HL Multi-Manager Special Situations Trust

Transcription

1 SP.Covers.12_05_08:Annual Report 13/11/08 18:26 Page 4 HL Multi-Manager Special Situations Trust Annual Report & Financial Statements for the year ended 30 September 2008 Hargreaves Lansdown Fund Managers Limited Kendal House 4 Brighton Mews Clifton Bristol BS8 2NX Authorised & Regulated by the Financial Services Authority

2 Directory Manager: Hargreaves Lansdown Fund Managers Ltd Kendal House 4 Brighton Mews Clifton Bristol BS8 2NX Telephone: (Enquiries) Authorised and Regulated by the Financial Services Authority Directors of the Manager: S P Lansdown Chairman P K Hargreaves M T Barry N J Bence L N Gardhouse T P Taylor Trustee: The Royal Bank of Scotland plc Trustee and Depositary Services Waterhouse Square Holborn London EC1N 2TH Authorised and Regulated by the Financial Services Authority Dealing and Registration: Northern Trust International Fund Administration Services (UK) Limited P.O. Box Bank Street Canary Wharf London E14 1BT Telephone: Fax: Auditors: Ernst & Young LLP 1 More London Place London SE1 2AF

3 Contents 1 Manager s Investment Report 4 General Information 6 Important Changes to the Trust 6 Important Investment Notes 6 Authorised Status 7 Net Asset Value Per Unit, Performance Record and Comparative Tables 9 Statement of the Manager s Responsibilities 9 Certification of the Financial Statements by Directors of the Manager 10 Statement of the Trustee s Responsibilities and Report of the Trustee 11 Independent Auditors Report Financial Statements 13 Statement of Total Return 13 Statement of Change in Unitholders Net Assets 14 Portfolio Statement 16 Balance Sheet 17 Summary of Material Portfolio Changes 18 Notes to the Financial Statements 25 Distribution Tables

4 Manager s Investment Report For the year ended 30 th September 2008 Investment objective The investment objective of the Trust is to provide long term capital growth. Investment policy It is intended that the Trust will invest principally in collective investment schemes whose underlying investments consist of equities and/or fixed interest securities. Subject to the Trust s investment objective as set out above, the additional asset classes in which the Trust may directly or indirectly invest include transferable securities, money market instruments and deposits to the extent permitted for Non-UCITS Retail Schemes under the Rules. The Trust may invest in derivative instruments and forward transactions for the limited purposes of hedging. The Trust will invest principally in funds of boutique fund management groups, defined as fund management operations where the portfolio managers have a clear and substantial financial interest in the performance of their portfolios and/or the fund management group. More traditional fund management operations will be used in certain circumstances. Performance review Over the year to 30th September 2008 the bid price of the accumulation units decreased from pence to pence representing a fall of 23.68%. Over the same period the FTSE All Share Index decreased by 22.25% and the FTSE World Index (excluding UK) decreased by 14.44%. Since close of the initial period (3rd April 2001) the bid price has increased from 100 pence to pence representing a rise of 37.67%. Over the same period the FTSE All Share Index has increased by 20.2% and the FTSE World Index (excluding UK) has increased by 14.01% (source: Lipper Hindsight, bid to bid including income). 1 Percentage Growth 30/09/03 30/09/04 30/09/05 30/09/06 30/09/07 to to to to to 30/09/04 30/09/05 30/09/06 30/09/07 30/09/08 HL MM Special Situations Trust 11.6% 30.3% 12.2% 15.6% -23.7% FTSE All Share Index 15.7% 24.9% 14.7% 12.2% -22.3% FTSE World Index (ex UK) 7.6% 23.5% 8.9% 13.3% -14.4% Source: Lipper Hindsight, Total Return Net Distribution Re-invested Bid to Bid. Past performance is not a guide to future returns. Portfolio review We provide comment below on exactly what has led to such sharp losses over the last year but we believe it is important to emphasise that the nature and management of the fund, which has provided such strong performance over prior years, remains unchanged. We continue to focus on identifying high quality fund managers from around the globe to build a well diversified equity portfolio with the prospects for significant capital appreciation. Our time is predominantly spent searching out those managers whom are experts in their field and are able to add value through stock picking within their area of expertise. The best example of this is our holding within the Old Mutual smaller company funds. We have had exposure to this team since the launch of the Trust back in Through good and bad times for smaller company stocks these managers have added significant value against any smaller company index. We have commented before on our high exposure to the smaller company area of the market with particular focus on the UK market. In this area we have holdings not only with the Old Mutual team but also with the team at Marlborough Fund Managers and

