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Significant accounting policies cont/d

In document Fund Financial Statements (Page 111-114)

Notes to the financial statements for the year ended 30 November 2013 cont/d…

1. Significant accounting policies cont/d

iv) Accounting for investment transactions and income cont/d...

Realised gains and losses on sales of investments are calculated based on the average book cost of the investment and are included in net gains or losses on financial assets at fair value through profit or loss in the Profit and Loss Account. Unrealised gains and losses on investments arising during the year are also included in net gains or losses on financial assets at fair value through profit or loss in the Profit and Loss Account. The unrealised gain or loss on open forward foreign currency exchange contracts is calculated by reference to the difference between the contractual rate and the rate to close out the contract at the Balance Sheet date. Gains and losses relating to forward foreign currency exchange contracts are included in net gains or losses on financial assets at fair value through profit or loss in the Profit and Loss Account.

v) Foreign exchange

In accordance with FRS 23 (“Functional Currency”), items included in the individual Sub-Fund‟s financial statements are measured using the currency of the primary economic environment in which it operates, the functional currency. The functional currency assessment is done on a Sub-Fund by Sub-Fund basis. All Sub- Funds‟ base currencies equated to their respective functional currencies when assessed under FRS 23.

The functional currency (and presentational currency) of Americayield Fund, Transatlanticyield Fund, ShortDurationHighYield Fund, LongShortCreditYield Fund, EmergingMarketsShortDuration Fund and Global Tactical Credit Fund is US Dollars (US$). The functional currency (and presentational currency) of €uropeyield Fund, Enhancedyield Short-Term Fund and Bondyield ESG Fund is Euro.

Foreign currency denominated assets and liabilities, including investments, are translated to the functional currency of the relevant Sub-Fund at the exchange rate prevailing at the year end date. Transactions in foreign currencies are translated to the functional currency of the relevant Sub-Fund at the exchange rates ruling at the dates of the transactions. The foreign exchange gain or loss based on the translation of the original cost of investments is included in net gains or losses on financial assets at fair value through profit or loss in the Profit and Loss Account. The foreign exchange gain or loss on the translation of other assets or liabilities is included in other gains or losses in the Profit and Loss Account.

vi) Net assets attributable to Unitholders

The liability to Unitholders is presented in the Balance Sheet as "Net assets attributable to Unitholders" and is determined based on the residual assets of the relevant Sub-Fund after deducting all other liabilities. The prices at which Units may be issued or redeemed are calculated by reference to the relevant Sub-Fund‟s Net Asset Value calculated daily in accordance with the Prospectus and the Trust Deed.

vii) Expenses

All expenses, including Management and Trustee Fees, are recognised in the Profit and Loss Account on an accruals basis. Fees and charges which are identifiable with a particular Sub-Fund are charged to it and other charges are borne pro-rata to the net assets of each Sub-Fund.

viii) Critical accounting estimates and judgements

The Manager makes estimates and assumptions concerning the future. The resulting accounting estimates may not equal the actual results.

In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. The Sub-Fund may use credit default swaps to provide a measure of protection against defaults of sovereign or corporate issues (i.e. to reduce risk where the Sub-Fund owns or has exposure to the issuer).

The maximum exposure the Sub-Fund has in selling credit protection is equal to the notional amount of such credit default swap contracts. For credit default swaps on corporate or sovereign issuers, a credit event may be triggered by events such as bankruptcy, failure to pay, obligation acceleration, repudiation, moratorium or restructuring. The Investment Manager monitors a variety of factors including credit ratings, cash flow assumptions, market activity, market sentiment and valuation as part of its ongoing process of assessing payment and performance risk. In connection with these agreements, cash or securities may be set aside as collateral by the Custodian in accordance with the terms of the swap agreement.

Swaps (including credit default swaps) are marked-to-market daily using standard models that incorporate quotations from market makers and the change in value, if any, is recorded as unrealised gain or loss in the Profit and Loss Account.

Interest rate swaps are valued on the basis of present value of expected future cash flows. These are marked- to-market using data from industry sources.

Payments received or made on swap contracts are recorded as realised gains or losses in the Profit and Loss Account. Gains or losses are realised upon termination of the swap agreements. These financial instruments are not actively traded on exchanges. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realised had a ready market for these instruments existed and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognised in the Profit and Loss Account. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions.

