Distribution Number 8

Transcription

1 Distribution Number 8 Legal & General Global Macro Themes Fund Annual Manager s Report for the year ended 14 September 2012

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3 Contents Page Number Manager s Investment Report* 2 Authorised Status* 5 Directors Statement 5 Statement of the Manager s Responsibilities 6 Statement of the Trustee s Responsibilities 6 Report of the Trustee 7 Portfolio Statement* 8 Independent Auditors Report 13 Statement of Total Return 15 Statement of Change in Net Assets attributable to Unitholders 15 Balance Sheet 16 Notes to the Financial Statements 17 Distribution Tables 29 Fund Facts 30 Risk and Reward Profile* 31 Performance Record 32 General Information* 35 * These collectively comprise the Authorised Fund Manager s Report. 1

4 Manager s Investment Report Investment Objective and Policy The investment objective is to aim to provide positive returns in all market conditions over any three year period and capital growth over the long term. The Fund s investment strategy will be to identify global macroeconomic themes and where possible exploit these themes. The Fund may invest in any geographic or economic sector anywhere in the World. The Fund will invest mainly in derivatives (including credit default swaps and other Over the Counter (OTC) instruments) on all asset classes and may also invest in any or all of the following securities: equities, fixed interest securities, collective investment schemes, other transferable securities, money market instruments/cash, near cash and deposits. The Fund may gain an indirect exposure to property and commodities. At times, the Fund may be fully invested in derivatives or cash. The Fund may use derivatives to create short positions. The Fund may experience significant volatility due to the nature of the investment strategy. Whilst the Fund aims to achieve a positive return in all market conditions, there is no guarantee that this will be achieved. Manager s Investment Report During the year under review, the bid price of the Fund s RClass accumulation units fell by 1.10%. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up. Exchange rate changes may cause the value of any overseas investments to rise or fall. Market/Economic Review The year under review has been dominated by headlines on poor global economic growth and the European sovereign (government) debt crisis. Markets moved between optimistic periods resulting from policy intervention by central banks, to bleak periods when the fundamentals behind the essential deleveraging, and their consequences, returned to the forefront of investors minds. Over the second half of 2011, safe haven government bond markets (such as US, Germany and UK) recorded sizeable gains, as investors sought to reduce credit risk and diversify away from distressed eurozone markets. The growing sense of crisis engulfed Italian and Spanish bonds and yields rose to levels considered unsustainable over an extended period. As the situation worsened, the European Central Bank s (ECB) injection of liquidity via the Long Term Refinancing Operations (LTRO) provided some much needed respite to markets at the beginning of However, this respite proved shortlived as elections in Greece and France revealed growing public hostility to austerity measures, and hinted at an increased probability of a disorderly breakup of the single currency. Yields on higherrated safe havens such as US treasuries, UK gilts and German bunds fell to record lows. In credit 2

5 Manager s Investment Report continued markets, financial sector bonds were particularly volatile as ratings agency Moodys issued a raft of bank downgrades. The market was driven by policy action again in the summer of 2012, as the ECB s President lifted sentiment by commenting that the ECB would do whatever it takes to save the euro. At the end of the review year, the Federal Reserve announced that it would inject $40 billion a month, every month, into the U.S. economy until there is evidence of a sustained improvement in employment levels. Although markets had expected more quantitative easing, they did not expect Bernanke to be so aggressive, and markets subsequently soared. The review year ended very differently to the start, as markets were more positive for risky assets, with credit, equities and commodity markets generally stronger than safe haven bonds. Fund Review The Fund is active across five broad asset classes (interest rates, credit, equities, commodities and foreign exchange) and therefore has the ability to take advantage of global macroeconomic themes through a wide variety of tactical and strategic investment strategies. At the beginning of the review year the European sovereign debt crisis dominated market sentiment. Liquidity was difficult, which reflected the ongoing deleveraging by the private sector. The increasing focus on European bank s capital requirements only worked to fuel volatility levels witnessed since the onset of the crisis. The Fund was therefore positioned with significant caution. Towards the end of 2011 however, positioning in the Fund was shifted in order to benefit from the rally in risk assets resulting from the LTRO liquidity injection. Long positions in credit, equities and emerging market currencies all contributed to positive performance over the first few months of The view that interest rates would stay low for a prolonged period of time was another theme reflected in the Fund. This was implemented through various liquid instruments, and contributed positively to performance over the whole review year, as interest rates did indeed remain very low in historic terms. The currency positions held within the Fund produced mixed results over the review year. Initially, strong performance was gained from being long US dollar and short emerging market currencies. The position worked well as investors sought the safety of the US dollar as the European debt crisis worsened. Subsequently however, the Fund held a long US dollar position against a short euro position, still on the same flight to safety rationale, but now with a short position to the euro rather than emerging market currencies. This position contributed negatively to performance, as a widening disconnect between market movements and underlying fundamentals became increasingly apparent. Towards the end of the review year as markets soared, the equity exposure in the Fund hurt performance. The impact was magnified by the seasonal illiquidity as some market participants had to cover short positions in equities, currencies and government bonds. The fundamentals behind the ongoing European crisis were ignored as central banks implanted yet more policy action. At times during the review year, the Fund was long Gold. The rationale for this was that as a real asset, demand for gold would support prices in an environment of currency devaluation. This position was held at the year end. 3

