French Mutual Fund EDMOND DE ROTHSCHILD EUROPE VALUE & YIELD

Transcription

1 French Mutual Fund EDMOND DE ROTHSCHILD EUROPE VALUE & YIELD ANNUAL REPORT as at Management Company: Edmond De Rothschild Asset Management Custodian: La Compagnie Financière Edmond De Rothschild Banque Statutory Auditor: PriceWaterhouseCoopers Audit Edmond De Rothschild Asset Management - 47 rue du Faubourg Saint-Honoré Paris

2 CONTENTS 1. Investment policy 3 2. Changes affecting the UCITS 7 3. Management report 8 4. Statutory information Statutory Auditor's Certification Annual financial statements 15 2

3 1. INVESTMENT POLICY LEGAL FORM Mutual Fund governed by French law. CLASSIFICATION Equities from the European Community ALLOCATION OF INCOME Distributable income B, C, E, F, I and L units D and ID units Allocation of net income Accumulation Distribution Allocation of net realised gains or losses Accumulation Distributed (fully or partially) or carried forward (fully or partially) based on the decision of the Management Company (from 1 January 2013) Where distribution units are concerned, the Mutual Fund s Management Company may decide to make one or several advance payments on the basis of the financial positions certified by the Statutory Auditor. MANAGEMENT OBJECTIVE The Fund s investment objective is to create performance via exposure to equity markets, primarily from the European Community, through selecting stocks on a discretionary basis from an investment scope comparable to the MSCI Europe Index expressed in Euros. BENCHMARK INDEX The investment objective is not expressed in relation to a benchmark. However, for information purposes, the Fund s performance may be compared a posteriori with the MSCI Europe index, representing approximately 600 European stocks (expressed in Euros for units issued in Euros, in US dollars for units issued in US dollars and in GBP for units issued in GBP), calculated with net dividends not reinvested. INVESTMENT STRATEGY Strategies used: The Fund implements an active stock-picking management strategy, selecting stocks listed on stock markets primarily within the European Community. These equities will be selected in accordance with the following strategy: - The selection of the investment universe is based on the use of quantitative filters that allow us to identify European stocks that will be considered eligible and which will be subject to further analyses. These filters will be used to identify discounted large-cap stock (over 2.5 billion), without sector or geographic restrictions. - External analyses are used to assist managers to conduct their own research on a limited number of stocks included in the investment scope. The choice of external analysts is also subject to a selection procedure defined by the Management Company. The portfolio aims to always meet the eligibility requirements of the PEA (French equity savings plan). Between 75% and 110% of the Fund s assets will be exposed to equities from European Community countries, directly and/or on an ancillary basis via UCITS and/or through the use of financial contracts. The Fund may also invest up to 25% of its net assets in European securities from outside the European Community, notably member countries of the European Free Trade Association (EFTA), European Economic Area member countries and European countries that are candidates for membership in the European Community. 3

4 The Fund may invest in financial contracts traded on regulated, organised or over-the-counter international markets for hedging purposes. For cash management purposes, the Fund may invest up to 25% of its net assets in Euro-denominated, public or private, fixed or floating rate debt securities or bonds rated Investment Grade (i.e. for which the issuer default risk is low) at the time of purchase, based on the Standard & Poor s rating scale or any other equivalent rating given by another independent agency, generally with a short-term maturity of less than three months, or convertible bonds. On assets: - Equities: At least 75% of the portfolio is permanently invested in and/or exposed to large-cap equities and other assimilated securities traded on regulated markets in the European Community. The Fund may also invest up to 25% of its net assets in European stocks from outside the EC (Switzerland, Norway, etc.), primarily in large-cap stocks. Selected stocks may or may not have voting rights. - Debt securities and money market instruments: The portfolio s overall exposure to debt securities and money market instruments may represent up to 25% of the portfolio. In accordance with its investment strategy, the Fund may hold Euro-denominated bonds traded on a regulated market, including convertible bonds. These instruments will be issued without restriction in terms of allocation between sovereign and corporate debt, in the Investment Grade category (i.e. those for which the issuer default risk is lowest) for purchases, as defined by independent rating agencies, generally with a short-term maturity of less than three months. For cash management purposes, the Fund s assets may comprise Euro-denominated debt securities or bonds. Such instruments, with a residual duration of generally less than three months and without restriction in terms of allocation between sovereign and corporate debt, shall be issued by sovereign states, assimilated institutions, or even by entities with a short-term rating of A-2 or higher as awarded by Standard & Poor s, or any other equivalent rating awarded by another independent agency. - Shares or units of other UCITS or investment funds: The Fund may hold up to 10% of its assets in units or shares of French or European coordinated UCITS, regardless of their classification, including listed index UCITS (ETF). Investing in other UCITS also allows the Fund to increase its exposure to a diversified class of shares and take advantage of the expert knowledge of specialised management teams, as well as to invest its cash in bond and money-market funds in particular. Within this 10% limit, the Fund may also invest in the equities or units of uncoordinated UCITS which meet the criteria for statutory eligibility regulations. - These UCITS and investment funds may be managed by companies of the Edmond de Rothschild Group. - Derivatives: The Fund may invest in financial contracts traded on French, regulated, organised or over-the-counter markets. In particular, the manager may use: - forward currency contracts (currency forwards or futures) or currency swaps; - futures or options contracts, traded on organised or regulated markets; - options contracts on equities traded on organised or regulated markets, subject to a limit of 25% of net assets, in order to reduce equity volatility. All these instruments are used purely for hedging purposes. - Embedded derivatives: None. 4

