Quilter Investors Diversified Portfolio
Annual Report and Financial Statements For the year ended 31 December 2019
Quilter Investors Diversified Portfolio
Contents Page Company Information 3
Authorised Corporate Director’s report 4
Statement of the Authorised Corporate Director’s responsibilities 5
Alternative Investment Fund Managers Directive 6
Statement of the Depositary’s Responsibilities in Respect of the Scheme and Report of the Depositary to the Shareholders of
Quilter Investors Diversified Portfolio 8
Independent Auditor's Report to the Shareholders of Quilter Investors Diversified Portfolio 9
Quilter Investors Diversified Portfolio 11
Investment Manager's review 11 Performance record 12 Portfolio statement 14 Statement of total return 18 Statement of change in net assets attributable to shareholders 18 Balance sheet 19 Notes to the financial statements 20 Distribution tables 30
Quilter Investors Diversified Portfolio 31
Accounting Policies 31
Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Company Information
Authorised Corporate Director (“ACD”) and Alternative Directors of the ACD Investment Fund Manager (“AIFM”) Quilter Investors Limited M Dean (resigned 31 December 2019) Millennium Bridge House D Bowden (appointed 9 March 2020) 2 Lambeth Hill P Simpson London R Skelt (appointed 1 March 2020) EC4V 4AJ J Little – Non-Executive Director C Turner – Non-Executive Director Authorised and regulated by the Financial Conduct Authority.
Depositary Citibank Europe plc, UK Branch Citigroup Centre Canada Square Canary Wharf London E14 5LB Authorised by the Central Bank of Ireland and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority.
Legal Adviser Macfarlanes LLP 20 Cursitor Street London EC4A 1LT
Independent Auditor KPMG LLP 319 St. Vincent Street Glasgow G2 5AS
Administrator Citibank Europe plc 1, North Wall Quay Dublin 1 Ireland
Authorised by the Central Bank of Ireland (Central Bank) under the Investment Intermediaries Act 1995.
Registrar SS&C Financial Services International Limited & SS&C Financial Services Europe Limited (formerly DST Financial Services International Limited & DST Financial Services Europe Limited, respectively) SS&C House SS&C House Saint Nicholas Lane Basildon Essex SS15 5FS The register of shareholders can be inspected at the above address.
Quilter Investors Limited, a member of the Quilter plc Group of companies, is authorised and regulated by the Financial Conduct Authority. FCA Register number 208543. Registered Office: Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4AJ, United Kingdom. Registered Number: 4227837 England. www.quilterinvestors.com
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Quilter Investors Diversified Portfolio
Authorised Corporate Director’s report
Directors’ report
The Directors present the report and financial statements for the Quilter Investors Diversified Portfolio (“the Company”) for the year from 1 January 2019 to 31 December 2019.
Authorised status
The Company is an Open-Ended Investment Company incorporated as an Investment Company with Variable Capital (“ICVC”) under Regulation 12 (authorisation) of the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228) (the “OEIC Regulations”). It is incorporated in England and Wales and authorised by the Financial Conduct Authority under the OEIC Regulations and the Financial Conduct Authority’s Collective Investment Schemes Sourcebook (“the COLL Sourcebook”). The Company is a non-UCITS Scheme for the purposes of the COLL Sourcebook and a standalone fund during this annual account period. The Company is also an Alternative Investment Fund for the purposes of the Alternative Investment Fund Managers Directive 2011/61/EU (“AIFMD”). Director changes
Mitchell Dean resigned as a Director of the ACD effective 31 December 2019.
Richard Skelt appointed as a Director of the ACD effective 1 March 2020.
Dean Bowden appointed as a Director of the ACD effective 9 March 2020. Significant event At this time, COVID-19 has been recognised by the World Health Organisation as a global pandemic, therefore this will impact global supply chains, global market growth and employee availability over the next few years. The Company will be adversely impacted by falls in equity market levels, adverse investor sentiment affecting revenue and increased operational risks depending on the extent of employment availability. The length and severity of the impact from COVID-19 remains a clear risk, although the Company would not expect this to materially change the underlying long-term prospects and going concern basis of the Company. The impact of COVID-19 is considered to be a non-adjusting post balance sheet event. Subsequent to the year end, the NAV of the fund has declined significantly and the Post balance sheet date events note to the financial statements provides a quantification of this decline in NAV, where relevant. The Investment review was written prior to COVID-19 being recognised as a global pandemic and relates to the year under review only. Assessment of value
The COLL Sourcebook requires the ACD to conduct an “assessment of value” at least annually for the Company which includes, amongst other things, (i) an assessment of whether the payments out of scheme property set out in the prospectus are justified in the context of the overall value delivered to shareholders; (ii) an assessment of the range and quality of services provided to shareholders; (iii) an assessment of performance over an appropriate timescale and (iv) an assessment of comparable market rates for the services provided by the ACD.
The ACD's assessment of value of the Company will be made available in a report which the ACD intends to publish by 31 July 2020. The report will provide the assessment of value for all schemes managed by the ACD. Once published a copy of this report will be made available on the ACD's website at www.quilterinvestors.com.
Additional information These financial statements have been prepared in accordance with the Statement of Recommended Practice (SORP) for Authorised Funds issued by the Investment Association (IA) in May 2014. Fund name Launch date Quilter Investors Diversified Portfolio 13 February 2003
In accordance with the requirements of the Financial Services and Market Act 2000, we hereby certify these financial statements on behalf of the ACD.
P Simpson D Bowden For and on behalf of Quilter Investors Limited For and on behalf of Quilter Investors Limited Director Director
30 April 2020 30 April 2020
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Authorised Corporate Director’s Report (continued)
The purpose of this report is to provide details of the progress of the Company. The report provides details of the performance and the portfolio of the Company. Net asset value of fund 31 December 2019 31 December 2018 Net asset Net asset value of Shares Net asset value of Shares Net asset
fund by share in value fund by share in value class issue per share class issue per share Quilter Investors Diversified Portfolio - Accumulation 'A' £56,778,623 53,273,663 106.58p £58,999,227 62,417,000 94.52p - Accumulation 'R' £473,214,949 74,592,134 634.40p £474,708,030 84,879,863 559.27p
Securities Financing Transactions Regulation Disclosure The Company does not currently undertake securities financing transactions (as defined in Article 3 of Regulation (EU) 2015/2365) or uses total return swaps.
Statement of the Authorised Corporate Director’s responsibilities
The COLL Sourcebook requires the ACD to prepare financial statements for each annual and semi-annual accounting period which give a true and fair view of the financial position of the Company and of the net income and net gains or losses on the property of the Company for the year.
In preparing the financial statements the ACD is responsible for:
selecting suitable accounting policies and then applying them consistently;
making judgements and estimates that are reasonable and prudent;
following UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland;
complying with the disclosure requirements of the Statement of Recommended Practice for UK Authorised Funds issued by the Investment Management Association in May 2014;
keeping proper accounting records which enable it to demonstrate that the financial statements as prepared comply with the above requirements;
assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern;
using the going concern basis of accounting unless they either intend to liquidate the Company or to cease its operations, or have no realistic alternative but to do so;
such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and
taking reasonable steps for the prevention and detection of fraud and irregularities.
The ACD is responsible for the management of the Company in accordance with its Instrument of Incorporation, the Prospectus and the COLL Sourcebook.
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Alternative Investment Fund Managers Directive (AIFMD)
Remuneration Disclosure Remuneration Policy Quilter Investors Diversified Portfolio is managed by Quilter Investors Limited (QIL), which is a wholly owned subsidiary of Quilter plc.
The board of QIL has established an AIFM Remuneration Policy encompassing the specific requirements of the Alternative Investment Fund Managers Directive (AIFMD). This policy applies to QIL and the Alternative Investment Funds (AIFs) it manages.
Remuneration philosophy and alignment with risk management QIL’s remuneration philosophy is focused on pay for performance, where the performance is delivered within the risk appetite of the firm and the funds it manages. Remuneration is structured in a way to attract, motivate and retain the individuals needed to lead and develop the business. Remuneration structures are designed to support the delivery of QIL’s strategy and align the interests of executives, shareholders and customers.
Remuneration is comprised of fixed pay, variable pay (cash bonus with deferral and long-term incentive arrangements for eligible senior managers), non-contributory defined contribution pension and other market competitive benefits. A proportion of the annual bonus is deferred into approved funds or Quilter plc shares. QIL has taken a proportionality assessment which takes into account criteria including but not limited to: the conservative and low volatility strategies of the funds it manages; the low number of remuneration code staff and risk takers in QIL; and the low number of investment strategies and styles and restricted portfolio of funds it manages.
The Remuneration Committee monitors the compensation process and ensures that proposals do not reward senior staff for excessive risk-taking.
The deferred element of the annual bonus vests in equal tranches on an annual basis over three years after award. During the deferral period the unvested bonus award remains at risk of forfeiture or reduction. This helps promote sound risk management and discourage risk taking that exceeds the firm’s level of tolerated risk or that of QIL’s client funds. Through the use of deferral into funds or shares the interests of staff are closely aligned to the long-term interests of investors and shareholders.
