(Société d'investissement à Capital Variable) Annual Report and Audited Financial Statements For the year ended December 31, 2010 R.C.S. Luxembourg: B-75 761 No subscription can be received on the basis of financial reports. Subscriptions are only valid if made on the basis of the current prospectus accompanied by the latest annual report and the most recent semi-annual report, if published thereafter.
Table of contents Page Management, Administration and Independent Auditor 3 General Information 4 Market Synopsis 6 Review of the Sub-Funds 8 Independent Auditor s Report 14 Statement of Net Assets 15 Statement of Operations and Changes in Net Assets 17 Changes in the Number of Shares 19 Statistics 19 Insinger de Beaufort Multi-Manager Equity Schedule of Investments 20 Insinger de Beaufort Multi-Manager Balanced Schedule of Investments 22 Insinger de Beaufort Multi-Manager Defensive Schedule of Investments 24 Insinger de Beaufort Multi-Manager Defensive Balanced Schedule of Investments 25 Notes to the Financial Statements 27 2
Management, Administration and Independent Auditor INSINGER DE BEAUFORT MANAGER SELECTION SICAV CHAIRMAN Mr Peter George SIERADZKI Director Bank Insinger de Beaufort N.V. Amsterdam DIRECTORS Mr Jacobus Johannes HUMAN Director Insinger de Beaufort Asset Management N.V. Amsterdam Mr Steve GEORGALA Partner Maitland & Co. Paris Mr Marcel ERNZER Independent Director 54, rue de Cessange L-1320 Luxembourg REGISTERED OFFICE 69 route d'esch, L-1470 Luxembourg R.C.S. Luxembourg B-75.761 INVESTMENT MANAGER Insinger de Beaufort Asset Management N.V. Herengracht 537 NL-1017 BV Amsterdam SUB-INVESTMENT MANAGER Bank Insinger de Beaufort N.V. Herengracht 537 NL-1017 BV Amsterdam (Since January 7, 2011) DISTRIBUTOR Bank Insinger de Beaufort N.V. Herengracht 537 NL-1017 BV Amsterdam DEPOSITARY AND CENTRAL ADMINISTRATION RBC Dexia Investor Services Bank S.A. 14, Porte de France L-4360 Esch-sur-Alzette REGISTRAR AND TRANSFER AGENT RBC Dexia Investor Services Bank S.A. 14, Porte de France L-4360 Esch-sur-Alzette INDEPENDENT AUDITOR Ernst & Young S.A. 7, rue Gabriel Lippmann Parc d'activité Syrdall 2 L-5365 Munsbach 3
General Information The annual general meeting of shareholders of INSINGER DE BEAUFORT MANAGER SELECTION SICAV (the SICAV or the "Company") is held at the registered office of the Company or at such other place in Luxembourg on the last Wednesday of the month of April of each year at 11.30 a.m. If this is not a bank business day in Luxembourg, it will be held on the next bank business day. Notifications of all general meetings will be published in the Mémorial, Recueil des Sociétés et Associations of Luxembourg (the Mémorial ) and in at least one Luxembourg newspaper as far as this is required by Luxembourg law. The notification shall be sent to the holders of registered shares by mail, in accordance with Luxembourg Law, at least eight days prior to the meeting at their addresses in the register of shareholders. The Board of Directors may decide at its sole discretion to publish the notification in any other newspaper. Such notices will include the agenda and specify the time and place of the meeting, the conditions of admission and will refer to the requirements of Luxembourg law with regard to the necessary quorum and majorities required for the meeting. The requirements as to attendance, quorum and majorities at all general meetings will be those laid down in Articles 67 and 67-1 of the law of 10th August, 1915 (as amended) of the Grand Duchy of Luxembourg and in the Company's Articles of Incorporation. Each entire share is entitled to one vote. Fractions of shares however participate in the distribution of dividends (if any) or in the distribution of the liquidation proceeds. The Annual Reports and the Audited Financial Statements will be published within 4 months after the end of the financial year and the unaudited semi-annual reports shall be published within 2 months after the end of the relevant period. The reports include separate information on each of the Sub-Funds as well as combined information on all of the Sub-Funds. The reports are available at the registered office of the Company during normal business hours. The financial year-end of the Company is December 31 of each year. A detailed schedule of portfolio movements for each Sub-Fund is available free of charge upon request at the registered office of the SICAV. The Net Asset Values and the issue, conversion and redemption prices of the shares in any Sub-Fund shall be made public and available at the registered office of the Company. Shares of all the Sub-Funds, as and when issued, shall be listed on the Luxembourg Stock Exchange. Under current legislation and practice, shareholders are not subject to any capital gains, income, withholding, inheritance or other taxes in Luxembourg (except for shareholders domiciled, resident or having a permanent establishment in Luxembourg and for certain former residents of Luxembourg owning more than 10% of the share capital of the Company). Potential investors should consult their professional advisers on the possible tax or other consequences of buying, holding, converting, transferring or selling any of the shares under the laws of their countries of citizenship, residence or domicile. The Company is out of the scope of the EU Savings Directive. The annual and semi-annual accounts can be obtained, free of charge, at the offices of the Investment Manager or can be downloaded, free of charge, from the website of the Investment Manager under the following link: http://www.insinger.com/nl/beleggen.aspx 4
General Information (continued) Expense Ratio The expense ratio of each Sub-Fund is calculated by dividing the total expenses by the average Net Asset Value of each Sub- Fund. The average Net Asset Value as at December 31, 2010 is calculated by averaging the Net Asset Value of each Valuation of each Sub-Fund during 2010. The calculation of the expense ratio of the underlying funds is based on available information of the funds. Insinger de Beaufort Multi-Manager Equity The average Net Asset Value for the year ended December 31, 2010 is USD 69,287,058. The expense ratios as at December 31, 2010 are as follows (percentages are expressed per annum): - excluding expense ratio of the underlying funds: 1.38% - including expense ratio of the underlying funds: 2.87% All above expense ratios exclude the performance fees in the underlying funds as these are not yet known and difficult to estimate. Insinger de Beaufort Multi-Manager Balanced The average Net Asset Value for the year ended December 31, 2010 is USD 67,087,191. The expense ratios as at December 31, 2010 are as follows (percentages are expressed per annum): - excluding expense ratio of the underlying funds: 1.25% - including expense ratio of the underlying funds: 2.70% All above expense ratios exclude the performance fees in the underlying funds as these are not yet known and difficult to estimate. Insinger de Beaufort Multi-Manager Defensive The average Net Asset Value for the period from July to December 31, 2010 is EUR 8,920,508. The expense ratios as at December 31, 2010 are as follows (percentages are expressed per annum): - excluding expense ratio of the underlying funds: 1.25% (annualised) - including expense ratio of the underlying funds: 2.33% (annualised) All above expense ratios exclude the performance fees in the underlying funds as these are not yet known and difficult to estimate. Insinger de Beaufort Multi-Manager Defensive Balanced The average Net Asset Value for the period from July to December 31, 2010 is EUR 48,444,918. The expense ratios as at December 31, 2010 are as follows (percentages are expressed per annum): - excluding expense ratio of the underlying funds: 1.22% (annualised) - including expense ratio of the underlying funds: 2.45% (annualised) All above expense ratios exclude the performance fees in the underlying funds as these are not yet known and difficult to estimate. 5
