LIONTRUST FTSE 100 TRACKER FUND. Manager's Long Final Report and Financial Statements for the year ended 31 May 2012 LIONTRUST FUND PARTNERS LLP

Transcription

1 Manager's Long Final Report and Financial Statements for the year ended 31 May 2012 LIONTRUST FUND PARTNERS LLP

2 Manager Liontrust Fund Partners LLP 2 Savoy Court London WC2R OEZ Administration and Dealing enquiries Administration and Dealing facsimile info@liontrust.co.uk Website Authorised and regulated by the Financial Services Authority. Investment Adviser State Street Global Advisors Limited 20 Churchill Place London E14 5HJ Authorised and regulated by the Financial Services Authority. Trustee State Street Trustees Limited 20 Churchill Place London E14 5HJ Authorised and regulated by the Financial Services Authority. Registrar International Financial Data Services Limited* IFDS House St. Nicholas Lane Basildon Essex SS15 5FS Authorised and regulated by the Financial Services Authority. * On 30 January 2012 the Manager delegated the function of Registrar from Bank of New York Mellon (International) Limited to International Financial Data Services Limited. Auditors PricewaterhouseCoopers LLP PO Box 90 Erskine House Queen Street Edinburgh EH2 4NH 1

3 Investment Profile Liontrust FTSE 100 Tracker Fund tracks the famous Footsie (FTSE 100) Index, which comprises the UK s one hundred largest companies, many of which are well known household names. The Footsie Index accounts for over 80% of the whole UK stock market by size and is thus a good barometer of the market s fortunes. There is no initial charge, no exit fee and an annual management fee of just 0.295%. Currently the difference between the bid (sell) and offer (buy) prices is just 0.6%. Contents Manager s Investment Report 3 Performance Record 7 Authorised Status 8 Statement of the Manager s Responsibilities 8 Statement of the Trustee s Responsibilities 8 Trustee s Report 8 Certification of Accounts by Directors of the Manager 9 Independent Auditors Report 10 Portfolio Statement 12 Financial Statements: Statement of Total Return 15 Statement of Change in Net Assets Attributable to Unitholders 15 Balance Sheet 16 Notes to the Financial Statements 17 Distribution Table 24 Information for Corporate Unitholders 24 Additional Information 25 2

4 MANAGER S INVESTMENT REPORT Investment Objective The investment objective of Liontrust FTSE 100 Tracker Fund is to match the capital performance of the FTSE 100 Index, which comprises the UK s one hundred largest companies. It will be achieved principally by replicating the constituents of the FTSE 100 Index. However, in managing the short-term liquidity of the Fund and its income, the Manager may, from time to time, invest in FTSE 100 Index futures in accordance with the rules of the COLL Sourcebook regarding hedging. Liontrust Asset Management PLC Liontrust provides portfolio management services in UK, European, Asian and Emerging Markets equities. These are managed on a long-only, long/short and absolute return basis through unit trusts, individual savings accounts (ISAs), offshore funds, pooled pension funds and segregated institutional accounts. The Group currently manages 2.2 billion (as at 17 th July 2012). We market our investment products to professional investors, predominantly in the UK and Continental Europe. These include pension funds and other institutional investors, family offices, private banks, private client managers, multi-managers, stockbrokers and financial advisers. Some private clients, to whom no advice has been given, have chosen independently to invest with us. Liontrust Asset Management PLC is the parent company of Liontrust Fund Partners LLP and Liontrust Investment Partners LLP, which are authorised and regulated by the Financial Services Authority. All members of the Liontrust Group sell only Liontrust Group products. State Street Global Advisors Limited Liontrust Fund Partners LLP outsources the quantitative (passive) investment management of the Fund to State Street Global Advisors Limited, which is one of the world s largest fund managers. State Street currently manages around 2.0 trillion in assets across a network of 10 investment centres spanning the world s financial markets. Performance of the Fund In the year to 31 st May 2012 an investment in the Fund fell by -7.7% compared with a fall of -7.7% in the FTSE 100 Index.* A dividend distribution of 5.62 pence per unit will be paid on 31 st July *Source: Financial Express, total return, bid-to-bid basis, past performance is not a guide to the future. Performance of the FTSE 100 Index The FTSE 100 Index ended the 12 months to 31 May 2012 in negative territory, falling 10.25% as the Eurozone crisis continued to cause volatility in the market. The UK market s performance was not only affected by global news events and the on-going drama in Europe but its own economic woes. The UK officially dipped back into recession in early 2012 following two consecutive quarters of negative growth. Throughout the 12-month period under review economic news dominated headlines, particularly sovereign debt issues. The term bailout became an everyday feature as we moved into 2012 and banks and financials continued their rocky progression. Outside of economics there were several other tumultuous news events that created worry. Middle Eastern conflicts escalated, first in Libya in the latter part of 2011 and then more recently, Syria. The UK meanwhile contended with street riots, an attack on its embassy in Tehran plus the fallout from the phone hacking scandal, leading to the Leveson inquiry. Highlighting the volatile summer period in the UK was the FTSE 100 Index s 12-month high in July 2011 of 6054 and its 52- week low just weeks later on 9 August, reaching a level of Despite the rocky and ultimately negative year, there were some companies that fared well. Over the full 12-month period the best performer in the FTSE 100 Index was retailer Next, with gains of 33.55%, followed by specialist distribution group Bunzl and Intertek Group, a provider of quality and safety solutions. However, their gains were more than offset by the biggest losers in the Index over that time frame, with Vedanta Resource posting the largest losses of 56.38%. Financial companies Royal Bank of Scotland and Lloyds Banking Group rounded out the bottom performers with returns of % and % respectively. 3