Long-term incentive arrangements are provided in the form of either a performance-based share award or an award of Restricted Stock Units (RSUs), which are designed to align senior management reward to the success of the company in achieving its strategic priorities and growing the value of the business. Awards under the plan have a vesting period of three years and are subject to clawback for a further two years.
A copy of the Remuneration Policy is available upon request.
Financial and non-financial criteria Variable remuneration is based on a rounded assessment of firm and individual performance. The assessment of corporate performance covers both financial and non- financial performance including risk management.
Individual performance is assessed against the individual’s objectives and includes an employee’s compliance with controls and applicable company standards including the Quilter plc Code of Ethics.
Conflicts of interest The approach to and management of remuneration contain a number of measures to avoid conflicts of interest. Guidance is provided to managers to assist them in determining appropriate remuneration recommendations for their staff. Remuneration proposals are subject to approval by department or functional heads. For senior employees these proposals are subject to moderation as part of a broader Quilter process. No employee may determine their own remuneration. Employees engaged in control functions (e.g. Risk, Compliance and Internal Audit) have functional line management structures outside of the business units they oversee to ensure that remuneration decisions are not directly determined by the business units they oversee. Variable remuneration for control function employees is determined on the achievement of meeting their own functional objectives as set in their appraisal. The Quilter Remuneration Committee signs off the remuneration of higher paid staff. Personal hedging strategies which may undermine the risk alignment of variable remuneration are not permissible (e.g. entering into an arrangement with a third party under which payments will be linked to the person's remuneration or deferred consideration). Personal Account dealing policies are in place, which prohibit dealing on a personal basis or by any connected party, unless it is in compliance with the relevant policy(ies).
Employee remuneration disclosure The table below provides an overview of the following:
Aggregate total remuneration of QIL entire staff; and Aggregate total remuneration of QIL ‘Material Risk Takers (MRTs)’
The MRTs are those employees who are considered could have a material impact on the risk profile of QIL or the AIFs it manages. This broadly includes senior management, risk takers and control functions. For the purposes of this disclosure, ‘MRTs’ does not include employees of entities to which activities have been delegated.
Amounts shown reflect payments made during the financial reporting period of QIL.
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Alternative Investment Fund Managers Directive (AIFMD) (continued)
Quilter Investors Diversified Portfolio Headcount Total Remuneration AIF proportion3
QIL Staff1 95 £10,010,577 £238,252
of which Fixed remuneration £6,903,827 £164,311 Variable remuneration £3,106,750 £73,941 Carried interest
QIL Material Risk Takers2 9 £4,798,272 £114,198
of which Senior Management 7 £3,967,288 £94,421 Other Material Risk Takers 2 £830,984 £19,777
1 Total remuneration costs represent the total headcount and costs associated for Quilter Investors Limited as at 31 December 2019. 2 The MRTs are those that have been either identified as a Qualitative Risk Taker or Quantitative Risk Taker for the QIL Business as approved by the Remuneration Committee (as at 31 December 2019). 3 This figure represents an apportioned amount of the total remuneration attributable to the AIF allocated on an Assets Under Management (AUM) basis (as at 31 December 2019).
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Statement of the Depositary’s Responsibilities in Respect of the Scheme and Report of the Depositary to the Shareholders of Quilter Investors Diversified Portfolio for the year from 1 January 2019 to 31 December 2019
The Depositary is responsible for the safekeeping of all of the property of the Company (other than tangible moveable property) which is entrusted to it and for the collection of revenue that arises from that property. It is the duty of the Depositary to take reasonable care to ensure that the Company is managed by the Authorised Corporate Director in accordance with the Financial Conduct Authority’s Collective Investment Schemes Sourcebook (“Sourcebook”), the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228) (the OEIC Regulations), the Company’s Instrument of Incorporation and the Prospectus, as appropriate, concerning: the pricing of and dealings in shares in the Company, the application of income of the Company, and the investment and borrowing powers of the Company.
Having carried out such procedures as we consider necessary to discharge our responsibilities as Depositary of the Company, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Authorised Corporate Director: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Company’s shares and the application of the Company’s revenue in accordance with the COLL Sourcebook and, where applicable, the OEIC Regulations and the Company’s Instrument of Incorporation and Prospectus; (ii) has observed the investment and borrowing powers and restrictions applicable to the Company; and (iii) has, otherwise, ensured the proper operation of the Company.
Citibank Europe plc, UK Branch Depositary 30 April 2020
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Independent Auditor’s Report to the Shareholders of Quilter Investors Diversified Portfolio (“the Company”) for the year from 1 January 2019 to 31 December 2019 Opinion We have audited the financial statements of the Company for the year ended 31 December 2019 which comprise the Statement of Total Return, the Statement of Changes in Net Assets Attributable to Shareholders, the Balance Sheet, the Related Notes and Distribution Tables and the accounting policies set out on pages 31 to 32.
In our opinion the financial statements: give a true and fair view, in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, of the financial position of the Company as at 31 December 2019 and of the net revenue and the net capital gain on the property of the Company for the year then ended; and have been properly prepared in accordance with the Instrument of Incorporation, the Statement of Recommended Practice relating to Authorised Funds, and the COLL Rules. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard. We have received all the information and explanations which we consider necessary for the purposes of our audit and we believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Going concern The Authorised Corporate Director has prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”). We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year from the date of approval of the financial statements. In our evaluation of the Authorised Corporate Director’s conclusions, we considered the inherent risks to the Company’s business model, and analysed how those risks might affect the Company’s financial resources or ability to continue operations over the going concern period. We have nothing to report in these respects. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Company will continue in operation. Other information The Authorised Corporate Director is responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work: we have not identified material misstatements in the other information; and in our opinion the information given in the Authorised Corporate Director’s Report is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where under the COLL Rules we are required to report to you if, in our opinion: proper accounting records for the Company have not been kept; or the financial statements are not in agreement with the accounting records. Authorised Corporate Director’s responsibilities As explained more fully in their statement set out on page 5 the Authorised Corporate Director is responsible for: the preparation of financial statements which give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
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Independent Auditor’s Report to the Shareholders of Quilter Investors Diversified Portfolio (“the Company”) (continued)
Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s shareholders, as a body, in accordance with Rule 4.5.12 of the Collective Investment Schemes sourcebook (‘the COLL Rules’) issued by the Financial Conduct Authority under the Open-Ended Investment Companies Regulations 2001. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed.
Grant Archer for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 319 St. Vincent Street Glasgow G2 5AS 30 April 2020
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Quilter Investors Diversified Portfolio In the fixed income space our duration – sensitivity to interest rates – remained Launch date 13 February 2003 relatively low throughout the year, although we did make tactical shifts to increase duration at points in the mid-part of the year, but overall we remain relatively IA Sector Mixed Investment 20-60% shares underweight versus our strategic asset allocation. During the year we gradually Investment adviser Quilter Investors Limited reduced our credit risk. However, manager selection was broadly positive in the credit space, although better in the investment grade space than in high yield. Net asset value £529,993,572 Emerging market debt also struggled at times, but other diversifying positions such