Market Synopsis Macro Review Last year was dominated by various crises in the Eurozone. In early May, the euro countries attempted to ward off the crisis by creating the European Financial Stability Facility, or EFSF, a EUR750 billion fund for hard-up euro countries only able to finance their national debt at extremely high interest rates. Greece ultimately borrowed EUR110 billion, followed in the autumn by Ireland with a bail-out of EUR67.5 billion. At the time of writing this review it was generally feared that Portugal will be the next candidate, but the real fear concerns the position of Spain: the EFSF is probably not large enough to bail it out. At the end of October, Chancellor Merkel warned that the EFSF was a temporary emergency fund which could not guarantee the national debt of euro countries indefinitely. From 2013, government bonds would again have to be issued which oblige investors to pay up in the event of the issuing country defaulting and having to restructure its debt. President Trichet of the ECB tried to persuade Merkel otherwise, unsuccessfully, but it has to be said that her position is understandable. Merkel s stance gets straight to the heart of the matter with the Eurozone: it may be a monetary union, but there is no single financial-economic policy. The latter still lies with the individual member states and if they pursue a highly irresponsible policy (or even commit fraud, as in the case of Greece), then the stronger member states, such as Germany and the Netherlands, cannot be expected to foot the bill. The exit of the strong or even the weak countries from the union is a potential structural solution, because this involves not just the high budget deficits and national debt of the various countries, but also their balance of payments. Countries such as the Netherlands and Germany have high surpluses on the current account of their balance of payments. Countries such as Greece and Portugal have structural deficits and can no longer get the situation under control by devaluing their currencies. This lack of balance requires the continuous transfer of capital from the stronger countries to the weaker countries, using whatever method (e.g. the EFSF). In order to be able to compete with countries such as Germany, wages in the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) will have to be cut, which will cause huge social problems and potentially push these countries into a downward deflationary spiral. One alternative is of course to raise wages in the strong countries. Those sceptics who never believed in the viability of the euro (chiefly found in London, where they retained the British pound) may ultimately be proved right, but in the short term the most obvious policy is one of perseverance. European leaders have already demonstrated this by creating the EFSF and the increasingly strict conditions linked to its use. It seems likely that they will continue along this route. Further economic recovery is required to combat the euro crisis. There is high economic growth in Europe, but mainly in Germany, where the economy is now growing at about 4% a year. Germany is making the most of the weak euro: after a very strong rally following the 2008/2009 crisis, export growth is managing to stay at over 20% on an annual basis! The weak euro may lead to an overheated German economy in 2011/2012, but that is a worry that the authorities are happy to live with. Further turbulence can be expected in the Eurozone in 2011, but it is impossible to predict its scale. Things may turn out better than expected, however, and the market s attention could shift to the situation in the US or Japan, where national debt expressed as a percentage of the GDP is still higher than in the Eurozone. In Japan s case, much higher: over 200%! Whatever the case, there is one encouraging sign: the markets responded better to the problems in October/November than they did during the Greek crisis in May. The panic about events in the Eurozone therefore appears to be abating. It is possible that the euro crisis has already passed its low, but for the sake of caution we are adhering to our policy of not investing in European banks or in bonds and equities of PIIGS countries. In 2010, it was possible to earn a higher return in the US. Not only did the equity markets there perform better, euro investors also made a moderate profit on the US dollar. In November and December, the US economy showed so many signs of recovery that most of the markets around the world closed the year on a high. In spite of the signs of recovery, in December the US president decided to extend his predecessor s tax breaks and as a result the budget deficit for 2011 is likely to remain high. The Fed is also clearly still concerned as it decided to introduce a second round of quantitative easing (QE II) in early November: over the next few months, the Fed is going to buy up government bonds worth about USD100 billion each month in order to keep down the long-term yield. In the short term, the Fed s intervention appears to be working as risk appetite is clearly rising, with low credit spreads on corporate credits and higher equity prices. In the third quarter, the most notable development in the bond market was the fall in the yield on German government bonds to just above 2%. We cast doubt in our previous publication on whether such a bond still held any investment value in view of the very low interest being paid. Since then, the rate has climbed back to about 3%. Even at its current level of about 3%, however, we still cannot call it particularly attractive. After all, in the long term there are significant risks to what is seen as the ultimate safe bond: the situation in the Eurozone could get so out of hand that investors even start to doubt the creditworthiness of Germany. Corporate credits remain more attractive than government bonds, although yields have fallen sharply compared to their high during the credit crisis in the autumn of 2008. With a view to part of our bond portfolio yielding a greater return, we also invested via a fund in short-term emerging market debt, which pays a higher rate of interest while the debtor quality compares favourably to Western debtors. In 2010, MSCI World index earned a profit of 17.2% in euros, while the Eurostoxx 50 index in fact noted a loss of 5.8%. Equity markets in the PIIGS countries plummeted but the German market, for instance, did not and even succeeded in growing by 16% in 2010. The Dutch AEX index was about average for Europe with a profit of 5.7%. Although over the past few years we have increasingly invested outside Europe, in the expectation that the bear market in the US dollar was over, our managed portfolios traditionally place a certain emphasis on investment in high-quality European companies. This meant that the investment return on equities in 2010 lagged behind that of the global index. We were in fact too quick to structure the portfolios more defensively. 6