5 - Deposits: None. - Cash borrowings: The Fund is not intended to be a cash borrower. However, a debtor position may exist at certain points due to transactions related to Fund flows (ongoing investments and divestments, subscription/redemption transactions, etc.) subject to a limit of 10% of the net assets. - Temporary purchases and sales of securities: In the interest of effective portfolio management and without diverting from its investment objectives, the Fund may enter into repurchase agreements in accordance with article R of the Code Monétaire et Financier covering eligible financial securities or money market instruments, subject to a limit of 10% of its net assets. The guarantees received as part of these repurchase agreements will be subject to a discount, depending on the type of securities. These guarantees may be in the form of bonds, money market instruments, shares, etc. Further information on the fees applicable to temporary purchases and sales of securities is provided in the Charges and fees section. RISK PROFILE Your money will primarily be invested in financial instruments selected by the Management Company. These instruments will be subject to market trends and fluctuations. The risk factors set out below are not exhaustive. It is the responsibility of each investor to analyse the risk associated with such an investment and to form his/her own opinion independent of the Edmond de Rothschild Group, and, if necessary, to consult advisors specialising in such matters in order to ensure that this investment is appropriate to his/her financial situation. Equity risk: Fluctuations in equity markets may lead to substantial net asset variations, which may have a negative impact on the FCP s performance. In the event of a decline in the equity markets, the net asset value of the Fund could fall. The Fund may also exhibit greater risk and price volatility than the equities market overall. Exposure to equity risk may represent up to 110% of net assets. The Fund's performance will also depend on the companies selected by the manager. There is a risk that the manager may not select the best-performing companies. Capital risk: The Fund does not guarantee or protect the capital invested. Currency risk: The capital may be exposed to currency risk when the securities or investments it is composed of are denominated in a currency other than that of the Fund. Currency risk is the risk that the net asset value of the Fund may decrease (capital loss) when an investment is made in a currency other than the Euro and this currency depreciates against the Euro on the currency market. As the Fund's objective is to invest in EC securities, stocks denominated in currencies other than the Euro may in theory represent up to 100% of the net assets. In particular, the Fund may be exposed to fluctuations in the British pound and the Swiss franc. Risk linked to the currency of units denominated in currencies other than that of the Fund: Unitholders investing in currencies other than the Fund s reference currency (EUR) are exposed to currency risk of up to 100% of assets. The value of the UCITS assets may fall if exchange rates vary, which may cause the Net Asset Value of the Fund to fall. 5

6 Interest rate risk: Interest rate risk is limited to debt securities and money market instruments, and they may not account for more than 25% of net assets. Interest rate risk could result in a fall in the net asset value of the Fund s capital in the event of sharp variation in the yield curve. For cash management purposes, the Fund seeks out variable or fixed rate instruments with a maturity of less than three months, or convertible bonds as part of its investment strategy. Credit risk: Credit risk is limited to debt securities and money market instruments, and these may not account for more than 25% of net assets. Credit risk is the risk that the issuer of bond or money market instruments cannot meet its commitments. With regard to cash management, credit risk is limited through the use of securities issued by entities with a shortterm rating equal to or greater than BBB or A2, as awarded by Standard & Poor s or any other equivalent rating awarded by another independent agency. TARGET SUBSCRIBERS AND TYPICAL INVESTOR PROFILE C, D and E units are intended for all investors wishing to invest in EUR. E and F units are specifically marketed by distributors selected by the Management Company. B and F units are intended for all investors wishing to invest in USD. L units, denominated in pounds sterling, are reserved exclusively for marketing in the United Kingdom and, as such, comply with local regulations governing marketing expenses. I and ID units are intended for legal entities with the means to make an initial subscription of 500,000. Minimum initial subscription amount: - B, C, D, E, F, and L units: 1 unit - I and ID units: 500,000 The units of this UCITS are not and will not be registered in the United States under the US Securities Act of 1933 as amended ("Securities Act 1933") or under any other law of the United States. These units may not be offered, sold or transferred in the United States (including its territories and possessions) or benefit, directly or indirectly, any US Person (within the meaning of Regulation S of the Securities Act 1933). This Fund is specifically aimed at investors wishing to achieve greater returns through European equity markets, particularly within the Eurozone. The appropriate amount to invest in this Fund depends on your personal situation. To determine their level of investment, investors are encouraged to seek professional advice in order to diversify their investments and determine the proportion of their financial portfolio or assets to be invested in this Fund relative to, more specifically, the recommended investment period and exposure to the aforementioned risks and their personal assets, needs and own objectives. In any event, unitholders must diversify their portfolio sufficiently to avoid being solely exposed to the risks of this Fund. Minimum recommended investment period: > 5 years 6