In a total return swap, one party pays the other the total economic performance of a specified asset(s), the Reference Obligation(s), for another cash flow, typically LIBOR plus a spread. The performance or “Total Return” comprises the sum of interest, dividends, fee payments, and any payment due to the change in value of the Reference Obligation. Payments due to change in value are equal to the appreciation (or depreciation) in the marked to market value of the Reference Obligation. A net depreciation in value (i.e. a negative total return) results in a payment to the Total Return Payer. A total return swap may provide for acceleration of its termination date upon the occurrence of one or more referenced events with respect to a Reference Obligation.

Notes to the financial statements for the year ended 30 November 2013

cont/d…

1. Significant accounting policies cont/d...

ix) Swaps cont/d...

To mitigate the counterparty risk resulting from swap transactions, the relevant Sub-Fund will only enter into swap transactions with highly rated financial institutions specialised in this type of transaction and in accordance with the standard terms laid down by the International Securities Dealers Association.

x) Options

Call and put options may be used to gain long and short exposure to specific securities and to hedge against downside risk. Options may also be purchased to hedge against currency and interest rate risk and the Investment Manager may write put options and covered call options to generate additional revenues for a Sub- Fund. The Investment Manager will not write uncovered call options.

xi) Securities lending programme

During the year ended 30 November 2012 Americayield Fund and Transatlanticyield Fund participated in a securities lending programme pursuant to the Securities Lending Authorisation Agreement dated 23 May 2007, as amended (the “Securities Lending Programme”). The Securities Lending Agreement is an agreement among the Manager of the Sub-Fund, State Street Bank and Trust Company and State Street Bank GmbH, London Branch.

The accounting policies for securities lending income and cash received as collateral from the relevant counterparties are detailed below.

Both Sub-Funds suspended their securities lending activities during 2012. Therefore the Sub-Funds had no securities on loan at 30 November 2013 or at 30 November 2012. They also did not hold any cash collateral relating to securities lending at 30 November 2013 or 30 November 2012.

Collateral

Under this agreement State Street Bank GmbH, London Branch acted on behalf of the relevant Sub-Fund. State Street Bank GmbH, London Branch received and held, on behalf of the relevant Sub-Fund, collateral from counterparties to secure the obligations of those counterparties pursuant to the lending transactions. As such, the collateral was not shown in the Balance Sheet of the relevant Sub-Fund.

The collateral had a market value of not less than 100% of the market value of the securities that participated in the Securities Lending Programme. There was no transfer of ownership in relation to securities held by the relevant Sub-Fund which participated in the Securities Lending Programme. As such the relevant Sub-Fund continued to enjoy the risks and rewards of ownership in regard to the loaned securities.

The collateral received from the relevant counterparties to the securities lending programme was in the form of cash. This cash was re-invested in SSgA Cash Management Fund Plc.

Income

Income generated from the investment of cash collateral in addition to fees earned in regard to securities lending was reported as securities lending income in the Profit and Loss Account on an accruals basis.

xii) Transactions costs

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability. An incremental cost is one that would not have been incurred if the entity had not acquired, issued or disposed of the financial instrument.

Transaction costs on the purchase and sale of bonds and financial derivative instruments are expensed on the date of the purchase or sale of the relevant investment.

meet all the following conditions:

i) substantially all of the entity‟s investments are highly liquid;

ii) substantially all of the entity‟s investments are carried at market value; and iii) the entity provides a Statement of Movement in Net Assets.

The information required by FRS 3 "Reporting Financial Performance", to be included in a Statement of Total Recognised Gains and Losses and a Reconciliation of Movements in Unitholders‟ Funds is, in the opinion of the Manager, contained in the Profit and Loss Account and the Statement of Movement in Net Assets Attributable to Unitholders. In arriving at the results for the year, all amounts in the Profit and Loss Account relate to continuing activities.

In accordance with FRS 23 "The Effects of Changes in Foreign Exchange Rates", items included in the relevant Sub-Fund‟s financial statements are measured using the currency of the primary economic environment in which it operates (functional currency). The Sub-Funds have also adopted its functional currency as the presentation currency (see "Note 1 v) Foreign exchange" above).

In document Fund Financial Statements (Page 111-114)

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