5 Manager s Investment Report (continued) For the year ended 30 th September 2008 Rensburg. All of these teams have long track records of adding value within this relatively volatile area of the stock market. Our combined exposure to UK smaller companies does, over the shorter term, have a significant bearing on our relative performance. When smaller companies perform poorly this acts as a headwind to the Trust s performance. As well as having a bias towards smaller company managers we also have a significant overweight position in funds invested in the UK market in general. Again, this is down to our ability to find high quality managers within the UK market rather than a specific desire to back the UK market. Over the last twelve months the UK has been a laggard in the global performance tables predominantly down to the weakness of Sterling. With over half of our assets invested in the UK market a strong US Dollar has been a significant factor in the FTSE World Index (excluding UK) performance relative to that of our home market. We have in the past commented on these natural biases and we have particularly focused on the small-cap position telling our clients that as and when this area of the market becomes unloved this would have a detrimental effect on our own performance. It feels only right to now say that, having performed relatively poorly, there will be times in the future when this area of the market comes back into vogue and as such what has been a detriment to performance over the last twelve months should become a benefit again in the future. In the meantime we remain convinced in the quality of managers we hold in this area of the market and believe that any wholesale abandoning of our best managers would not only require a change in the core principles of how we manage the Trust but also may well actually be detrimental to the longer term performance of the Trust. Another major geographic position worthy of comment is the Emerging Markets. We have a relatively high weighting to this area (approximately 20%) because we have identified a number of managers in the various Emerging Market regions that have been able to add significant value through judicious stock picking over their careers. The majority of our managers have outperformed in a falling market but we have experienced very poor returns from our smallest holding in the region (Melchior Asian Opportunities). We remain convinced that there are significant valuation anomalies in these areas of the world which can be taken advantage of by stock pickers. The big picture factors are not the only issues worthy of comment at this time. We have made a number of changes to the Trust over the last twelve months including the sale of Findlay Park Latin American, Liontrust First Opportunities, River and Mercantile UK Equity Smaller Companies, CF Morant Wright Japan, Polar Capital Japan, Gartmore UK Focus and Aberdeen Asia Pacific. In the most part these were sold for reasons concerning performance but in some parts were due to our wish to top up our existing holdings where we had greater confidence in the managers. On the other side of the coin we have made purchases in Invesco Perpetual High Income, Marlborough Special Situations, BlackRock Latin American Opportunities, Ennismore European Smaller Companies and more recently Melchior Japan Advantage. Investors in any of our other fund of funds will recognise the Invesco Perpetual fund since this has been a stalwart holding within many of the Trusts for a long period of time. The Marlborough Special Situations Trust was bought in the latter part of 2007 using the proceeds from Liontrust First Opportunities and River and Mercantile UK Equity Smaller Companies funds. All three funds are predominantly UK smaller company-oriented but the Marlborough team have the better longer term track record. The BlackRock Latin American Opportunities Fund was purchased using proceeds from Findlay Park Latin American. Latin America not only provides an exciting long term prospect for investors but more importantly the BlackRock team have one of the best track records in this region and have generated this track record due, in no small part, to their exposure to mid-sized and smaller companies which is the area that this fund focuses on. 2

6 Manager s Investment Report (continued) For the year ended 30 th September 2008 The head of the team at Ennismore has been investing in European businesses since The team aim to capture the majority of the upside of the market but suffer a smaller proportion of the downside when markets are more difficult. Our experience thus far from the fund has been just this. European markets, as with every other global market, have performed poorly this year. The Ennismore team have experienced losses but the drawdown has been nowhere near as painful as would have been experienced were we in a fund fully exposed to the equity market. Finally, the Melchior Japan Advantage Fund was bought towards the end of the twelve month period. The manager has a very long-term track record having previously worked at a large Japanese financial institution. Now working within a smaller but, we would argue, more committed team environment we expect this fund to provide significant outperformance of the Japanese market. Outlook It is difficult to be optimistic during such uncertain times, no one can tell how bad the current slowdown will get and how destructive it could become to company profits and stock prices. However, the current economic malaise will ultimately dissipate and what will be left in its aftermath is a global stock market offering investors the potential for significant capital appreciation. We believe we have exposure to a group of managers with the experience and ability to take advantage of the valuation anomalies that will be thrown up by the market. As long as we maintain our focus on investing only with the best managers within each section of the world, we expect a return to the situation of the previous five years where we were able to report not only strong positive capital appreciation, but also strong relative performance versus our peers and general stock market indices. Hargreaves Lansdown Fund Managers 30th September

