Schroder International Selection Fund Semi-Annual Report

Transcription

1 International Selection Fund Semi-Annual Report 30 June 2014 Luxembourg R.C.S. Luxembourg B 8.202

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3 International Selection Fund Société d Investissement à Capital Variable (SICAV) Semi-Annual Report 30 June 2014 No subscriptions can be received on the basis of financial reports. Subscriptions are valid only if made on the basis of the current prospectus accompanied by the last available annual report or semi-annual report if published thereafter. Annual and semi-annual reports, the current prospectus, KIID and the Articles of Incorporation of International Selection Fund (the 'Company') are available, free of charge, at the Company s registered office, 5, rue Höhenhof, L-1736 Senningerberg, Grand Duchy of Luxembourg.

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5 Table of contents International Selection Fund Semi-Annual Report 30 June 2014 Page 5 International Selection Fund Board of Directors Administration Directors Report Investment Managers Report Notes to the Financial Statements Statement of Distribution of Investments by Industry Portfolio of Investments Mainstream Equity Funds Asian Opportunities EURO Equity European Large Cap Global Equity Italian Equity Japanese Equity Swiss Equity UK Equity US Large Cap Specialist Equity Funds Asia Pacific Property Securities Asian Dividend Maximiser Asian Equity Yield Asian Smaller Companies Asian Total Return BRIC (Brazil, Russia, India, China) China Opportunities Emerging Asia Emerging Europe Emerging s European Dividend Maximiser European Equity (Ex UK) * European Equity Focus European Equity Yield European Opportunities * European Smaller Companies European Special Situations European Total Return Frontier s Equity Global Climate Change Equity Global Demographic Opportunities Global Dividend Maximiser * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review.

6 Page 6 International Selection Fund Semi-Annual Report 30 June 2014 Table of contents Specialist Equity Funds (cont) Global Emerging Opportunities Global Emerging s Smaller Companies * Global Energy Global Equity Yield Global Property Securities Global Recovery Global Small Cap Energy Global Smaller Companies Greater China Hong Kong Equity Indian Equity Indian Opportunities Japanese Opportunities Japanese Smaller Companies Korean Equity Latin American Middle East Swiss Equity Opportunities Swiss Small & Mid Cap Equity Taiwanese Equity UK Opportunities * US Small & Mid-Cap Equity US Smaller Companies Style Equity Funds European Small & Mid-Cap Alpha Equity Funds European Equity Alpha Global Equity Alpha Japanese Equity Alpha US Equity Alpha Quantitative Equity Funds QEP Global Active QEP Global Blend QEP Global Core QEP Global Emerging s QEP Global Quality QEP Global Plus * Asset Allocation Funds Global Tactical Asset Allocation Multi-Asset Funds Asian Diversified Growth Global Conservative Global Diversified Growth * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review.

7 Table of contents International Selection Fund Semi-Annual Report 30 June 2014 Page 7 Multi-Asset Funds (cont) Global Dynamic Balanced Global Multi-Asset Allocation * Global Multi-Asset Income Japan DGF Strategic Beta 10 * Wealth Preservation EUR Wealth Preservation Multi-Manager Funds Multi-Manager Global Diversity * Absolute Return Funds Asian Bond Absolute Return Emerging s Debt Absolute Return European Alpha Absolute Return * European Equity Absolute Return * Mainstream Bond Funds EURO Bond EURO Government Bond EURO Short Term Bond Global Bond Global Inflation Linked Bond Hong Kong Dollar Bond US Dollar Bond Specialist Bond Funds Asian Local Currency Bond EURO Corporate Bond EURO Credit Conviction EURO High Yield Global Corporate Bond Global High Income Bond Global High Yield Global Unconstrained Bond Strategic Bond Strategic Credit * Specialist Bond Funds (Medium-higher Risk) Asian Convertible Bond Emerging Bond Emerging Corporate Bond Emerging Local Currency Bond Global Convertible Bond Global Credit Duration Hedged RMB Fixed Income Liquidity Funds EURO Liquidity * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review.

