is paid. All expenses in respect of the Kleinwort Benson Elite Sterling Fixed Income, the Kleinwort Benson Elite Conservative, the Kleinwort Benson Bond and the Kleinwort Benson EUR Fixed Income have been charged to capital as prescribed by the Cell Particulars of each cell. 13

14 Directors Report (continued) Three year record net asset value per share The net asset value per share for the years 2014 to 2016 is summarised in the table below Sterling Fixed Income A Income Reporting Shares B Income Reporting Shares Balanced A GBP Income Reporting Shares A GBP Reinvest Reporting Shares B GBP Income Reporting Shares A USD Accumulating Reporting Shares $1.19 $1.12 $1.08 A USD Accumulating Non-reporting Shares $1.19 $1.12 $1.08 A EUR Accumulating Reporting Shares B USD Accumulating Non-reporting Shares $1.16 $1.11 $1.06 B EUR Accumulating Non-reporting Shares B GBP Accumulating Non-reporting Shares Conservative A GBP Income Reporting Shares B GBP Income Reporting Shares A EUR Accumulating Reporting Shares B USD Accumulating Non-reporting Shares $1.08 $1.03 $1.01 B EUR Accumulating Non-reporting Shares B GBP Accumulating Non-reporting Shares Growth A GBP Income Reporting Shares A GBP Reinvest Reporting Shares B GBP Income Reporting Shares A USD Accumulating Reporting Shares $1.27 $1.17 $1.12 B USD Accumulating Non-reporting Shares $1.24 $1.15 $1.10 B EUR Accumulating Non-reporting Shares B GBP Accumulating Non-reporting Shares Equity A GBP Income Reporting Shares A GBP Reinvest Reporting Shares B GBP Accumulating Non-reporting Shares Sterling B GBP Accumulating Non-reporting Shares Euro B EUR Accumulating Non-reporting Shares US Dollar B USD Accumulating Non-reporting Shares $0.95 $0.96 $0.98 Bond B GBP Accumulating Non-reporting Shares EUR Fixed Income B EUR Income Reporting Shares Elite Trojan Participating Shares The above table does not include those share classes which are not active or have been fully redeemed. 14

15 Directors Report (continued) Going concern In the opinion of the Directors, there is a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason the financial statements have been prepared on the going concern basis. The Directors have arrived at this opinion by considering, inter alia, the following factors: the Company has sufficient liquidity to meet all on-going expenses (net current asset position at 31 July 2016 of 24,034,779* (2015: 19,305,790); in the event of significant cell share redemptions the Directors can suspend all dealings; the Company holds a large amount of investments which are able to be settled within three business days of the trade date and therefore will have sufficient resources to meet future redemption requests and other liquidity requirements; the Cell Shares deal on a weekly basis and have a settlement period of up to seven days following the relevant dealing day. On this basis, the Company and individual Cells are well placed to meet all future cash flows associated with redemption requests; and the KB Elite Trojan is currently in the process of being realised. The most recent valuation date of the Cell was 31 October *The net current asset position is derived as follows: Taxation States of Guernsey Income Tax has granted the Company exemption from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and the income of the Company may be distributed or accumulated without deduction of Guernsey income tax. Exemption under the above mentioned Ordinance entails payment of an annual fee of 1,200. Auditor Deloitte LLP has expressed its willingness to continue in office as auditor and a resolution to re-appoint it is proposed for consideration at the next Annual General Meeting of the Company. UK Offshore Rules and Reporting Regime The Company complies with the provisions of the UK offshore fund rules to enable UK investors to benefit from capital (as opposed to income) tax on gains made on the disposal of shares. The Company is comprised of a number of Cells and share classes that are each treated as separate funds for the purpose of these rules. The Reporting regime requires funds to be entered into the regime to disclose certain information to UK investors for each reporting period. The following s have been accepted into the Reporting regime with effect from 31 July assets 220,244,879 Less total liabilities ( 1,052,293) Less investment assets ( 195,157,807) 24,034,779 Directors The Directors are noted on page 6. All Directors served throughout the period. None of the Directors has a service contract with the Company and no such contract is proposed. As at 31 July 2016 none of the Directors, their associates or the Alternative Investment Manager held any participating shares in the Company. Mr Moorshead and Mr Bright waived their entitlement to Directors fees, Mr Phillips is entitled to a fee of 22,500 per annum and Mr Maubec is entitled to a fee of 15,000 per annum. Related parties Details of the related parties are disclosed in note 11 to the financial statements. Kleinwort Benson Elite Sterling Fixed Income A GBP Income Reporting Shares Kleinwort Benson Elite Sterling Fixed Income B GBP Income Reporting Shares Kleinwort Benson Elite Sterling Fixed Income C GBP Income Reporting Shares* Kleinwort Benson Elite Conservative A GBP Income Reporting Shares Kleinwort Benson Elite Conservative A GBP Reinvest Reporting Shares* Kleinwort Benson Elite Conservative B GBP Income Reporting Shares Kleinwort Benson Elite Conservative C GBP Income Reporting Shares* Kleinwort Benson Elite Conservative A EUR Accumulating Reporting Shares Kleinwort Benson Elite Conservative A USD Accumulating Reporting Shares* Kleinwort Benson Elite Balanced A GBP Income Reporting Shares 15