7 General Information Launch Date: 3rd April 2001 The Trust changed its name from HL Boutique Opportunities Trust to HL Multi-Manager Special Situations Trust on 11th February Accounting Periods: Interim 31st March Final 30th September Distribution Dates: Interim 31st May Final 30th November Minimum Investment: 2,500 Management Charges: Initial 5% Annual 1% The Scheme Particulars allow for the management charges (above) to be increased up to a maximum of 7% and 3% respectively upon giving unitholders 90 days written notice. The Trustee s fees are 0.05% of the value of the Trust per annum (plus VAT), subject to a minimum fee of 5,000. Full details of underlying charges are set out in the Key Features for the Trust, copies of which are available on request. Unit Price The prices quoted for the Trust are determined by reference to the underlying market value of the net assets of the Trust at the valuation point. The Trust is normally valued at am each day for the purpose of determining the unit price. With the agreement of the Trustee the Trust may be valued at other times. Dealing in Units Contract notes are issued for all purchases and sales of units and will be posted within 24 hours of the next valuation point following receipt of your application. The units of the Trust are non-certificated. Units may be sold back to the Manager at any time at the price applicable at the valuation point following receipt of instructions. You will receive a contract note setting out the details and a cheque will follow, normally within four working days of receipt of the signed form of renunciation. The daily bid and offer prices are published in the Financial Times and the Investment Management Association s (IMA) website. Cancellation Rights If you receive financial advice on a face to face basis regarding your investment you may have a right to change your mind. If you receive financial advice on a non face to face basis we will also allow you the right to cancel your investment. If you decide to cancel your contract during the 14 days after the date on which you receive a cancellation notice from us and the value of your investment has fallen at the time we receive your completed cancellation notice you will not receive a full refund of your investment and an amount equal to any fall in value will be deducted from the sum you originally invested. 4

8 General Information (continued) Taxation Income Income earned by unitholders from the Trust is liable to UK Income Tax at the rate applicable for the individual unitholders. Tax Certificates will be issued twice yearly on the 31st May and 30th November and will disclose a credit for Income Tax purposes. The tax credit is 10% of the grossed-up dividend and is not reclaimable. The aggregate of the distribution and the tax credit will be included in the unitholder s total income for Income Tax purposes. Unitholders liable to the starting rate or basic rate only will have no further liability to Income Tax on a distribution. There will be a further liability to Income Tax for higher rate taxpayers. Taxation Capital Gains There is no tax on capital gains within the Trust. Gains realised on disposal of units by unitholders who are UK resident for taxation purposes may be liable to Capital Gains Tax. All taxation information in this Report is based on current legislation and may be subject to change. Any tax reliefs referred to are those currently applying. Their value depends on the individual circumstances of the investor. Stamp Duty Reserve Tax The surrender value of units to the Manager is subject to Stamp Duty Reserve Tax (SDRT). This tax is levied each time a unit is surrendered. In accordance with the regulations, SDRT payable on units surrendered to the Manager is charged to the Trust and is included within the price of the unit. Reports and Scheme Particulars Copies of the Scheme Particulars and Annual Report and Financial Statements may be obtained from the Manager at the address shown at the beginning of this Report. The Trust s Interim Report will be prepared for the six months to 31st March 2009 and will be available at the end of May Commission Commission is payable to authorised intermediaries, rates are available on request and details are set out on the contract note. Status Hargreaves Lansdown Fund Managers can only give information on investments to private clients about our own investment products. 5

9 Important Changes to the Hargreaves Lansdown Multi-Manager Special Situations Trust On 1st April 2008, Hargreaves Lansdown switched arrangements for Registering, Dealing and Administration from Capita Financial Administration Ltd to Northern Trust International Fund Administration Services (UK) Ltd. Dealing in the Trust was suspended on 1st April 2008 to facilitate the transfer. Important Investment Notes The price of units and also the income from them can go down as well as up and you may get back less than you invested. Because stock market prices can go down as well as up, investment in a unit trust must be regarded as long-term, and is not suitable for money which may be needed at short notice. Past performance is not a guide to future performance. Neither income nor capital are guaranteed or fixed. Where returns have been quoted, investors may not receive the actual return due to the spread and dealing charges. The Trust may have part of its portfolio invested in overseas holdings and may therefore be exposed to currency movements. Changes in interest rates in the market selected could affect the capital value of your units. This document is provided solely to enable investors to make their own investment decisions. It is not personal advice. These investments are not suitable for everyone. If you are in any doubt about suitability, you should seek expert advice. Please ensure you read the full Key Features before placing any investment instruction. Where investments are held in bond funds, these may contain exposure to both investment grade and noninvestment grade bonds. Non-investment grade bonds carry a higher risk of default which can, in turn, affect the value of the Trust. Authorised Status The Trust is an authorised unit trust scheme under Section 243 of the Financial Services and Markets Act The Trust is a Non-UCITS Retail Scheme under the Financial Services Authority COLL Regulations. 6

