Ecclesiastical Investment Funds annual report and accounts - long ...

ECCLESIASTICAL Investment Funds 45Notes to the Financial Statements1. Accounting Policiesa. Basis of accountingThe Financial Statements have been prepared in accordancewith the historical cost convention, as modified by the revaluationof investments, and in accordance with the Statement ofRecommended Practice for Authorised Funds issued by theInvestment Management Association (IMA), in November 2008(the IMA SORP 2008).During the year, the Company adopted the IMA SORP 2008.This has resulted in presentational changes to the Statementof Total Return whereby other (losses)/gains and transactioncharges are now classified as Net capital gains/(losses).The effect of this is to remove £201,520 (2008: £3,022,223)from ‘Other (losses)/gains’ and reduce ‘Expenses’ by £12,679(2008: £19,002) with a net corresponding change in‘Net capital gains/(losses)’.OtherTransaction(losses)/gains charges2009 2008 2009 2008£’000 £’000 £’000 £’000Amity UK Fund 1 61 2 4Amity European Fund (144) 947 2 3Higher Income Fund 23 430 2 4Amity International Fund (82) 1,573 4 6UK Equity Growth Fund - 1 3 2Amity Sterling Bond Fund - 10 - -(202) 3,022 13 19b. Valuation of investmentsAll investments are valued at their fair value as at 10:00 am on 31December 2009, being the last business day of the financial year.The fair value of non-derivative securities is bid price, excludingany accrued interest. Unquoted investments are shown at theManager’s valuation.c. Foreign exchangeThe values of assets and liabilities denominated in foreigncurrencies have been converted into sterling at the exchange rateprevailing at 10:00am on 31 December 2009. Any exchangedifferences arising on translation of investments and capitalassets and liabilities other than investments are included in “Netcapital gains/(losses)”. Any exchange differences arising ontranslation of other assets or liabilities are included in net revenue.d. RevenueAll dividends on investments declared ex-dividend up to theaccounting date are shown as gross revenue. Bank and otherinterest receivable is included on an accruals basis. Accruedinterest purchased and sold on interest bearing securities isexcluded from the capital cost of these securities and dealt withas part of the revenue of the Company. Revenue from interestbearing securities is accounted for on an effective yield basis,irrespective of the level of discount or premium, and is calculatedwith reference to the purchase price of the securities. Revenueis allocated to the share classes of each sub-fund based on theproportion of assets held by each share class. Underwritingcommission is taken to revenue and is recognised when theissues take place, except where the sub-fund is required totake up all or some of the shares underwritten, in which case anappropriate proportion of the commission is deducted from thecost of these shares.e. ExpensesAll expenses, other than those relating to the purchase and saleof investments and Stamp Duty Reserve Tax (SDRT) are chargedagainst revenue, with the exception of Amity Sterling Bond Fundwhere management expenses have been charged against capitalsince inception and Higher Income Fund since 2003. Expensesrelating to each sub-fund are allocated to the share classes basedon the proportion of assets held within each share class.f. TaxationThe sub-funds are liable to Corporation Tax applied at a rate of20.0% on interest, overseas dividend revenue and underwritingcommission. Deferred tax is provided for by the liability method onall short-term timing differences. UK dividend revenue is disclosednet of any related tax credit. Overseas dividends continue to bedisclosed gross of any foreign tax suffered, the tax element beingshown separately in the taxation note.Where overseas tax has been deducted from overseas revenuethat tax can, in some instances, be set off against the corporationtax payable, by way of double tax relief.g. Deferred taxationThe charge for deferred tax is based on the net revenue for theyear and takes into account taxation deferred because of timingdifferences between the treatment of certain items for taxationand accounting purposes. Deferred tax is provided using theliability method on all timing differences, calculated at the rate atwhich it is anticipated the timing differences will reverse basedon tax rates and laws that have been enacted or substantivelyenacted. Deferred tax assets are recognised only when, on thebasis of available evidence, it is more likely than not that therewill be taxable profits in the future against which the deferred taxasset can be offset. Deferred tax liabilities are not discounted.2. Distribution Policiesa. Revenue distribution to corporate shareholdersA shareholder liable to UK Corporation Tax receives the dividenddistribution and associated tax credit as franked investmentincome to the extent that the gross revenue from which thedistribution is made is franked investment income.The shares of class ‘A’ and ‘B’ are distribution shares, while theshares of class ‘C’ are accumulation shares.The holders of accumulation shares must add the revenueaccumulated (excluding equalisation) to the cost of such sharesfor capital gains tax purposes.b. EqualisationEqualisation applies only to units purchased during the distributionperiod (Group 2 units). It is the average amount of revenueincluded in the purchase price of all Group 2 units and is refundedto the holders of these units as a return of capital. Being capital itis not liable to Income Tax but must be deducted from the cost ofunits for Capital Gains Tax purposes.