7 2. CHANGES AFFECTING THE UCITS 1- Logo changed (Edmond de Rothschild), B unit performance updated to 31/12/2012, TFC updated to 28/09/2012 and other changes made on 01/02/ Change of Sub-custodian (CAT>CACEIS) and other changes made on 10/06/

8 3. MANAGEMENT REPORT October 2012: The impacts of the ECB s OMT program, the German constitutional court s backing of the ESM and elections in the Netherlands (re-electing a pro-european Liberal prime minister) all boosted investor confidence and eased the risk premium. Nonetheless, the markets were still waiting for Spain to request European aid before showing increased optimism. The message from the business world continued to be mixed, with positive news coming from Holcim, which provided reassurance with confirmation of its earnings growth targets, Michelin, whose new forecasts for 2015 were above analysts consensus, and Inditex, which outperformed its competitor H&M, posting sustained organic growth. In contrast, the news was negative for Burberry (where growth had slowed), Rautaruukki (which issued a profit warning following a warning from another steelmaker, SSAB) and the European car industry, which recorded its eleventh consecutive quarterly decline. Movements: Within the portfolio, we sold ABB, and reduced our positions in EADS and SCA. November 2012: The possibility of an agreement from the US Congress on the fiscal cliff had more of an impact on the trading month than the possibility of an agreement to provide support to Greece (which was reached in the last few days of the period). The macroeconomy therefore continues to dominate in the context of the end of the quarterly results period. There were no surprises in the results that followed from financial companies, which continued to be favourable across the entire sector (French banks BNP and Société Générale announced good results, and Allianz and Munich Re exceeded expectations in the insurance world). The luxury and consumer goods sectors posted good results in China: Burberry and Rémy Cointreau published quarterly figures which exceeded expectations and showed strong growth. In the hotel industry, RevPAR continued to grow, with Accor up 6% over the month and Intercontinental up 9%. By contrast, shares in utilities were badly affected by announcements from E.On, citing structural changes in the industry and revising its forecasts downwards. In the telecoms sector, Vodafone published disappointing results, showing a slowdown in nearly all its subsidiaries, while alternative operator Iliad continued to show strong growth in recruitment. Movements: Within the portfolio, we opened a position in Casino and sold E.On. December 2012: Despite the uncertainties related to fiscal negotiations in the United States, European markets ended 2012 at levels that were close to their highs for the year. Investors welcomed lower sovereign stress (Spanish rates close to 5% and in Italy 4.5%) and the start of European integration with the Banking Union agreed upon by Eurozone governments. The S&P credit ratings agency reflected this general relief by upgrading Greece s rating by six notches! By contrast, good news on the microeconomic front was rare, coming from Wolseley, which announced a good first quarter (with growth of 7.1% in its US division) and STMicroelectronics, whose new strategic plan was well received. There were numerous disappointments: December was marred by profit warnings from GDF Suez, Deutsche Bank, Aggreko and Aéroports de Paris while others, such as Deutsche Telekom and KPN, cut their dividend either partially or completely (shareholders of most of the telecoms sector shares saw their returns dip), and Thyssenkrupp, which didn t pay a dividend and wrote down the value of its Steel USA division. Lastly, Saipem was impacted by allegations of corruption, resulting in a drop of nearly 15% in its share price. Movements: Within the portfolio, we sold Fortum and reduced our position in SCA. We opened a position in Pearson. January 2013: The outlook for the European markets at the start of 2013 was positive, despite the prospect of a second year of recession in the Eurozone and gloomy macroeconomic data (with PMIs improving in Germany but remaining weak in France). Indices rose during the month against a backdrop of company results publications. The cyclical and financial sectors continued to move in the right direction. Turning to results, the distribution sector posted a satisfactory performance, with figures recovering in France for Carrefour and in the US for Delhaize, and in line with expectations for Casino and Metro. Steady performance in Asia was reflected in figures published by Rémy Cointreau (posting organic growth of 8% over the quarter), Beiersdorf and also Burberry. Staying with luxury goods, Hermès and Swatch were upbeat about their 2012 end-of-year results (with Swatch also announcing its acquisition of Canadian jeweller Harry Winston, representing a strategic diversification for the group), making up for disappointing margins at LVMH (despite sustained organic sales growth). Conversely, the oil sector faced a number of setbacks, with weaker growth prospects for Tullow Oil, CGG Veritas and the BG Group and a profit warning from Saipem which led to a dramatic fall in its share price. 8