10 Net Asset Value Per Unit, Performance Record and Comparative Tables Net Asset Values The net asset values for the last three annual accounting dates are: Number of Total Net Net Assets Accumulation Accounting Date Asset Value per Unit Units in Issue 30/09/ ,909, p 107,165,776 30/09/ ,368, p 163,439,026 30/09/ ,577, p 190,951,533 Effective from 30th September 2007, the assets have been valued on bid prices. Prior to that date, net asset values were based on mid prices. This change in valuation basis causes a reduction to the NAV when comparing to previous years. This will have an impact upon any unrealised gains or losses on investments as at the year end. Accumulation Record Calendar Year Net Per Accumulation Unit p To 30th September Capital Record Units were first issued at 1 on 3rd April Accumulation Units Highest Offer Lowest Bid Calendar Year p p To 30th September

11 Net Asset Value Per Unit, Performance Record and Comparative Tables (continued) Total Expense Ratio For the year ended For the year ended 30/09/08 30/09/07 Manager s periodic charge 1.00% 1.00% Other expenses 0.09% 0.10% Total expense ratio 1.09% 1.10% Expense on underlying investments 1.00% 1.04% Synthetic total expense ratio 2.09% 2.14% A Total Expense Ratio (TER) is a figure representing all operating charges and expenses as a percentage of the Trust s value. It includes the annual management fee as well as all of the administrative costs incurred by the Trust. The TER of the Trust includes the net TER of the underlying funds held. 8

12 Statement of the Manager s Responsibilities The Collective Investment Schemes Sourcebook published by the Financial Services Authority (the COLL Sourcebook ) requires the Manager to prepare Financial Statements for each annual and interim accounting period which give a true and fair view of the financial affairs of the Trust and of the net income and net gains or losses on the property of the Trust for the year. In preparing the Financial Statements the Manager is required to: select suitable accounting policies and then apply them consistently; comply with the disclosure requirements of the Statement of Recommended Practice (SORP) relating to Financial Statements of Authorised Funds as issued by the Investment Management Association (IMA) in December 2005; follow United Kingdom generally accepted accounting principles (UK GAAP), and applicable accounting standards; prepare the Financial Statements on a going concern basis unless it is inappropriate to presume the Trust will continue in operation; make judgements and estimates that are reasonable and prudent; and keep proper accounting records which enable it to demonstrate that the Financial Statements, as prepared, comply with the above requirements. The Manager is responsible for the management of the Trust in accordance with its Trust Deed, the Scheme Particulars and the COLL Sourcebook, and for ensuring that reasonable steps are taken for the prevention and detection of fraud and other irregularities within its systems. Certification of the Financial Statements by Directors of the Manager In accordance with the requirements of the Financial Services Authority s Collective Investment Schemes Sourcebook, we hereby certify the Financial Statements on behalf of the directors of Hargreaves Lansdown Fund Managers Limited. SP Lansdown (Chairman) 30th November 2008 M T Barry (Director) 9

13 Statement of the Trustee s Responsibilities in respect of the Scheme and Report of the Trustee to the Unitholders of the HL Multi-Manager Special Situations Trust for the year ended 30th September 2008 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 income 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 Schemes 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 income of the Scheme; and the investment and borrowing powers of the Scheme. Having carried out such procedures as we considered necessary to discharge our responsibilities as Trustee of the Scheme, it is our opinion, 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 income in accordance with COLL, the Trust Deed and Prospectus; and has observed the investment and borrowing powers and restrictions applicable to the Scheme. London 30th November 2008 The Royal Bank of Scotland plc Trustee and Depositary Services 10

14 Independent Auditors Report to the Unitholders of the HL Multi-Manager Special Situations Trust We have audited the Trust s Financial Statements for the year ended 30th September 2008 which comprise the Statement of Total Return, Statement of Change in Unitholders Net Assets, Portfolio Statement, Balance Sheet, Summary of Material Portfolio Changes, related notes 1 to 16 and the Distribution Tables. These Financial Statements have been prepared under the accounting policies set out therein. This report is made solely to the unitholders of the Trust, as a body, pursuant to Rule of the rules of the Collective Investment Schemes Sourcebook of the Financial Services Authority. Our audit work has been undertaken so that we might state to the unitholders those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trust and the unitholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Manager, Trustee and Auditors The Manager is responsible for preparing the Annual Report and the Financial Statements in accordance with the rules of the Collective Investment Schemes Sourcebook of the Financial Services Authority, the Trust Deed, and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) as set out in the Statement of Manager s Responsibilities in relation to the Financial Statements. The Trustee is required to take reasonable care to ensure compliance by the Manager with all relevant requirements. Our responsibility is to audit the Financial Statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the Financial Statements give a true and fair view and are properly prepared in accordance with the Statement of Recommended Practice relating to Authorised Funds, the rules of the Collective Investment Schemes Sourcebook of the Financial Services Authority, and the Trust Deed. We also report to you whether, in our opinion, the Report of the Manager is consistent with the Financial Statements, whether the Manager has not kept proper accounting records for the Trust or whether the Financial Statements are not in agreement with those records, and whether we have received all the information and explanations which, to the best of our knowledge and belief, we require for our audit. We read other information contained in the Annual Report and consider whether it is consistent with the audited Financial Statements. This other information comprises only the Manager s Investment Report, General Information, Important Investment Notes, Authorised Status, Net Asset Value per Unit and Comparative Tables, Certification of Financial Statements by Directors of the Manager and the Report of the Trustee. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Financial Statements. Our responsibilities do not extend to any other information. 11