6 Manager s Investment Report continued Outlook Global economic growth remains lacklustre. Markets would probably take some comfort from a stabilisation or slight improvement in economic data releases, even if they still implied insufficient mediumterm growth to address the fiscal challenges. Global economies face a number of headwinds at present; the drag imposed by Europe s recession, the uncertainty surrounding China s slowdown, the risks associated with the impending fiscal cliff (the expiration of tax cuts combined with public spending cutbacks) facing the U.S. economy in However, with many cyclical areas of demand already depressed and ECB liquidity facilities slowing the rate of bank deleveraging, the rate of contraction is unlikely to intensify further. The recent underperformance of emerging equity markets may be set to change, as positive responses to policy stimulus feed through, and investors look to avoid the low growth environment offered by developed markets. Economic fundamentals and the growth outlook are likely to take centre stage again with the recent relief provided by the central banks merely buying more time, rather than solving the underlying problems. The Fund continues to be run as a balanced portfolio, with focus on opportunities where expected return compensates for the unusually high risk and uncertainty currently present in the markets. Legal & General Investment Management Limited (Investment Adviser) 5 October

7 Authorised Status Authorised Status This Fund is an Authorised Unit Trust Scheme as defined in section 243 of the Financial Services and Markets Act 2000 and is a UCITS Retail Scheme within the meaning of the FSA Collective Investment Schemes sourcebook. Directors Statement We hereby certify that this Manager s Report has been prepared in accordance with the requirements of the FSA Collective Investment Schemes sourcebook. M. B. Boardman S. D. Thomas (Director) (Director) Legal & General (Unit Trust Managers) Limited 2 November

8 Statement of Responsibilities Statement of the Manager s Responsibilities The Manager of the Fund is required by the FSA Collective Investment Schemes sourcebook (COLL) to prepare financial statements for each accounting period which give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the net revenue and the net capital gains or losses on the Scheme property for the accounting period, and the financial position of the Fund at the end of that period. In preparing these financial statements, the Manager is required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are prudent and reasonable; state whether applicable Accounting Standards have been followed, subject to any material departure disclosed and explained in the financial statements; and prepare the financial statements on the basis that the Fund will continue in operation unless it is inappropriate to presume this. The Manager is also required to manage the Fund in accordance with the Trust Deed, the Prospectus and the COLL, maintain proper accounting records to enable them to ensure that the financial statements comply with the Statement of Recommended Practice for Authorised Funds issued by the Investment Management Association (IMA) in October 2010 and the COLL and take in these respects reasonable steps for the prevention and detection of fraud and other irregularities. Statement of the Trustee s Responsibilities The Trustee is responsible for the safekeeping of all the property of the Scheme (other than tangible moveable property) which is entrusted to it and for the collection of revenue that arises from that property. It is the duty of the Trustee to take reasonable care to ensure that the Scheme is managed in accordance with the Financial Services Authority s Collective Investment Scheme sourcebook (COLL), as amended, the Scheme s Trust Deed and Prospectus, in relation to the pricing of, and dealings in, units in the Scheme; the application of the revenue of the Scheme; and the investment and borrowing of the Scheme. 6

9 Report of the Trustee Report of the Trustee to the Unitholders of Legal & General Global Macro Themes Fund ( the Fund ) Having carried out such procedures as we considered necessary to discharge our responsibilities as Trustee of the Scheme, it is our opinion that, based on the information available to us and the explanations provided, that, in all material respects, the Manager: has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Scheme s units and the application of the Scheme s revenue in accordance with the COLL, the Fund Deed and Prospectus, and has observed the investment and borrowing powers and restrictions applicable to the Scheme. London National Westminster Bank Plc 2 November 2012 Trustee and Depositary Services 7

10 Portfolio Statement Portfolio Statement as at 14 September 2012 All investments are in fixed interest securities unless otherwise stated. The percentages in brackets show the equivalent sector holdings at 14 September Holding/ Market % of Nominal Value Net Value Investment Assets STERLING DENOMINATED SECURITIES 70.82% (74.14%) Government Stocks 16.91% (13.75%) 32,000,000 Republic of Finland FR 25/03/ ,002, ,000,000 Treasury 8% 27/09/ ,981, ,000,000 Treasury 4% 07/09/ ,684, ,669, Certificates of Deposit 0.00% (13.32%) Treasury Bills 48.80% (26.58%) 77,925,000 Treasury Bill 0% 15/10/ ,903, ,000,000 Treasury Bill 0% 22/10/ ,988, ,075,000 Treasury Bill 0% 05/11/ ,066, ,000,000 Treasury Bill 0% 12/11/ ,983, ,000,000 Treasury Bill 0% 03/12/ ,970, ,000,000 Treasury Bill 0% 07/01/ ,960, ,000,000 Treasury Bill 0% 11/02/ ,964, ,000,000 Treasury Bill 0% 11/03/ ,959, ,798, Corporate Bonds 5.11% (20.49%) 30,000,000 European Investment Bank Floating Rate 18/03/ ,850, US DOLLAR DENOMINATED SECURITIES 8.38% (0.00%) Government Stocks 8.38% (0.00%) $75,000,000 US Treasury Notes 1.875% 31/08/ ,934, FORWARD CURRENCY CONTRACTS 0.02% (0.53%) (20,000,000) Sold Sterling $31,116,760 For US Dollars (Expires 18/09/2012) (834,123) (0.14) $(20,910,493) Sold US Dollars 17,000,000 For Euros (Expires 18/09/2012) 833, $(31,863,580) Sold US Dollars 20,000,000 For Sterling (Expires 18/09/2012) 374, AUD(9,902,364) Sold Australian Dollars 8,000,000 For Euros (Expires 21/09/2012) (8,678) AUD(7,000,000) Sold Australian Dollars $7,121,919 For US Dollars (Expires 21/09/2012) (181,260) (0.03) AUD(9,000,000) Sold Australian Dollars NZD11,548,521 For New Zealand Dollars (Expires 21/09/2012) 55, CAD(5,008,160) Sold Canadian Dollars 4,000,000 For Euros (Expires 21/09/2012) 30,