Market Synopsis (continued) The renewed cyclical rally of the last few months of 2010 fits in with the standard market recovery in the wake of a severe crisis. In order to respond to this, over the past few months we have again expanded our holdings in more cyclical investments in our managed portfolios. More importantly, we have increased the equity weighting in our mixed portfolios in order to profit to a greater extent from the rally which is expected to persist in the first half of 2011. We anticipate that the Northern European markets will continue to outperform the PIIGS countries in 2011. At the same time, we believe it is too soon to invest in European banks in view of the problems in the Eurozone and the rising capital requirements which the sector will have to meet over the next few years. As we expect emerging markets to perform relatively well, we have recently also expanded our investment in emerging markets. These markets are still not overvalued, and the majority of countries are not burdened by extremely high debt as is the case in most Western countries. The lack of movement during the larger part of the year meant that most hedge funds performed only moderately well. Multimanager funds, which aim to spread risk widely, were again unable to compensate for their losses of 2008 in 2010. Gold was again one of our most successful investments in 2010. The gold price seems to be chiefly driven by a total lack of confidence in the policies of central banks, such as the Fed, which reduced interest rates to almost zero and are also turning to quantitative easing by buying up government bonds. As we anticipate no change in the short term to those policies of the major central banks so devastating to savers, we will retain our investment in gold for the time being. January 2011 7
Review of the Sub-funds Insinger de Beaufort Multi-Manager Equity The NAV of Insinger de Beaufort Multi-Manager Equity - USD Class increased from USD 98.57 to USD 106.39. This translated in a return of 7.93%. The NAV of Insinger de Beaufort Multi-Manager Equity EUR Class increased from EUR 63.90 and EUR 74.40 which translates in a return of 16.43%. Equity Funds 2010 turned out to be another good year for equities, with some markets ending the year with double digit returns. Emerging markets were the best performing region while Europe, particularly the Eurozone, lagged. IdB MM Equity benefited well from the strong sentiment in global equity markets and particularly from its allocation to emerging markets. The large allocation to European equities detracted from performance although most of the underlying European equity fund managers were able to beat their respective benchmarks. The US equity portfolio performed well. Top-performer Alex Roepers, who runs the Cambrian Fund and gained 62% in 2009, managed to produce excellent results again in 2010. His strategy, whereby Roepers and his team concentrate on a very small and focused number of companies, returned 32.62% (USD) compared to the MSCI USA Index gaining 14.77%. The other three, more traditionally run, US equity funds in the portfolio lagged the benchmark. The European equity managers on balanced performed relatively well. Towards the end of Q1 a position was built in IdB Equity Income Fund. This fairly defensive fund is mainly invested in the Euro-area and focuses on achieving a dividend target that is slightly higher of that of the MSCI Euro Index. Although in absolute terms, the Eurozone lagged broader global equity markets, this fund managed to outperform the MSCI Euro Index. Another European manager was added to the portfolio. Alice Gaskell runs the BGF Euro Markets Fund, which is also concentrated on the Eurozone but with a slightly higher beta. BGF Euro Markets has done very well in 2010, gaining 8.60% mainly as a result of strong stock selection. The other European managers, JO Hambro Continental European, Cambrian Europe and Odey Pan European also performed well, with the exception of Cazenove European. In terms of the European small cap exposure we sold Ennismore European Smaller Companies and invested in IdB Alchemy N.V. Japanese equities rose by 12.74% in 2010 (euro). The Schroder Tokyo fund managed to outperform this index by gaining 15.98%. Cambrian Japan (which was still named Cambrian Asia at the beginning of the year but has always focused on Japanese equities) rose by 25%. During the year we slightly increased our exposure to emerging markets by adding Aberdeen Global Emerging Markets Equity Fund, managed by Devan Kaloo. Angus Tulloch, who runs First State Asia Pacific and First State Asia Pacific Leaders, managed to outperform the MSCI Asia-Pacific ex-japan benchmark. Tulloch is quite concerned over a potential new bubble in emerging markets, which is why he is taking a cautious stance in his portfolio towards the end of the year. In November we sold out of Nevsky (Traditional Funds) Global Emerging Markets, as the key managers announced that they had given notice to the management of the fund. Nevsky was replaced by Comgest Growth Emerging Markets, which is run by Vincent Strauss en Wojciech Stanislawski. This fund invests in a concentrated portfolio of companies of which the share price should over the longer term reflect underlying profit growth. Comgest conducts in-depth research before investing in a company. The managers considers themselves to be long-term investors. Within the opportunity segment of the portfolio we hold Sanlam Global Best Ideas Fund. Partially due to its large allocation to emerging markets, the fund performed very well in 2010 and gained over 23% in euro terms. Towards the end of the year the manager has cut back on the exposure to developing markets. Outlook & Strategy The renewed cyclical rally of the last few months of 2010 fits in with the standard market recovery in the wake of a severe crisis. We anticipate that the Northern European markets will continue to outperform the PIIGS countries in 2011. At the same time, we believe it is too soon to invest in European banks in view of the problems in the Eurozone and the rising capital requirements which the sector will have to meet over the next few years. Although we are a bit cautious on emerging markets on the short term (given increased inflation risk on the back of rising food prices) we expect this region to perform well over the mid- to longer term as they are not yet overvalued and the majority of countries are not burdened by extremely high debt as is the case in most Western countries. Although there clearly are some risks we expect the equity markets to offer sufficient opportunities to specialist investors. We believe that the managers within IdB MM Equity could well benefit from these opportunities. We will continue to monitor the markets closely and allocate our assets to a combination of managers that we believe is well suited given market circumstances. 8