15 Independent Auditors Report to the Unitholders of the HL Multi-Manager Special Situations Trust (continued) Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Financial Statements. It also includes an assessment of the significant estimates and judgements made by the Manager in the preparation of the Financial Statements, and of whether the accounting policies, are appropriate to the Trust s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the Financial Statements. Opinion In our opinion: the Financial Statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the financial position of the Trust as at 30th September 2008 and of the net income and the net losses on the scheme property of the Trust for the year then ended; the Financial Statements have been properly prepared in accordance with the Statement of Recommended Practice relating to Authorised Funds, the rules of the Collective Investment Schemes Sourcebook of the Financial Services Authority and the Trust Deed; the Report of the Manager is consistent with the Financial Statements; there is nothing to indicate that proper accounting records have not been kept or that the Financial Statements are not in agreement with those records; and we have received all the information and explanations which, to the best of our knowledge and belief, we require for our audit. Ernst & Young LLP Registered Auditor London 30th November

16 Statement of Total Return For the year ended 30 th September /09/08 30/09/07 Notes Net (losses)/gains on investments during the year 2 (77,034) 27,170 Other (losses)/gains 3 (5) 1 Income 4 4,193 2,728 Expenses 5 (3,205) (2,506) Finance costs: Interest 7 (49) (28) Net income before taxation Taxation 6 (247) (52) Net income after taxation Total return before distributions (76,347) 27,313 Finance costs: Distributions 7 (695) (146) Change in net assets attributable to unitholders (77,042) 27,167 Statement of Change in Unitholders Net Assets For the year ended 30 th September /09/08 30/09/07 Notes Net assets at the start of the year 293, ,910 Movements due to sales/purchases of units: Amounts receivable on issue of units 53, ,331 Less: Amounts payable on cancellation of units (7,755) (4,055) 45,665 98,276 Stamp Duty Reserve Tax 1(g) (128) (135) Change in net assets attributable to unitholders (see Statement of Total Return above) (77,042) 27,167 Retained distribution on Accumulation units Net assets at the end of the year 262, ,369 Notes to the Financial Statements are on pages 18 to

17 Portfolio Statement As at 30 th September 2008 Holding Investment Bid market Percentage of Valuation total net assets 000 % UK % (48.86%) 1,271,529 Artemis Capital 8, ,978,156 Artemis UK Special Situations 5, ,234,135 Invesco Perpetual High Income 12, ,728,460 Marlborough Slater Recovery 4, ,301,073 Marlborough Special Situations 11, ,315,409 Marlborough UK Micro-Cap Growth 8, ,458,353 Old Mutual (Dublin) UK Select Smaller Companies 10, ,625,196 Old Mutual UK Select Smaller Companies 20, ,662,512 Rensburg UK Micro-Cap Growth 6, ,026,013 Rensburg UK Select Growth 19, ,929,508 Resolution International Cartesian UK Equity 130/30 Class I GBP 11, ,094,930 Saracen Growth Beta 12, , Emerging % (22.07%) 754,300 Comgest Growth Emerging Markets 10, ,085 BlackRock Latin American Opportunities 6, ,520,867 First State Asia Pacific Leaders 9, ,156,382 Jupiter Emerging Europe Select (SICAV) 11, ,880,350 Melchior Asian Opportunities D 4, ,247 Traditional Funds PLC Eastern European 9, , Europe % (14.86%) 7,399,558 Artemis European Growth 12, ,977 Ennismore European Smaller Companies 7, ,845,833 Neptune European Opportunities Fund B 11, ,334,695 New Star European Growth Retail 12, , Japan % (7.23%) 4,586,040 Melchior Japan Advantage 4, ,201,019 SGAM Japan Core Alpha 12, , Specialist % (6.69%) 2,358,465 Jupiter Global Financials L Class (SICAV) 19,

