SKANDIA GLOBAL FUNDS PLC - Fidelity Investments

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Skandia Global Funds plc Interim Report and Unaudited Financial Statements for the period ended 30 June 2012 GENERAL INFORMATION (continued) Securities Lending A Fund may lend securities to a counterparty approved by the Manager. Such securities lending agreements may only be effected in accordance with normal market practice. The types of collateral that may be obtained under these agreements and the restrictions applicable to them are set out in the Prospectus of the Company. In participating in any securities lending programme, assets of the Company may be transferred to certain borrowers. Notwithstanding the requirement to receive collateral from any borrower, there are certain risks inherent in the lending of securities, such as the bankruptcy or default of a borrower or securities lending agent and a Fund could experience delays in liquidating the collateral and incur expenses in enforcing its rights. In addition, there are certain market risks associated with the investment of any collateral received from a borrower which could result in a decline in the value of the invested collateral resulting in a loss to the Company. The Company must have the right to terminate the securities lending agreement at any time and demand the return of any or all of the securities loaned. The agreement must provide that, once such notice is given, the borrower is obliged to redeliver the securities within 5 business days or other period as normal market practice dictates. The securities lending programme is discussed in further detail in Note 14 on page 212. Selling Restrictions The shares may not be purchased or held by US persons unless pursuant to an exemption under applicable US law and may not be offered or sold in any jurisdiction in which such offer or sale is not lawful or in which the person making such offer or sale is not qualified to do so or to anyone to whom it is unlawful to make such an offer or sale. Dealing Days A dealing day means every Business Day (as defined for each Fund in the Prospectus) or such other days as the Directors may determine provided that there shall be at least one Dealing Day each fortnight. 13
Skandia Global Funds plc Interim Report and Unaudited Financial Statements for the period ended 30 June 2012 <strong>SKANDIA</strong> <strong>GLOBAL</strong> EQUITY FUND INVESTMENT ADVISER’S REPORT FOR THE PERIOD ENDED 30 June 2012 Skandia Global Equity Fund – Five Oceans Asset Management Limited Below is a report from the Investment Adviser of the Skandia Global Equity Fund for the first six months of 2012. The Skandia Global Equity Fund was launched on 13 September 2000 with a starting Net Asset Value per share of USD 1.00. Investment Adviser’s Commentary The Skandia Global Equity Fund underperfomed its benchmark for the first half of 2012, the MSCI World Index Net. The Fund returned +0.37%, while the benchmark index posted a total net return of +5.91% over the period.* The Fund outperformed the benchmark over the first quarter. The biggest stock contributors to the fund’s performance were computer giant Apple, plus heavyweights Citigroup and AXA from the strongly outperforming financials sector. Apple’s shares continued to outperform as investors upgraded their growth expectations after the company’s stellar fourth quarter results and the strong launch of the latest iPad in March. Sales of the new device exceeded the company’s own expectations, with customer satisfaction surveys reaching the unheard of level of 95%. During the quarter, Apple also announced it would begin returning capital through both a dividend, its first since 1995, and a US$10bn share buyback. Financial stocks generally had a very strong quarter. European banks bounced strongly from very depressed levels as the benefits of the European Central Bank’s long term refinancing operation (LTRO) underpinned their survival assuaging the market’s gravest fears. Having said that, the longer term prospects for both lending growth and bad debts in some of Europe’s more exposed economies suggested caution. US banks, however, also had a very strong quarter. The Fund’s key US bank holding, Citigroup, produced semi-annual report results. Growth might not be dramatic, but the investment adviser believes investors will be well rewarded for continuing to own these important institutions. The main detractors from performance were energy holdings, notably Royal Dutch Shell and Arch Coal. Arch Coal is the second largest coal producer in the US and suffered during the quarter, as decade-low US natural gas prices and a relatively warm winter adversely affected the domestic coal market. In addition, investors were worried about Arch Coal’s metallurgical coal exposure as China growth slows. The Fund underperformed the benchmark during the quarter. More defensive names remained at high valuations, but the Fund’s value bias produced a skew towards more cyclical names, which underperformed over the second quarter. Certain stock-specific problems also arose over the period, which resulted in sharp corrections in the uncertain markets. The hedging structures used by the Fund, with the net position conservatively positioned between 70% and 80%, could not compensate fully for the combination of this portfolio skew and the company specific issues. JP Morgan and Barclays were major detractors over the second quarter as each company faced material questions over their corporate governance and risk management. The investment adviser had felt that probes into banking behaviours in the wake of the financial crisis were drawing to a close with new regulations in place and both banks having made strong assurances that they were through these processes. In the case of JP Morgan, the company also announced a significant trading loss at its Chief Investment Office, though the amount was not revealed at the time of writing. The loss was a significant shock to investors. As at the end of the quarter, the investment adviser had greatly reduced the holding in JP Morgan in light of significantly reduced confidence in its risk management practices and the commercial significance of the now increasingly challenging political environment. Source: Five Oceans Asset Management Limited, as at 29th June 2012. *Performance figures refer to Class A shares and are sourced from Morningstar. Calculation basis: bid to bid, net of fees, gross income reinvested in Fund base currency (US Dollars). References to benchmarks are for illustrative purposes only and are not intended to imply a performance objective. There is no guarantee that the Skandia Global Equity Fund will outperform this benchmark. 14
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