11 Portfolio Statement continued Holding/ Market % of Nominal Value Net Value Investment Assets FORWARD CURRENCY CONTRACTS (cont.) CAD(4,942,870) Sold Canadian Dollars $5,000,000 For US Dollars (Expires 21/09/2012) (74,705) (0.01) (4,000,000) Sold Euros CAD4,998,264 For Canadian Dollars (Expires 21/09/2012) (36,859) (0.01) (8,000,000) Sold Euros JPY796,792,000 For Japanese Yen (Expires 21/09/2012) (159,461) (0.03) (2,000,000) Sold Euros SGD3,172,180 For Singapore Dollars (Expires 21/09/2012) (10,921) (17,000,000) Sold Euros $21,609,737 For US Dollars (Expires 18/09/2012) (402,490) (0.07) JPY(804,496,000) Sold Japanese Yen 8,000,000 For Euros (Expires 21/09/2012) 98, JPY(576,711,000) Sold Japanese Yen NZD9,000,000 For New Zealand Dollars (Expires 21/09/2012) 65, JPY(501,598,000) Sold Japanese Yen 4,000,000 For Sterling (Expires 21/09/2012) 37, JPY(703,162,800) Sold Japanese Yen $9,000,000 For US Dollars (Expires 21/09/2012) (10,742) NZD(7,644,390) Sold New Zealand Dollars AUD6,000,000 For Australian Dollars (Expires 21/09/2012) (9,085) NZD(9,312,621) Sold New Zealand Dollars $7,492,490 For US Dollars (Expires 21/09/2012) (165,965) (0.03) NZD(9,000,000) Sold New Zealand Dollars JPY558,292,500 For Japanese Yen (Expires 21/09/2012) (210,509) (0.04) NZD(16,048,312) Sold New Zealand Dollars 8,000,000 For Sterling (Expires 21/09/2012) (238,880) (0.04) (4,000,000) Sold Sterling JPY498,788,400 For Japanese Yen (Expires 21/09/2012) (60,109) (0.01) (7,500,000) Sold Sterling $11,931,150 For US Dollars (Expires 21/09/2012) (151,092) (0.03) (8,000,000) Sold Sterling NZD15,894,800 For New Zealand Dollars (Expires 21/09/2012) 160, SGD(9,461,616) Sold Singapore Dollars 6,000,000 For Euros (Expires 21/09/2012) 60, $(7,232,750) Sold US Dollars AUD7,000,000 For Australian Dollars (Expires 21/09/2012) 112, $(5,000,000) Sold US Dollars CAD4,946,295 For Canadian Dollars (Expires 21/09/2012) 76,

12 Portfolio Statement continued 10 Holding/ Market % of Nominal Value Net Value Investment Assets FORWARD CURRENCY CONTRACTS (cont.) $(7,829,988) Sold US Dollars 6,000,000 For Euros (Expires 21/09/2012) 17,118 $(9,000,000) Sold US Dollars JPY697,665,600 For Japanese Yen (Expires 21/09/2012) (32,680) (0.01) $(17,371,748) Sold US Dollars NZD21,082,607 For New Zealand Dollars (Expires 21/09/2012) 123, $(12,078,930) Sold US Dollars 7,500,000 For Sterling (Expires 21/09/2012) 60, $(52,160,400) Sold US Dollars 40,000,000 For Euros (Expires 14/12/2012) 161, $50,000,000 Sold US Dollars RBL1,564,050,000 For Russian Ruble (Expires 18/12/2012) 206, (113,506) (0.02) FUTURES 0.30% (6.60%) 2,000 DJ Euro Stoxx 50 Index Future Expiry September ,054, FTSE 100 Future Expiry September , Australian 10 Year Treasury Bond Future Expiry December 2012 (397,529) (0.07) 55 Australian 3 Year Treasury Bond Future Expiry December 2012 (12,549) 1,507 3 Month Euro Swiss Franc Future Expiry December 2013 (500) EURO Shatz Future Expiry December , ,396 DJ Euro Stoxx Index Future Expiry December ,080, (924) DJ Stoxx 600 Index Future Expiry December 2012 (1,435,120) (0.25) 144 US 10 Year Notes Future Expiry December 2012 (98,395) (0.02) 320 US 2 Year Notes Future Expiry December 2012 (18,478) 1,100 E Mini S&P 500 Future Expiry December , (5,000) 3 Month Euribor Future Expiry March , , Day Euro Dollar Future Expiry June , (4,000) 3 Month Sterling Interest Rate Future Expiry September 2013 (360,311) (0.06) 5,000 3 Month Euribor Future Expiry March 2014 (877,207) (0.15) (10,000) 90 Day Euro Dollar Future Expiry June 2014 (616) 4,000 3 Month Sterling Interest Rate Future Expiry September ,