18 Portfolio Statement (continued) As at 30 th September 2008 Bid market Percentage of valuation total net asset 000 % Portfolio of investments % (99.71%) 260, Net other assets % (0.29%) 2, Net assets 262, The percentages in brackets show the equivalent sector comparatives as at 30th September All investments are in accumulation shares/units unless otherwise stated. Income Shares/Units 15

19 Balance Sheet As at 30 th September 2008 ASSETS 30/09/08 30/09/07 Notes Portfolio of investments 260, ,521 Other Assets Debtors 9 3,253 3,196 Cash and bank balances Total other assets 3,253 3,669 Total assets 263, ,190 LIABILITIES Creditors 11 (304) (2,083) Bank overdrafts (788) (738) Total liabilities (1,092) (2,821) Net assets attributable to unitholders 262, ,369 Notes to the Financial Statements are on pages 18 to

20 Summary of Material Portfolio Changes For the year ended 30 th September 2008 Purchases Cost Sales Proceeds Invesco Perpetual High Income 14,961 Marlborough Special Situations 14,047 Resolution International Catesian UK Equity 130/30 Class I GBP 12,514 Ennismore European Smaller Companies 8,031 Blackrock Latin American Opportunities 7,769 Neptune European Opportunities B 5,686 Rensburg UK Select Growth 5,124 Jupiter Global Financials L Class (SICAV) 4,536 Melchior Japan Advantage 4,386 Resolution Asset Cartesian UK Opportunities A 3,821 Old Mutual UK Select Smaller Companies 3,447 Artemis European Growth 2,614 Old Mutual (Dublin) UK Select Smaller Companies 2,414 Rensburg UK Micro-Cap Growth 2,321 Melchior Asian Opportunities D 2,170 Saracen Growth Beta 1,964 First State Asia Pacific Leaders 1,635 Marlborough UK Micro-Cap Growth 770 Artemis Capital 761 Artemis UK Special Situations 628 Resolution Asset Cartesian UK Opportunities A 10,256 Gartmore UK Focus 9,201 Aberdeen Asia Pacific 8,001 Polar Capital Japan 4,863 River & Mercantile UK Equity Smaller Companies 4,833 CF Morant Wright Japan B 4,416 Liontrust First Opportunities 4,287 Artemis European Growth 3,559 Resolution International Cartesian UK Equity 130/30 Class I GBP 3,521 Findlay Park Latin American 2,916 New Star European Growth Retail 1,943 SGAM Japan Core Alpha 989 Comgest Growth Emerging Markets 890 Melchior Asian Opportunities D 362 Other Purchases 4,323 Total purchases 103,922 Total sales 60,037 All investments are accumulation shares/units unless otherwise stated. Income Shares/Units Note: The Summary of Material Portfolio Charges identifies those purchases and sales exceeding 2% of the net assets of the Trust at the start of the accounting year, subject to a minimum disclosure of the 20 largest purchases and sales. During the year the Trust made only those sales shown above. 17

21 Notes to the Financial Statements As at 30 th September Accounting Policies (a) Basis of Accounting 18 The Financial Statements have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with the Statement of Recommended Practice (SORP) relating to the Financial Statements of Authorised Funds issued by the Investment Management Association (IMA), in December (b) Recognition of Income All distributions on Collective Investment Schemes are recognised when the investments are declared exdividend. Bank and other interest receivable is included on an accruals basis. The underlying investments refund a percentage of their annual management fee to the Trust, and this is included on an accruals basis and included within income for distribution purposes. Equalisation received on distributions from the underlying Collective Investment Schemes is taken to Capital, and realised against investment gains or losses in the year. (c) Treatment of Expenses All expenses (other than Stamp Duty Reserve Tax (SDRT) and those relating to the sale and purchase of investments, which are charged to capital) are charged against income. (d) Distribution Policy Income produced by the Trust s investment decisions accumulates during each accounting year. If, at the end of the accounting year, income exceeds expenses, the net income of the Trust is available to be distributed to unitholders. In order to conduct a controlled dividend flow to unitholders, interim distributions may be at the Managers discretion, up to a maximum of the income available for the period. As only accumulation units are in issue, no cash distributions are made. Distributions are rolled up to increase the value of the accumulation units. (e) Basis of Valuation of Investments Collective Investment Schemes are valued at quoted bid prices for dual priced funds and at quoted prices for single priced funds, on the last business day of the accounting year being 30th September (f) Foreign Currency The values of assets and liabilities denominated in foreign currencies have been converted into Sterling at the exchange rates prevailing at the valuation point at close on 30th September 2008 being the last business day in the accounting period. Foreign currency transactions are translated into Sterling at the exchange rate ruling at the date of the transaction. (g) Taxation/Deferred Tax Corporation tax is provided at 20% on income, other than UK franked dividends, after deduction of expenses. Where overseas tax has been deducted from overseas income that tax can, in some instances, be set off against the corporation tax payable, by way of double tax relief. The charge for deferred tax is based on the net income for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is provided using the liability method on all timing differences, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset. Deferred tax liabilities are not discounted. Stamp duty reserve tax suffered on surrender of units is deducted from Capital.