as absolute return fixed income exposure helped to offset this. Objective Within equities the UK and US managers were the standout performers, including The fund aims to provide capital growth by outperforming the annual rate of the UK the new additions we introduced at the start of the year, the Artemis UK Income Consumer Price Index (CPI) by 4%, net of charges, over rolling seven year periods. Fund and the Artemis UK Special Situations Fund. The Quilter Investors Equity 2 Fund and the Merian UK Alpha Fund, as larger holdings in the portfolio, also added Although the fund aims to achieve a positive return over rolling seven year periods, to returns from the UK as they both ended the year ahead of their comparators. capital invested is, in fact, at risk and there is no guarantee that a positive return will Among our US managers, there was good performance from Pershing Square, while be generated over that time period or any other time period. our global emerging market equity exposure also provided a positive boost. In contrast, global equities struggled somewhat over the year as a whole. Policy The fund will invest through collective investment schemes (which may include those Risk and Reward Profile that are managed or operated by the ACD or an associate of the ACD) in order to give exposure to a diversified portfolio of asset classes. It is expected that exposure will vary between equities (between 20% and 60%), investment grade and/or sub- investment grade bonds, property, commodities, currency and derivatives. The fund may also invest directly in equities, fixed income securities, cash, near cash, money market instruments and deposits. The fund may use derivative instruments for investment purposes or Efficient Portfolio Management. The use of derivatives for the purpose of investment may The calculated risk and reward category, as shown above, uses a method of affect the risk profile of the fund although this is not the ACD’s intention. The use of calculation derived from EU rules. It is based on the rate at which the returns of the derivatives for Efficient Portfolio Management is unlikely to affect the risk profile of fund have moved up and down in the past (i.e. volatility) and is not a guide to the the fund. future risk and reward category of the fund. The category shown is not a target or guarantee and may shift over time. Even the lowest category 1 does not mean a risk- Investment Manager’s review free investment. The seven-category scale is nonlinear, for example, 2 is not twice as risky as 1. Market Review Funds in category 5 have in the past shown moderately high volatility. With a fund of At the start of the period, fears of a US recession had taken hold, stoked by an category 5, you have a moderately high risk of losing money but your chance for occurrence in the US government bond market where yields on longer-term bonds gains is also moderately high. fell below yields on short-term bonds. US 10-year Treasury yields dropped to 2.12% at the end of May, before falling below 2% in June for the first time since 2016. Investment risk - the performance aim is not a guarantee, may not be achieved and a capital loss may occur. Funds which have a higher performance aim generally take That said, US equity markets started the year on a much firmer footing, reassured by more risk to achieve this and so have a greater potential for the returns to be the US Federal Reserve’s (Fed) less confrontational tone on monetary policy. significantly different than expected. Emerging market equities also reacted positively to the new tone, as the MSCI Emerging Markets index grew just over 10% in the first half of the year in local Strategy risk - as the fund invests in other collective investment schemes, which currency terms. This was despite a difficult period for the largest emerging market, themselves invest in assets such as bonds, company shares, cash and currencies, it China, which experienced considerable volatility as a result of the US trade dispute. will be subject to the collective risks of these other funds. This may include emerging markets risk and sub-investment grade credit risk. After a difficult summer for global equity markets, a bullish investor mood in the latter part of the period drove equities higher resulting in a broadly flat end to the third Emerging markets risk - less developed countries may face more political, quarter of 2019. The Fed opted to cut interest rates twice in the third quarter, before economic or structural challenges than developed countries. cutting again in October, as it attempted to boost the economy and mitigate the decline in consumer confidence in the face of slowing growth. The European Central Credit risk the issuer of a bond or a similar investment within the fund may not pay Bank (ECB) also responded to its bleak economic outlook by cutting interest rates, income or repay capital to the fund when due. Bonds which are rated below launching additional quantitative easing measures and committing to continue with investment grade are considered to have a higher risk exposure with respect to the asset purchase programme until the inflation target is reached. In the UK, Prime meeting their payment obligations. Minister Boris Johnson called a general election for 12 December, with the Interest rate risk - investments in bonds are affected by interest rates and inflation Conservatives winning a decisive majority on Mr Johnson’s promise to “get Brexit trends which may affect the value of the fund. done”. Following his win, the Withdrawal Agreement Bill was passed, which set the UK on course to depart the EU by the end of January 2020. Despite the Brexit Currency risk - the fund is denominated in British Pounds but may hold assets uncertainty that lasted for the majority of the year, the FTSE All-Share index ended denominated in, or with exposure to, other currencies. The value of your shares may the year almost 20% higher in sterling terms. In December, it was announced that rise and fall as a result of exchange rate movements between these currencies. Financial Conduct Authority (FCA) chief executive Andrew Bailey would succeed Mark Carney as Bank of England governor, marking a new era for the UK’s central Derivative risk - the fund uses derivatives to generate returns and/or to reduce bank, with 10-year gilt yields ending the calendar year at a record low. costs and the overall risk of the fund. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a Meanwhile, US President Donald Trump became only the third US president to be disproportionately large movement in the price of the derivative investment. impeached in December. US 10-year Treasury yields ended December at 1.92%, Derivatives also involve counterparty risk where the institutions acting as having recovered from a drop at the start of the month following President Trump’s counterparty to derivatives may not meet their contractual obligations. threat to delay a trade deal with China until after the US election. Capital erosion risk – the fund takes its charges from the income of the fund in the Performance review first instance. The impact of fund charges may be material on the value of any income you receive from your investment. There is potential for capital erosion if The fund delivered a positive return for the period, driven primarily by the strong insufficient income is generated by the fund to cover these charges. Capital erosion contribution from the equity component, given the market rallies over the year. That may have the effect of reducing the level of income generated. said, asset allocation and manager selection was also a positive factor, particularly within the alternatives space where our long/short managers performed well. For a more detailed explanation of risks, please refer to the "Risks" section of the Prospectus.
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Performance Record
Comparative Tables
1 January 2019 to 1 January 2018 to 1 January 2017 to Accumulation 'A' 31 December 2019 31 December 2018 31 December 2017 p/share p/share p/share Change in net assets per share Opening net asset value per share 94.52 104.71 98.60 Return before operating charges* 13.91 (8.40) 7.96 Operating charges** (1.85) (1.79) (1.85) Return after operating charges* 12.06 (10.19) 6.11 Distributions (1.21) (1.02) (1.00) Retained distributions 1.21 1.02 1.00 Closing net asset value per shares 106.58 94.52 104.71 * after direct transaction costs of*** 0.01 0.01 - Performance Return after charges 12.76% (9.73)% 6.20% Other information Closing net asset value (£) 56,778,623 58,999,227 77,672,766 Closing number of shares 53,273,663 62,417,000 74,179,017 Operating charges**** 1.80% 1.76% 1.80% Direct transaction costs*** 0.01% 0.01% - Prices pence per share pence per share pence per share Highest share price 107.1 105.7 104.8 Lowest share price 94.51 93.93 98.59
1 January 2019 to 1 January 2018 to 1 January 2017 to Accumulation 'R' 31 December 2019 31 December 2018 31 December 2017 p/ share p/ share p/ share Change in net assets per share Opening net asset value per share 559.27 615.81 576.43 Return before operating charges* 81.54 (50.48) 45.70 Operating charges** (6.41) (6.06) (6.32) Return after operating charges* 75.13 (56.54) 39.38 Distributions (10.85) (9.62) (9.45) Retained distributions 10.85 9.62 9.45 Closing net asset value per share 634.40 559.27 615.81 * after direct transaction costs of*** 0.04 0.08 0.02 Performance Return after charges 13.43% (9.18)% 6.83% Other information Closing net asset value (£) 473,214,949 474,708,030 589,787,891 Closing number of shares 74,592,134 84,879,863 95,774,039 Operating charges**** 1.05% 1.01% 1.05% Direct transaction costs*** 0.01% 0.01% - Prices pence per share pence per share pence per share Highest share price 637.6 621.5 616.5 Lowest share price 559.2 555.7 576.4
** The operating charges include all costs borne by the fund, except for direct transaction costs. It includes the operating charges of any collective investment schemes in which the fund invests. *** The direct transaction costs are made up of fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges as well as transfer taxes and duties. They do not include any difference between the quoted bid and offer prices or internal administrative or holding costs. These costs arise as a result of transactions undertaken both for efficient portfolio management and the meeting of the fund’s objectives. These costs exclude any effect of dilution adjustments used to offset the costs. **** The operating charges percentage is ratio of the fund's ongoing charges (including the ongoing charges of any collective investment schemes in which the fund invests but excluding interest on borrowings) to the average net assets of the fund. This includes a synthetic element of 0.40% (31.12.2018 - 0.36%) (31.12.2017 - 0.40%) to incorporate the OCF of the underlying funds.
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Performance 6 months to 1 year to 3 years to 5 years to
31 December 2019 31 December 2019 31 December 2019 31 December 2019
Quilter Investors Diversified Portfolio* 2.97% 13.43% 10.05% 13.59% UK Consumer Price Index (CPI) + 4% (benchmark) 2.53% 5.30% 19.50% 31.45% IA Mixed Investment 20-60% Shares (sector average) 3.64% 12.07% 13.99% 27.95% Quartile ranking 4 2 4 4 * Accumulation ′A′ shares Data Source – Factset. Figures are calculated on a total return and single price basis, with net income reinvested into the fund.