8 Page 8 International Selection Fund Semi-Annual Report 30 June 2014 Table of contents Liquidity Funds (cont) US Dollar Liquidity Currency Funds Global Managed Currency Appendix I - TER

9 International Selection Fund Semi-Annual Report 30 June 2014 International Selection Fund Page 9 The Company International Selection Fund (the Company ) is an open-ended umbrella company incorporated under Luxembourg law, which enables investors to choose from Funds (specific portfolios of assets and liabilities within the Company having their own net asset value and represented by a separate class or classes of Share) offering different investment objectives. The shares of each Fund are listed on the Luxembourg Stock Exchange. Prices are also available on Bloomberg and Reuters. This report covers the period from 1 January 2014 to 30 June The financial statements are prepared in accordance with Luxembourg regulations relating to undertakings for collective investment. The last day on which prices were calculated was 30 June 2014, the last working day of the period. At the date of this report, 108 Funds were available for investment. Please refer to the current prospectus for the investment objectives of the Funds as well as details of investment restrictions. The monthly Factsheets for each Fund can be obtained from the Company s registered office and are also available on the website of Investment Management (Luxembourg) S.A. ( Hereafter, International Selection Fund will be referred to as the Company and all names of the Funds will be preceded by, e.g., Global Equity Alpha. Corporate Governance The Company is subject to corporate governance based on: 1. Its obligations as defined by the UCITS Directive 2009/65/EC dated 13 July 2009, as implemented in Luxembourg law which is available for inspection at the registered office of the Company at 5, rue Höhenhof, L-1736 Senningerberg, Grand Duchy of Luxembourg. 2. Its Articles of Incorporation which are available for inspection at the registered office of the Company and at the Luxembourg corporate and trade register, Registre de Commerce et des Sociétés (RCSL). 3. The obligations in respect of the management of the Company, for which the Company has appointed Investment Management (Luxembourg) S.A., which is subject to the requirements of the Management Company Directive 2010/43/EC, as implemented in Luxembourg law. 4. The Association of the Luxembourg Fund Industry (ALFI) code of conduct, which the Company has voluntarily adopted. Internal Control and Risk Management Systems The Board of Directors is responsible for establishing and maintaining adequate internal control and risk management systems of the Company in relation to the financial reporting process. Such systems are designed to manage rather than eliminate the risk of error or fraud in achieving the Company's financial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board of Directors has contracted with the Management Company to put procedures in place to ensure all relevant accounting records are properly maintained and are readily available, including the production of annual and semi-annual reports. The annual and semiannual reports of the Company are required to be approved by the Board of Directors of the Company and filed with the Commission de Surveillance du Secteur Financier (CSSF) and the Registre de Commerce et des Sociétés (RCSL). The annual statutory financial statements are required to be audited by independent auditors who report to the Board of Directors on their findings. The Board meets at least four times a year and ensures that the Company maintains high standards of integrity and control in its operations and that it possesses adequate governance and means of control as law and regulation demand.

10 Page 10 International Selection Fund Semi-Annual Report 30 June 2014 Board of Directors Chairman Directors Massimo Tosato Vice Chairman s PLC 31 Gresham Street London EC2V 7QA United Kingdom Mike Champion* Head of Product Development Investment Management Limited 31 Gresham Street London EC2V 7QA United Kingdom Marie-Jeanne Chevremont-Lorenzini Independent Advisor 37C Avenue J.F. Kennedy L-1855 Luxembourg Grand Duchy of Luxembourg Jacques Elvinger Avocat Elvinger, Hoss & Prussen 2, place Winston Churchill L-2014 Luxembourg Grand Duchy of Luxembourg Daniel De Fernando Garcia Independent Director Serrano Madrid Spain Achim Kuessner Country Head Germany, Austria & CEE Investment Management GmbH Taunustor Frankfurt Germany Ketil Petersen Country Head Nordic Region Investment Management A/S Store Strandstraede Copenhagen K Denmark Georges-Arnaud Saier Independent Director 6 rue Paul Baudry Paris France Carlo Trabattoni Head of Pan European Intermediary Distribution and GFIG Investment Management Limited 31 Gresham Street London EC2V 7QA United Kingdom *Mike Champion was appointed a member of the Board of Directors with effect from 14 March On the same day Gavin Ralston resigned from the Board of Directors.