22 Notes to the Financial Statements (continued) As at 30 th September Net (Losses)/Gains on Investments 30/09/08 30/09/ The net (losses)/gains on investments during the year comprise: Non-derivative securities (77,034) 27,170 3 Other (Losses)/Gains 30/09/08 30/09/ Currency (losses)/gains on investment transactions (5) 1 4 Income 30/09/08 30/09/ Annual Management Charge rebates 1,927 1,630 Bank interest 7 14 Franked UK dividends Unfranked UK dividends 1, Total Income 4,193 2,728 5 Expenses 30/09/08 30/09/ Payable to the Manager, associates of the Manager and agents of either of them: Manager s periodic charge 2,966 2,303 Payable to the Trustee, associates of the Trustee and agents of either of them: Trustee s fee Transaction charges 3 4 Safe custody fee Other expenses: Fees paid to Auditors - Audit fee Other services 11 - Accounting and Administration fees Financial Services Authority fee - 1 Registrar fee 3 1 Publication costs 2 2 Legal & Professional fees Total Expenses 3,205 2,506 19

23 Notes to the Financial Statements (continued) As at 30 th September Taxation 30/09/08 30/09/07 a) Analysis of charge for the year Irrecoverable Income Tax Total current tax charge (note 6b) Deferred tax origination and reversal of timing differences (note 6c) - - Total Taxation b) Factors affecting current tax charge for the year The tax assessed for the year is higher than the standard rate of Corporation Tax in the UK for an authorised fund (20%) (2007: 20%). The differences are explained below. 30/09/08 30/09/ Net income before taxation Corporation Tax at 20% Effects of: Franked UK dividends (156) (165) Expenses in excess of income Prior period expenses utilised (32) - Irrecoverable Income Tax Current tax charge for the year (note 6a) c) Deferred tax charge for the year At the year end the Trust had surplus management expenses of 745,583 (30th September 2007: 885,051). It is unlikely that the Trust will generate sufficient taxable profit in the future to utilise these expenses and therefore, no deferred tax asset has been recognised. 20

24 Notes to the Financial Statements (continued) As at 30 th September Finance Costs Distributions The distributions take account of income received on the issue of units and income deducted on the cancellation of units, and comprise: 30/09/08 30/09/ Interim - - Final Add: Income deducted on cancellation of units 2 - Deduct: Income received on issue of units (21) (5) Net distribution for the year Interest Total Finance Costs Details of the distribution per unit are set out in the distribution tables on page Reconciliation of distribution: 30/09/08 30/09/ Net income after taxation Expenses charged to Capital 3 4 Net distribution for the year Debtors 30/09/08 30/09/ Amounts receivable for issue of units Annual Management Charge rebates Income Tax recoverable 13 - Prepaid expenses - 1 Sales awaiting settlement 2,245 2,017 UK dividends Total Debtors 3,253 3, Cash and bank balances 30/09/08 30/09/ Bank balances Total cash and bank balances

25 Notes to the Financial Statements (continued) As at 30 th September Creditors 30/09/08 30/09/ Accrued expenses Amounts payable for cancellation of units 13 - Income tax payable - 37 Purchases awaiting settlement - 1,777 Stamp Duty Reserve Tax payable - 11 Total Creditors 304 2, Contingent Liabilities and Outstanding Commitments There were no contingent liabilities or outstanding commitments at the Balance Sheet date (30th September 2007: nil). 13 Related Party Transactions Management fees paid to Hargreaves Lansdown Fund Managers Limited (the Manager) are shown in note 5 and details of the units created and cancelled by the Manager are shown in the Statement of Change in Unitholders Net Assets. The balance due to the Manager at the year end was 240,897 (30th September 2007: 223,667). Trustee fees, Safe Custody fees and Transaction charges paid to Royal Bank of Scotland plc are shown in note 5. The balance due to the Trustee at the year end in respect of these transactions was 8,982 (30th September 2007: 12,232 ). Hargreaves Lansdown Nominees Limited, a fellow subsidiary of the Manager held units in the Trust as follows: 30/09/08 30/09/07 Accumulation units 97.29% 97.17% Hargreaves Lansdown Nominees Limited is a non-trading company which holds investments on behalf of clients of the Hargreaves Lansdown Group of Companies. In addition, the Trust receives interest on bank balances held by the Trustee. The amounts received into the Trust are shown in notes 4 and 7 to the Financial Statements. There were no balances outstanding at 30th September 2008 (30th September 2007: nil). Bank balances held by the Trustee as at 30th September 2008 are shown in note Portfolio Transaction Costs Investments have been bought and sold at the dealt price with no further transaction costs added to purchases or deducted from sales. 22