Percentage of Portfolio allocation Major holdings portfolio
Overseas Equities 35.02% Quilter Investors Global Dynamic Equity Fund - A Accumulation 23.90% Overseas Bonds 23.52% Wellington Global Credit Plus - G Distributing (GBP Hedged) 6.31% United Kingdom Equities 19.63% Quilter Investors Bond 2 Fund - A Accumulation 4.79% United Kingdom Bonds 8.38% Quilter Investors Equity 2 Fund - A Accumulation 4.61% Overseas Alternative Investment Instruments 7.89% Quilter Investors Bond 3 Fund - A Income 3.34% United Kingdom Property 0.98% Merian UK Alpha Fund - R Accumulation 3.02% Overseas Private Equity 0.42% Quilter Investors Bond 1 Fund - A Income 2.99% Derivatives 0.10% Wellington Durable Enterprises Fund - T Accumulation (USD) 2.99% Quilter Investors Equity 1 Fund - A Accumulation 2.98% Net other assets 4.06% Unicorn Outstanding British Companies - Institutional Accumulation 2.62% Total 100.00%
Number of holdings 100 Asset allocation
Equities 54.65% Bonds 31.90% Alternative Investment Instruments 7.89% Property 0.98% Private Equity 0.42% Derivatives 0.10%
Net other assets 4.06%
Total 100.00%
13 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Portfolio statement as at 31 December 2019
Market Percentage of Value total net assets Holding Investment £'000 %
United Kingdom 29.55% (31 December 2018 28.94%)
United Kingdom Bonds 8.38% (31 December 2018 8.84%) 4 Goldman Sachs Sterling Liquid Reserves Fund - I Accumulation 53 0.01 €170,000 International Game Technology 2.375% 15/04/2028 145 0.03 £150,000 Premier Foods Finance 6.25% 15/10/2023 157 0.03 35,403,451 Quilter Investors Bond 1 Fund - A Income 15,850 2.99 25,622,221 Quilter Investors Bond 2 Fund - A Accumulation 25,407 4.79 2,450,534 Quilter Investors Corporate Bond Fund - U2 Accumulation 2,700 0.51 £112,000 Virgin Media Secured Finance 4.25% 15/01/2030 114 0.02 44,426 8.38
United Kingdom Equities 19.63% (31 December 2018 18.94%) 1,047,371 HICL Infrastructure 1,791 0.34 2,645,000 Hipgnosis Songs Fund - C Shares 2,724 0.51 24,854 iShares UK Equity Index Fund - L Accumulation 61 0.01 10,931,830 Liontrust UK Growth Fund 12,281 2.32 8,960,109 Merian UK Alpha Fund - R Accumulation 16,030 3.02 16,732 Merian UK Specialist Equity Fund - F Accumulation 213 0.04 623,678 Merian UK Specialist Equity Fund - R Accumulation 7,841 1.48 8,962,983 Quilter Investors Equity 1 Fund - A Accumulation 15,766 2.98 14,036,321 Quilter Investors Equity 2 Fund - A Accumulation 24,423 4.61 6,010,023 Quilter Investors UK Equity Opportunities Fund - U2 Accumulation 7,855 1.48 851,021 Renewables Infrastructure 1,176 0.22 3,841,795 Unicorn Outstanding British Companies - Institutional Accumulation 13,869 2.62 104,030 19.63
United Kingdom Property 0.98% (31 December 2018 1.41%) 2,182,478 Janus Henderson UK Property PAIF - A Accumulation 5,171 0.98 5,171 0.98
Sterling Denominated Forward Exchange Contracts 0.66% (31 December 2018 (0.25)%) £1,791,072 Sterling v Australian Dollar Forward Exchange Contract 66 0.01 £4,087,649 Sterling v Euro Forward Exchange Contract 235 0.04 £3,915,073 Sterling v Euro Forward Exchange Contract (29) (0.01) £3,795,859 Sterling v Japanese Yen Forward Exchange Contract 348 0.07 £7,027,009 Sterling v New Zealand Dollar Forward Exchange Contract 88 0.02 £33,143,448 Sterling v US Dollar Forward Exchange Contract 2,381 0.45 £10,490,890 Sterling v US Dollar Forward Exchange Contract 487 0.09 £7,893,307 Sterling v US Dollar Forward Exchange Contract 189 0.04 £4,750,000 Sterling v US Dollar Forward Exchange Contract 45 0.01 £170,486 Sterling v US Dollar Forward Exchange Contract 4 - £231,243 Sterling v US Dollar Forward Exchange Contract 2 - £72,675 Sterling v US Dollar Forward Exchange Contract 1 - £165,420 Sterling v US Dollar Forward Exchange Contract 1 - £86,442 Sterling v US Dollar Forward Exchange Contract 1 - £104,617 Sterling v US Dollar Forward Exchange Contract 1 - £81,808 Sterling v US Dollar Forward Exchange Contract (1) - £45,647,311 Sterling v US Dollar Forward Exchange Contract (7) - £18,228,697 Sterling v US Dollar Forward Exchange Contract (298) (0.06) 3,514 0.66
14 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Portfolio statement (continued) as at 31 December 2019
Market Percentage of Value total net assets Holding Investment £'000 %
Sterling Denominated Futures Contracts (0.10)% (31 December 2018 0.00%) (36) FTSE 100 Index Futures March 2020 (104) (0.02) 184 Long Gilt Futures March 2020 (432) (0.08) (536) (0.10)
Overseas 66.39% (31 December 2018 69.90%)
Overseas Alternative Investment Instruments 7.89% (31 December 2018 8.60%) 520,781 BlackRock Global Funds - Natural Resources Growth & Income Fund 3,383 0.64 2,300,000 CATCo Reinsurance Opportunities Fund 'C' Shares 651 0.12 9,632 CZ Absolute Alpha UCITS Fund - B Accumulation 10,251 1.93 297,354 Merian Systematic Positive Skew Fund - X Accumulation (USD) 2,526 0.48 88,737 Montlake Mygale Event Driven UCITS Fund - Institutional A Founder (GBP) 10,547 1.99 685,000 Neuberger Berman Macro Opportunities FX Fund - X Accumulation 5,212 0.98 2,264,739 Sequoia Economic Infrastructure Income Fund 2,627 0.50 38,917 Trium European Equity Market Neutral Fund 3,967 0.75 332,708 Wisdomtree Enhanced Commodity UCITS ETF 2,664 0.50 41,828 7.89
Overseas Bonds 23.52% (31 December 2018 22.49%) €171,000 Altice Luxembourg 8% 15/05/2027 163 0.03 89,655 AQR Global Aggregate Bond UCITS Fund 9,804 1.85 €168,000 Ardagh Packaging Finance 2.125% 15/08/2026 147 0.03 87,672 Ashmore Emerging Markets Short Duration Fund - Institutional Accumulation (USD) 9,159 1.73 €160,000 Axalta Coating Systems 4.25% 15/08/2024 140 0.03 40,165 Brevan Howard Absolute Return Government Bond Fund - X Accumulation 4,058 0.76 €165,000 Cirsa Finance International SARL 4.75% 22/05/2025 147 0.03 €160,000 DKT Finance 7% 17/06/2023 144 0.03 €100,000 Elis 2.875% 15/02/2026 94 0.02 €165,000 Europcar Mobility Group 4% 30/04/2026 136 0.02 £263,000 European Investment Bank 1.0613% 29/06/2023 264 0.05 4,136,658 Fair Oaks Income Fund 2,083 0.39 €170,000 Grifols 3.2% 01/05/2025 148 0.03 334,635 iShares EUR High Yield Corporate Bond UCITS ETF 1,514 0.28 €160,000 LKQ European 3.625% 01/04/2026 143 0.03 €170,000 Matterhorn Telecom 4% 15/11/2027 154 0.03 283,805 Merian Financials Contingent Capital Fund - F Income (GBP) 2,924 0.55 141,464 Merian Local Currency Emerging Market Debt Fund - U2 Distributing (GBP) 1,315 0.25 NZ$7,590,000 New Zealand Local Government Funding Agency Bond 2.75% 15/04/2025 4,039 0.76 NZ$5,880,000 New Zealand Local Government Funding Agency Bond 4.5% 15/04/2027 3,484 0.66 €164,000 Nexi 1.75% 31/10/2024 143 0.03 €148,000 Nidda Healthcare Holding 3.5% 30/09/2024 130 0.02 317,874 PIMCO GIS Dynamic Bond Fund - Institutional Accumulation (GBP Hedged) 4,008 0.76 583,686 PIMCO Income Fund - I Income (USD) 5,232 0.99 3,876,129 Quilter Investors Absolute Return Bond Fund - U2 Accumulation 3,950 0.74 56,402,903 Quilter Investors Bond 3 Fund - A Income 17,727 3.34 8,262,378 Quilter Investors High Yield Bond Fund - A Accumulation (GBP) 8,543 1.61 €150,000 Sappi Papier 3.125% 15/04/2026 127 0.02 €350,000 Sigma Holdco 5.75% 15/05/2026 299 0.06 €100,000 Starfruit Finco 6.5% 01/10/2026 91 0.02 €112,000 VZ Vendor Financing 2.5% 31/01/2024 97 0.02
15 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Portfolio statement (continued) as at 31 December 2019
Market Percentage of Value total net assets Holding Investment £'000 %
Overseas Bonds (continued) 2,938,739 Wellington Global Credit Plus - G Distributing (GBP Hedged) 33,427 6.31 48,743 Wells Fargo US High Yield Bond Fund - I Accumulation (USD) 8,117 1.53 28,385 Wells Fargo US Short Term High Yield Bond Fund - I Accumulation (USD) 2,693 0.51 124,644 23.52