5 MANAGER S INVESTMENT REPORT The highlights of each month follow, noting the strong and weak relative performances as well as any companies, which joined or left the FTSE 100 Index over the period under review. June Perhaps reflecting the relative quietness of global news in June, the month was a flat beginning to the summer period, with the FTSE 100 Index returning 0.35%. The top performance over the month came from luxury brand Burberry as well as engineering company Weir Group. At the bottom of the performance table was Essar Energy. Following the quarterly review of the FTSE 100 Index it was announced there was just one constituent change to the makeup of the UK blue chip Index. Global ingredients and food solutions provider Tate & Lyle entered the Index while exiting the top 100 was international travel company TUI Travel. July July dipped into negative territory, falling 2.85% on the back of global events, particularly the UK s phone hacking scandal. BSkyB was the worst performer in July falling 16.14%. There were positive notes as the month progressed with the FTSE 100 Index spiking above 6000 at one point only to drop back down. Continued uncertainty over Europe as well as Middle East tensions saw investors return to safety assets and the price of gold hit record highs, breaching a record $1,600 an ounce. Unsurprisingly gold companies fared best in July with Fresnillo leading the way with its share price advancing 25.80%. Healthcare company Shire was the second best performer but some distance away from Fresnillo with gains of 8.83% while another gold company, Randgold Resources, rounded out the top three top performers. August It was a riotous month for both the market and the UK itself, with the FTSE 100 Index ending the month down 5.94%. The Index hit a 52-week low, dropping to a level of 4791 on 9 August before recovering some of its losses by the end of the month and closing at The market was hit by concerns over the downgrading of the US s debt for the first time in 70 years and no sooner was that situation over when worries over Europe escalated once more. Closer to home, the UK saw days of extensive riots on the streets in London and other major cities. Meanwhile banks began reporting profit hits springing from mis-selling claims and exposure to Greek debt. Gold companies Fresnillo and Randgold continued to advance while Indian power company Essar endured the worst falls. Also hit over the month were financial companies with Royal Bank of Scotland and Hargreaves Landsdown among the worst performers. September September marked the 10th anniversary of the 2001 US terrorist attacks but it was the on-going Libyan conflict as well as Europe that ruled headlines. Europe s debt crisis spread as concerns over contagion to even more economies grew. The FTSE 100 Index fell 5.16% over the month to close at a level of It was a mixed group posting the best returns in the market with top gains coming from energy company Tullow Oil, retailer Next and food solutions provider Tate & Lyle. A more dominant theme was seen in the FTSE 100 Index losers with resource companies feeling some strife. The share price of copper miner Antofagasta fell by 31.22% in September while Kazakhmys returned -26.3%. Following the latest review, investment management firm Ashmore Group and specialised distribution company Bunzl joined the UK s Large Cap Index. Leaving the FTSE 100 Index were Wood Group and 3i. October Following two negative months, October came as a relief and with it a rally in the FTSE 100 Index to a level of 5544 and an overall gain of 8.20%. Although Europe continued to pose risks and concerns, progress was seen with Germany and France agreeing to a bailout package. The UK announced it would engage in another round of quantitative easing to help support its economy. Libya s Colonel Muammar Gaddafi was killed. From the bottom in the previous month to the top in October, miners bounced back. The top FTSE 100 Index performer was Xstrata followed by Antofagasta with share price gains of 27.38% and 25.96% respectively. However, financials continued to struggle with the largest fall over the month coming from Man Group while Lloyds Banking Group was the third worst performer. 4