13 Portfolio Statement continued Holding/ Market % of Nominal Value Net Value Investment Assets FUTURES (cont.) 6, Day Euro Dollar Future Expiry June 2015 (390,033) (0.07) Day Euro Dollar Future Expiry June 2016 (63,795) (0.01) 1,774, LIQUIDITY INSTRUMENTS 8.53% (11.52%) 25,100,316 LGIM Sterling Liquidity Fund 25,100, ,067,793 LGIM US Dollar Liquidity Fund 24,679, ,779, OPTIONS 0.80% (2.15%) 3,000 DJ EuroStoxx50 Index Put 21/09/2012 2, , ,500 DJ EuroStoxx50 Index Call 16/11/2013 2,550 5,442, ,000 DJ EuroStoxx50 Index Call 19/10/2012 2, , (13,000) DJ EuroStoxx50 Index Call 16/11/2012 2,700 (3,586,266) (0.61) 4,000 Euro Shatz Future Call 26/10/ (145,193) (0.02) (4,000) Euro Shatz Future Call 26/10/ , (4,000) Euro Shatz Future Put 26/10/ (80,663) (0.01) 3,000 3 Month Sterling Interest Rate Call 19/12/ (46,875) (0.01) (3,000) 3 Month Sterling Interest Rate Call 19/12/ (3,000) 3 Month Sterling Interest Rate Put 19/12/ , Nikkei 225 Index Call 14/12/12 10,500 47, ,500 CBOE VIX Call 19/09/ ,775 (1,350) CBOE S&P 500 Put 22/09/2012 1,200 (4,158) 1,350 S&P 500 Index Put 22/09/2012 1,300 12, ,000, Call on NZD/USD Spot Option Expiry 11/10/ , , Call on EUR/USD Spot Option Expiry 26/03/ , (300,000) 1.5 Call on EUR/USD Spot Option Expiry 26/03/ , Call on EUR/GBP Spot Option Expiry 08/07/ , (12,500,000) 0.89 Call on EUR/GBP Spot Option Expiry 08/07/2013 (29,986) (0.01) 100, Put on AUD/NZD Spot Option Expiry 03/04/ , (100,000) 1.25 Put on AUD/NZD Spot Option Expiry 03/04/2013 4,648,

14 Portfolio Statement continued Holding/ Market % of Nominal Value Net Value Investment Assets CREDIT DEFAULT SWAP 0.07% (0.00%) (33,000,000) CDS itraxx Europe Crossover 20/06/2017 (313,994) (0.05) 20,000,000 CDS itraxx Europe Senior Financials 20/06/ , , INTEREST RATE SWAP 0.02% (0.00%) (382,000,000) IRS Goldman Sachs 27/10/2014 (3,837,572) (0.66) 83,700,000 IRS Goldman Sachs 25/10/2022 3,725, (111,917) (0.02) EXCHANGE TRADED SECURITIES 5.46% (0.00%) 27,000 ETFS Crude Oil ETC 430, ,980 ETFS Physical Gold Jersey (USD) 31,450, ,881, Portfolio of investments* 550,520, Net other assets 33,146, Total net assets 583,666, % * Including investment liabilities. These are unlisted securities and have been valued at the Manager s best assessment of their fair value. Total purchases for the year: 1,636,204,318. Total sales for the year: 1,500,104,315. A Credit Default Swap (CDS) position denoted as a negative nominal indicates the Trust has sold protection, whilst a position denoted as a positive nominal indicates the Trust has bought protection. An Interest Rate Swap (IRS) position denoted as negative nominal indicates the Trust has paid fixed rate to receive floating, whilst an IRS position denoted as positive nominal indicates the Trust has paid floating rate to receive fixed. All investments with a holding/nominal value in $ refer to United States Dollars unless otherwise stated. 12

15 Independent Auditors Report Independent Auditors Report to the Unitholders of Legal & General Global Macro Themes Fund ( the Fund ) We have audited the financial statements of Legal & General Global Macro Themes Fund for the year ended 14 September 2012 which comprise the statement of total return, the statement of change in net assets attributable to unitholders, the balance sheet, the related notes and the distribution tables. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and the Statement of Recommended Practice Financial Statements of Authorised Funds issued by the Investment Management Association (the Statement of Recommended Practice for Authorised Funds ). Respective responsibilities of Authorised Fund Manager and Auditors As explained more fully in the Statement of Manager s Responsibilities the Authorised Fund Manager is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Fund s unitholders as a body in accordance with paragraph of the Collective Investment Schemes sourcebook and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Fund s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Authorised Fund Manager; and the overall presentation of the financial statements. In addition, we read all the financial and nonfinancial information in the Authorised Fund Manager s Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. 13

16 Independent Auditors Report continued Opinion on the financial statements In our opinion the financial statements: give a true and fair view of the financial position of the Fund at 14 September 2012 and of the net revenue and the net capital losses of the scheme property of the Fund for the year then ended; and have been properly prepared in accordance with the Statement of Recommended Practice for Authorised Funds, the Collective Investment Schemes sourcebook and the Trust Deed. Opinion on other matters prescribed by the Collective Investment Schemes sourcebook In our opinion: we have obtained all the information and explanations we consider necessary for the purposes of the audit; and the information given in the Authorised Fund Manager s Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Collective Investment Schemes sourcebook requires us to report to you if, in our opinion: proper accounting records for the Fund have not been kept; or the financial statements are not in agreement with the accounting records and returns. PricewaterhouseCoopers LLP London Chartered Accountants 2 November 2012 & Statutory Auditors The accounts are published at: managersreports, which is a website maintained by the Manager. The maintenance and integrity of the Legal & General website is the responsibility of the Authorised Fund Manager; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 14