Review of the Sub-funds (continued) Insinger de Beaufort Multi-Manager Balanced The NAV of Insinger de Beaufort Multi-Manager Balanced USD Class increased from USD 107.71 to USD 113.06. This translates in a return of 4.97% for the year 2010. The GBP Class rose from GBP 98.84 to GBP105.29, resulting in a return of 6.53% and the EUR Class increased from EUR 82.20 at the beginning of the year to EUR 88.95 as at 31 December 2010. This is return of 8.21% for the year 2010. In 2010 we have made active changes to the portfolio s overall asset allocation. The portfolio started the year with an overweight allocation to equities (48.5% in equities) backed by continued strength in equity markets and the manager further increased the equity exposure in Q1. In the second half of the year equity exposure was brought back to neutral level (45%) as a number of economic data in for instance the US and China caused for some concern coupled with continued uncertainty in Europe. In October the European debt crisis seems reflected in equity prices and the scenario of a double-dip recession has become less likely. Prospects for emerging markets, especially for the longer term continue to improve and the manager decides to increase equity exposure by adding to emerging markets. By the end of the year the portfolio has an equity allocation of 51.5%. Equity Funds 2010 turned out to be another good year for equities, with some markets ending the year with double digit returns. Emerging markets were the best performing region while Europe, particularly the Eurozone, lagged. The equity portion within IdB MM Balanced benefited well from the strong sentiment in global equity markets and particularly from its allocation to emerging markets. The large allocation to European equities detracted from performance although most of the underlying European equity fund managers were able to beat their respective benchmarks. The US equity portfolio performed well. Top-performer Alex Roepers, who runs the Cambrian Fund and gained 62% in 2009, managed to produce excellent results again in 2010. His strategy, whereby Roepers and his team concentrate on a very small and focused number of companies, returned 32.62% (USD) compared to the MSCI USA Index gaining 14.77%. The other three, more traditionally run, US equity funds in the portfolio lagged the benchmark. The European equity managers on balanced performed relatively well. IdB Equity Income is mainly invested in the Euro-area and focuses on achieving a dividend target that is slightly higher of that of the MSCI Euro Index. Although in absolute terms the Eurozone lagged broader global equity markets, this fund managed to outperform the MSCI Euro Index. Another European manager was added to the portfolio. Alice Gaskell runs the BGF Euro Markets Fund, which is also concentrated on the Eurozone but with a slightly higher beta. BGF Euro Markets has done very well in 2010, gaining 8.60% mainly as a result of strong stock selection. The other European managers, JO Hambro Continental European and Odey Pan European also performed well, with the exception of Cazenove European. In terms of the European small cap exposure we sold Ennismore European Smaller Companies. Japanese equities rose by 12.74% in 2010 (euro). The Schroder Tokyo fund managed to outperform this index by gaining 15.98%. During the year we slightly increased our exposure to emerging markets by adding Aberdeen Global Emerging Markets Equity Fund, managed by Devan Kaloo. Angus Tulloch, who runs First State Asia Pacific and First State Asia Pacific Leaders, managed to outperform the MSCI Asia-Pacific ex-japan benchmark. Tulloch is quite concerned over a potential new bubble in emerging markets, which is why he is taking a cautious stance in his portfolio towards the end of the year. In November we sold out of Nevsky (Traditional Funds) Global Emerging Markets, as the key managers announced that they had given notice to the management of the fund. Nevsky was replaced by Comgest Growth Emerging Markets, which is run by Vincent Strauss en Wojciech Stanislawski. This fund invests in a concentrated portfolio of companies of which the share price should over the longer term reflect underlying profit growth. Comgest conducts in-depth research before investing in a company. The managers considers themselves to be long-term investors. Within the opportunity segment of the portfolio we hold Sanlam Global Best Ideas Fund. Partially due to its large allocation to emerging markets, the fund performed very well in 2010 and gained over 23% in euro terms. Towards the end of the year the manager has cut back on the exposure to developing markets. Fixed Income Funds Within the fixed income portfolio we introduced three new funds in 2010. Last year we decided to take a position in high yield bonds and we chose BlueBay s High Yield Bond Fund, managed by Anthony Robertson. The BlueBay High Yield Bond fund however, was sold in September after a six-month holding period because we made an asset allocation decision to take profit on the position and reduce the risk within the bond portfolio slightly. Towards the end of this year however, the investment committee decided that the overall risk in the bond portfolio could be increased slightly by re-allocating to high yield bonds. We decided that again, BlueBay High Yield Bond fund would be the best candidate. For diversification purposes we also introduced another core investment grade corporate bond fund to complement the current positions in BlueBay Investment Grade Bond Fund and Standard Life European Corporate Bond Fund. This third fund is the Parvest Bond Euro Corporate Fund. Towards the end of July we introduced a new bond fund to the portfolio. BGF (BlackRock) Emerging Markets Local Currencies Short Duration Fund was added to the portfolio to provide further diversification whilst increasing the yield on the portfolio. In terms of performance and calculated back into euros the best performing fund within the fixed income portfolio was the Pimco Total Return Bond Fund, returning 14.81% in euro terms (and 7.08% in its base currency USD). The BGF Emerging Markets 9
Review of the Sub-funds (continued) Local Currencies Short Duration Bond Fund returned 12.82% (5.22% in USD) and BlueBay High Yield Bond Fund returned 11.93%. The pure government bond exposure which is gained through the Parvest Euro Government Bond Fund exhibited the lowest performance within the fixed income portfolio, returning 0.74% in 2010. Absolute Return Funds Of the Absolute Return portfolio within IdB MM Balanced a large portion is invested in the two sub-funds of the Absolute Return Strategy SICAV, which invests in specialist absolute return investment managers. In the past year concentration risk within both Absolute Return funds of funds was reduced by reducing large positions and diversifying the portfolio further with several new, high quality managers. ARS Market Neutral Class B (EUR) rose by 5.23% and ARS Directional Managers Class B (EUR) by 1.63% in 2010. Rodinia Fund Limited, the international long/short fund managed by Atlantic Investment s Alex Roepers returned 16% in euro terms. IdB Real Estate Equity returned 2.65%, which was disappointing on the one hand given the upside potential in the real estate markets and the further rising of the Epra Europe Index. On the other hand we are quite comfortable with the result as it was achieved with very limited and well managed risk. IdB Global Convertible Fund gained 10.69% and marginally lagged the Merrill Lynch Global 300 Convertible Index (VG00, euro hedged). Outlook & Strategy The renewed cyclical rally of the last few months of 2010 fits in with the standard market recovery in the wake of a severe crisis. We anticipate that the Northern European markets will continue to outperform the PIIGS countries in 2011. At the same time, we believe it is too soon to invest in European banks in view of the problems in the Eurozone and the rising capital requirements which the sector will have to meet over the next few years. Although we are a bit cautious on emerging markets on the short term (given increased inflation risk on the back of rising food prices) we expect this region to perform well over the mid- to longer term as they are not yet overvalued and the majority of countries are not burdened by extremely high debt as is the case in most Western countries. Although there clearly are some risks we expect financial markets to offer sufficient opportunities to specialist investors. We believe that the managers within IdB MM Balanced could well benefit from these opportunities. We will continue to monitor the markets closely and allocate our assets to a combination of managers that we believe is well suited given market circumstances. 10