Overseas Equities 35.02% (31 December 2018 37.73%) 46,467 Baillie Gifford Japanese Income Growth Fund - B Income 65 0.01 98,863 BNY Mellon US Equity Income Fund - F Accumulation 112 0.02 1,845,562 Fidelity Asia Pacific Opportunities Fund - W Accumulation 4,127 0.78 2,600,555 Hermes Asia (ex Japan) Equity Fund - F Accumulation 6,983 1.32 18,020 iShares Continental European Equity Index Fund - L Accumulation 49 0.01 324,131 iShares Emerging Markets Equity Index Fund - L Accumulation 574 0.11 26,889 iShares Japan Equity Index Fund - L Accumulation 64 0.01 16,345 iShares North American Equity Index Fund - L Accumulation 70 0.01 61,200 Lumyna - Sandbar Global Equity Market Neutral UCITS Fund 4,685 0.89 161,815 Merian Global Emerging Markets Fund - U2 Accumulation (GBP) 2,855 0.54 144,720 Merian Global Equity Income Fund - R Income 2,204 0.42 16,312 Polar Capital Financial Opportunities - I Accumulation Fund (GBP) 188 0.04 1,013,595 Polar Capital Income Opportunities Fund - B1 Income 1,499 0.28 4,129,238 Quilter Investors Emerging Markets Equity Growth Fund - U2 Accumulation 8,498 1.60 2,270,210 Quilter Investors Europe (ex UK) Equity Fund - U2 Income 3,675 0.69 2,098,821 Quilter Investors Europe (ex UK) Equity Income Fund - U2 Accumulation 2,281 0.43 94,111,889 Quilter Investors Global Dynamic Equity Fund - A Accumulation 126,675 23.90 3,431 Quilter Investors Japanese Equity Fund - A Accumulation 6 - 48,640 Quilter Investors US Equity Growth Fund - U2 Accumulation 72 0.02 412,132 Riverstone Energy 1,694 0.32 5,535 Sands Capital - Emerging Markets Growth Fund - A Accumulation (USD) 61 0.01 405,580 Schroder US Mid Cap Fund 601 0.11 130,510 Skyline Usonian Japan Value Fund 1,386 0.26 13,124 SPARX Japan Sustainable Equity Fund - E Accumulation 1,330 0.25 1,640,426 Wellington Durable Enterprises Fund - T Accumulation (USD) 15,834 2.99 185,588 35.02
Overseas Private Equity 0.42% (31 December 2018 0.60%) 123,284 HarbourVest Global Private Equity 2,209 0.42 2,209 0.42
Australian Dollar Denominated Futures Contracts 0.00% (31 December 2018 0.00%) (30) SPI 200 Index Futures March 2020 7 - 7 - Euro Denominated Forward Exchange Contracts 0.01% (31 December 2018 0.02%) €4,508,000 Euro v Sterling Forward Exchange Contract 72 0.01 72 0.01
Euro Denominated Futures Contracts 0.00% (31 December 2018 (0.01)%)
Euro Denominated Options Contracts 0.00% (31 December 2018 (0.01)%)
Japanese Yen Denominated Forward Exchange Contracts 0.00% (31 December 2018 0.01%)
(11) TOPIX Index Futures March 2020 8 - 8 -
16 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Portfolio statement (continued) as at 31 December 2019
Market Percentage of Value total net assets Holding Investment £'000 %
Japanese Yen Denominated Futures Contracts 0.00% (31 December 2018 0.00%)
Mexican Peso Denominated Forward Exchange Contracts 0.00% (31 December 2018 0.02%)
US Dollar Denominated Forward Exchange Contracts (0.45)% (31 December 2018 0.18%) $98,186 US Dollar v Sterling Forward Exchange Contract - - $6,737,000 US Dollar v Sterling Forward Exchange Contract (131) (0.03) $18,525,000 US Dollar v Sterling Forward Exchange Contract (365) (0.07) $18,525,000 US Dollar v Sterling Forward Exchange Contract (372) (0.07) $10,570,000 US Dollar v Sterling Forward Exchange Contract (395) (0.07) $13,368,000 US Dollar v Sterling Forward Exchange Contract (497) (0.09) $28,612,000 US Dollar v Sterling Forward Exchange Contract (628) (0.12) (2,388) (0.45)
US Dollar Denominated Futures Contracts (0.02)% (31 December 2018 0.25%) 258 MSCI Emerging Markets Index Futures March 2020 225 0.04 (168) S&P 500 E-Mini Futures March 2020 (480) (0.09) (115) US 10 Year Treasury Note Futures March 2020 Merrill Lynch 105 0.02 197 US 2 Year Treasury Note Futures March 2020 (33) (0.01) (202) US 5 Year Treasury Note Futures March 2020 Merrill Lynch 77 0.02 (106) (0.02)
US Dollar Denominated Options Contracts 0.01% (31 December 2018 0.02%) 6,300 Call CBOE VIX Futures January 2020 Merrill Lynch 143 0.03 (6,300) Call CBOE VIX Futures January 2020 Merrill Lynch (119) (0.03) 24 -
Investment assets* 508,491 95.94
Net other assets 21,503 4.06
Total net assets 529,994 100.00
* Including investment liabilities.
All investments are approved securities being either officially listed in a member state or traded on or under the rules of an eligible securities market, unless otherwise stated.
17 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Statement of total return for the year from 1 January 2019 to 31 December 2019 01.01.19 to 01.01.19 to 01.01.18 to 01.01.18 to 31.12.19 31.12.19 31.12.18 31.12.18 Note £'000 £'000 £'000 £'000
Income Net capital gains/(losses) 2 58,193 (66,882) Revenue 3 15,280 16,985 Expenses 4 (3,966) (4,508) Interest payable and similar charges 5 (93) (237) Net revenue before taxation 11,221 12,240 Taxation 6 (1,394) (1,727) Net revenue after taxation 9,827 10,513 Total return before distributions 68,020 (56,369) Distributions 7 (9,334) (9,384) Change in net assets attributable to shareholders from investment activities 58,686 (65,753)
Statement of change in net assets attributable to shareholders for the year from 1 January 2019 to 31 December 2019 01.01.19 to 01.01.19 to 01.01.18 to 01.01.18 to 31.12.19 31.12.19 31.12.18 31.12.18 £'000 £'000 £'000 £'000 Opening net assets attributable to shareholders 533,707 667,461
Amounts received on issue of shares 28,429 31,046 Amounts paid on cancellation of shares (99,937) (108,259) (71,508) (77,213) Dilution adjustment 139 159 Change in net assets attributable to shareholders from investment activities 58,686 (65,753) Retained distribution on accumulation shares 8,970 9,053
Closing net assets attributable to shareholders 529,994 533,707
The notes on pages 20 to 29 form an integral part of these financial statements.
18 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Balance sheet as at 31 December 2019 31.12.19 31.12.18 Note £'000 £'000 Assets Fixed assets Investments 512,382 531,231 Current assets Debtors 8 2,803 3,386 Cash and bank balances 9 22,961 11,621 Total assets 538,146 546,238
Liabilities Investment liabilities (3,891) (3,700) Creditors Bank overdrafts 10 (2,905) (7,218) Other creditors 11 (1,356) (1,613) Total liabilities (8,152) (12,531)
Net assets attributable to shareholders 529,994 533,707
The notes on pages 20 to 29 form an integral part of these financial statements.
19 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Notes to the financial statements for the year from 1 January 2019 to 31 December 2019
1 Accounting policies The applicable accounting policies adopted by the Quilter Investors Diversified Portfolio are included on pages 31 to 32.
2 Net capital gains/(losses) 01.01.19 to 01.01.18 to 31.12.19 31.12.18 £'000 £'000 The net capital gains /(losses) on investments comprise: Gains/(losses) on non-derivatives securities 61,132 (52,998) Losses on derivative contracts (4,764) (8,666) Gains/(losses) on forward currency contracts 3,501 (5,426) (Losses)/gains on currency contracts (1,673) 211 Handling charges (3) (3) Net capital gains/(losses) 58,193 (66,882)
Realised gains* 22,596 3,791 Unrealised gains/(losses)* 37,273 (70,881) Total realised/unrealised gains/(losses) 59,869 (67,090)
* Where realised gains include gains/(losses) arising in previous periods, a corresponding loss/gain is included in unrealised gains/(losses).
3 Revenue
01.01.19 to 01.01.18 to 31.12.19 31.12.18 £'000 £'000
Authorised Corporate Director's fee rebate 2,362 2,996 Authorised Corporate Director's capitalised fee rebate 1,131 1,516 Bank interest 7 6 Franked distributions on Collective Investment Schemes 2,446 2,542 Interest distributions on Collective Investment Schemes 3,777 4,167 Interest on debt securities 505 601 Non-taxable distributions on Offshore Funds 674 539 Non-taxable overseas dividends 647 301 Taxable distributions on Offshore Funds 3,131 3,931 UK dividends 549 270 UK REIT Dividends 48 116 Unfranked distributions on Collective Investment Schemes 3 - Total revenue 15,280 16,985
4 Expenses
01.01.19 to 01.01.18 to 31.12.19 31.12.18 £'000 £'000
Payable to the Authorised Corporate Director, associates of the Authorised Corporate Director and agents of either of them: Authorised Corporate Director's periodic charge 3,158 3,592 Fixed expenses* 808 916 Total expenses 3,966 4,508
* These figures represent the fixed expense charge which covers all fees payable to the Depositary (including associates etc.), and other expenses. The Audit fee for the year, excluding VAT, was £7,688 (31 December 2018: £7,500 ).