26 Notes to the Financial Statements (continued) As at 30 th September Derivatives and Other Financial Instruments In pursuing its investment objectives, the Trust holds financial instruments which comprise collective investment schemes and other investments, cash balances and debtors and creditors that arise directly from its operations. The Manager reviews (and agrees with the Trustee) policies for managing the risks associated with these instruments and they are summarised below. These policies have remained unchanged since the beginning of the accounting year to which the financial statements relate. Market Price Risk The primary risk facing the Trust is market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency movement. The Manager s policies for managing the market price risk are summarised below and have been applied throughout the year. The Trust s investment portfolio is exposed to market price fluctuations which are monitored daily by the Manager in pursuance of the investment objective and policy set out on page 1. Adherence to the investment guidelines and to investment and borrowing powers set out in the Trust Deed, the Scheme Particulars and in the Collective Investment Schemes Sourcebook published by the Financial Services Authority mitigate the risk of excessive exposure to any particular type of security or issuer. Currency Risk The Trust has three principal areas where it has exposure to foreign currency risk. These are, movements in exchange rates affecting the value of investments; short-term timing differences such as exposure to exchange rate movement during the period between when a purchase or sale is entered into and the date when settlement of the investment occurs; and finally, movements in exchange rates affecting income received in foreign currency and converted into Sterling on the day of receipt. At the year end date, a portion of the net assets of the Trust were denominated in currencies other than Sterling with the effect that the Balance Sheet and the Statement of Total Return can be affected by exchange rate movements. The currency exposure of the Trust as at 30th September 2008, excluding short-term debtors and creditors, but including interest and dividends receivable in foreign currencies was as follows: 30/09/08 30/09/ US Dollars 29,532 24,043 Interest Rate Risk The Trust does not have any material direct interest rate risk as the majority of financial assets are in collective investment schemes, which do not pay interest. However, some of the underlying collective investment scheme investments may be directly or indirectly exposed to interest rate risk. The only interest-bearing financial asset of the Trust are bank balances, on which interest is calculated at a variable rate by reference to sterling bank deposit rates or the international equivalent. Liquidity Risk The Trust s assets comprise mainly readily realisable funds, which can be easily sold. The main liability of the Trust is the redemption of any units that investors wish to sell. The Trust has little exposure to credit or cash flow risk. There are no borrowings or unlisted funds and so little exposure to liquidity risk. The Trust can use bank overdrafts for short term liquidity. 23

27 Notes to the Financial Statements (continued) As at 30 th September 2008 Counterparty Risk Certain transactions in securities that the Trust enters into expose it to the risk that the counterparty will not deliver the investment (purchase) or cash (sale) after the Trust has fulfilled its responsibilities. The Trust only buys and sells investments through Fund Managers which have been approved by the Manager as an acceptable counterparty. These are reviewed on an ongoing basis. Fair Value All financial assets and liabilities of the Trust are stated at fair value. The method for valuing the financial assets of the Trust at fair value is stated in Accounting Policies in note 1. Sensitivity Analysis The Trust does not hold any derivatives which could impact the value of the Trust. 16 Units in Issue At 30th September 2008 there were 190,951,533 (30th September 2007: 163,439,026) accumulation units in issue. 24

28 Distribution Tables In pence per unit Interim Accumulation Distribution for the half year ended 31st March 2008 Accumulation Net Paid Paid Units Income Equalisation 31st May st May 2007 Group Group Group 1 Units created prior to 1st October 2007 Group 2 Units created on or after 1st October 2007 Final Accumulation Distribution for the half year ended 30th September 2008 Accumulation Net Payment date Paid Units Income Equalisation 30th Nov th Nov 2007 Group Group Group 1 Units created prior to 1st April 2008 Group 2 Units created on or after 1st April 2008 Equalisation Equalisation applies only to units purchased during the distribution period (Group 2 units). It is the average amount of income included in the purchase price of all Group 2 units and is refunded to the holders of these units as a return of capital. Being capital it is not liable to Income Tax but must be deducted from the cost of units for Capital Gains Tax purposes. 25

29 HL Multi-Manager Special Situations Trust Annual Report & Financial Statements for the year ended 30 September 2008