Review of the Sub-funds (continued) Insinger de Beaufort Multi-Manager Defensive Insinger de Beaufort Multi-Manager Defensive Fund - EUR Class was launched on 15 June 2010 with the first official NAV on June 30, 2010 of EUR 100. The NAV as at December 31, 2010 is EUR 99.77 resulting in a return of -0.02% for 2010. At the launch date units in underlying funds were transferred to the newly launched IdB MM Defensive Fund. The manager started to bring the portfolio in line with its investment policy. This included selling a substantial portion of the largest position, Multiple Managers SICAV - European Bond, and diversify the proceeds over a number of fixed income funds to correspond with the target fixed income portfolio. Positions were taken in BlueBay Investment Grade Corporate Bond Fund, Parvest Euro Government Bond, Standard Life European Corporate Bond, Parvest Euro Corporate Bond and BGF Emerging Markets Local Currency Short Duration Fund. In terms of asset allocation the small equity position that was inherited at the launch of the fund was sold. Furthermore the fixed income portion was brought in line with the target weight and therefore increased from 80% to 86.5%. The alternatives portion was brought down slightly from 14% to 11.2%. Fixed Income Funds In terms of performance and calculated back into euros the best performing fund within the fixed income portfolio was the BGF Emerging Markets Local Currencies Short Duration Bond Fund returned 12.82% (5.22% in USD) and BlueBay High Yield Bond Fund returned 11.93%. The pure government bond exposure which is gained through the Parvest Euro Government Bond Fund exhibited the lowest performance within the fixed income portfolio, returning 0.74% in 2010. Absolute Return Funds Of the Absolute Return portfolio within IdB MM Defensive Fund a large portion is invested in IdB Multi-Manager Zeus, which invests in specialist absolute return investment managers through the two sub-funds of the Absolute Return Strategy SICAV: ARS Market Neutral and ARS Directional Managers. In the past year concentration risk within these two funds was reduced by reducing large positions and diversifying the portfolio further with several new, high quality managers. IdB MM Zeus returned 3.19% in 2010. IdB Real Estate Equity returned 2.62%, which was disappointing on the one hand given the upside potential in the real estate markets and the further rising of the Epra Europe Index. On the other hand we are quite comfortable with the result as it was achieved with very limited and well managed risk. IdB Global Convertible Fund gained 10.69% and marginally lagged the Merrill Lynch Global 300 Convertible Index (VG00, euro hedged). Outlook & Strategy The renewed cyclical rally of the last few months of 2010 fits in with the standard market recovery in the wake of a severe crisis. We anticipate that the Northern European markets will continue to outperform the PIIGS countries in 2011. At the same time, we believe it is too soon to invest in European banks in view of the problems in the Eurozone and the rising capital requirements which the sector will have to meet over the next few years. Although we are a bit cautious on emerging markets on the short term (given increased inflation risk on the back of rising food prices) we expect this region to perform well over the mid- to longer term as they are not yet overvalued and the majority of countries are not burdened by extremely high debt as is the case in most Western countries. Although there clearly are some risks we expect financial markets to offer sufficient opportunities to specialist investors. We believe that the managers within IdB MM Defensive Fund could well benefit from these opportunities. We will continue to monitor the markets closely and allocate our assets to a combination of managers that we believe is well suited given market circumstances. 11
Review of the Sub-funds (continued) Insinger de Beaufort Multi-Manager Defensive Balanced Insinger de Beaufort Multi-Manager Defensive Balanced - EUR Class was launched on 15 June 2010 with the first official NAV on June 30, 2010 of EUR 100. The NAV as at December 31, 2010 is EUR 102.64 resulting in a return of 2.64% for 2010. At the launch date units in underlying funds were transferred to the newly launched IdB MM Defensive Balanced Fund. The manager started to bring the portfolio in line with its investment policy. This included selling a substantial portion of the largest position, Multiple Managers SICAV - European Bond and diversify the proceeds over a number of fixed income funds to correspond with the target fixed income portfolio. Positions were taken in BlueBay Investment Grade Corporate Bond Fund, Parvest Euro Government Bond, Standard Life European Corporate Bond, Parvest Euro Corporate Bond and BGF Emerging Markets Local Currency Short Duration Fund. On the equity side only Odey Pan European Fund was added as a new name as a result of this convergence process. In terms of asset allocation the portfolio was positioned with a neutral allocation to equities. In October the European debt crisis seems reflected in equity prices and the scenario of a double-dip recession has become less likely. Prospects for emerging markets, especially for the longer term continue to improve and the manager decides to increase equity exposure by adding to emerging markets. By the end of the year the portfolio has an equity allocation of 23.8%. Equity Funds 2010 turned out to be another good year for equities, with some markets ending the year with double digit returns. Emerging markets were the best performing region while Europe, particularly the Eurozone, lagged. The equity portion within IdB MM Balanced benefited well from the strong sentiment in global equity markets and particularly from its allocation to emerging markets. The large allocation to European equities detracted from performance although most of the underlying European equity fund managers were able to beat their respective benchmarks. The US equity portfolio lagged the MSCI USA index. The three US equity managers, AXA Rosenberg US Equity Alpha, Wellington US Research Equity and Janus Perkins US Strategic Value were unable to keep up with their respective benchmarks. The European equity managers on balanced performed relatively well. IdB Equity Income is mainly invested in the Euro-area and focuses on achieving a dividend target that is slightly higher of that of the MSCI Euro Index. Although in absolute terms the Eurozone lagged broader global equity markets, this fund managed to outperform the MSCI Euro Index. Another European manager was added to the portfolio. Alice Gaskell runs the BGF Euro Markets Fund, which is also concentrated on the Eurozone but with a slightly higher beta. BGF Euro Markets has done very well in 2010, gaining 8,60% mainly as a result of strong stock selection. The other European managers, JO Hambro Continental European and Odey Pan European also performed well. Japanese equities rose by 12.74% in 2010 (euro). The Schroder Tokyo fund managed to outperform this index by gaining 15.98%. During the year we slightly increased our exposure to emerging markets by adding