6 MANAGER S INVESTMENT REPORT November Continuing October s relief rally, November bucked bad news both at home and abroad to finish the month in positive territory, up 2.26%. News continued to weigh on investors as expectations of a European recession mounted, protests returned to Egypt, tension between the UK and Iran grew and the UK announced further austerity measures. Italy s Prime Minister Silvio Berlusconi resigned. Building materials company CRH, engineers Weir Group and specialist power company Aggreko led the FTSE 100 Index up in November, with each posting double digit gains. Essar Energy continued to feel the effects of India being out of favour, posting the worst return at %. During the month Lloyds Banking Group reported substantial losses over the first nine months of 2011, chiefly related to compensation being paid in relation to payment protection mis-selling claims. The financial group was the second worst performer in November, falling 18.77%. December The holiday period did not lead to buoyant market performance but the month did end in positive territory with returns of 1.21%. Europe was once more the focal point for headlines as the UK s Prime Minister David Cameron vetoed EU-wide treaty changes at December s EU summit. Elsewhere the death of Kim Jong-il prompted discussion over the future path for North Korea. It was a mixed bag of companies that progressed strongest over the month. Oil, tobacco, pharmaceutical and insurance companies were also among the best performers while miners, retailers, property and select financial companies made up the worst. Old Mutual led the way on gains of 19.49% while Fresnillo posted the largest fall of the month, down 10.91%. Following FTSE 100 Index s regular quarterly review, a number of changes were made to the constituents of the top 100 index. Building materials group CRH, steel and mining company, Evraz, and precious metals producers, Polymetal International joined the Index while exiting were Inmarsat, Investec and Lonmin. January The year started somewhat quietly and the FTSE 100 Index remained in positive territory with a gain of 1.96%. Over the course of the month protests intensified in Syria, the US s presidential race began to heat up with Republican presidential primaries and Greece continued to create concern as doubts were cast over the success of the latest bailout plans. Also in January an Italian cruise ship ran aground while UK bank bosses were criticised over bonuses. Despite the pressure being felt by banks, Royal Bank of Scotland, Barclays and Lloyds Banking Group were among the top 10 best performing companies in January. Resource stocks also fared well with Kazakhmys, Rio Tinto, Vedanta Resource and new FTSE 100 Index participant, Evraz, also gaining the most over the month. Meanwhile Tesco and WM Morrison were the worst two performers, falling 20.78% and 12.32% respectively. February February was another marginally positive month for the FTSE 100 Index, returning 1.40% and ending at a level of Greece was once more centre stage of news events in February as Greek politicians approved further austerity cuts and rioting broke out across the country. Elsewhere, making the news was a veto by Russia and China on UN efforts to quell unrest in Syria. In the UK, the Leveson inquiry rolled on and James Murdoch announced he was stepping down as executive chairman of News International. Capita, Admiral Group, Vedanta Resource and ITV helped lead the Index into positive territory for February. The double-digit gains in their share prices helped to offset losses posted by the likes of International Consolidated Airlines and Aztrazeneca. Overall mining and resource companies struggled in February with four such companies featuring among the bottom 10 performers. March The FTSE 100 Index came close to breaking through the 6000 level over March, reaching a mid-month high of However, falls in the share prices of resource companies weighed down any advancement and the Index ended the month down 2.74%. Eight of the 10 worst performers in the FTSE 100 Index over March were resource companies. Falling the most was Randgold Resources. At the top, the best performing company in the Index was Petrofac. The news was not all negative in March: UK inflation was reported as falling, a cease-fire in Syria was agreed and the EU s Fiscal pact agreed to in December was signed, except by the UK. Meanwhile Vladimir Putin won the presidential election in Russia. The latest review of the FTSE 100 Index members led to two new entrants, Aberdeen Asset Management and chemical company, Croda International. Exiting the Index were energy companies Essar and Cairn. 5

7 MANAGER S INVESTMENT REPORT April The FTSE 100 remained somewhat resilient in April, despite the announcement the country had officially re-entered recession. The Index fell marginally in April, 0.53%, ending the month at Spain was also announced as being in recession and during the month the country, along with Italy, was also the centre of fresh Eurozone sovereign debt concerns. A 10.31% rise in the share price of new entrant Aberdeen Asset Management gave it top spot over the month, followed by Xstrata and Severn Trent. Financials were once again under pressure as evidenced by seven of the 10 worst performers in April coming from this market sector. The worst performer over the month was Old Mutual with a share price fall of 18.46%. May May was an eventful and tempestuous month and lent considerable weight to the overall negative 12-month period. The FTSE 100 Index ended the month at a level of 5320, a return of -8.45%. During the month a Greek general election culminated in a win for parties rejecting the bailout agreement with the IMF and EU but failure to form a coalition government led to the announcement of new elections in June. Spain s largest bank sought bailout funds while Francois Hollande defeated Nicolas Sarkozy to become president of France. Concerns over Syria grew when an attack led to the deaths of numerous children, sparking international outrage. In other world news in May, popular social networking site Facebook had its IPO, valuing the company at over $100bn. Share price gains of 4.70% meant United Utilities was the best performer in the FTSE 100 Index in May, followed by retailer Next. Resources and banks were once again at the bottom of the performance rankings with Eurasian Natural Resources and Vedanta Resources featuring the highest losses over the month, while Lloyds Banking Group ranked third. Liontrust Fund Partners LLP July 2012 Note: FTSE 100 Index constituents, past and present, are italicised. Performance on a capital return basis only. The transactions of the Fund during the year have reflected changes in the composition of the FTSE 100 Index during the year and flows of investors money to and from the Fund. The manager's investment report, together with information on the authorised status of the Fund, the objectives of the Fund and the information on page 1, comprise the Manager's Report. 6

8 Performance Record Net Asset Value and Total Expense Ratio The table below shows the number of income units in issue, the total net asset value of the property of the Fund, the net asset value per unit and the total expense ratio: Units in issue Net asset value of Fund ( ) Net asset value per unit (p) *Total expense ratio (%) Retail 31/05/10 33,819,389 51,176, /05/11 32,158,698 55,884, /05/12 29,735,345 46,022, The calculation of the net asset value for the current year uses bid prices in line with the requirements of the Statement of Recommended Practice (SORP) for Authorised Funds issued by the IMA in October * The Total Expense Ratio ('TER') is the total expenses paid by the Fund in the year against its average net asset value. Unit price history and revenue record The table below shows the highest buying price, the lowest selling price of units and the net income distributions made by the Fund for the last five years. Retail Year Highest offer (buying) price (p) Lowest bid (selling) price (p) Net income per unit (p) Net income per 1,000 invested at 02/01/07 ( ) (to 31.05) The Fund distributes income once per annum, on 31st July. The ex-dividend date is 1st June each year. Income can be reinvested to purchase units at no initial charge. 7