17 Financial Statements Statement of Total Return for the year ended 14 September /09/12 14/09/11 Notes Income Net capital (losses)/gains 2 (7,194,256) 45,153,507 Revenue 3 3,612,799 3,978,904 Expenses 4 (761,242) (1,140,080) Finance costs: Interest 6 (28,215) (1,326,912) Net revenue before taxation 2,823,342 1,511,912 Taxation 5 Net revenue after taxation for the year 2,823,342 1,511,912 Total return before distributions (4,370,914) 46,665,419 Finance costs: Distributions 6 (3,060,134) (2,025,762) Change in net assets attributable to Unitholders from investment activities (7,431,048) 44,639,657 Statement of Change in Net Assets attributable to Unitholders for the year ended 14 September /09/12 14/09/11 Opening net assets attributable to Unitholders 487,814, ,262,800 Amounts received on creation of units 124,404,560 79,028,605 Amounts paid on cancellation of units (21,121,152) (77,095,184) 103,283,408 1,933,421 Stamp Duty Reserve Tax (21,714) Change in net assets attributable to Unitholders from investment activities (7,431,048) 44,639,657 Closing net assets attributable to Unitholders 583,666, ,814,164 15

18 Financial Statements continued Balance Sheet as at 14 September /09/12 14/09/11 Notes ASSETS Investment assets 564,806, ,558,689 Debtors 7 4,301, ,451,685 Cash and bank balances 8 57,985,499 55,538,971 Amounts held at futures clearing houses and brokers 8 21,928,275 35,621,834 Total other assets 84,215, ,612,490 Total assets 649,022, ,171,179 LIABILITIES Investment liabilities (14,286,299) (73,802,935) Creditors 9 (35,424,387) (363,842,780) Bank overdrafts 8 (491,090) Overdrafts held at futures clearing houses and brokers 8 (12,434,012) Distribution payable on distribution units (2,720,081) (1,711,300) Total other liabilities (51,069,570) (365,554,080) Total liabilities (65,355,869) (439,357,015) Net assets attributable to Unitholders 583,666, ,814,164 16

19 Notes to the Financial Statements 1. Accounting Policies (a) Basis of accounting The financial statements have been prepared under the historical cost convention, as modified by the revaluation of investments and in accordance with the Statement of Recommended Practice for Authorised Funds issued by the IMA in October (b) Recognition of revenue Bond revenue is accounted for on an effective yield basis, calculated with reference to the purchase price. Revenue from derivative instruments is treated in accordance with Note 1(h). Revenue from distribution and accumulation units in Collective Investment Schemes is recognised when the scheme is quoted exdividend. Equalisation on distributions received from the underlying investments is treated as capital property of the Trust. All other revenue is recognised on an accruals basis. (c) Treatment of expenses All expenses (other than those relating to the purchase and sale of investments and Stamp Duty Reserve Tax) are charged against revenue on an accruals basis. (d) Distribution Policy The policy is to distribute all available revenue, after deduction of those expenses which are chargeable in calculating the distribution. In order to conduct a controlled dividend flow, interim distributions will be at the Manager s discretion, up to a maximum of the distributable revenue for the period. All remaining revenue is distributed in accordance with the COLL. The Manager s periodic fee is deducted from revenue for the purpose of calculating the distribution. Distributions which have remained unclaimed by Unitholders for over six years are credited to the capital property of the Fund. (e) Basis of valuation of investments All investments are valued at their fair value as at 12 noon on 14 September 2012, being the last working day of the accounting year. The fair value for nonderivative securities is the bid market price, excluding any accrued interest. The fair value of derivative instruments is the cost of closing out the contract at the balance sheet date. Where values cannot be readily determined, the securities are valued at the Manager s best assessment of their fair value. (f) Taxation Provision is made for taxation at current rates on the excess of investment revenue over expenses, with relief for overseas taxation taken where appropriate. Deferred tax is provided for on all timing differences that have originated but not reversed by the balance sheet date, other than those differences that are regarded as permanent. Any liability to deferred tax is provided for at the average rate of tax expected to apply. Deferred tax assets and liabilities are not discounted to reflect the time value of money. 17

20 Notes to the Financial Statements continued (g) Foreign exchange Transactions in foreign currencies are translated at the rate of exchange ruling on the date of the transaction. Where applicable, assets and liabilities denominated in foreign currencies are translated into Sterling at the rates of exchange ruling at 12 noon on 14 September 2012, being the last working day of the accounting year. (h) Derivative instruments The Fund uses financial derivative instruments for investment purposes, in pursuit of the investment objective. Derivative instruments can be used to adjust investment exposure or to try to take advantage of perceived movements in prices or spreads. Derivative instruments held within the Fund have been accounted for and taxed in accordance with the Statement of Recommended Practice for Authorised Funds (IMA SORP 2010). Returns on derivative transactions have been treated as either revenue or capital depending on the motives and circumstances on acquisition. 2. Net capital (losses)/gains The net capital (losses)/gains during the year comprise: 14/09/12 14/09/11 Nonderivative securities (1,421,232) 930,248 Derivative contracts (12,125,803) 37,086,701 Forward currency contracts 10,891,746 3,080,397 Currency (losses)/gains (4,532,191) 4,075,478 Transaction charges (6,776) (19,317) Net capital (losses)/gains (7,194,256) 45,153, Revenue 14/09/12 14/09/11 Bond interest 2,677,566 3,816,903 Bank interest 19, ,531 Margin interest 13,470 Interest distributions 262,191 Derivatives Revenue 653,662 3,612,799 3,978,904 18