Aberdeen Global Emerging Markets Equity Fund, managed by Devan Kaloo. Angus Tulloch, who runs First State Asia Pacific and First State Asia Pacific Leaders, managed to outperform the MSCI Asia-Pacific ex-japan benchmark. Tulloch is quite concerned over a potential new bubble in emerging markets, which is why he is taking a cautious stance in his portfolio towards the end of the year. Early December we sold out of Nevsky (Traditional Funds) Global Emerging Markets, as the key managers announced that they had given notice to the management of the fund. Nevsky was replaced by Comgest Growth Emerging Markets, which is run by Vincent Strauss en Wojciech Stanislawski. This fund invests in a concentrated portfolio of companies of which the share price should over the longer term reflect underlying profit growth. Comgest conducts in-depth research before investing in a company. The managers considers themselves to be long-term investors. Within the opportunity segment of the portfolio we hold Sanlam Global Best Ideas Fund. Partially due to its large allocation to emerging markets, the fund performed very well in 2010 and gained over 23% in euro terms. Towards the end of the year the manager has cut back on the exposure to developing markets. Fixed Income Funds In terms of performance and calculated back into euros the best performing fund within the fixed income portfolio was the BGF Emerging Markets Local Currencies Short Duration Bond Fund returned 12.82% (5.22% in USD) and BlueBay High Yield Bond Fund returned 11.93%. The pure government bond exposure which is gained through the Parvest Euro Government Bond Fund exhibited the lowest performance within the fixed income portfolio, returning 0.74% in 2010. Absolute Return Funds Of the Absolute Return portfolio within IdB MM Defensive Balanced a large portion is invested in IdB Multi-Manager Zeus, which invests in specialist absolute return investment managers through the two sub-funds of the Absolute Return Strategy SICAV: ARS Market Neutral and ARS Directional Managers. In the past year concentration risk within these two funds was reduced by reducing large positions and diversifying the portfolio further with several new, high quality managers. IdB MM Zeus returned 3.19%. IdB Real Estate Equity returned 2.62%, which was disappointing on the one hand given the upside potential in the real estate markets and the further rising of the Epra Europe Index. On the other hand we are quite comfortable with the result as it was 12
Review of the Sub-funds (continued) achieved with very limited and well managed risk. IdB Global Convertible Fund gained 10.69% and marginally lagged the Merrill Lynch Global 300 Convertible Index (VG00, euro hedged). Outlook & Strategy The renewed cyclical rally of the last few months of 2010 fits in with the standard market recovery in the wake of a severe crisis. We anticipate that the Northern European markets will continue to outperform the PIIGS countries in 2011. At the same time, we believe it is too soon to invest in European banks in view of the problems in the Eurozone and the rising capital requirements which the sector will have to meet over the next few years. Although we are a bit cautious on emerging markets on the short term (given increased inflation risk on the back of rising food prices) we expect this region to perform well over the mid- to longer term as they are not yet overvalued and the majority of countries are not burdened by extremely high debt as is the case in most Western countries. Although there clearly are some risks we expect financial markets to offer sufficient opportunities to specialist investors. We believe that the managers within IdB MM Defensive Balanced could well benefit from these opportunities. We will continue to monitor the markets closely and allocate our assets to a combination of managers that we believe is well suited given market circumstances. Luxembourg, April 21, 2011 The Board of Directors 13
Independent Auditor s Report To the Shareholders of Insinger de Beaufort Manager Selection SICAV 69 route d'esch, L-1470 Luxembourg Following our appointment by the Annual General Meeting of the Shareholders on April 28, 2010 we have audited the accompanying financial statements of Insinger de Beaufort Manager Selection SICAV (the SICAV ) and of each of its Sub- Funds, which comprise the statement of net assets and the schedule of investments as at December 31, 2010 and the statement of operations and changes in net assets for the year then ended and a summary of significant accounting policies and other explanatory notes. Responsibility of the Board of Directors of the SICAV for the financial statements The Board of Directors of the SICAV is responsible for the preparation and fair presentation of these financial statements in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements and for such internal control as the Board of Directors of the SICAV determines is necessary to enable the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Responsibility of the réviseur d'entreprises agréé" Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the "Commission de Surveillance du Secteur Financier". Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the judgement of the réviseur d'entreprises agréé, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the réviseur d'entreprises agréé considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors of the SICAV as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of Insinger de Beaufort Manager Selection SICAV and of each of its Sub-Funds as at December 31, 2010 and of the results of their operations and changes in their net assets for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements. Other Matter Supplementary information included in the annual report has been reviewed in the context of our mandate but has not been subject to specific audit procedures carried out in accordance with the standards described above. Consequently, we express no opinion on such information. However, we have no observation to make concerning such information in the context of the financial statements taken as a whole. Ernst & Young S.A. Société Anonyme Cabinet de révision agréé Kerry NICHOL Luxembourg, April 21, 2011 14
Statement of Net Assets as at December 31, 2010 Insinger de Beaufort Multi-Manager Equity Insinger de Beaufort Multi-Manager Balanced Insinger de Beaufort Multi-Manager Defensive* Note USD USD EUR ASSETS Investments in securities at market value (2) 55,420,794 87,306,680 7,979,367 Cash at bank 1,279,871 3,319,972 258,264 Amounts receivable on sale of investments 697,365 935,375 - Amounts receivable on subscriptions 38,524 49,813 - TOTAL ASSETS 57,436,554 91,611,840 8,237,631 LIABILITIES Bank overdraft - 1,237 - Amounts payable on redemptions 196,940 437,173 77,140 Unrealised loss on forward foreign exchange contracts (7) - 2,355 - Management fee payable (5) 47,802 74,653 2,766 Taxes and expenses payable (3) 49,985 49,424 13,775 TOTAL LIABILITIES 294,727 564,842 93,681 TOTAL NET ASSETS 57,141,827 91,046,998 8,143,950 Net Asset Value per share USD Share Class 106.39 113.06 - GBP Share Class - 105.29 - EUR Share Class 74.40 88.95 99.77 Number of shares outstanding USD Share Class 69,611.30 46,760.23 - GBP Share Class - 7,052.98 - EUR Share Class 500,265.85 711,793.64 81,631.17 * The Sub-Funds Insinger de Beaufort Multi-Manager Defensive and Insinger de Beaufort Multi-Manager Defensive Balanced were launched on June 15, 2010. 15 The accompanying notes form an integral part of these financial statements.