20 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Notes to the financial statements (continued) for the year from 1 January 2019 to 31 December 2019
5 Interest payable and similar charges
01.01.19 to 01.01.18 to
31.12.19 31.12.18
£'000 £'000
Bank overdraft interest 93 237
Total interest payable and similar charges 93 237
6 Taxation a) Analysis of tax charge in the year
01.01.19 to 01.01.18 to 31.12.19 31.12.18 £'000 £'000
Corporation tax suffered 1,381 1,717 Double taxation relief (11) (11) Overseas tax suffered 24 21 Total current tax charge for the year 1,394 1,727
Deferred tax charge for the year (see note 6(c)) - - Total taxation for the year (see note 6(b)) 1,394 1,727 b) Factors affecting current tax charge for the year
01.01.19 to 01.01.18 to 31.12.19 31.12.18 £'000 £'000
The taxation assessed for the year is lower than the standard rate of corporation tax in the UK for an open-ended investment company (20%). The differences are explained below:
Net revenue before taxation 11,221 12,240
Corporation tax at 20% (31 December 2018: 20%) 2,244 2,448
Effects of: Double taxation relief (11) (11) Revenue not subject to taxation – UK (598) (563) Non-taxable overseas dividends (265) (168) Overseas tax suffered 24 21 Total tax charge for the year (see note 6(a)) 1,394 1,727
OEICs are exempt from tax in capital gains, therefore, any capital return is not included in the above reconciliation. c) Movement in deferred tax liability
01.01.19 to 01.01.18 to 31.12.19 31.12.18 £'000 £'000
Deferred tax at the start of the year - - Deferred tax charge for the year (see note 6(a)) - - Deferred tax at the end of the year - -
21 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Notes to the financial statements (continued) for the year from 1 January 2019 to 31 December 2019
7 Distribution The distributions take account of revenue received on the issue of shares and revenue deducted on the cancellation of shares, and comprise: 01.01.19 to 01.01.18 to 31.12.19 31.12.18 £'000 £'000
Interim – Accumulation shares (30 June) 3,944 4,213 Final – Accumulation shares (31 December) 5,026 4,840 8,970 9,053 Revenue deducted on cancellation of shares 527 485 Revenue received on issue of shares (163) (154) Distributions 9,334 9,384
Reconciliation of distributions: Net revenue after taxation 9,827 10,513 Authorised Corporate Director's capitalised fee rebates (1,131) (1,516) Equalisation on Collective Investment Schemes 412 84 Tax effect of fee rebates taken to capital 226 303 Distributions 9,334 9,384
Details of the interim and final distributions per share are set out in the tables on page 30.
8 Debtors
31.12.19 31.12.18
£'000 £'000
Accrued Authorised Corporate Director's fee rebates 469 624
Accrued revenue 71 118
Amounts receivable for issue of shares 2,248 2,637 Overseas tax recoverable 15 7 Total debtors 2,803 3,386
9 Cash and bank balances
31.12.19 31.12.18
£'000 £'000
Amounts held at futures clearing houses and brokers 10,352 11,513
Cash and bank balances 12,609 108
Total cash and bank balances 22,961 11,621
10 Bank overdrafts
31.12.19 31.12.18 £'000 £'000
Amounts held at futures clearing houses and brokers - 6,588 Bank overdrafts 2,905 630 Total overdrafts 2,905 7,218
22 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Notes to the financial statements (continued) for the year from 1 January 2019 to 31 December 2019
11 Other creditors
31.12.19 31.12.18
£'000 £'000
Accrued Authorised Corporate Director's periodic charge 260 269
Accrued expenses 69 73
Amounts payable for cancellation of shares 405 495
Corporation tax payable 622 776
Total other creditors 1,356 1,613
12 Related party transactions Quilter Investors Limited, as ACD, is a related party, and acts as principal in respect of all transactions of shares in the fund. The aggregate monies received on issue and paid on cancellation are disclosed in the Statement of change in net assets attributable to shareholders on page 18. Any amounts due to or from the ACD at the end of the accounting period in respect of transactions of shares in the fund are disclosed in notes 8 and 11. Amounts paid to the ACD in respect of expenses are disclosed in note 4 and amounts due to it at the year end are disclosed in note 11. The fund held the following securities and the noted income in funds operated by the Investment Adviser throughout the year to 31 December 2019:
Market Value Gross Income Earned Shares Security Name £′000 £′000
Merian Asian Equity Income Fund - A Accumulation (GBP) 36* Merian Europe (ex UK) Smaller Companies Fund - U2 Accumulation 32* Merian Financials Contingent Capital Fund - F Income (GBP) 60* Merian Global Emerging Markets Fund - U2 Accumulation (GBP) 56* Merian Global Equity Income Fund - R Income 17* Merian Local Currency Emerging Market Debt Fund - U2 Distributing (GBP) 119* Merian Systematic Positive Skew Fund - X Accumulation (USD) - Merian UK Alpha Fund - R Accumulation 330* Merian UK Equity Income Fund - U2 Income 38* Merian UK Specialist Equity Fund - F Accumulation - Merian UK Specialist Equity Fund - R Accumulation - 3,876,129 Quilter Investors Absolute Return Bond Fund - U2 Accumulation 3,950 39 35,403,451 Quilter Investors Bond 1 Fund - A Income 15,850 990 25,622,221 Quilter Investors Bond 2 Fund - A Accumulation 25,407 1,352 56,402,903 Quilter Investors Bond 3 Fund - A Income 17,727 745 2,450,534 Quilter Investors Corporate Bond Fund - U2 Accumulation 2,700 4 4,129,238 Quilter Investors Emerging Markets Equity Growth Fund - U2 Accumulation 8,498 59 8,962,983 Quilter Investors Equity 1 Fund - A Accumulation 15,766 221 14,036,321 Quilter Investors Equity 2 Fund - A Accumulation 24,423 800 2,270,210 Quilter Investors Europe (ex UK) Equity Fund - U2 Income 3,675 31 2,098,821 Quilter Investors Europe (ex UK) Equity Income Fund - U2 Accumulation 2,281 - 94,111,889 Quilter Investors Global Dynamic Equity Fund - A Accumulation 126,675 302 8,262,378 Quilter Investors High Yield Bond Fund - A Accumulation (GBP) 8,543 319 3,431 Quilter Investors Japanese Equity Fund - A Accumulation 6 - 6,010,023 Quilter Investors UK Equity Opportunities Fund - U2 Accumulation 7,855 81 48,640 Quilter Investors US Equity Growth Fund - U2 Accumulation 72 - *Quilter Investors Limited was ACD of this fund until 31 March 2019.
23 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Notes to the financial statements (continued) for the year from 1 January 2019 to 31 December 2019
13 Derivatives and other financial instruments a) Financial instrument risk The fund, in pursuing its objective, holds a number of financial instruments, which may comprise of the following: Equity shares, equity related shares, fixed income securities and variable rate securities or funds of these instruments. The fund will also hold cash and other short term debtors and creditors that arise directly from its operations. In addition, the sub-fund may hold derivative instruments for the purpose of meeting the investment objective and/or efficient portfolio management in accordance with the COLL Sourcebook. The financial instruments are held in line with the fund's investment policy. Adherence to the investment guidelines and the investment and borrowing powers as set out in the Prospectus and in the rules of the COLL Sourcebook also mitigates the risk of excessive exposure to any particular type of security or issuer. Further information on the investment portfolio is set out in the Investment Manager’s review and the portfolio statement of the fund. The main risks arising from financial instruments are interest rate risk, foreign currency risk, credit risk, counterparty risk, liquidity risk and market risk which are summarised below. b) Foreign currency risk A proportion of the fund's financial assets and liabilities are invested overseas. As a result, movements in exchange rates may affect the market price of investments and, due to timing differences between the transaction dates of investment sales, purchases and income, and actual cash settlement, create currency exchange gains/losses. The Investment Adviser does seek to reduce some of this risk by using forward currency contracts. The direct foreign currency exposure of the fund as at 31 December 2019 (31 December 2018) was as follows:
Currency Net foreign currency assets/(liabilities) Net foreign currency assets/(liabilities)
Monetary Non-monetary Monetary Non-monetary exposures* exposures Total exposures* exposures Total 31.12.19 31.12.19 31.12.19 31.12.18 31.12.18 31.12.18 £′000 £′000 £′000 £′000 £′000 £′000 Australian Dollar (377) (1,718) (2,095) 157 (1,800) (1,643) Euro (127) (1) (128) 751 (44) 707 Japanese Yen (542) (3,439) (3,981) 11 (160) (149) New Zealand Dollar 282 584 866 53 224 277 Norwegian Krone 20 - 20 - 356 356 Swiss Franc 9 (1) 8 3 404 407 US Dollar (1,756) 16,932 15,176 (520) 24,717 24,197 Total (2,491) 12,357 9,866 455 23,697 24,152
* For the purpose of the above disclosure, monetary is taken to include only cash or near-cash items. Currency sensitivity A 5% increase in the value of the fund’s foreign currency exposure would have the effect of increasing the return and net assets as at 31 December 2019 by £493,281 or 0.09% (31 December 2018: £1,207,612 or 0.23%). A 5% decrease would have an equal and opposite effect.