11 Administration International Selection Fund Semi-Annual Report 30 June 2014 Page 11 Registered Office Management Company, Domiciliary Agent, Principal Paying Agent, Registrar and Transfer Agent 5, rue Höhenhof, L-1736 Senningerberg, Grand Duchy of Luxembourg Investment Management (Luxembourg) S.A. 5, rue Höhenhof, L-1736 Senningerberg, Grand Duchy of Luxembourg Custodian and Fund Administrator Principal Legal Adviser Auditor Investment Managers J.P. Morgan Bank Luxembourg S.A. European Bank & Business Centre, 6, route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg Elvinger, Hoss & Prussen 2, place Winston Churchill, L-2014 Luxembourg, Grand Duchy of Luxembourg PricewaterhouseCoopers, Société coopérative 400, Route d'esch, B.P. 1443, L-1014 Luxembourg, Grand Duchy of Luxembourg Investment Management Limited 31, Gresham Street, London EC2V 7QA, United Kingdom International Selection Fund Asian Dividend Maximiser International Selection Fund Balanced Portfolio* International Selection Fund BRIC (Brazil, Russia, India, China) International Selection Fund Conservative Portfolio* International Selection Fund Currency Absolute Return EUR* International Selection Fund Currency Absolute Return * International Selection Fund Emerging Europe International Selection Fund Emerging s International Selection Fund Emerging s Debt Absolute Return International Selection Fund EURO Bond International Selection Fund EURO Corporate Bond International Selection Fund EURO Credit Conviction International Selection Fund EURO Equity International Selection Fund EURO Government Bond International Selection Fund EURO High Yield International Selection Fund EURO Liquidity International Selection Fund EURO Short Term Bond International Selection Fund European Alpha Absolute Return* International Selection Fund European Dividend Maximiser International Selection Fund European Equity (Ex UK)* International Selection Fund European Equity Absolute Return* International Selection Fund European Equity Alpha International Selection Fund European Equity Focus International Selection Fund European Equity Yield International Selection Fund European Large Cap International Selection Fund European Opportunities* International Selection Fund European Smaller Companies International Selection Fund European Special Situations International Selection Fund European Total Return International Selection Fund Frontier s Equity International Selection Fund Global Bond International Selection Fund Global Climate Change Equity International Selection Fund Global Demographic Opportunities International Selection Fund Global Diversified Growth International Selection Fund Global Dividend Maximiser International Selection Fund Global Emerging Opportunities International Selection Fund Global Emerging s Smaller Companies* International Selection Fund Global Energy International Selection Fund Global Equity International Selection Fund Global Equity Alpha International Selection Fund Global Equity Yield International Selection Fund Global Inflation Linked Bond International Selection Fund Global Managed Currency International Selection Fund Global Multi-Asset Allocation* International Selection Fund Global Multi-Asset Income International Selection Fund Global Recovery International Selection Fund Global Resources Equity* International Selection Fund Global Small Cap Energy International Selection Fund Global Smaller Companies International Selection Fund Global Tactical Asset Allocation International Selection Fund Global Unconstrained Bond International Selection Fund Growth Portfolio* * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review.

12 Page 12 International Selection Fund Semi-Annual Report 30 June 2014 Administration (cont) Investment Managers (cont) Investment Management Limited (cont) 31, Gresham Street, London EC2V 7QA, United Kingdom International Selection Fund Italian Equity International Selection Fund Latin American International Selection Fund Middle East International Selection Fund Multi-Manager Global Diversity* International Selection Fund QEP Global Active International Selection Fund QEP Global Blend International Selection Fund QEP Global Core International Selection Fund QEP Global Emerging s International Selection Fund QEP Global Quality International Selection Fund QEP Global Plus* International Selection Fund Strategic Beta 10* International Selection Fund Strategic Bond International Selection Fund Strategic Credit* International Selection Fund UK Equity International Selection Fund UK Opportunities* International Selection Fund Wealth Preservation EUR International Selection Fund Wealth Preservation Investment Management Brasil DTVM S.A. Rua Joaquim Floriano, º andar - cj. 141 / 142, São Paulo SP, Brazil International Selection Fund Brazilian Equity* Investment Management (Hong Kong) Limited Suites 3301, Level 33, Two Pacific Place, 88 Queensway, Hong Kong SAR International Selection Fund Asia Pacific Property Securities International Selection Fund Asian Diversified Growth International Selection Fund China Opportunities International Selection Fund Emerging Asia International Selection Fund Greater China International Selection Fund Hong Kong Dollar Bond International Selection Fund Hong Kong Equity International Selection Fund Japan DGF International Selection Fund RMB Fixed Income International Selection Fund Taiwanese Equity Investment Management (Japan) Limited 21st Floor Marunouchi Trust Tower Main, Marunouchi, Chiyoda-Ku, Tokyo , Japan International Selection Fund Japanese Equity International Selection Fund Japanese Equity Alpha International Selection Fund Japanese Opportunities International Selection Fund Japanese Smaller Companies Investment Management North America Inc. 875 Third Avenue, 22nd Floor, New York, New York , United States of America International Selection Fund Emerging Bond International Selection Fund Emerging Local Currency Bond International Selection Fund Global Corporate Bond International Selection Fund Global Credit Duration Hedged International Selection Fund Global High Income Bond International Selection Fund Global High Yield International Selection Fund US Dollar Bond International Selection Fund US Dollar Liquidity International Selection Fund US Equity Alpha International Selection Fund US Large Cap International Selection Fund US Small & Mid-Cap Equity International Selection Fund US Smaller Companies Investment Management (Singapore) Limited 65 Chulia Street, #46-00, OCBC Centre, Singapore , Singapore International Selection Fund Asian Bond Absolute Return International Selection Fund Asian Equity Yield International Selection Fund Asian Local Currency Bond International Selection Fund Asian Opportunities International Selection Fund Asian Smaller Companies International Selection Fund Asian Total Return International Selection Fund Emerging Corporate Bond * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review.