Statement of Net Assets as at December 31, 2010 (continued) Insinger de Beaufort Total Multi-Manager Defensive Balanced* Note EUR USD ASSETS Investments in securities at market value (2) 45,325,961 213,956,719 Cash at bank 1,402,259 6,818,717 Amounts receivable on sale of investments - 1,632,740 Amounts receivable on subscriptions - 88,337 TOTAL ASSETS 46,728,220 222,496,513 LIABILITIES Bank overdraft - 1,237 Amounts payable on redemptions 274,764 1,104,345 Unrealised loss on forward foreign exchange contracts (7) - 2,355 Management fee payable (5) 39,147 178,461 Taxes and expenses payable (3) 18,055 141,942 TOTAL LIABILITIES 331,966 1,428,340 TOTAL NET ASSETS 46,396,254 221,068,173 Net Asset Value per share USD Share Class - GBP Share Class - EUR Share Class 102.64 Number of shares outstanding USD Share Class - GBP Share Class - EUR Share Class 452,040.00 * The Sub-Funds Insinger de Beaufort Multi-Manager Defensive and Insinger de Beaufort Multi-Manager Defensive Balanced were launched on June 15, 2010. The accompanying notes form an integral part of these financial statements. 16
Statement of Operations and Changes in Net Assets for the year ended December 31, 2010 INSINGER DE BEAUFORT MANAGER SELECTION SICAV Insinger de Beaufort Multi-Manager Equity Insinger de Beaufort Multi-Manager Balanced Insinger de Beaufort Multi-Manager Defensive* Note USD USD EUR NET ASSETS AT THE BEGINNING OF THE YEAR 89,356,227 45,436,806 - INCOME Dividends, net (2) 229,870 87,729 - Bank interest (2) - 10,338 - TOTAL INCOME 229,870 98,067 - EXPENSES Management fee (5) 697,933 621,537 17,844 Depositary bank commission (8) 59,990 55,146 8,324 Domiciliation, administration and transfer agent fees (8) 106,802 112,384 26,387 Audit fees, printing and publishing expenses 39,001 33,865 713 Taxe d'abonnement (6) 30,169 17,631 286 Bank charges 8,749 10,049 1,540 Bank interest 10,418 23,240 530 Other charges 21,557 14,553 - TOTAL EXPENSES 974,619 888,405 55,624 NET INCOME / (LOSS) FROM INVESTMENTS (744,749) (790,338) (55,624) Net realised profit / (loss) on sale of investments (2) 2,283,628 4,844,160 39,431 Net realised profit / (loss) on forward foreign exchange (2) - 37,018 - Net realised profit / (loss) on foreign exchange (2) (428,782) (798,552) (475) NET REALISED PROFIT / (LOSS) 1,110,097 3,292,288 (16,668) Change in net unrealised appreciation / (depreciation) on: - investments 424,146 3,561,191 6,935 - forward foreign exchange contracts - (5,220) - NET INCREASE / (DECREASE) IN NET ASSETS AS A RESULT OF OPERATIONS 1,534,243 6,848,259 (9,733) EVOLUTION OF THE CAPITAL Issue of shares 5,979,941 53,617,658 9,488,429 Redemption of shares (39,728,584) (14,855,725) (1,334,746) NET ASSETS AT THE END OF THE YEAR 57,141,827 91,046,998 8,143,950 * The Sub-Funds Insinger de Beaufort Multi-Manager Defensive and Insinger de Beaufort Multi-Manager Defensive Balanced were launched on June 15, 2010. 17 The accompanying notes form an integral part of these financial statements.