9 Movements: Within the portfolio, we opened a position in Carrefour, strengthened Pearson and reduced Munich Re and SCA. February 2013: February saw a change in market trends, with downward pressure stemming from political tensions in southern Europe, first with suspected corruption in Spain, then the results of Italy s elections. Indices were also weakened by European GDP figures that were lower than expected for the last quarter of the year. As was the case in January, the month was marked by company results publications. Caution continued to be a recurring theme of management messages for The banking sector saw a considerable increase in the cost of risk, and this was certainly the case for Société Générale. Barclays, ING, KBC and Crédit Agricole all saw significant increases in costs. BNP was the exception, with an improved solvency ratio. Conversely, the figures for consumer and luxury goods remained at comfortable levels. Figures published in 2012 by Christian Dior, PPR (sales of luxury goods up 14%, including a 33% increase for Bottega Veneta) and Hermès showed record levels of sales and profit. These trends reflected strong momentum across all the geographical areas where these groups operate. The figures for consumer goods were also very encouraging. Publicis and L Oréal took advantage of this to increase their dividends by 29% and 15% respectively. Pharmaceuticals also continued to shine, with both Roche and Sanofi publishing pleasing figures. Sanofi was also able to take advantage of a competitor s difficulties with its treatment for diabetes. Movements: Within the portfolio, we strengthened our position in Carrefour, and reduced EADS, Heineken, Michelin and SCA. March 2013: Downward pressure on European indices made a forceful return at the end of the month, originating this time from Cyprus. The island s banking system, on the brink of imploding, heightened fears amongst European Union member countries. Banks recorded the sharpest sector-specific falls. Telecoms shares rallied on the back of an upswing in value (Iliad s mobile business had been almost at break-even since the second half of 2012). The end of the 2012 results publication period again showed contrasting fortunes for the companies concerned. In industry, the market welcomed strong figures from EADS (on the back of a steady increase in Airbus orders), Thalès (an improved outlook for 2013), and from Safran. The positive news coming out of the consumer goods sector (with a strong increase in margins expected at Adidas by 2013 and Beiersdorf exceeding operational expectations) and the distribution sector (with the restructuring at Carrefour beginning to have an impact, and Casino and Delhaize also posting strong increases) contributed to the rise in the indices over the month of March. By contrast, with the exception of outstanding figures at Hermès, there was a slight dip in luxury goods shares, largely as a result of a fall in watch exports to China and Hong Kong. On the car market, the convergence of a slowdown in sales and a cautiously optimistic outlook led to falls in a number of shares, including Volkswagen, Daimler, Michelin and BMW. Movements: Within the portfolio, we reduced our positions in SCA, Compass, Heineken, Munich Re and EADS. April 2013: The lack of a return to growth on the European stage and the weakening of German economic indicators were reflected in index fluctuations throughout the whole of April. The market retained its defensive stance, with investors still looking for yields and favouring stocks with secure dividends such as pharmaceuticals, and some telecoms and utilities shares. The sectors with the greatest international visibility and/or growth, which offer protection from domestic concerns, were those with greatest demand, such as food processing and consumer goods. The market rallied at the end of the month, partly in anticipation of action by the ECB. During the period, the first quarterly results publications generally reflected expectations of a weak recovery. Car makers (followed by parts manufacturers), who already had little cause for optimism at the start of the year, revised their outlook downwards. Shares such as Daimler, Volkswagen, Continental and Michelin all suffered. Shares in construction, raw materials and some industrial companies were most heavily penalised during the course of the month. Shares in consumer goods were much more resilient, with figures often exceeding expectations, as with Danone, L Oréal and Reckitt Benckiser. Distribution stocks also moved in the right direction. In luxury goods, activity remained robust despite the significant slowdown in Asia which affected Burberry and Rémy Cointreau in particular. Lastly, a small number of new listings breathed life into the market: in line with its strategy of divestment, ING was to list its subsidiary in the US and Kering (formerly PPR) approved the stock market listing of Fnac which was scheduled for June. Movements: We made no significant changes to the portfolio. 9