24 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Notes to the financial statements (continued) for the year from 1 January 2019 to 31 December 2019
13 Derivatives and other financial instruments (continued) c) Interest rate risk Interest rate risk is the risk of movements in the value of financial instruments as a result of fluctuations in interest rates. The interest rate risk profile of the fund’s financial assets and liabilities at 31 December 2019 (31 December 2018) was as follows:
Currency Variable rate Fixed rate Financial assets not financial assets financial asset carrying interest Total 31.12.19 £′000 £′000 £′000 £′000 Australian Dollar - - 7 7 Euro 8 2,448 5,371 7,827 Japanese Yen 4 - 9 13 New Zealand Dollar 231 7,523 51 7,805 Norwegian Krone 20 - - 20 Sterling 22,894 271 577,980 601,145 Swiss Franc - - 8 8 US Dollar 67 - 135,824 135,891 Total 23,224 10,242 719,250 752,716
Currency Variable rate Fixed rate Financial assets not financial assets financial asset carrying interest Total 31.12.18 £′000 £′000 £′000 £′000 Australian Dollar 157 - - 157 Euro 722 2,038 17,648 20,408 Japanese Yen 11 - 1,067 1,078 Mexican Peso - - 2,042 2,042 New Zealand Dollar - 7,370 53 7,423 Norwegian Krone - - 356 356 Sterling 10,964 457 569,906 581,327 Swiss Franc - - 407 407 US Dollar 6,041 348 110,627 117,016 Total 17,895 10,213 702,106 730,214
Currency Variable rate Financial liabilities financial liabilities not carrying interest Total 31.12.19 £′000 £′000 £′000 Australian Dollar (377) (1,725) (2,102) Euro (159) (7,796) (7,955) Japanese Yen (546) (3,448) (3,994) New Zealand Dollar - (6,939) (6,939) Sterling - (81,017) (81,017) US Dollar (1,823) (118,892) (120,715) Total (2,905) (219,817) (222,722)
25 Quilter Investors Diversified Portfolio
Quilter Investors Diversified Portfolio
Notes to the financial statements (continued) for the year from 1 January 2019 to 31 December 2019
13 Derivatives and other financial instruments (continued) b) Interest rate risk (continued)
Currency Variable rate Financial liabilities financial liabilities not carrying interest Total 31.12.18 £′000 £′000 £′000 Australian Dollar - (1,800) (1,800) Euro - (19,701) (19,701) Japanese Yen - (1,227) (1,227) Mexican Peso - (2,042) (2,042) New Zealand Dollar - (7,146) (7,146) Sterling (6,588) (65,184) (71,772) US Dollar (630) (92,189) (92,819) Total (7,218) (189,289) (196,507)
Interest rate risk sensitivity In the event of changes in interest rates, there would be no material impact upon the assets of the fund. d) Credit risk Credit risk is the risk of suffering loss due to another party not meeting its financial obligation. The risk is managed by the Investment Adviser who monitors the credit profile of financial instruments in accordance with the objective and policy of the fund. Adherence to the investment guidelines and the investment and borrowing powers as set out in the Prospectus and in the rules of the COLL Sourcebook also mitigates the risk of excessive exposure to any particular type of security or issuer. Further information on the investment portfolio is set out in the Investment Advisers review and the Portfolio statement. e) Counterparty risk Certain transactions in financial instruments that a fund enters into have the risk that the counterparty will not meet its financial obligations, i.e. the investment (purchase) or cash (sale) after the fund has fulfilled its responsibilities. The fund will only buy and sell investments through brokers which have been approved by the ACD and Investment Adviser as an acceptable counterparty. This is overseen by the Depositary to ensure that the exposure to any counterparty remains appropriate for investors.
Forward foreign Futures and exchange options contracts Collateral Exposure Table 31.12.19 exposure exposure held Counterparty £′000 £′000 £′000 Citibank - 2,565 -
Exposure Table 31.12.18 Counterparty £′000 £′000 £′000 Citibank - 418 - HSBC - 440 560 Merrill Lynch 1,335 - -
For futures contracts, variation margin in the form of cash is pledged by the counterparty to mitigate the credit risk arising from positive balances. Where the fund is in a liability position, the fund pledges variation margin in the form of cash. Collateral arrangements with counterparties require assets of an agreed type and quality to be pledged where exposures are above a certain magnitude. At the year end, collateral of £2,332,000 in the form of cash was held for the fund on behalf of counterparties (2018:£560,000 in the form of cash). Collateral of £1,230,000 was pledged by the fund to counterparties in the form of cash (2018:£1,160,000 in the form of cash). f) Liquidity risk The fund's assets comprise mainly of readily realisable securities which can be sold promptly to meet liquidity requirements. The main source of this risk comes from the obligation from shareholders to meet any cancellation of shares. Assets from the fund may need to be sold to meet any redemption proceeds. As part of its operating duties the ACD regularly monitors the liquidity levels held on the fund (cash and underlying securities) to ensure any redemptions can be readily met. Some investments may be less liquid than other securities and can be more sensitive to economic factors. The rules of the COLL Sourcebook mitigates the risk of excessive exposure to assets which are not readily realisable.
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Quilter Investors Diversified Portfolio
Notes to the financial statements (continued) for the year from 1 January 2019 to 31 December 2019
13 Derivatives and other financial instruments (continued) g) Market risk Market risk arises from uncertainty about future prices of financial instruments held. The main source of risk to the fund is the potential movement in the value of financial instruments held as a result of price fluctuations. Stock market prices can move erratically and be unpredictably affected by diverse factors including political and economic events but also rumours and sentiment. The ACD adheres to the investment guidelines and borrowing powers set out within the Prospectus and the COLL Sourcebook. In this way the ACD monitors and controls the exposure to risk from any type of security, sector or issuer. The fund may also use derivative instruments to mitigate risk and reduce cost. Market price risk sensitivity A 5% market movement in the price of investments held by the fund, with all other variables remaining constant, would result in an increase or decrease on net asset value of the fund by approximately £25,394,820 or 4.79% (31 December 2018: £26,376,566 or 4.94%) h) Fair value of financial assets and liabilities There is no material difference between the carrying value of the financial assets and liabilities, as shown in the balance sheet, and their fair value.
Basis of valuation 31.12.19 Assets Liabilities A £′000 £′000
Level 1: Quoted prices 8,421 (1,168) 6 Level 2: Observable market data 503,961 (2,723) 47 Level 3: Unobservable data - - Total 512,382 (3,891) 53 i) Global exposure The Investment Adviser assesses the market risk of the Quilter Investors Diversified Portfolio, including any derivative exposures, using a commitment approach. All exposure arising through the investment in financial derivative instruments will be covered by the underlying assets of the fund. The fund will use the commitment approach methodology to measure, monitor and manage the “leverage” effect produced by the use of financial derivative instruments and for the calculation of global exposure. In using the commitment approach for the calculation of global exposure, the fund will convert each derivative position into the market value of an equivalent position in the underlying asset of that derivative. The gross sum of notionals (GSON) leverage figures are prepared with no hedging or netting of any asset class. Across the range of asset classes exposures are treated differently. For instance currency forwards are treated by valuing both legs of the underlying and expressing them as a percentage of the NAV. Physical assets are excluded to get the incremental exposure resulting from derivatives. Using the "gross sum of notionals" methodology, the leverage as at 31 December 2019 was 21.78% (31 December 2018: 36.99%).
14 Contingent liabilities The fund had no contingent liabilities at the balance sheet date (31 December 2018: £Nil).
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Quilter Investors Diversified Portfolio
Notes to the financial statements (continued) for the year from 1 January 2019 to 31 December 2019
15 Portfolio transaction costs
Analysis of total purchase costs Value Commissions Other costs 31.12.19 £'000 £'000 % £'000 %
Bonds 1,757 - - - - Equities 7,337 - - 3 0.04% Collective Investment Schemes 151,314 9 0.01% - - Corporate actions 506 - - - - Total 160,914 9 3 Total purchases including transaction costs 160,926
Value Commissions Other costs 31.12.18 £'000 £'000 % £'000 %
Bonds 4,903 - - - - Equities 18,015 5 0.03% 67 0.37% Collective Investment Schemes 103,473 6 0.01% - - Corporate actions 516 - - - - Total 126,907 11 67 Total purchases including transaction costs 126,985
Analysis of total sale costs Value Commissions Other costs 31.12.19 £'000 £'000 % £'000 %
Bonds 8,610 - - - - Equities 20,023 10 0.05% - - Collective Investment Schemes 212,696 18 0.01% - - Corporate actions 4,849 - - - - Total 246,178 28 - Total sales including transaction costs 246,150
Value Commissions Other costs 31.12.18 £'000 £'000 % £'000 %
Bonds 3,887 - - - - Equities 11,671 3 0.03% - - Collective Investment Schemes 181,720 3 - - - Corporate actions 670 - - - - Total 197,948 6 - Total sales including transaction costs 197,942
Transaction costs as a percentage of average Net Assets 31.12.19 31.12.18 Commissions: 0.01% 0.00% Other costs: 0.00% 0.01% Commissions on derivative transactions of £21,895 (31 December 2018: £50,456). There were no taxes on derivative transactions (31 December 2018: £Nil).
In the case of shares, transaction costs are paid by the fund on each transaction, commissions relate to those paid to agents, advisers, brokers and dealers in the buying and selling of securities. Other costs include any additional fees that may be paid to agents, advisers, brokers and dealers as well as levies by regulatory agencies and security exchanges and any transfer taxes or duties. Unlike shares, other types of investments have no separately identifiable transaction costs, these costs form part of the dealing spread. Dealing spreads may vary considerably depending on the transaction value and market sentiment. At the balance sheet date the dealing spread was 0.38% (31 December 2018: 0.49%).