Statement of Operations and Changes in Net Assets for the year ended December 31, 2010 (continued) INSINGER DE BEAUFORT MANAGER SELECTION SICAV Insinger de Beaufort Total Multi-Manager Defensive Balanced* Note EUR USD NET ASSETS AT THE BEGINNING OF THE YEAR - 134,793,033 INCOME Dividends, net (2) - 317,599 Bank interest (2) - 10,338 TOTAL INCOME - 327,937 EXPENSES Management fee (5) 242,229 1,666,993 Depositary bank commission (8) 14,654 145,840 Domiciliation, administration and transfer agent fees (8) 31,028 295,907 Audit fees, printing and publishing expenses 3,921 79,058 Taxe d'abonnement (6) 3,911 53,408 Bank charges 2,461 24,144 Bank interest 2,882 38,217 Other charges - 36,111 TOTAL EXPENSES 301,086 2,339,678 NET INCOME / (LOSS) FROM INVESTMENTS (301,086) (2,011,741) Net realised profit / (loss) on sale of investments (2) 404,519 7,721,016 Net realised profit / (loss) on forward foreign exchange (2) - 37,018 Net realised profit / (loss) on foreign exchange (2) 123,127 (1,063,440) NET REALISED PROFIT / (LOSS) 226,560 4,682,853 Change in net unrealised appreciation / (depreciation) on: - investments 1,034,643 5,377,146 - forward foreign exchange contracts - (5,220) NET INCREASE / (DECREASE) IN NET ASSETS AS A RESULT OF OPERATIONS 1,261,203 10,054,779 EVOLUTION OF THE CAPITAL Issue of shares 50,854,384 140,230,683 Redemption of shares (5,719,333) (64,010,322) NET ASSETS AT THE END OF THE YEAR 46,396,254 221,068,173 * The Sub-Funds Insinger de Beaufort Multi-Manager Defensive and Insinger de Beaufort Multi-Manager Defensive Balanced were launched on June 15, 2010. The accompanying notes form an integral part of these financial statements. 18
Changes in the Number of Shares for the year ended December 31, 2010 Insinger de Beaufort Multi-Manager Equity Insinger de Beaufort Multi-Manager Balanced Insinger de Beaufort Multi-Manager Defensive* Insinger de Beaufort Multi-Manager Defensive Balanced* USD Share Class Number of shares outstanding at the beginning of the year 73,713.27 65,471.58 - - Number of shares issued 6,551.03 3,699.59 - - Number of shares redeemed (10,653.00) (22,410.94) - - Number of shares outstanding at the end of the year 69,611.30 46,760.23 - - GBP Share Class Number of shares outstanding at the beginning of the year - 7,840.61 - - Number of shares issued - 688.58 - - Number of shares redeemed - (1,476.21) - - Number of shares outstanding at the end of the year - 7,052.98 - - EUR Share Class Number of shares outstanding at the beginning of the year 891,179.64 313,382.62 - - Number of shares issued 58,433.36 505,757.63 94,850.65 508,249.18 Number of shares redeemed (449,347.15) (107,346.61) (13,219.48) (56,209.18) Number of shares outstanding at the end of the year 500,265.85 711,793.64 81,631.17 452,040.00 Statistics Insinger de Beaufort Multi-Manager Equity Insinger de Beaufort Multi-Manager Balanced Insinger de Beaufort Insinger de Beaufort Multi-Manager Multi-Manager Defensive* Defensive Balanced* USD USD EUR EUR Total Net Asset Value December 31, 2010 57,141,827 91,046,998 8,143,950 46,396,254 December 31, 2009 89,356,227 45,436,806 - - December 31, 2008 68,312,019 43,706,051 - - Net asset value per share at the end of the year December 31, 2010 USD Share Class 106.39 113.06 - - GBP Share Class - 105.29 - - EUR Share Class 74.40 88.95 99.77 102.64 December 31, 2009 USD Share Class 98.57 107.71 - - GBP Share Class - 98.84 - - EUR Share Class 63.90 82.20 - - December 31, 2008 USD Share Class 73.93 91.77 - - GBP Share Class - 87.86 - - EUR Share Class 49.01 70.76 - - * The Sub-Funds Insinger de Beaufort Multi-Manager Defensive and Insinger de Beaufort Multi-Manager Defensive Balanced were launched on June 15, 2010. 19
Insinger de Beaufort Multi-Manager Equity Schedule of Investments as at December 31, 2010 (Expressed in USD) Description Quantity Currency Average Cost Fair Value % net assets Transferable securities admitted to an official stock exchange listing Investments Funds Equities - Asia Ex Japan First State Investments Icvc - Asia Pacific Fund - Class A 73,966 GBP 722,525 813,486 1.42 First State Investments Icvc - Asia Pacific Leaders Fund - Class A 197,451 GBP 750,065 1,126,467 1.97 1,472,590 1,939,953 3.39 Equities - Emerging Market Comgest Growth Em.Market /Cap 84,174 USD 2,800,000 2,866,957 5.02 2,800,000 2,866,957 5.02 Equities - Europe Insinger De Beaufort Alchemy Nv* 69,497 EUR 2,417,225 2,764,602 4.84 Insinger De Beaufort Equity Income Fund - Class D* 69,971 EUR 3,829,252 3,902,638 6.83 Jo Hambro Capital Management Umbrella Fund Plc - Continental European Fund 1,991,245 EUR 3,633,852 5,300,315 9.28 Odey Investment Fund Plc - Pan European Fund 15,583 EUR 3,319,758 4,646,768 8.13 13,200,087 16,614,323 29.08 Equities - Japan Schroder Tokyo Fund - Class Acc 252,071 GBP 717,673 724,238 1.27 717,673 724,238 1.27 Equities - Opportunity Sanlam Global Best Ideas 456,583 USD 993,349 897,140 1.57 993,349 897,140 1.57 Equities - US Axa Rosenberg Equity Alpha Trust - US Equity Alpha Fund - Class B 295,622 USD 3,238,518 3,083,341 5.40 Janus Cap/Per.Us St.Val/Acc.A 222,625 USD 3,103,833 3,386,132 5.92 Wellington Management Portfolios Luxembourg - US Equity Research B 182,882 USD 5,841,253 6,419,147 11.23 12,183,604 12,888,620 22.55 Total - Investments Funds 31,367,303 35,931,231 62.88 Total - Transferable securities admitted to an official stock exchange listing 31,367,303 35,931,231 62.88 Other transferable securities Investments Funds Equities - Emerging Market Aberd.Glob./Emerg.Mark-A2-/Cap 77,501 USD 4,900,000 4,884,087 8.55 4,900,000 4,884,087 8.55 * Related party Funds The accompanying notes form an integral part of these financial statements. 20