13 Administration (cont) International Selection Fund Semi-Annual Report 30 June 2014 Page 13 Investment Managers (cont) Investment Management (Singapore) Limited (cont) 65 Chulia Street, #46-00, OCBC Centre, Singapore , Singapore International Selection Fund Indian Equity International Selection Fund Indian Opportunities International Selection Fund Korean Equity Investment Management (Switzerland) AG Central 2, CH-8021 Zurich, Switzerland International Selection Fund Asian Convertible Bond International Selection Fund European Small & Mid-Cap International Selection Fund Global Conservative International Selection Fund Global Convertible Bond International Selection Fund Global Dynamic Balanced International Selection Fund Swiss Equity International Selection Fund Swiss Equity Opportunities International Selection Fund Swiss Small & Mid Cap Equity EII Capital Management Inc. ** 640 Fifth Avenue, 8th Floor, New York 10019, United States of America Global Property Securities ** EII Capital Management Inc. was changed to Investment Management Limited. Please refer to the Subsequent Events.

14 Page 14 International Selection Fund Semi-Annual Report 30 June 2014 Directors Report On 30 June 2014, the total net assets of International Selection Fund ( the Company ) were EUR 67,938,584,625 compared to EUR 57,963,397,662 on 31 December 2013, an increase of During the period under review, 10 new Funds were made available for investment within the Company: 29 January 2014 Global Emerging s Smaller Companies 06 February 2014 QEP Global Plus 11 February 2014 European Alpha Absolute Return 11 February 2014 European Equity Absolute Return 12 March 2014 European Equity (ex UK) European Opportunities Multi-Manager Global Diversity Strategic Credit UK Opportunities 28 May 2014 Strategic Beta 10 In addition to the 60 share classes launched in new Funds, the following share classes were also made available during the period: 05 February 2014 EURO Equity A Acc CHF Hedged and A Acc GBP Hedged shares Swiss Equity A Acc EUR Hedged, A Acc Hedged and A Acc GBP Hedged shares 19 February 2014 Asian Dividend Maximiser A1 Dis EUR Hedged shares European Equity Yield A1 Acc Hedged and A1 Dis Hedged shares Global Equity Alpha X Acc shares UK Equity A Acc EUR Hedged, A Acc Hedged and A Acc CHF Hedged shares 26 February 2014 Emerging s SEK A1 Acc shares 05 March 2014 Emerging s Debt Absolute Return S Acc and S Dis shares Emerging s Debt Absolute Return EUR S Acc and EUR S Dis shares Emerging s Debt Absolute Return GBP S Acc and GBP S Dis shares European Special Situations S Acc and S Dis shares QEP Global Active S Acc and S Dis shares QEP Global Blend S Acc and S Dis shares QEP Global Blend S Dis GBP shares QEP Global Quality S Acc and S Dis shares QEP Global Quality S Acc EUR shares QEP Global Quality S Dis GBP shares 21 March 2014 Asian Total Return S Acc and S Dis shares Asian Total Return S Dis GBP shares Asian Equity Yield S Acc and S Dis shares Emerging s S Acc and S Dis shares Emerging s S Dis GBP shares Global Equity S Dis shares Global High Yield S Dis, S Acc EUR, S Dis EUR and S Dis GBP shares Strategic Bond S Dis shares UK Equity S Acc and S Dis shares US Large Cap S Acc and S Dis shares US Small & Mid-Cap Equity S Acc and S Dis shares 02 April 2014 European Equity Alpha A Acc shares European Large Cap A Acc shares Frontier s Equity A Dis shares Global Dividend Maximiser AX Dis shares Global Recovery C Dis shares Japanese Equity C Acc EUR shares Middle East A Dis shares 09 April 2014 Asian Opportunities S Acc, S Dis and S Acc EUR shares BRIC (Brazil, Russia, India, China) S Acc shares EURO Corporate Bond S Acc and S Dis shares European Equity (Ex UK) S Dis shares European Smaller Companies S Acc shares Global Corporate Bond S Acc, S Dis and S Acc EUR shares Global Energy S Dis GBP shares Japanese Equity Alpha S Acc EUR shares Japanese Smaller Companies S Acc and S Dis shares European Opportunities S Dis shares Strategic Credit S Dis shares UK Opportunities S Dis shares US Dollar Bond S Dis shares