10 May 2013: The growth posted in May marked twelve months of uninterrupted growth in European indices. Largely disappointing company results publications during the month demonstrated that a low point had been reached in terms of shares, liquidations and outlook. Early signs of second half recovery appeared to be emerging, to the benefit of industrial sectors in particular. Volumes were already recovering strongly in the automobile industry, chemicals, construction and raw materials. These sectors also posted strong results over the month, with the car industry leading the way with a rise of over 10%. Shares in other cyclicals also rose, particularly in the financial sector, boosted by solid results (significant private banking income at UBS, resilience in retail activity at BNP), with some even exceeding consensus expectations (at Axa, Allianz, Munich Re and ING). Movements: We strengthened our positions in Thyssenkrupp. June 2013: European indices fell by more than 5% during June, cancelling out the increase of the last twelve months and particularly the significant rise seen in May. Trends were no doubt impacted by the uncertainties over the Federal Reserve s continued support of the US economy. Against this backdrop, the standard was down across all sectors except for media (where the outlook for the recovery of advertising expenditure in emerging markets was expected to offset the sluggishness anticipated in Europe and the US). The biggest disappointments related to cyclicals, banking, construction, energy and commodities. In energy, Saipem s profit warning in view of significant performance risks weighed on the share prices of Saipem and Eni (which held a 43% capital stake in Saipem). In the automobile industry, the threat of new taxes on imports to China amounted to a new disincentive for top-of-the-range cars. Total, Air France, Alcatel and Michelin all announced plans for restructuring and site closures in response to competitive pressures. Movements: We strengthened our positions in Carrefour, BNP Paribas and Michelin and added two new lines (Snam and Fiat Industrial). Eni s withdrawal from Snam s capital gave us a point of entry to the shares, to take advantage of the prospect of attractive dividends. Fiat Industrial offered a discounted valuation in relation to its competitors. July 2013: After a lacklustre month in June, European markets rallied in July amid second quarter results publications which showed no general slowdown (just a few isolated warnings) and reassuring macroeconomic figures, particularly a Eurozone PMI indicator which came back up above 50 points for the first time in nearly 18 months. The ECB also provided reassurance on keeping rates low and maintaining ample liquidity. This favourable environment was the backdrop for the publication of numerous second quarter results. Despite warnings in a variety of sectors, they amounted to isolated hiccups rather than a bad news trend. In that vein, Siemens dismissed its Chairman and CEO after abandoning its recent operating margin forecast for 2014, MTU Aero Engines disappointed with its sales of spare parts and Mobistar blamed regulatory developments for the fall in its EPS (and elimination of the dividend). There were also setbacks at STMicroelectronics (in its MEMS business and forecasts for the current quarter) and at Syngenta, Rexel and SAP (where licence sales in Asia fell short of expectations). However, a number of companies beat consensus forecasts, such as Daimler (very positive on all its end markets), ASML (order book up on expectations) and Valeo (positive on the car market and an increased margin target). Movements: We continued to buy Fiat Industrial, and reduced our positions in Compass and EADS in the light of recent robust performance. August 2013: The risk of military intervention in Syria and associated oil-related tensions, the fall in emerging currencies and the return of budgetary issues in the US all weighed down on the financial markets at the end of the month. Despite figures pointing towards a degree of stabilisation (or even recovery) in Europe s macroeconomic indicators, European indices finished down, cancelling out the rise seen at the start of the month. Many high quality results were published. This was the case in the financial sector, particularly for banks such as ING, Natixis, BNP and Crédit Agricole, and for Axa and Allianz in the insurance industry, all of which published encouraging half-year results. The figures from business tended to highlight that European markets were stabilising, with a slowdown more visible in emerging markets. In this climate, the impact was on non-cyclical consumer goods (with the effects being felt by companies such as Carlsberg, Unilever and Nestlé). Sanofi s business in Brazil suffered. Luxury goods were affected to a lesser extent by proposed taxes in China. By contrast, the US continued to drive growth and companies with exposure in the region (such as WPP and Pernod Ricard) reaped the benefits. Movements: We reduced our positions in Munich Re and Sampo. 10

11 September 2013: European markets rebounded strongly during the month, with a stream of sound macroeconomic figures. Improved PMIs in China provided a positive foundation. Sustained growth in the US also drove performance for many European companies, with WPP and Pernod Ricard exceeding their growth forecasts in the region. In Germany, the publication of the ZEW index at its highest level since April 2010, in conjunction with good economic figures from the UK, provided a very positive impetus for the return of investor flows. Cyclicals and financial stocks were much sought after. The car sector posted the best performance in September (with the strongest increase since the start of the year), and at the Frankfurt Motor Show, tyre manufacturers and car makers were upbeat about the outlook for margins. Many results publications in a variety of different sectors saw the fact that they had exceeded organic growth targets and/or increased profits as proof of the improved economic situation in Europe. This was the case for Air France, ADP, H&M, Compass, L Oréal, Carrefour and Bouygues. Movements: We added four new shares to our portfolio: Nokia, Axa, Vivendi and Aviva. We strengthened our position in Fiat Industrial and Accor and reduced our positions in Alstom, Sampo, Casino, Munich Re and Daimler Chrysler. We sold off Zurich Financial Insurance. We opened positions in Axa and Aviva to increase the portfolio s exposure to life insurance. We bought Nokia further to the sale of its handset division which would be a catalyst for revaluation, and Vivendi, to take advantage of its internal restructuring in the context of consolidation of the sector in Europe. We sold Zurich Financial Insurance because of doubts about the strength of its results. Over the year, the Fund achieved performance of 22.21% for B units (USD), 16.14% for C units (EUR), 16.15% for D units (EUR), 15.68% for E units (EUR), 23.10% for F units (USD), 17.33% for I units (EUR), 18.09% for ID units (EUR) and 22.94% for L units (GBP), compared with index performance of 23.64% for USD units, 17.51% for EUR units and 23.29% for GBP units. Past performance is not an indication of future performance. 11