21 Notes to the Financial Statements continued 4. Expenses Payable to the Manager, associates of the Manager and agents of either of them: 14/09/12 14/09/11 Manager s periodic fee 534, ,317 Registration fees 126, ,961 Payable to the Trustee, associates of the Trustee and agents of either of them: 660,747 1,042,278 Trustee s fees 65,863 59,576 Safe custody fees 8,596 14,084 Other expenses: 74,459 73,660 Audit fee 21,000 20,000 VAT on audit fee 4,200 4,000 FSA fee Legal fee ,036 24,142 Total expenses 761,242 1,140,080 19

22 Notes to the Financial Statements continued 5. Taxation (a) Analysis of taxation charge in year 14/09/12 14/09/11 Current tax [note 5(b)] Deferred tax [note 5(c)] Total taxation (b) Factors affecting taxation charge for the year The current tax charge excludes capital gains and losses for the reason that Authorised Unit Trusts are not subject to Corporation Tax on these items. Current tax differs from taxation assessed on net revenue before taxation as follows: Net revenue before taxation 2,823,342 1,511,912 Net revenue before taxation multiplied by the applicable rate of Corporation Tax 20% (2010: 20%) 564, ,382 Effects of: Interest distribution allowable as deduction (612,031) (405,152) Movement in taxation losses 47, ,770 Current tax (c) Provision for deferred tax There is no deferred tax provision in the current or preceding year. At the period end there is a potential deferred tax asset of 774,006 ( 726,643 as at 14 September 2011) due to surplus management expenses. It is unlikely the Trust will generate sufficient taxable profits in the future to utilise these amounts and therefore no deferred tax asset has been recognised (14 September 2011: same). 20

23 Notes to the Financial Statements continued 6. Finance costs Distributions The distributions take account of revenue received on the creation of units and revenue deducted on the cancellation of units and comprise: 14/09/12 14/09/11 Interim distribution Final distribution 2,720,081 1,711,300 2,720,081 1,711,300 Add: Revenue deducted on cancellation of units 1,682 1,425 Less: Revenue received on creation of units (273,660) (92,281) Add: Income tax deducted at source 612, ,318 Distributions for the year 3,060,134 2,025,762 Interest Bank overdraft interest 28,215 9,680 Derivative expense 1,317,232 Total finance costs 3,088,349 3,352,674 The differences between the net revenue after taxation and the distributions for the year are as follows: 14/09/12 14/09/11 Net revenue after taxation for the year 2,823,342 1,511,912 Add: Shortfall on income account 236, ,850 Distributions for the year 3,060,134 2,025, Debtors 14/09/12 14/09/11 Amounts receivable for creation of units 5, ,321 Sales awaiting settlement 10,094,775 Swap revenue receivable 25,342 Receivable for FX contracts 3,126, ,766,631 Accrued revenue 1,143, ,935 Bank interest 1,023 4,301, ,451,685 21

24 Notes to the Financial Statements continued 8. Net uninvested cash 14/09/12 14/09/11 Amount held at futures clearing houses and brokers 21,928,275 35,621,834 Overdraft held at futures clearing houses and brokers (12,434,012) Cash and bank balances 57,985,499 55,538,971 Bank overdrafts (491,090) Net uninvested cash 66,988,672 91,160, Creditors 14/09/12 14/09/11 Amounts payable for cancellation of units 124, ,968 Purchases awaiting settlement 31,492,999 12,266,780 Payable for FX contracts 3,142, ,993,732 Accrued expenses 52,288 58,873 Bank overdraft interest 109 Income tax 612, ,318 35,424, ,842, Contingent liabilities and outstanding commitments There were no contingent liabilities or outstanding commitments at the balance sheet date (14 September 2011: same). 22

25 Notes to the Financial Statements continued 11. Risk in relation to financial instruments The Fund s investment objective is stated on page 2. In pursuing its objective, the Fund holds financial instruments which expose it to various types of risk. The main risks, and the Manager s policy for managing these risks, which were applied consistently throughout the current and preceding year, are set out below. (a) Credit and liquidity risk Credit risk is the risk of suffering loss due to another party not meeting its financial obligations. The primary sources of this risk to the Fund is for borrowers to fail to meet their redemption commitments and for trade and derivative counterparties to fail to meet their transaction commitments. This risk is managed by appraising the credit profile of financial instruments and trade counterparties. Credit Default Swaps (CDS) may also be used to adjust the credit profile, duration, or reflect perceived changes in market sentiment. The risk associated with investing in such derivatives is addressed in note 11(e). Liquidity risk relates to the capacity to meet liabilities. The primary source of this risk to the Fund is the liability to Unitholders for any cancellation of units. The Trust is also exposed to liquidity commitments under derivative contracts. This risk is minimised by holding cash and readily realisable securities, via access to overdraft facilities and by holding certain liquidity instruments (please see the portfolio statement on pages 8 to 12 for details of specific instruments held). (b) Market risk Market risk arises mainly from uncertainty about future prices. The primary source of this risk to the Fund is the potential movement in the value of financial instruments held as a result of price fluctuations. The Manager adheres to the investment guidelines and borrowing powers established in the Trust Deed, Prospectus and the COLL as well as monitoring the Fund s Value at Risk (VaR) figure see note 11(e). In this way, the Manager monitors and controls the exposure to risk from any type of security, sector or issuer. 23