15 International Selection Fund Semi-Annual Report 30 June 2014 Directors Report (cont) Page April 2014 Asian Opportunities I Dis and X Acc shares Emerging Bond A Acc SEK Hedged shares European Dividend Maximiser A Dis Hedged shares Global Dividend Maximiser A Dis AUD Hedged shares QEP Global Core I Acc CHF shares Global Multi-Asset Income I Dis GBP Hedged shares Korean Equity I Acc shares Strategic Bond J Dis shares 23 April 2014 European Alpha Absolute Return A Acc and B Acc shares European Equity Absolute Return A Acc and B Acc shares Multi-Manager Global Diversity A Acc EUR Hedged shares European Opportunities A1 Acc and B Acc shares Strategic Credit A Acc EUR Hedged, B Acc EUR Hedged, C Acc EUR Hedged, A Dis EUR Hedged and B Dis EUR Hedged shares 30 April 2014 Emerging Bond I Dis shares Emerging Corporate Bond I Dis shares Emerging Local Currency Bond I Dis shares EURO High Yield I Dis shares European Equity Yield A Dis RMB Hedged shares Global Corporate Bond I Dis shares Global Dynamic Balanced I Acc CHF Hedged shares Global High Yield I Dis shares European Opportunities I Acc shares 07 May 2014 Emerging s Debt Absolute Return S Acc EUR Hedged and S Dis EUR Hedged shares Emerging s Debt Absolute Return S Acc GBP Hedged and S Dis GBP Hedged shares European Alpha Absolute Return E Acc shares European Smaller Companies A Acc Hedged shares Global Dividend Maximiser A1 Dis PLN Hedged shares 14 May 2014 US Large Cap A Dis GBP shares 21 May 2014 European Alpha Absolute Return A Acc Hedged shares European Equity Absolute Return A Acc Hedged shares 28 May 2014 EURO Credit Conviction IZ Acc shares European Alpha Absolute Return A1 Acc Hedged and B Acc Hedged shares European Equity Absolute Return A1 Acc Hedged and B Acc Hedged shares 04 June 2014 EURO Equity A Acc RMB Hedged shares European Opportunities A1 Acc Hedged shares During the period under review, 6 funds were closed: 17 January 2014 Currency Absolute Return EUR 17 January 2014 Currency Absolute Return 03 February 2014 Conservative Portfolio 03 February 2014 Growth Portfolio 26 February 2014 Global Resources Equity 09 April 2014 Brazilian Equity In addition to the 41 share classes closed in the Funds closed, the following share classes were also closed during the period: 28 May 2014 Emerging s Debt Absolute Return S Acc EUR shares 28 May 2014 Emerging s Debt Absolute Return S Dis EUR shares 28 May 2014 Emerging s Debt Absolute Return S Acc GBP shares 28 May 2014 Emerging s Debt Absolute Return S Dis GBP shares 18 June 2014 US Equity Alpha E Acc shares 18 June 2014 US Equity Alpha E Acc EUR shares Furthermore, the following changes took effect during the period: 1 January 2014 The distribution policies were changed for: Asian Equity Yield from monthly 4 fixed to monthly 3 fixed. Global Inflation Linked Bond from quarterly 3 fixed to quarterly variable. Global High Income Bond from monthly 7 fixed to monthly 5 fixed and from quarterly 3 fixed to quarterly 5 fixed. 3 February 2014 Conservative Portfolio A1 Acc, A1 Dis, D Acc and C Acc shares were merged into Global Multi-Asset Income. Growth Portfolio A1 Acc, D Acc and C Acc shares were merged into Balanced Portfolio and changed name to Global Multi-Asset Allocation. 4 April 2014 The distribution policies were changed for Asian Bond Absolute Return C Dis shares from annual 5 fixed to variable and Global Multi-Asset Income J Dis shares from monthly 5 fixed to monthly 12 fixed.

16 Page 16 International Selection Fund Semi-Annual Report 30 June 2014 Directors Report (cont) 30 June 2014 The distribution policies were changed for: European Equity Yield A Dis Hedged shares from quarterly 4 fixed to monthly 4 fixed. Global Equity Yield A Dis shares from quarterly 4 fixed to monthly 4 fixed. Hong Kong Dollar Bond A Dis shares from quarterly variable to monthly variable. The Board of Directors International Selection Fund 30 June 2014 The information contained in this report is historical and not necessarily indicative of future performance.