12 4. STATUTORY INFORMATION TOTAL RISK CALCULATION METHOD (AMF INSTRUCTION No ARTICLE 16) The UCITS uses the commitment method for calculating the UCITS overall risk relating to financial contracts. SAVINGS TAX DIRECTIVE In accordance with Decree transposing Directive 2003/48/EC on the taxation of savings income, the UCITS has invested 25% or less of its net assets in debt instruments and equivalent securities. POLICY FOR SELECTING INTERMEDIARIES AND COUNTERPARTIES In accordance with Article of the AMF General Regulations, the Management Company has set up a Best Selection/Best Execution policy for intermediaries and counterparties. The purpose of this policy is to select, the brokers and intermediaries whose execution policy will achieve the best possible results when executing orders, according to various predetermined criteria. The policy may be consulted on the website. REPORT ON INTERMEDIATION FEES In accordance with Article of the AMF General Regulations, the Management Company has drawn up a document called Report on intermediation fees. This document is available for consultation on COMMUNICATION OF ENVIRONMENTAL, SOCIAL AND GOVERNANCE QUALITY (ESG) CRITERIA Information about the ESG criteria is available at EQUITY SAVINGS PLAN (PEA) In accordance with the provisions of Article 91 (4) L. of the Code Général des Impôts, Appendix 2, at least 75% of the Fund is permanently invested in the securities and rights mentioned in points a, b and c of paragraph 1, section I of Article L of the Code Monétaire et Financier. Proportion of investment actually made during the financial period: 93.39%. 12

13 5. CERTIFICATION BY THE STATUTORY AUDITOR AUDITORS REPORT ON THE ANNUAL FINANCIAL STATEMENTS Financial year ended EDMOND DE ROTHSCHILD EUROPE VALUE & YIELD UCITS ESTABLISHED AS A MUTUAL FUND Governed by the Code Monétaire et Financier Management Company EDMOND DE ROTHSCHILD ASSET MANAGEMENT 47, rue du Faubourg Saint Honoré Paris Ladies and Gentlemen, In execution of the mission entrusted to us by the management bodies of the Management Company, we hereby present our report for the financial year ended 30 September 2013 on: - The audit of the annual financial statements of the EDMOND DE ROTHSCHILD EUROPE VALUE & YIELD UCITS established as a mutual fund, as attached to this report; - the justification of our assessments; - The specific verifications and the information required by law. The annual financial statements have been prepared by the Management Company. Our responsibility is to express an opinion on these annual financial statements based on our audit. 1. OPINION ON THE ANNUAL FINANCIAL STATEMENTS We conducted our audit in accordance with professional auditing standards applicable in France, which require us to carry out an audit in order to obtain reasonable assurance that the annual financial statements are free of material misstatement. An audit involves examining, on a test basis or using other selection methods, the evidence supporting the amounts and disclosures contained in the annual financial statements. It also includes assessing the accounting principles used and the significant estimates made in preparing the annual financial statements, as well as evaluating their overall presentation. We believe that the evidence that we have obtained is sufficient and appropriate to provide a basis for our opinion. We certify that the annual financial statements are, in accordance with French accounting rules and principles, accurate and consistent, and give a true and fair view of the financial performance of the previous financial year as well as the financial position and assets of the UCITS established as a mutual fund at the end of the financial year. 2. JUSTIFICATION OF ASSESSMENTS In accordance with the provisions of Article L of the French Commercial Code relating to the justification of our assessments, we inform you that our assessments were based on the appropriateness of the accounting principles and significant estimates used. The assessments were made as part of our audit of the annual financial statements, taken as a whole, and therefore contributed to the opinion we formed, as expressed in the first part of this report. PricewaterhouseCoopers Audit, SA, 63 rue de Villiers, Neuilly-sur-Seine Cedex T: +33 (0) , F: +33 (0) , Accounting firm registered with the Paris Tableau de l Ordre. Auditing firm, member of the Compagnie Régionale de Versailles. Société Anonyme (French public limited company) with share capital of 2,510,460. Registered office: 63 rue de Villiers, Neuilly-sur-Seine. Nanterre Trade and Companies Register VAT No. FR Siret APE code 6920 Z Offices in Bordeaux, Grenoble, Lille, Lyon, Marseille, Metz, Nantes, Nice, Paris, Poitiers, Rennes, Rouen, Strasbourg and Toulouse. 13

14 EDMOND DE ROTHSCHILD EUROPE VALUE & YIELD 3. - SPECIFIC VERIFICATIONS AND INFORMATION We have also performed the specific verifications as required by law in accordance with professional auditing standards applicable in France. We have no observations to make concerning the accuracy and consistency with the annual financial statements of the information provided in the management report and in the documents provided to unitholders concerning the financial position and the annual financial statements. Neuilly-sur-Seine, date of electronic signature Document authenticated by electronic signature Statutory auditor PricewaterhouseCoopers Audit Patrick Sellam 14