26 Notes to the Financial Statements continued (c) Foreign currency risk Foreign currency risk is the risk of movements in the value of overseas financial instruments as a result of fluctuations in exchange rates. This risk is managed by the utilisation of forward currency contracts as necessary. Forward currency contracts were utilised during the current and preceding year. The direct foreign currency profile of the Fund s net assets at the balance sheet date was: Net foreign currency assets/(liabilities) Monetary Nonmonetary 14/09/12 exposures exposures Total Currency Australian Dollar (5,503) 43 (5,460) Canadian Dollar Euro 39,833 6,305 46,138 Hungarian Forint 8 8 Israeli Shekel 8 8 Japanese Yen 2, ,983 South Korean Won 3,737 3,737 Mexican Peso 5 5 Norwegian Krone New Zealand Dollar 8, ,030 Polish Zloty Russian Ruble 31,017 31,017 Singapore Dollar (1,788) (1,788) Swedish Krona Swiss Francs Turkish Lira 2 2 US Dollar (56,650) 105,394 48,744 24

27 Notes to the Financial Statements continued (c) Foreign currency risk continued Net foreign currency assets/(liabilities) Monetary Nonmonetary 14/09/11 exposures exposures Total Currency Australian Dollar (37,596) 1,842 (35,754) Canadian Dollar (40,955) (40,955) Chinese Yuan 100, ,283 Euro (84,681) 1,521 (83,160) Israeli Shekel 9 9 Japanese Yen (38,959) 1,434 (37,525) South Korean Won Mexican Peso (416) (416) Norwegian Krone New Zealand Dollar (52,141) (52,141) Philippine Peso 25,251 25,251 Polish Zloty 1 1 South African Rand 1 1 Singapore Dollar 79,906 79,906 Swedish Krona (39,229) (39,229) Swiss Francs 395 3,803 4,198 Turkish Lira 4 4 US Dollar 184,807 22, ,508 (d) Interest rate risk Interest rate risk is the risk of movements in the value of financial instruments as a result of fluctuations in interest rates. This risk is managed by the active monitoring and adjustment of the portfolio, which includes the use of Interest Rate Swaps (IRS). The interest rate profile of the Fund s net assets at the balance sheet date was: Floating Fixed No Total rate rate interest 14/09/ Portfolio 550,520 61,853 * 115, ,066 Other assets 84,216 79,914 ** 4,302 Other liabilities (51,069) (12,925) ** (38,144) Total 583, , , ,224 14/09/ Portfolio 399, ,935 * 100, ,517 Other assets 102,846 55,539 ** 47,307 Other liabilities (14,561) (14,561) Total 487, , , ,263 * The Fund s floating rate investments earn interest which is variable, based on LIBOR or its overseas equivalent. ** The Fund s floating rate other assets and liabilities are represented by its bank balances and overdraft facilities. Cash is deposited, and overdraft facilities utilised, on normal commercial terms and earn or bear interest based on LIBOR. 25

28 Notes to the Financial Statements continued (d) Interest rate risk continued Fixed Rate Financial Assets Weighted average Weighted average Period for which Interest rate Rate is fixed % Years Currency 14/09/12 14/09/11 14/09/12 14/09/11 Sterling US Dollar (e) Derivative risk Sensitivity analysis The Fund s investment objective is stated on page 2. In pursuing its objective, the Fund holds financial instruments which expose it to various types of risk. The main risks include credit and liquidity risk, market risk, foreign currency risk, interest rate risk and derivative risk. These risks and the policies for managing them are disclosed earlier within the notes to the financial statements. The Fund use financial derivative instruments for investment purposes, in pursuit of the investment objective. The use of futures, options, swaps and contracts for differences are subject to the investment guidelines and borrowing powers established in the Trust Deed, the Prospectus and the COLL. Financial derivative instruments tend to have a greater volatility than the securities to which they relate and they bear a corresponding greater degree of risk. This may lead to high volatility in the unit price of the Fund and may cause the Funds risk profile to rise. The Manager uses Value at Risk (VaR) to monitor and control derivative exposure. VaR provides an indication of the potential gain or loss to the Fund from derivative positions, given a specified movement in the wider market and in a specified range of circumstances. VaR is a historical measure which cannot take into account all potential future trends, which may not follow historical patterns. At the balance sheet date, the Fund s VaR on a 3 day, 99% confidence interval was 1.01% of the Net Asset Value (Source: Legal & General Investment Management Internal Risk System) (14 September 2011: 2.59%). This represents the maximum potential loss in the value of the Fund, with 99% confidence, over a 3 day period. (f) Fair value The fair value of a financial instrument is the amount for which it could be exchanged between knowledgeable, willing parties in an arm s length transaction. There is no significant difference between the value of the financial assets and liabilities, as shown in the financial statements, and their fair value. 26

29 Notes to the Financial Statements continued 12. Portfolio transaction costs Analysis of total purchase costs: 14/09/12 14/09/11 Purchases before transaction costs 1,636,123,181 1,199,063,581 Commission 81,105 Taxes Total purchase costs 81, Gross purchases total 1,636,204,318 1,199,064,540 Analysis of total sale costs: Sales before transaction costs 1,501,478,221 1,163,307,540 Commissions (65,220) (20,653) Derivative commissions (1,285,812) (1,743,620) Fees (22,874) (2,177) Total sales costs (1,373,906) (1,766,450) Total sales net of transaction costs 1,500,104,315 1,161,541, Unit classes The Fund currently has three unit classes: RClass, IClass and LClass. The annual management charge on each unit class can be found on page 35. The net asset value of each unit class, the net asset value per unit and the number of units in each class are given in the comparative table on page 32. The distributions per unit class are given in the distribution tables on page 29. All classes have the same rights on winding up. 27