9 Authorised Status The Fund is an authorised unit trust scheme ( the Scheme ) under Section 243 of the Financial Services and Markets Act 2000 (authorisation orders) and the Financial Services Authority s Collective Investment Schemes Sourcebook and is categorised as a UCITS scheme. Statement of the Manager's Responsibilities in respect of the Report and Accounts of the Scheme: The Financial Services Authority s Collective Investment Scheme Sourcebook ( the Regulations ) require the Manager to prepare financial statements for each annual accounting period which give a true and fair view of the financial position of the Scheme and of its net income/expenses and the net gains/losses on the property of the Scheme for the period. In preparing the financial statements the Manager is required to: select suitable accounting policies and then apply them consistently; comply with the requirements of the Statement of Recommended Practice for Authorised Funds issued by the Investment Management Association (IMA) in October 2010; follow generally accepted accounting principles and applicable accounting standards; keep proper accounting records which enable it to demonstrate that the financial statements, as prepared, comply with the above requirements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Scheme will continue in operation. The Manager is responsible for the management of the Scheme in accordance with its Trust Deed, Prospectus and the Regulations, and has taken all reasonable steps for the prevention and detection of fraud and other irregularities. Statement of Trustee's Responsibilities The Trustee is under a duty of care to take into its custody or under its control all of the property of the Scheme and to hold it in trust for the holders of units. Under the rules in the Financial Services Authority s Collective Investment Schemes Sourcebook relating to Reports, it is also the duty of the Trustee to enquire into the conduct of the Manager in the management of the Scheme in each annual accounting period and report thereon to unitholders in a report which shall contain the matters prescribed by the rules. The Trustee s report is included below. Trustee's Report to the unitholders of the Liontrust FTSE 100 Tracker Fund ("the Fund") Having carried out such procedures as we considered necessary to discharge our responsibilities as Trustees of the Scheme it is our opinion, based on the information available to us and the explanations provided, that the Manager has in all material respects managed the Scheme during the period in accordance with the investment and borrowing powers and restrictions applicable to the Scheme, and otherwise in accordance with the provisions of the Trust Deed and the rules in the Financial Services Authority s Collective Investment Schemes Sourcebook. State Street Trustees Limited 20 Churchill Place London E14 5HJ 31 July

10 Certification of Accounts by Directors of the Manager We certify that this Manager s Report has been prepared in accordance with the Financial Services Authority s Collective Investment Schemes Sourcebook. John Ions Chief Executive Antony Morrison Partner, Head of Finance Liontrust Fund Partners LLP 31 July

11 Independent Auditors' Report to the unitholders of the Liontrust FTSE 100 Tracker Fund ("the Fund") We have audited the financial statements of the Liontrust FTSE 100 Tracker Fund for the year ended 31 May 2012 which comprise the Statement Of Total Return, the Statement Of Change In Net Assets Attributable To Unitholders, the Balance Sheet, the related notes and the Distribution Table. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and the Statement of Recommended Practice 'Financial Statements of Authorised Funds' issued by the Investment Management Association (the "Statement of Recommended Practice for Authorised Funds"). Respective responsibilities of the Manager and Auditors As explained more fully in the Authorised Fund Manager's Responsibilities Statement the Authorised Fund Manager is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Trust's unitholders as a body in accordance with paragraph of the Collective Investment Schemes sourcebook and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit and the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Trust's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Authorised Fund Manager; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Liontrust FTSE 100 Tracker Fund Long Final Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the financial position of the Trust at 31 May 2012 and of the net revenue and the net losses of the property of the Trust for the year then ended; and have been properly prepared in accordance with the Statement of Recommended Practice for Authorised Funds, the Collective Investment Schemes Sourcebook and the Trust Deed. Opinion on other matters prescribed by the Collective Investment Schemes sourcebook In our opinion: we have obtained all the information and explanations we consider necessary for the purposes of the audit; and the information given in the Authorised Fund Manager s Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 10

12 Independent Auditors' Report Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Collective Investment Schemes sourcebook requires us to report to you if, in our opinion: proper accounting records for the Trust have not been kept; or the financial statements are not in agreement with the accounting records and returns. PricewaterhouseCoopers LLP Chartered Accountants & Statutory Auditors Edinburgh 31 July 2012 (a) (b) The maintenance and integrity of the Liontrust website is the responsibility of the Manager; the work carried out by the Auditors does not involve consideration of these matters and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 11