17 International Selection Fund Semi-Annual Report 30 June 2014 Investment Managers Report Page 17 Global equities delivered positive returns over the first six months of The period began on a relatively weak footing due to investors concerns about the impact of the US Federal Reserve s (Fed) tapering of its quantitative easing programme. This was announced in December 2013 with the first reduction in asset purchases coming in January The emergence of geopolitical tensions between Russia and Ukraine also contributed to the muted start to the period. However, encouraging macroeconomic data from developed markets and ongoing accommodative monetary policy helped to support equity market gains. In the US, the Fed revamped its forward guidance, dropping the 6.5 unemployment rate target and saying it would focus instead on a broad range of measures. Economic data from the US was mixed although weakness was largely attributed to severe winter weather at the beginning of the year and data largely improved as the period progressed. Housing data was generally disappointing and first quarter GDP showed a surprise contraction of 2.9. Nonetheless, employment data remained encouraging with the unemployment rate at 6.3 in May, and manufacturing data generally picked up following the weather-affected winter. In the eurozone, Italy underwent a change of government in February with Matteo Renzi replacing Enrico Letta as prime minister amid hopes that Renzi will be better able to speed up the pace of reform. The eurozone s economic recovery remained fragile, with the area s GDP growth slowing to 0.2 in the first quarter of Inflation continued to be below target during the period and in June the European Central Bank (ECB) announced a package of measures designed to stave off deflation and encourage economic growth. These included cutting interest rates to 0.15 from 0.25 and introducing a negative deposit rate of UK economic data continued to improve although fears grew over a potential bubble in the housing market. There was much focus over the period on the likely timing of the first interest rate hike. In June, Bank of England Governor Mark Carney indicated that a rate hike could be forthcoming before the end of the year. In Japan, an increase in the consumption tax came into force in May. The Bank of Japan appeared increasingly confident that it would meet its 2 inflation target in two years time. In emerging markets, investor focus was on the Fed s tapering and the impact of reduced global liquidity. The start of the year saw significant volatility in a number of emerging market currencies. Another focus was the increased tension between Russia and Ukraine after Russia annexed the Crimea region. The period also saw a number of elections take place in emerging markets. As expected, Narendra Modi s Bharatiya Janata Party won the Indian elections while former army general Abdul Fattah al-sisi was elected president of Egypt. Some weak economic data from China led to increased concern about the economic slowdown. Equities overview Global equities made gains over the period with the MSCI World index returning US equities delivered positive returns over the six-month period with the S&P 500 hitting a series of record highs. Investors were encouraged by signals from the Fed that interest rates would stay low and by expectations that growth is set to pick up following the weak first quarter. Solid corporate earnings also boosted equities. In the eurozone, returns were also positive. Peripheral markets such as Italy, Spain and Portugal were among the strongest gainers, boosted by the ECB s loose monetary policy and a further decline in the periphery s sovereign bond yields. Italian shares drew support from the change of government. UK equities advanced but gains were more muted than in the eurozone or US. Macroeconomic data was largely supportive but was not backed up by improvements in corporate earnings. Japanese equities were weak following the strong gains made in There was uncertainty about the ability of the government and central bank to boost economic growth, and worries about the impact of the consumption tax that came into force in May. In emerging markets, India saw strong performance, particularly late in the period following the election of Narendra Modi as investors anticipated that he would be able to implement much-needed economic reform. Brazilian equities were supported towards the end of the period by hopes that a change in government may occur when elections take place later this year. Chinese returns were muted owing to concerns about slowing economic growth. Returns in Russia were negative amid increased geopolitical tension, although the sharp sell-off at the start of the period was followed by a rebound. Emerging markets slightly underperformed developed markets over the period, returning Fixed income overview Fixed income markets outperformed equities over the first half of the period. Treasury yields fell sharply in late January, as volatility in emerging markets and weak economic data from the US sparked a glut of risk off trades. In February, concerns surrounding the world s emerging economies faded and emerging market debt recovered the losses sustained in January. Robust economic updates from the US during February and March allayed fears of structural weakness in the US recovery. In peripheral Europe, yields continued the longer term downward trend, buoyed by improvements in economic data. In corporate bonds, instruments rated CCC or lower outperformed any other credit bracket during the first quarter. The best performing credit market was the US, and media continued its strong run of form to finish the quarter ahead of all major sectors. European credit markets lagged counterparts in the US and UK, though all major sectors made progress in the first quarter. Insurance and technology provided the best returns in Europe while the more defensive healthcare sector trailed. 1 Source: Datastream - MSCI World in US$ 2 Source: Datastream MSCI Emerging s in US$