30 Notes to the Financial Statements continued 14. Ultimate controlling party and related party transactions The Manager and Trustee are regarded as controlling parties of the Trust by virtue of having the ability to act in concert in respect of Trust operations. The ultimate controlling parties of the Manager and Trustee are Legal & General Group Plc and The Royal Bank of Scotland Plc, respectively. These entities and their subsidiaries are also related parties of the Trust. Legal & General (Unit Trust Managers) Limited acts as principal on all the transactions of units in the Trust. The aggregate monies received through creations or paid on cancellations are disclosed in the Statement of Change in Net Assets attributable to Unitholders. At the year end, the Manager and its associates held 92.3% (88.3% as at 14 September 2011) of the Trust s units in issue. There were no units held by the Trustee or its associates. Details of all other material related party transactions during the year and any payment amounts outstanding at the balance sheet date are disclosed in notes 4, 6, 7 and 9 to the financial statements, the Statement of Change in Net Assets attributable to Unitholders and the Portfolio Statement. Within note 9, accrued expenses and bank overdraft interest (including amounts due to associates and agents) of 4,791 ( 4,606 as at 14 September 2011) are due to the Trustee and 22,085 ( 30,222 as at 14 September 2011) are due to the Manager. At the year end the Trust had holdings in the Legal & General Investment Management Sterling Liquidity Fund, and the Legal & General Investment Management US$ Liquidity Fund which have been disclosed within the Portfolio Statement. 15. Post balance sheet market movements As at the close of business on the balance sheet date the Net Asset Value per RClass distribution unit was 63.37p. The Net Asset Value per RClass distribution unit as at 12 noon on 1 November 2012 was 62.27p. This represents a decrease of 1.7% from the year end value. 28

31 Distribution Tables Distribution Tables for the year ended 14 September 2012 Group 1: units purchased prior to a distribution period Group 2: units purchased during a distribution period Equalisation is the average amount of revenue included in the purchase price of all Group 2 units and is refunded to the holders of these units as a return of capital. As capital it is not liable to Income Tax but must be deducted from the cost of units for Capital Gains Tax purposes. Interim interest distribution in pence per unit Period 15/09/11 to 14/03/12 Gross Income Net Distribution Distribution Revenue Tax Revenue Equalisation 14/05/12* 14/05/11* RClass distribution Units Group 1 Group 2 RClass accumulation Units Group 1 Group 2 IClass distribution Units Group 1 Group 2 IClass accumulation Units Group 1 Group 2 LClass distribution Units Group 1 Group 2 Final interest distribution in pence per unit Period 15/03/12 to 14/09/12 Gross Income Net Distribution Distribution Revenue Tax Revenue Equalisation 14/11/12** 14/11/11** RClass distribution Units Group 1 Group 2 RClass accumulation Units Group 1 Group 2 IClass distribution Units Group 1 Group 2 IClass accumulation Units Group 1 Group 2 LClass distribution Units Group Group * As at 14 March 2012 and 14 March 2011, the Fund was in a shortfall position and as such there were no interim distributions. ** As at 14 September 2012 and 14 September 2011, RClass and IClass were in shortfall positions and as such there were no final distributions. 29

32 Fund Facts Total Expense Ratios 14 Sep 11 RClass 1.68% IClass 0.81% LClass 0.05% The Total Expense Ratio is the ratio of the Fund s operating costs (excluding overdraft interest and transaction charges) to the average net assets of the Fund. Ongoing Charges Figures 14 Sep 12 RClass 1.67% IClass 0.79% LClass 0.04% The Ongoing Charges Figure (OCF) is the ratio of the Fund s total discloseable costs (excluding overdraft interest) to the average net assets of the Fund. The OCF is intended to provide a reliable figure which gives the most accurate measure of what it costs to invest in a Fund and is calculated based on the last period s figures. The OCF will be included in all Managers Reports for periods ending 28 February 2012 onwards in accordance with the FSA Collective Investment Schemes sourcebook and the additional guidance provided for the Statement of Recommended Practice for Authorised Funds issued by the IMA in July As a result the OCF will replace the TER in all subsequent reports, however, as prior period figures have not been calculated the prior period TER has been retained as a comparative figure. 30

33 Risk and Reward Profile Lower risk Higher risk Typically lower rewards Typically higher rewards This risk and reward profile is based on historical data which may not be a reliable indication of the Fund s risk and reward category in the future. The category is based on the rate at which the value of the Fund has moved up and down in the past. This Fund is in category six because the maximum level of risk it is allowed to take when investing in derivatives is higher than most other mixed investment funds. The Fund s category is not guaranteed to remain the same and may change over time. Even a fund in the lowest category is not a risk free investment. 31

34 Performance Record Net Asset Values Net Asset Net Asset Number Of Accounting Value Of Value Per Units Date Fund Unit In Issue 14 Sep 10 RClass Distribution Units 2,435, p 4,162,186 Accumulation Units 14,171, p 24,137,089 IClass Distribution Units 18,240, p 30,920,973 Accumulation Units 47,320, p 79,567,882 LClass Distribution Units 359,094, p 606,092, Sep 11 RClass Distribution Units 1,835, p 2,868,311 Accumulation Units 25,510, p 39,734,352 IClass Distribution Units 8,013, p 12,330,096 Accumulation Units 17,321, p 26,438,481 LClass Distribution Units 435,133, p 665,525, Sep 12 RClass Distribution Units 2,710, p 4,276,727 Accumulation Units 21,299, p 33,498,055 IClass Distribution Units 3,855, p 5,948,605 Accumulation Units 12,854, p 19,672,810 LClass Distribution Units 542,947, p 831,839,143 Past performance is not a guide to future performance. The price of units and any income from them may go down as well as up. Exchange rate changes may cause the value of any overseas investments to rise or fall. 32