13 Portfolio Statement as at 31 May 2012 (Ordinary shares except where otherwise stated) Holding Market Value '000 Percentage of total net assets % EQUITIES (99.81%*) 45, BASIC MATERIALS (14.34%*) 5, Anglo American 43, Antofagasta 13, BHP Billiton 69,821 1, Croda International 4, Eurasian Natural Resources 13, EVRAZ 13, Fresnillo 7, Glencore 47, Johnson Matthey 7, Kazakhmys 7, Polymetal International 9, Randgold Resources 3, Rio Tinto 46,909 1, Vedanta Resources 4, Xstrata 73, CONSUMER GOODS (12.79%*) 7, Associated British Foods 13, British American Tobacco 65,222 1, Burberry 14, Diageo 83,253 1, GKN 54, Imperial Tobacco 32, Reckitt Benckiser 24, SABMiller 39, Tate & Lyle 15, Unilever 42, CONSUMER SERVICES (8.53%*) 3, British Sky Broadcasting 43, Carnival 7, Compass 62, Intercontinental Hotels 9, International Consolidated Airlines 64, ITV 125, Kingfisher 77, Marks & Spencer 53, Next 5, Pearson 26, Reed Elsevier 41, Sainsbury (J) 62, Tesco 264, Whitbread 5, Wm Morrison Supermarkets 83, WPP 42,

14 Portfolio Statement as at 31 May 2012 (Ordinary shares except where otherwise stated) Holding Market Value '000 Percentage of total net assets % FINANCIALS (20.05%*) 7, Aberdeen Asset Management 38, Admiral 6, Ashmore ** 12, Aviva 95, Barclays 401, British Land ** 30, Capital Shopping Centres ** 20, Hammerson ** 23, Hargreaves Lansdown 8, HSBC 600,900 3, ICAP 21, Land Securities ** 24, Legal & General 187, Lloyds Banking Group 1,339, Man 60, Old Mutual 163, Prudential 81, Resolution 48, Royal Bank of Scotland 594, RSA Insurance 117, Schroders 6, Schroders Non Voting 2, Standard Chartered 78,239 1, Standard Life 78, HEALTH CARE (8.26%*) 4, AstraZeneca 42,037 1, GlaxoSmithKline 168,356 2, Shire 18, Smith & Nephew 29, INDUSTRIALS (4.67%*) 2, Aggreko 8, BAE Systems 107, Bunzl 9, Capita 20, CRH 21, Experian 33, G4S 48, IMI 10, Intertek 5, Meggitt 25, Rexam 29, Rolls Royce 6,597, Rolls-Royce 'C' Shares 62, Serco 17, Smiths 13, Weir 7, Wolseley 9,

15 Portfolio Statement as at 31 May 2012 (Ordinary shares except where otherwise stated) Holding Market Value '000 Percentage of total net assets % OIL & GAS (19.26%*) 8, AMEC 11, BG 111,462 1, BP 624,461 2, Petrofac 8, Royal Dutch Shell 'A' Shares 120,653 2, Royal Dutch Shell 'B' Shares 88,950 1, Tullow Oil 30, TECHNOLOGY (1.00%*) ARM 40, Sage 44, TELECOMMUNICATIONS (6.80%*) 3, BT 257, Vodafone 1,652,055 2, UTILITIES (4.11%*) 2, Centrica 171, International Power 50, National Grid 116, Severn Trent 7, SSE 30, United Utilities 22, DERIVATIVES (0.00%*) (3) (0.01) FTSE 100 Index Futures June (3) (0.01) IRELAND (1.77%*) - - CASH DEPOSITS (1.77%*) - - Portfolio of investments 45, Net other assets Total net assets 46, All securities are approved securities traded on eligible securities markets, as defined by the Collective Investment Scheme sourcebook, unless otherwise stated. * Comparative figures shown in brackets relate to 31 May ** Real Estate Investment Trust (REIT). 14

16 Statement of Total Return for the year ended 31 May 2012 Notes '000 '000 '000 '000 Income Net capital (losses)/gains 4 (5,938) 7,536 Revenue 5 1,989 1,788 Expenses 6 (238) (244) Finance costs: Interest Net revenue before taxation 1,751 1,544 Taxation 7 (3) (13) Net revenue after taxation 1,748 1,531 Total return before distribution (4,190) 9,067 Finance costs: Distribution 8 (1,747) (1,530) Change in net assets attributable to unitholders from investment activities 01/06/11 to 31/05/12 01/06/10 to 31/05/11 (5,937) 7,537 Statement of Change in Net Assets Attributable to Unitholders for the year ended 31 May /06/11 to 31/05/12 01/06/10 to 31/05/11 '000 '000 '000 '000 Opening net assets attributable to unitholders 55,884 51,177 Amounts receivable on issue of units 1,809 1,661 Amounts payable on cancellation of units (5,725) (4,483) (3,916) (2,822) Stamp duty reserve tax (9) (9) Change in net assets attributable to unitholders from investment activities (5,937) 7,537 Unclaimed distributions - 1 Closing net assets attributable to unitholders 46,022 55,884 15

17 Balance Sheet as at 31 May 2012 Notes 31/05/ /05/2011 '000 '000 '000 '000 Assets Investment assets 45,847 56,767 Debtors Cash and bank balances 10 1, Total other assets 1, Total assets 47,758 57,631 Liabilities Derivative liabilities 3 - Creditors Distribution payable on income units 1,671 1,483 Total other liabilities 1,733 1,747 Total liabilities 1,736 1,747 Net assets attributable to unitholders 46,022 55,884 16