16 Directors Report (continued) Kleinwort Benson Elite Balanced A GBP Reinvest Reporting Shares Kleinwort Benson Elite Balanced B GBP Income Reporting Shares Kleinwort Benson Elite Balanced C GBP Income Reporting Shares* Kleinwort Benson Elite Balanced A EUR Accumulating Reporting Shares Kleinwort Benson Elite Balanced A USD Accumulating Reporting Shares Kleinwort Benson Elite Growth A GBP Income Reporting Shares Kleinwort Benson Elite Growth A GBP Reinvest Reporting Shares Kleinwort Benson Elite Growth C GBP Income Reporting Shares* Kleinwort Benson Elite Growth B GBP Income Reporting Shares Kleinwort Benson Elite Growth A EUR Accumulating Reporting Shares* Kleinwort Benson Elite Growth A USD Accumulating Reporting Shares Kleinwort Benson Elite Equity A GBP Income Reporting Shares Kleinwort Benson Elite Equity A GBP Reinvest Reporting Shares Kleinwort Benson Elite Equity C GBP Income Reporting Shares* Kleinwort Benson Elite Bond A GBP Income Reporting Shares* Kleinwort Benson Elite Bond C GBP Income Reporting Shares* Kleinwort Benson Elite EUR Fixed Income A EUR Income Reporting Shares* Kleinwort Benson Elite EUR Fixed Income B EUR Income Reporting Shares Kleinwort Benson Elite EUR Fixed Income C EUR Income Reporting Shares* Those Reporting s marked with an asterisk* do not have any investors at the current time but it has been decided to make an application for reporting fund status in anticipation of there being UK investors in the future. Cell closures With effect from 24th November 2015, the following share classes were closed: Kleinwort Benson Elite Sterling Fixed Income C GBP Income Reporting Shares Kleinwort Benson Elite Multi-Asset Balanced C GBP Income Reporting Shares Kleinwort Benson Elite Multi-Asset Balanced C USD Accumulating Non-Reporting Shares Kleinwort Benson Elite Conservative A GBP Reinvest Reporting Shares Kleinwort Benson Elite Conservative C GBP Income Reporting Shares Kleinwort Benson Elite Conservative A USD Accumulating Reporting Shares Kleinwort Benson Elite Growth C GBP Income Reporting Shares Kleinwort Benson Elite Growth A EUR Accumulating Reporting Shares Kleinwort Benson Elite Equity C GBP Income Reporting Shares Kleinwort Benson Elite Bond A GBP Income Reporting Shares Kleinwort Benson Elite Bond C GBP Income Reporting Shares Kleinwort Benson Elite EUR Fixed Income A EUR Income Reporting Shares Kleinwort Benson Elite EUR Fixed Income C EUR Income Reporting Shares The Alternative Investment Managers Directive The Directive, which was implemented by EU Member States in 2013, covers the management, administration and marketing of alternative investment funds ( AIFs ). Its focus is on regulating alternative investment fund managers ( AIFMs ) established in the EU and prohibits such managers from managing any AIFs or marketing shares in such funds to investors in the EU unless an AIFMD authorisation is granted to the AIFM. The is a non-eu AIF whose AIFM is Kleinwort Benson (Channel Islands) Investment Management Limited, a non-eu AIFM for the purpose of the Alternative Investment Managers Directive 2011/61/EU ( AIFMD ). Please refer to the Alternative Investment Manager s Directive Report on page