18 Page 18 International Selection Fund Semi-Annual Report 30 June 2014 Investment Managers Report (cont) Fixed income overview (cont) In the second half of the period, global bond markets built on their earlier advances as economic data broadly improved and central banks reinforced their commitment to accommodative monetary policy. Treasury and gilt yields fell, although there was a spike in early June as expectations of a rate rise increased. The ECB decision in early June to introduce further policy accommodation pushed the German 10-year rate to a 13 month low. Several eurozone economies saw sovereign yields retreat to all-time lows. In credit markets, high yield debt marginally outperformed investment grade credit over the final three months of the period. US dollar credit indices outstripped sterling and euro equivalents, though total returns across the three denominations was relatively evenly spread. Outlook The world economy remains on track for the modest recovery to continue as monetary stimulus feeds through and fiscal headwinds fade. Inflation is likely to remain well contained. The US economy is expected to show a rebound in the second quarter after the weather-related dip in the first quarter. We believe it likely that the Fed will complete its tapering of asset purchases by October In the UK, the recovery should be sustained by robust housing and consumer demand although growth may moderate next year. In the eurozone, the recovery is poised to become more established. There is a strong possibility that the ECB could undertake quantitative easing in response to inflation fears. In Japan, Abenomics has achieved good results so far but there remain significant challenges in terms of deflation and repairing the fiscal position. Elsewhere, tighter US monetary policy is set to weigh on emerging economies. Chinese growth is likely to slow further as the authorities seek to deleverage the economy. Equities are likely to remain supported by the continuing global recovery and positive sentiment. However, there needs to be further corporate earnings growth to justify current valuation levels. Expectations of more monetary policy stimulus from the ECB and China are supportive for bonds. Commodities are likely to be subject to continued uncertainty concerning agricultural prices, as a result of unpredictable weather. The Investment Managers International Selection Fund 30 June 2014 Six months to 30 June The information contained in this report is historical and not necessarily indicative of future performance.

19 International Selection Fund Semi-Annual Report 30 June 2014 Notes to the Financial Statements as at 30 June 2014 Page 19 The Company The Company was incorporated in Luxembourg on 5 December 1968 as a société anonyme. Pursuant to an Extraordinary General Meeting of Shareholders held on 31 January 1989, the form and name of the Company, as well as its establishment period, was changed to a société d investissement à capital variable ( SICAV ) established for an unlimited period under the name of International Selection Fund. The company qualifies as an undertaking for collective investment (UCI) regulated by the provisions of Part I of the Luxembourg Law of 17 December 2010, as amended, regarding undertaking for collective investment (the 2010 law ). Classes of Shares At the date of this report, fifteen classes of shares are available within the Funds: A, B, C, D, E, I, IZ, J, R*, S*, X, A1, B1, AX* and Z shares. All Funds offer A, B and C shares, apart from the following Funds: Asian Diversified Growth (offers only A, C, I & A1 shares); EURO High Yield (offers only A, C & I shares); European Equity (Ex UK)* (offers only A, C & S shares); European Equity Focus (offers only A, C, I & Z shares); European Small & Mid-Cap (offers only A, C, I & Z shares); Global Conservative (offers only A & A1 shares); Global Demographic Opportunities (offers only A, C & Z shares); Global Emerging s Smaller Companies* (offers only I shares); Global Small Cap Energy (offers only A, C & I shares); Global Tactical Asset Allocation (offers only C & I shares); Indian Opportunities (offers only A, C, E & I shares); Japan DGF (offers only C, I & X shares); Japanese Opportunities (offers only A, C, I & A1 shares); Multi-Manager Global Diversity* (offers only A & C shares); QEP Global Blend (offers only A, C, I, S & Z shares); QEP Global Core (offers only C & I shares); QEP Global Emerging s (offers only A, C, I, A1 & Z shares); QEP Global Plus* (offers only A, C & I shares); RMB Fixed Income (offers only A, C, E & I shares); Strategic Beta 10* (offers only I shares); UK Opportunities* (offers only A, C & S shares); Wealth Preservation (offers only A, C, E & I shares). Shares are generally issued as Accumulation shares. Distribution shares may be issued within any Fund at the Directors discretion. A list of available Distribution shares may be obtained upon request at the Management Company. In accordance with the provisions of the current prospectus, the Directors may also offer classes in multiple currency denominations. The respective Investment Managers have the ability to hedge the shares of such classes in relation to the Fund currency or in relation to currencies in which the relevant Fund's underlying assets are denominated. Where hedging of this kind is undertaken, the respective Investment Managers may engage, for the exclusive account of such share class, in currency forwards, currency futures, currency option transactions and swaps in order to preserve the value of the reference currency against the Fund currency. Where undertaken, the effects of this hedging will be reflected in the Asset and, therefore, in the performance of such additional share class. Similarly, any expenses arising from such hedging transactions will be borne by the class in relation to which they have been incurred. The classes of share available for each Fund are set out in detail in the current prospectus. The Directors may decide from time to time for some or all of the Bond Funds to issue duration hedged share classes. Duration hedged share classes utilise hedging strategies that seek to reduce the share class' sensitivity to changes in interest rate movements. There is no assurance that these hedging strategies will be successful. Where undertaken, the effects of this hedging will be reflected in the Asset and, therefore, in the performance of the share class. Similarly, any expenses arising from such hedging transactions will be borne by the duration hedged share class. The performance of the duration hedged share classes may underperform other share classes in the Bond Funds depending on interest rate movements. Duration hedged share classes can be issued in relation to any type of available share classes of Bond Funds. The naming convention used for the share classes is as follows: A Acc for base currency share class; A Acc CCY for a multicurrency share class; A Acc CCY Hedged for a hedged share class. Initial Charge The Management Company and Distributors are entitled to the following initial charges, which can be partly or fully waived at the Directors discretion. * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review.