18 Notes to the Financial Statements 1. Accounting and distribution policies (a) Basis of preparation The financial statements have been prepared under the historical cost convention, as modified by the revaluation of investments, and in accordance with the Statement of Recommended Practice (SORP) for Financial Statements of Authorised Funds issued by the IMA in October (b) Recognition of revenue (i) UK dividends classified as franked investment income are shown net of attributable tax credits when the securities are quoted ex-dividend. (ii) (iii) (iv) (v) (vi) (c) Expenses Dealing charges and stamp duty reserve tax are deducted from capital. All other expenses are charged against income. All expenses are accounted for on an accruals basis. (d) Distribution Income produced by the Fund's investments accumulates during each accounting period. If at the end of the accounting period income exceeds expenses, the net income of the Fund is available to be distributed to unitholders. The Manager will seek to distribute this income in a manner that will maximise the total returns to holders of the majority of units. (e) Basis of valuation of investments (f) Special dividends are treated as income or capital according to the nature of the event giving rise to the payment. Bank interest is recognised on an accruals basis. Overseas revenue that is received after the deduction of witholding tax is shown gross of taxation. Dividends received from UK REITs are split into PID (Property Income Distributions) and Non-PID components for tax purposes. Revenue arising from UK REITs tax-exempt rental business is colloquially known as PID revenue and is taxable in the hands of the Fund. A UK REIT may also carry out other activities that give rise to taxable profits and gains, it is from these that the REIT will make a Non-PID distribution, these are treated for tax purposes in the same way as dividends from normal UK companies. Stock lending revenue is recognised on an accruals basis. All investments have been valued at 12 midday, on 31 May Listed investments have been valued at bid-market value, net of any accrued income. Taxation Provision is made for taxation at current rates on the excess of investment income over expenses, with relief taken for overseas taxation where appropriate. (g) Deferred taxation Deferred tax is provided for in respect of all timing differences that have originated but not reversed by the Balance Sheet date. Deferred tax is not recognised on permanent differences. Deferred tax assets are recognised only to the extent that it is more likely than not that there will be taxable profits from which the future reversal of the underlying timing differences can be deducted. (h) Foreign exchange All transactions in foreign currencies are translated into sterling at the rate of exchange ruling on the date of such transactions. Foreign currency assets and liabilities at the end of the accounting period are translated at the exchange rates applicable at the end of the accounting period at the appropriate valuation point. (i) Equalisation Equalisation is the accrued income included in the price of units purchased during the distribution period (Group 2 Units) which is refunded as a part of a unitholder's first distribution, so as to provide the same distribution for all units of the same type. As a repayment of capital it is not liable to Income Tax and should be deducted from the cost of units for Capital Gains Tax purposes. 17

19 Notes to the Financial Statements 2. Risk Management Policies In accordance with the investment objectives and policies the Fund holds certain financial instruments. These comprise: equity shares; cash and short-term debtors and creditors that arise directly from its operations; units in SSgA Management Fund; and unitholders funds which represent investors monies which are invested on their behalf. In accordance with the requirements of the rules in the Financial Services Authority's Collective Investment Schemes Sourcebook, the Fund is not permitted to trade in other financial instruments. The Fund's use of financial instruments during the year satisfies these regulatory requirements. The main risks arising from the Fund's financial instruments are market price risk, interest rate risk, foreign currency risk, liquidity risk and credit and counterparty risk. The Manager's policies for managing these risks are summarised below. These policies have remained unchanged since the beginning of the year to which these financial statements relate and during the prior year. Market price risk Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Fund might suffer through holding market positions in the face of price movements. The Manager reviews the portfolio in order to consider the asset allocation implications and to minimise the risk associated with particular countries or industry sectors whilst continuing to follow the Fund s investment objective. An individual fund manager has responsibility for monitoring the existing portfolio, in accordance with the overall asset allocation parameters described above and seeks to ensure that individual stocks also meet an acceptable risk reward profile. Interest rate risk Interest receivable on bank deposits and short term deposits or payable on bank overdraft positions will be affected by fluctuations in interest rates. The interest rates earned on sterling deposits are earned at a rate linked to LIBOR. The majority of the Fund's financial assets are equity shares and other investments which neither pay interest nor have a maturity date. The floating rate financial assets and liabilities comprise sterling denominated bank balances and overdrafts that bear interest based on LIBOR. The floating rate financial assets and liabilities comprise bank balances and overdrafts that bear interest based on LIBOR (sterling denominated). Interest receivable on bank deposits or payable on bank overdraft positions will be affected by fluctuations in interest rates. Foreign currency risk The Manager has identified three principle areas where foreign currency risk could impact the Fund Movements in exchange rates affect the value of investments; Movements in exchange rates affect short term timing differences; and, Movements in exchange rates affect the income received. The Fund may be subject to short-term exposure to exchange rate movements, for instance where there is a difference between the date an investment purchase or sale is entered into and the date when settlement of the proceeds occurs. The Fund may receive income in currencies other than sterling and the sterling values of this income can be affected by movements in exchange rates. The Fund converts all receipts of income into sterling on or near the date of receipt; it does not, however, hedge or otherwise seek to avoid exchange rate risk on income accrued but not received. However, in line with the Fund's objectives of investing primarily in the UK and Ireland, the Fund is expected to have only minimal foreign currency exposures. Liquidity risk The Fund's assets mainly comprise securities that can be readily sold. The main liability of the Fund is the redemption of any units that investors wish to sell. In general, the Investment Adviser manages the Fund's cash to ensure it can meet its liabilities. Where investments cannot be realised in time to meet any potential liability, the fund may borrow up to 10% of its value to ensure settlement. Credit and counter-party risk Certain transactions in securities that the Fund enters into expose it to the risk that the counterparty will not deliver the investment (purchase) or cash (sale) after the Fund has fulfilled its responsibilities. The Fund only buys and sells investments through brokers which have been approved by the Manager as an acceptable counter-party. This list is reviewed annually. 18