15 6. ANNUAL FINANCIAL STATEMENTS BALANCE SHEET in EUR ASSETS Net fixed assets Deposits Financial instruments 526,050, ,576, Shares and similar securities 521,209, ,494, Traded on a regulated or assimilated market 521,209, ,494, Not traded on a regulated or assimilated market Bonds and similar securities Traded on a regulated or assimilated market Not traded on a regulated or assimilated market Debt securities Traded on a regulated or assimilated market Transferable debt securities Other debt securities Not traded on a regulated or assimilated market Undertakings for collective investment 4,840, ,082, Coordinated European and standard French UCITS 4,840, ,082, UCITS reserved for specific investors FCPR (Venture Capital Mutual Funds) FCIMT (Managed Futures Funds) Listed investment funds and FCC (French debt securitisation funds) Unlisted investment funds and FCC Temporary securities transactions Receivables related to securities received under repurchase agreements Receivables related to lent securities Borrowed securities Securities transferred under a repurchase agreement Other temporary transactions Forward financial instruments Transactions on a regulated or assimilated market Other transactions Other financial instruments Receivables 1,020, ,345, Forward currency transactions Other 1,020, ,345, Financial accounts 526, , Cash 526, , Total assets 527,597, ,716,

16 LIABILITIES Share capital Capital 491,567, ,046, Undistributed prior net gains and losses (a) Balance carried forward (a) 1, , Net gains and losses for the financial year (a, b) 23,421, Profit/loss for the financial year (a, b) 8,431, ,763, Total share capital (= amount corresponding to net assets) 523,422, ,811, Financial instruments Disposal transactions involving financial instruments Temporary securities transactions Payables on securities transferred under repurchase agreements Payables on borrowed securities Other temporary transactions Forward financial instruments Transactions on a regulated or assimilated market Other transactions Liabilities 4,174, ,726, Forward currency transactions Other 4,174, ,726, Financial accounts , Current bank borrowings , Loans Total liabilities 527,597, ,716, (a) Including income equalisation accounts (b) Reduced by interim dividends paid over the financial year 16

17 OFF-BALANCE-SHEET ITEMS in EUR Hedging transactions Commitments on regulated or equivalent markets Over-the-counter market commitments Other commitments Other transactions Commitments on regulated or equivalent markets Over-the-counter market commitments Other commitments 17

18 INCOME STATEMENT in EUR Income from financial transactions Income from deposits and financial accounts Income from equities and assimilated securities 14,223, ,117, Income from bonds and assimilated securities Income from debt securities Income from temporary purchases and sales of securities Income from forward financial instruments Other financial income Total (1) 14,223, ,117, Payables on financial transactions Payables on temporary purchases and sales of securities Payables on forward financial instruments Payables on financial debts 7, , Other payables Total (2) 7, , Income resulting from financial transactions (1-2) 14,215, ,113, Other income (3) Management fees and depreciation allowance (4) 7,628, ,062, Net profit/loss for the financial year (L ) ( ) 6,586, ,050, Income equalisation for financial year (5) 1,845, ,287, Interim dividends paid over the financial year (6) Profit/loss ( ) 8,431, ,763,

19 NOTES TO THE FINANCIAL STATEMENTS ACCOUNTING RULES AND POLICIES The annual financial statements have been prepared in accordance with the provisions set out in French Accounting Regulatory Committee (CRC) Regulation No , as amended, regarding the accounting guidelines applicable to UCITS. General accounting principles apply, including: - true and fair view, comparability and business continuity; - accuracy, reliability; - prudence; - consistency of accounting methods from one financial year to the next. The recognition method selected for recording the income from fixed-income securities is the accrued interest method. Purchases and disposals of securities are recognised excluding costs. The portfolio accounting currency of reference is the euro. The length of the financial year is 12 months. Article 18 of Order provides for the possibility of distributing net gains for financial years beginning on or after 1 January The chart of accounts applicable to UCITS has been amended to reflect this new possibility. Article 15 of Accounting Regulatory Committee (CRC) regulation no , amending CRC regulation no , provides for the possibility of anticipating this application for financial years beginning on or after 1 January In this case, the management company has decided to apply these changes to the chart of accounts in advance. The changes relate to the definition of distributable income. The gains realised (net of charges), minus the losses realised (net of charges), are added to the net income to determine the distributable income. Data for previous financial years was not restated. Asset valuation rules Financial instruments are recognised according to the historic cost method, and entered on the balance sheet at their current value, which is determined according to the last known market value, or by any external means or recourse to financial models, in the event that no market exists. Differences between current values used to calculate Net Asset Value and the historical costs of transferable securities when these were first included in the portfolio are recorded in the "valuation differentials" account. Investments that are not in the portfolio currency are measured in accordance with the principle set out below, and then converted into the portfolio currency according to the exchange rate as at the valuation date. Deposits: Deposits with a residual maturity of less than or equal to three months are valued according to the straight-line method. Equities, bonds and other securities traded on a regulated or equivalent market: Equities and other securities traded on a regulated or equivalent market are valued on the basis of the closing market price on the day for the purpose of calculating the net asset value. Bonds and similar securities are valued at the closing price provided by various financial service providers. Interest accrued on bonds and other assimilated securities are calculated up to the net asset value calculation date. 19

