Annual report: Period Ended 31 December 2012 - Invesco Perpetual

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44 City Merchants High Yield Trust Limited Notes to the Financial Statements continued 2. Principal Accounting Policies continued (c) Financial Instruments continued (v) Classification of Financial Assets and Financial Liabilities continued Financial Assets continued Financial assets held at fair value through profit or loss are initially recognised at fair value, which is taken to be their cost, with transaction costs expensed in the statement of comprehensive income, and are subsequently valued at fair value. For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted bid prices at the balance sheet date. For investments that are not actively traded or where active stock exchange quoted bid prices are not available, fair value is determined by reference to a variety of valuation techniques including broker quotes and price modelling. Where there is no active market, investments are valued by the Directors at fair value based on recommendations from Invesco’s Pricing Committee using valuation techniques such as earnings multiples, recent arm’s length transactions and net assets. Financial Liabilities Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method. (d) Hedging and Derivatives Forward currency contracts entered into for hedging purposes are valued at the appropriate forward exchange rate ruling at the balance sheet date. Futures contracts entered into for hedging purposes and any profits and losses on the closure or revaluation of positions are recognised in the statement of comprehensive income and taken to capital reserves. Derivative instruments are valued at fair value in the balance sheet. (e) Cash and Cash Equivalents Cash and cash equivalents comprise cash at bank and short-term deposits with an original maturity date of three months or less. (f) Revenue Recognition All income is recognised in the statement of comprehensive income. Interest income arising from fixed income securities and cash is recognised using the effective interest method. Dividend income arises from equity investments held and is recognised on the date investments are marked ‘ex-dividend’. Deposit interest and underwriting commission are taken into account on an accruals basis. (g) Expenses and Finance Costs All expenses are accounted for on an accruals basis and are recognised in the statement of comprehensive income. Investment management fees and finance costs are allocated 35% to capital and 65% to revenue in accordance with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio. Except for custodian dealing costs, all other expenses are charged through revenue. Expenses in relation to the set up of the Company are charged to stated capital. (h) Tax Overseas interest and dividends are shown gross of withholding tax and the corresponding irrecoverable tax is shown as a charge in the statement of comprehensive income. 3. Segmental Reporting The Directors are of the opinion that the Company is engaged in a single segment of business of investing in debt, and, to a significantly lesser extent equity securities, and therefore no segmental reporting is provided.
City Merchants High Yield Trust Limited 45 4. Income 19 December 2011 to 31 December 2012 £’000 Income from investments UK dividends 453 UK investment income – interest 2,286 Overseas investment income – interest 3,669 Overseas dividends 2 6,410 Other income Deposit interest 12 Total income 6,422 5. Investment Management Fee 19 December 2011 to 31 December 2012 Revenue Capital Total £’000 £’000 £’000 Investment management fee 433 233 666 Details of the investment management agreement are disclosed in the Report of the Directors. At the period end the management fee accrued was £234,000. 6. Other Expenses 19 December 2011 to 31 December 2012 Revenue £’000 General expenses (i) 179 Directors’ fees (ii) 81 Auditor’s remuneration: – for the audit of the financial statements 26 (i) (ii) General expenses include £37,500 due to R&H Fund Services (Jersey) who act as Administrator and Company Secretary to the Company under an Agreement dated 19 December 2011. This agreement is terminable at any time by either party giving no less than three months’ notice. The fee is payable quarterly in arrears based on the initial rate of £37,500 per annum. The fee is revised with effect from 1 January each year, by the application of a formula based on the Retail Price Index for the month of March in the relevant year. An additional £5,000 was also paid to R&H Fund Services (Jersey) in respect of set up costs of the Company and charged to stated capital. General expenses also include an administration fee due to Invesco Asset Management Limited of £17,000 for the period which is payable quarterly in arrears based on the initial rate of £22,500 per annum. The fee is revised with effect from 1 July each year by the application of a formula based on the Retail Price Index for the month of May in the relevant year. The maximum Directors’ fees authorised by the Articles of Association are £150,000 per annum. An amount of £26,875, equivalent to one quarter of the annual directors’ fees, has been charged to stated capital as part of initial issue costs in connection with set up of the Company. (iii) There were no non-audit services in the period. 286
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Annual report: Period Ended 31 December 2012 - Invesco Perpetual

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