20 Notes to the Financial Statements 3. Unit classes The Fund has one unit class in issue. The net asset value of the unit class, the net asset value per unit and the number of units in issue are given in the Performance Record on page Net capital (losses)/gains 01/06/11 to 31/05/12 '000 01/06/10 to 31/05/11 '000 Non-derivative securities (5,948) 7,445 Derivative securities Currency gains - 5 Transaction charges (10) (3) Net capital (losses)/gains (5,938) 7, Revenue 01/06/11 to 31/05/12 01/06/10 to 31/05/11 '000 '000 Overseas dividends 3 1 Overseas non-taxable revenue Overseas scrip dividends UK dividends 1,633 1,333 UK scrip dividends Property revenue from UK REITs - PID Property revenue from UK REITs - Non PID 4 - Offshore investment revenue* 3 5 Bank interest 2 - Stocklending income 3 - *This is revenue received from investment in the SSgA Cash Management Fund as disclosed in note 15. 1,989 1, Expenses 01/06/11 to 31/05/12 '000 01/06/10 to 31/05/11 '000 Payable to the Manager, associates of the Manager and agents of either of them: Manager's periodic charge Registration fees Payable to the Trustee, associates of the Trustee and agents of either of them: Trustee's fees Wire charges 2 1 Safe custody fees Other expenses Printing fee 6 6 Other professional fees 2 - Audit fee Total expenses

21 Notes to the Financial Statements 7. Taxation 01/06/11 to 31/05/12 01/06/10 to 31/05/11 '000 '000 (i) Analysis of charge for the year: Irrecoverable overseas tax 3 13 (ii) Factors affecting current tax charge for the year: The tax assessed for the year is lower than the standard rate of corporation tax in the UK for authorised unit trusts of 20% (2011: 20%). The differences are explained below: Net revenue before taxation 1,751 1,544 Corporation tax at 20% Effects of: UK dividends* (327) (323) Overseas non taxable revenue* (18) (33) Other non taxable revenue (46) (2) Movement in excess management expenses Irrecoverable overseas tax 3 13 (347) (296) Current tax charge for the year (see note 7(i)) 3 13 * As an authorised Unit Trust, these items are not subject to corporation tax. Authorised Unit Trusts are exempt from tax on capital gains. Therefore, any capital return is not included in the above reconciliation. (iii) Deferred tax At the year end, there is a potential deferred tax asset of 337,563 (31/05/11: 295,383) in relation to excess management expenses. It is unlikely that the Fund will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset has been recognised in the year or the prior year. 8. Finance costs Distributions and interest The following takes account of income received on the creation of units and income deducted on the cancellation of units, and comprises: 01/06/11 to 31/05/12 01/06/10 to 31/05/11 '000 '000 Final 1,671 1,483 Amounts deducted on cancellation of units 99 (16) Amounts received on issue of units (23) 63 Net distribution for the year 1,747 1,530 Finance costs: Interest - - Total finance costs 1,747 1,530 Reconciliation of net revenue after taxation to following: Net revenue after taxation 1,748 1,531 Add: Income brought forward from previous year 1 - Less: Income carried forward (2) (1) Net distribution for the year 1,747 1,530 20