20 Equities, bonds and other securities not traded on a regulated or equivalent market: Securities that are not traded on a regulated market are valued under the Management Company s responsibility, by using methods based on their net asset value and return, taking the prices selected for recent significant transactions into account. Transferable debt securities: Transferable debt securities and similar securities that are not traded in large volumes are valued using an actuarial method based on a benchmark rate defined below, which is increased, where applicable, by a differential amount that is representative of the intrinsic characteristic features of the issuer: transferable debt securities with a maturity of less than or equal to one year: inter-bank offered rate in euro (EURIBOR); transferable debt securities with a maturity exceeding one year: Fixed-Rate French Treasury Bill (BTAN) rate or French Government Bond (OAT) rate with similar maturities for the bonds with longer maturities. Transferable debt securities with a residual maturity of less than or equal to three months may be valued according to the straight-line method. French treasury bills are valued on the basis of market prices, as published daily by the Bank of France. UCITS held: Units or shares in UCITS will be valued at the last known net asset value. Temporary securities transactions: Securities received under repurchase agreements are recorded as assets under the Receivables related to securities received under repurchase agreements heading at the contracted amount, plus any accrued interest. Securities assigned under repo agreements are recorded at their current value in the long portfolio. Liabilities representing loaned securities are entered in the short portfolio at the value determined in the agreement, plus the accrued interest payable. Loaned securities are valued at their current value and are entered under assets at their current value, plus accrued interest receivable under the receivables representing loaned securities heading. Borrowed securities are recorded as assets under the Borrowed securities heading at the contracted amount and as a liability under the Payables on borrowed securities heading at the contracted amount, plus any accrued interest payable. Financial futures: Financial futures traded on a regulated or equivalent market: Financial futures traded on regulated markets are valued at the settlement price on the day. Financial futures not traded on a regulated or equivalent market: Swaps: Interest rate and/or currency swaps are valued at their market value, according to the price calculated by discounting future interest flows at the prevailing market interest and/or exchange rates. This price is adjusted for credit risk. Index swaps are valued on an actuarial basis using a benchmark rate provided by the counterparty. 20

21 Other swaps are valued at their market value or at a value estimated according to the procedures determined by the Management Company. Off-balance sheet commitments: Futures contracts are recorded as off-balance sheet commitments at their market value on the basis of the price used in the portfolio. Conditional forward options are converted into the underlying equivalent. Swap contract commitments are shown at their nominal value, or at an equivalent amount if there is no nominal value. Management fees Management fees are calculated at each net asset valuation. These fees are deducted in the UCITS income statement. The management fees are paid in full to the Management Company responsible for all of the UCITS operating costs. Management fees do not include transaction expenses. The rate applied on the basis of net assets is: For B units: 2.00% of the previous day s net assets inclusive of tax. For C units: 2.00% of the previous day s net assets inclusive of tax. For the E unit: 2.40% of the previous day s net assets inclusive of tax. For L units: 0.75% of the previous day s net assets inclusive of tax. For F units: 2.40% of the previous day s net assets inclusive of tax. For the I unit: 1.00% of the previous day s net assets inclusive of tax. For D units: 2.00% of the previous day s net assets inclusive of tax. For ID units: 1.00% of the previous day s net assets inclusive of tax. Allocation of distributable income Definition of distributable income: Distributable income is composed of: Income: Net income for the financial year is equal to the amount of interest, arrears, dividends, premiums and payouts, director s fees and all other revenues generated by the securities held in the Fund s portfolio, plus income generated by temporary cash holdings, less management fees and borrowing costs. It is increased by the balance carried forward and increased or reduced by the balance of the income equalisation account. Gains and losses: The gains realised (net of charges), minus the losses realised (net of charges), recorded during the financial year, plus any net gains of the same nature recorded during previous financial years that have not been subject to distribution or accumulation, plus or minus the balance of the income equalisation account. 21

22 Policy for allocating distributable income: Distributable income B, C, E, L, F and I units D and ID units Allocation of net income Accumulation Distribution Allocation of net realised gains or losses Accumulation Distributed (fully or partially) or carried forward (fully or partially) based on the decision of the Management Company (from 1 January 2013) 22

23 CHANGE IN NET ASSETS in EUR Net assets at the beginning of the financial year 470,811, ,731, Subscriptions (including subscription fees paid to the UCITS) 203,039, ,189, Redemptions (including redemption fees paid to the UCITS) -220,172, ,579, Realised gains on deposits and financial instruments 39,666, ,746, Realised losses on deposits and financial instruments -17,233, ,942, Realised gains on forward financial instruments 3, Realised losses on forward financial instruments -38, Transaction fees -3,425, ,415, Currency differences -5,174, ,128, Changes in valuation differential on deposits and financial instruments 49,894, ,430, Valuation differential for financial year N 82,425, ,531, Valuation differential for financial year N-1-32,531, ,898, Changes in valuation differential on forward financial instruments Valuation differential for financial year N Valuation differential for financial year N-1 Dividends paid in the previous financial year on net gains and losses Dividends paid in the previous financial year on income -532, , Net profit/loss for financial year prior to income equalisation account 6,586, ,050, Interim dividend(s) paid over the financial year on net gains and losses Interim dividend(s) paid over the financial year on income Other items Net assets at end of financial year 523,422, ,811,