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Quilter Investors Diversified Portfolio
Notes to the financial statements (continued) for the year from 1 January 2019 to 31 December 2019
16 Shareholders’ funds The fund currently has two share classes; Accumulation 'A' and Accumulation 'R'. The net asset value of each share class, net asset value per share and the number of shares in issue are given in the comparative tables on page 12. The share classes currently in issue and the ACD’s fee of each share class are shown below:
31.12.19 31.12.18 - Accumulation 'A' 1.25% 1.25% - Accumulation 'R' 0.50% 0.50%
Share class movement reconciliation Opening Issued Redeemed Closing
- Accumulation 'A' 62,417,000 132,889 (9,276,226) 53,273,663 - Accumulation 'R' 84,879,863 4,647,932 (14,935,661) 74,592,134
17 Post balance sheet date events The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a global health emergency on the 30th January 2020, has caused disruption to businesses and economic activity which has been reflected in recent fluctuations in global stock markets. The ACD is monitoring developments relating to COVID-19 and is coordinating its operational response based on existing business continuity plans and on guidance from global health organisations, UK government and general pandemic response best practice. The emergence and spread of COVID-19 is considered to be a non-adjusting post balance sheet event. Subsequent to the year end, the fund’s NAV has suffered as a result of a decline in global stock markets and the latest NAV as at the fund's valuation point on 16 April 2020 had declined as shown in the table below.
31.12.19 16.04.20 % pence per share pence per share Movement - Accumulation 'A' 106.58 92.70 (13.02) - Accumulation 'R' 634.40 552.70 (12.88)
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Quilter Investors Diversified Portfolio
Distribution tables
Final distribution
Group 1: Shares purchased prior to 1 July 2019 Group 2: Shares purchased from 1 July 2019 to 31 December 2019
Distribution Distribution Revenue Equalisation paid 28.02.20 paid 28.02.19 pence per share pence per share* pence per share pence per share Accumulation 'A' Shares Group 1 0.7255 - 0.7255 0.5863
Group 2 0.2320 0.4935 0.7255 0.5863
Accumulation 'R' Shares Group 1 6.2191 - 6.2191 5.2706
Group 2 2.2152 4.0039 6.2191 5.2706
Interim distribution
Group 1: Shares purchased prior to 1 January 2019 Group 2: Shares purchased from 1 January 2019 to 30 June 2019
Distribution Distribution Revenue Equalisation paid 31.08.19 paid 31.08.18 pence per share pence per share* pence per share pence per share Accumulation 'A' Shares Group 1 0.4851 - 0.4851 0.4308
Group 2 0.1521 0.3330 0.4851 0.4308
Accumulation 'R' Shares Group 1 4.6352 - 4.6352 4.3465
Group 2 1.6298 3.0054 4.6352 4.3465
* Equalisation only applies to shares purchased during the distribution period (Group 2 shares). It is the average amount of revenue included in the purchase price of all Group 2 shares and is refunded to holders as a return of capital. Being capital, it is not liable to income tax but must be deducted from the cost of shares for capital gains tax purposes.
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Quilter Investors Diversified Portfolio
Accounting policies a) Basis of preparation The financial statements have been prepared on the historical cost basis, as modified by the revaluation of investments, in compliance with FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland and in accordance with the Statement of Recommended Practice for Authorised Funds (SORP) issued by the Investment Management Association in May 2014. The ACD has undertaken a detailed assessment of the fund’s ability to meet its liabilities as they fall due, including liquidity, declines in global capital markets and investor redemption levels. Based on this assessment, the fund continues to be open for trading and the ACD is satisfied the fund has adequate financial resources to continue in operation and accordingly it is appropriate to adopt the going concern basis in preparing the financial statements. The principal accounting policies, which have been applied consistently throughout the year, are set out below. b) Recognition of revenue Dividends on quoted ordinary shares, preference shares and distributions on holdings in Collective Investment Schemes are recognised when the securities are quoted ex-dividend. Where such securities are not quoted, dividends are recognised when they are declared. Nominal interest on interest bearing securities and bank interest are recognised on an accruals basis. Accrued interest purchased and sold on interest bearing securities is excluded from the capital cost of these securities and dealt with as part of the revenue of the fund. Revenue arising on debt securities that are purchased at a discount/premium to the maturity value is amortised or accumulated over the life of such securities and recognised at a consistent rate over the life of the instrument (effective yield basis). This basis uses the effective interest rate of the security to discount exactly the expected stream of future cash flows to the current net carrying value of the security. All distributions from accumulation holdings in Collective Investment Schemes are treated as revenue. The equalisation component of Collective Investment Scheme distributions has been recognised as capital. c) Treatment of stock dividends Ordinary stock dividends are recognised wholly as revenue and are based on the market value of the shares on the dates they are quoted ex-dividend. Where an enhancement is offered, the amount by which the market value of the shares (on the date they are quoted ex-dividend) exceeds the cash dividend is taken to capital. The ordinary element of stock dividends is treated as revenue but does not form part of the distribution. d) Special dividends and share buy backs The underlying circumstances behind both special dividends and share buy backs are reviewed on a case by case basis in determining whether the amount is revenue or capital in nature. Amounts recognised as revenue will form part of the distribution. Any tax treatment will follow the accounting treatment of the principal amount. e) Underwriting commissions Underwriting commission is wholly recognised as revenue when the issue takes place, except where the fund is required to take up some or all of the shares underwritten, in which case an appropriate proportion of the commission received is deducted from the cost of those shares. f) Treatment of expenses All expenses, except those relating to the purchase and sale of investments, are included in expenses, in the Statement of Total Return. Expenses are recognised on an accruals basis and include irrecoverable VAT where appropriate. g) Revenue allocation to share classes Revenue is allocated to the share classes of each fund based on the proportion of assets held within each share class. h) Rebate of authorised corporate director’s fees from underlying instruments The fund may be entitled to a rebate of authorised corporate director’s charge, or is sometimes paid as renewal commission, when it holds underlying investments in Collective Investment Schemes. This is accrued daily and treated as revenue or capital depending on the treatment of the authorised corporate director’s charge in the underlying investment. i) Taxation and deferred tax Provision is made for corporation tax at the current rate on the excess of taxable revenue over allowable expenses. Provision is made on all material timing differences arising from the different treatment of items for accounting and tax purposes. A deferred tax asset is recognised only to the extent that there will be taxable profits in the future against which the asset can be offset. j) Distribution policy All of the net revenue available for distribution at the end of interim and final distribution periods will be distributed to shareholders. Any share class in deficit of revenue will be made-up from the capital attributable to that share class. Should taxation and expenses taken together exceed revenue, there will be no distribution and the shortfall will be met from capital. The fund distributes revenue on debt securities on an effective yield basis. Equalisation received on Collective Investment Scheme distributions will be distributed.
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Quilter Investors Diversified Portfolio
Accounting policies (continued) k) Basis of valuation of investments The investments of the fund are valued at noon bid prices on the last business day of the accounting year. Any unquoted or suspended investments are valued at the ACD’s valuation taking into account, where appropriate, latest dealing prices, valuations from reliable sources, financial performance and other relevant factors. The ACD may apply a fair value price determined in accordance with the COLL Sourcebook if it has reasonable grounds for believing that no reliable price exists for a security at a valuation point or the most recent price available does not reflect the ACD’s best estimate of the value at the valuation point. Where a fund invests in securities markets that are closed for trading (including planned stock exchange closures) at the fund's valuation point, there is a risk that the price calculated is not representative of the markets in which it invests due to developments since the market’s closure. Potentially this could lead to gains or losses on the fund as it opens a window for investors or market timers to buy or sell at stale prices. An example would be when a fund is priced using end of day prices from a market which closed for trading for a material period prior to the fund's valuation point, for example, a UK fund which is invested in US stocks, valuing at 12 noon UK time and using US asset prices from the previous day close of the US market within the fund valuation. During this period it may be concluded that prices may change significantly when the market re-opens, based on a global event or on indications from the global futures markets. In this scenario, the ACD has the power to invoke a fair value price to give our best estimate of the value of the market or asset in question using a reliable source. A delegated committee is responsible for the monitoring and approval of any fair value pricing decisions. The fair value pricing policy for Quilter Investors Diversified Portfolio differs dependant on the type of instruments held within the portfolio, their economic exposure and the materiality of any fair value adjustment. The ACD’s fair value pricing policy is regularly reviewed by the Depositary of the fund to ensure adherence to the COLL Sourcebook. Authorised unit trusts and collective investment schemes operated by the ACD have been valued at cancellation price. Single priced authorised trusts, open ended investment companies and collective investment schemes have been valued at the latest available dealing price. Dual priced authorised trusts, open ended investment companies and collective investment schemes have been valued at the latest available dealing price. l) Exchange rates Assets and liabilities in foreign currencies are translated into sterling at the exchange rates ruling at close of business on the last business day of the accounting year. Revenue items in foreign currencies are translated into sterling at the exchange rates ruling when the revenue is received. m) Financial instruments Where appropriate, certain permitted financial instruments such as derivatives or forward currency contracts are used for efficient portfolio management. Where such financial instruments are used to protect or enhance revenue, the revenue and expenses derived therefrom are included in “revenue” or “expenses” in the statement of total return. Where such financial instruments are used to protect or enhance capital, the gains and losses derived therefrom are included in “Net capital gains/(losses)” in the statement of total return. Any positions on such financial instruments open at the year end are reflected in the balance sheet at their market value at the close of business on the last business day of the accounting year. Assets and liabilities in foreign currencies are translated into sterling at the exchange rates ruling at close of business on the last business day of the accounting year. n) Dilution policy The ACD has discretion to require a dilution adjustment to be included in the price of a share on the purchase or redemption of shares in the fund. The ACD's policy is to make a dilution adjustment when the ACD believes it is in the interest of the shareholders to do so.
32 Quilter Investors Diversified Portfolio