22 Notes to the Financial Statements 9. Debtors 31/05/12 31/05/11 '000 '000 Accrued revenue Sales awaiting settlement Amounts receivable on creation of units 11 7 Overseas tax recoverable Cash and Bank Balances 31/05/12 31/05/11 '000 '000 Cash at bank 1, Amounts held at clearing houses brokers 12-1, Creditors 31/05/12 31/05/11 '000 '000 Accrued expenses Accrued stamp duty reserve tax - 1 Accrued transaction charges - 1 Purchases awaiting settlement 7 6 Amounts payable on cancellation of units Post balance sheet events There are no post balance sheet events which have a bearing on the interpretation of the financial statements. 15. Related parties Capital commitments and contingent liabilities On 31 May 2012, the Fund had no capital commitments (31/05/11: nil) and no contingent liabilities (31/05/11: nil). 13. Securities on loan The aggregate value of securities on loan at 31 May 2012 is 2,080,082 (31/05/11: nil). Securities on loan are included in the Portfolio Statement and no account is taken of any collateral held. The aggregate value of collateral held at 31 May 2012 is 2,184,843. This collateral is in the form of equities, bonds and cash. The gross earnings and fees paid for the year are 5,301 (31/05/11: nil) and 2,120 (31/05/11 : nil). The stock lending is done by SSgA which is a related party. The Fund Manager and Trustee are related to the Fund as defined by Financial Reporting Standard 8, Related Party Disclosures, and are named on page 1. SSgA (State Street Global Advisors) are the investment management arm of State Street Corporation. The SSgA Cash Management Fund, an investment company with variable capital incorporated with limited liability in Ireland, listed on the Dublin stock exchange, invests in at least A-rated rated sterling denominated securities. The investment strategy of the fund is primarily capital preservation and liquidity while maximising current income. The income outstanding at 31 May 2012 on the SSgA Cash Fund Deposit was nil (31/05/11: 450). The charges made by the Manager, Trustee and the Registrar during the period are disclosed in note 6. At 31 May ,519, 1,496 and 3,324 were due to the Manager, Trustee and Registrar respectively (31/05/11: 14,353, 4,843 & 3,735). These amounts are included under 'Accrued expenses' in note 11. At 31 May 2012 there were creation monies due from the Manager of 11,774 (31/05/11: 7,563). There were cancellation monies due to the Manager of 19,669 at 31 May 2012 (31/05/11: 218,161). By virtue of the Regulations governing authorised unit trusts, the Manager is party to every transaction in respect of units of the Fund, which are summarised in the Statement of Change in Net Assets Attributable to Unitholders. 21

23 Notes to the Financial Statements 16. Risk disclosures The policies applied in the management of financial instruments are set out in note 2. Interest rate risk The Fund receives revenue from holdings in equities. The cashflow from these investments may fluctuate depending upon the particular decisions made by each company. Given that the Fund's objective is to seek capital growth, these cashflows are considered to be of secondary importance and are not actively managed. The Fund's net cash holding of 1,509,637 (31/05/11: holding 350,763) is held in a floating rate deposit account whose rate is determined by reference to rates supplied by the Depositary. The Fund holds net cash at futures brokers of 11,999 (31/05/11: cash nil), whose rates are determined by reference to rates supplied by the broker. The Fund did not have any long term financial liabilities. Foreign currency risk The Portfolio Statement on pages 12 to 14 shows the countries in which the Fund is invested. The securities in the portfolio are priced in local currency. An analysis of monetary assets and liabilities in foreign currencies at the period end (including cash and outstanding income) is shown below. Net foreign currency assets Net foreign currency assets 31/05/12 31/05/11 Monetary Non-monetary Monetary Non-monetary exposures exposures Total exposures exposures Total Currency '000 '000 '000 '000 '000 '000 Euro Swiss franc US dollar The comparative figures in this note have been restated to correct the classification of certain monetary assets and liabilities in the prior year. Maturity profile of financial liabilities All financial liabilities of the Fund at the year end are due to settle in one year or less, or on demand. Fair value of financial assets and liabilities Securities held by the Fund are valued at bid-price. The difference between this value and the fair value of the securities is immaterial. There is also no material difference between the value of other financial assets and liabilities of the Fund included in the balance sheet and their fair value. Securities are valued at bid and offer prices for calculating the cancellation and creation prices at the Fund's daily valuation point. 22

24 Notes to the Financial Statements 17. Purchases, sales and transaction costs 01/06/11 to 31/05/12 01/06/10 to 31/05/11 '000 '000 '000 '000 Non-derivative securities 2,763 1,851 Futures contracts* 2,760 4,623 Purchases excluding transaction costs 5,523 6,474 Commissions 1 - Taxes 12 4 Total purchase transaction costs 13 4 Purchases including transaction costs 5,536 6,478 01/06/11 to 31/05/12 01/06/10 to 31/05/11 '000 '000 '000 '000 Non-derivative securities 6,550 3,935 Futures contracts* 2,673 5,286 Sales excluding transaction costs 9,223 9,221 Commissions (2) (1) Total sales transaction costs (2) (1) Sales net of transaction costs 9,221 9,220 * Purchases and/or sales of derivatives contracts do not incur transaction costs. 23

25 Distribution Table for the year ended 31 May 2012: Group 1: Group 2: Units purchased prior to 1 June 2011 Units purchased between 1 June 2011 and 31 May 2012 Net revenue Equalisation Distribution paid/payable 31/05/12 31/05/12 31/05/12 31/05/11 Income units - Retail Pence Pence Pence Pence per unit per unit per unit per unit Group Group Information for Corporate Unitholders For corporate unitholders, of the distribution payable on 31 July 2012: % of the total income distribution together with the tax credit is received as franked investment income. 0.00% of the income distribution is received as an annual payment (non-foreign element) received after the deduction of income tax at the lower rate and is liable to corporation tax. It is unfranked investment income. 0.00% of the dividend is received as an annual payment (foreign element) received after the deduction of income tax at the lower rate and is liable to corporation tax. It is treated as foreign income in the hands of the corporate investor and is liable to corporation tax. The associated deemed tax is treated as foreign tax in the hands of the investor, who may be able to claim double tax relief. Investors cannot reclaim any of this deemed tax on the foreign element from HM Revenue and Customs. The Fund s net liability to corporation tax is nil. 24