20 Page 20 International Selection Fund Semi-Annual Report 30 June 2014 Notes to the Financial Statements Initial Charge (cont) A and AX* Shares Equity Funds and Asset Allocation Funds Multi-Asset Funds Multi-Manager Funds Absolute Return Funds, Bond Funds and Currency Funds Liquidity Funds Initial charge of up to of the Asset per Share Initial charge of up to of the Asset per Share with the exception of: up to of the Asset per Share of Global Dynamic Balanced, Wealth Preservation EUR and Wealth Preservation up to of the Asset per Share of Global Conservative and Strategic Beta 10* Initial charge of up to of the Asset per Share with the exception of: up to of the Asset per Share of Balanced Portfolio* and Multi- Manager Global Diversity* up to of the Asset per Share of Conservative Portfolio* Initial charge of up to of the Asset per Share No initial charge A1 Shares Equity Funds and Asset Allocation Funds Multi-Asset Funds Multi-Manager Funds Absolute Return Funds, Bond Funds and Currency Funds Liquidity Funds C and E Shares Liquidity Funds Initial charge of up to of the Asset per Share Initial charge of up to of the Asset per Share with the exception of: up to of the Asset per Share of Global Dynamic Balanced, Wealth Preservation EUR and Wealth Preservation up to of the Asset per Share of Global Conservative and Strategic Beta 10* Initial charge of up to of the Asset per Share with the exception of: up to of the Asset per Share of Balanced Portfolio* up to of the Asset per Share of Conservative Portfolio * Initial charge of up to of the Asset per Share No initial charge Initial charge of up to of the Asset per Share No initial charge B, B1, D, I, IZ, J, R*, S*, X and Z Shares No initial charge Distribution Charge A, AX*, C, E, I, IZ, J, R*, S*, X and Z Shares No distribution charge B Shares ** Equity Funds Absolute Return Funds Bond Funds Liquidity Funds Currency Funds Asset Allocation Funds Multi-Asset Funds D Shares *** A1 Shares *** B1 Shares *** Distribution charge of 0.60 per annum of the net assets of Funds Distribution charge of 0.50 per annum of the net assets of Funds Distribution charge of 0.50 per annum of the net assets of Funds with the exception of: 0.10 per annum of the net assets of EURO Short Term Bond Distribution charge of 0.10 per annum of the net assets of Funds with the exception of: no distribution charge for of US Dollar Liquidity Distribution charge of 0.50 per annum of the net assets of Funds Distribution charge of 0.60 per annum of the net assets of Funds Distribution charge of 0.60 per annum of the net assets of Funds with the exception of: 0.80 per annum of the net assets of Global Diversified Growth 0.50 per annum of the net assets of Funds Wealth Preservation EUR and Wealth Preservation Distribution charge of 1.00 per annum of the net assets of Funds Distribution charge of 0.50 per annum of the net assets of Funds with the exception of: 0.60 per annum of the net assets of the Multi-Manager Funds 0.10 per annum of the net assets of EURO Liquidity no distribution charge for of US Dollar Liquidity Distribution charge of 1.25 per annum of the net assets of Funds (including a shareholder servicing fee of 0.25 p.a.) with the exception of: 1.30 per annum of the net assets of Balanced Portfolio* and Growth Portfolio* 1.15 per annum of the net assets of Conservative Portfolio* 0.60 per annum of the net assets of Global Conservative * Please refer to the Directors Report for the details of all corporate actions that occurred during the period under review. ** Distribution charges in respect of B shares are payable quarterly. *** Distribution charges in respect of A1, B1 and D shares are paid at such intervals, as may be agreed upon from time to time between the Company and those Distributors that are appointed specifically for the purpose of distributing such shares.