L&G (N) Target Return Trust Annual Manager’sReport ... · Annual Manager’sReport...

L&G (N) Target Return Trust

Annual Manager’s Reportfor the year ended31 July 2011

Distribution Number 13

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Page Number

Manager’s Investment Report* 2

Authorised Status* 6

Directors’ Statement 6

Statement of the Manager’s Responsibilities 7

Statement of the Trustee’s Responsibilities 7

Report of the Trustee 8

Portfolio Statement* 9

Independent Auditors’ Report 31

Statement of Total Return 33

Statement of Change in Net Assetsattributable to Unitholders 33

Balance Sheet 34

Notes to the Financial Statements 35

Distribution Tables 48

Trust Facts 49

Performance Record 50

General Information* 51

* These collectively comprise the Manager’s Report.

Contents

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Investment Objective and PolicyThis Trust aims to deliver long-term capital growth whichexceeds the Bank of England’s base interest rate as set by theMonetary Policy Committee or successor bodies. It willprincipally invest in fixed interest stocks (corporate andGovernment), UK and overseas equities and cash with themanager retaining the flexibility to invest up to 100% of theTrust in approved money market instruments, cash or nearcash assets.

Manager’s Investment ReportDuring the year under review, the Trust’s accumulation unitsincreased by 7.8%. The UK Base rate during the review periodwas 0.5% and the Trust’s target performance is base rate + 1%i.e. 1.5%.

Past performance is not a guide to future performance.

The value of investments and any income from them may godown as well as up.

Exchange rate changes may cause the value of any overseasinvestments to rise or fall.

Market/Economic ReviewGlobal stock-markets continued to make progress during thereview year,with the MSCIWorld Index rising 13.7% in Sterlingterms on a total basis. UK Government bonds returned 6.7%and outperformed investment grade credit which returned 4.6%over the year. Commodities were the top performing asset classwith the S&P GSCI Index returning 16.8% (Source: Bloomberg).

Risk assets have outperformed on aggregate due to strongcorporate profitability and accommodative policy from centralbanks. Evidence of a recovery in economic data, especially inthe US had provided support for the majority of the year underreview although readings started to disappoint in the secondquarter of 2011.

In the second and third quarters of 2011, key risks to therecovery have emerged. The first quarter of 2011 witnessedtumultuous and tragic events in the Middle East and Japan. Theformer region has experienced a wave of uprisings againstincumbent leaderships in Bahrain, Egypt, Libya, Syria andTunisia, leading to heightened geopolitical tensions and a sharprise in the oil price. The market managed to digest these eventsand risk assets advanced over the first quarter, as corporateprofits remained strong and data stable. However, the sovereign(government) debt crisis in the eurozone periphery remained akey source of downside risk in government bond markets andthe period saw the initiation of bailout packages and austeritymeasures for Greece and Ireland,which proved unpopular bothwith electorates of these countries and those members of theEuropean Union (EU) ultimately providing the finance. Elevatedgovernment bond yields for Spanish and Portuguese issues

Manager’s Investment Report

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reflect investor nervousness over the indebtedness of thesenations. July saw investors become increasingly concerned overthe European periphery’s debt levels and the banks’ abilities tomaintain adequate funding levels. However, as the monthprogressed, attention increasingly began to be focused on theUS debt ceiling and the politicians’ ability to reach a solution onthe terms and conditions surrounding its extension. Theuncertainty surrounding these events encouraged investors toseek out safe haven asset classes. Gold was one of the mainbeneficiaries, rallying 8.5% year to date, taking its return overthe review year to 31.6% in Sterling terms (Source: Bloomberg).

Trust Review

In such an environment, the Trust has delivered a strong positivereturn. Developed market equities have been the maincontributor to Trust performance.

Despite positive returns, the sovereign debt crisis andweakening economic data have been key themes during thesummer of 2011. Exposure to the eurozone has been minimalboth in terms of fixed income, equity exposure and currency.Risk assets, such as equities, high yield investments andcommodities, which are quicker to react to changes ineconomic conditions, have shown weakness in recent monthsbut the Trust has not experienced losses equal to the equitymarkets during the recent period of volatility.

Within the equity exposure,we have held a tilt towardsemerging markets due to strong domestic demand and growthopportunities in these regions. The BlackRock Global AsianDragon Fund and BlackRock Global Latin American Fund makeup approximately 2.5% and 2.4% of the portfolio respectively(as at end July 2011). We have managed this allocation in anactive manner given the risky nature of these markets relative toother exposures within the fund. We implemented an allocationto the iShares FTSE BRIC 50 Fund in January 2010, taking profitson the position in January 2011. Elsewhere within equities, wehave retained a position in the Scottish Mortgage InvestmentTrust which is a global equity vehicle (2.1% at the close of July).We held a position in the BlackRock Global US Basic Value Fund(2.4%) at the end of July 2011, but we have subsequentlyrotated this position into the BlackRock Global Equity IncomeFund post the year end,which is a more defensive portfolio(in August).

Throughout the period, the portfolio has reflected our beliefthat the search for yield will shape investor behaviour asbenchmark interest rates in the developed world will likelyremain at low levels. This has led to a preference for corporatebonds over government bonds and the addition of equities withthe potential to maintain and grow dividends. We looked to addexposure to stocks of this nature which tend to be high qualitycompanies with strong balance sheets.This is in line with our

Manager’s Investment Report continued

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preference for yield among our investments. We added theGoldman Sachs Global HighYield Fund in periodic incrementsstarting in August 2010 and the position now accounts for 5.7%of the portfolio. The Stone Harbour Emerging Market Fund isheld given the potential for higher interest rates in emergingmarkets and stronger fundamentals within these markets.

Within our ‘alternative investments’ allocation, a position hasbeen implemented through a bespoke index of diversifiedcommodities that are related to Chinese demand. This positionwas implemented to hedge against a potential spike ininflationary pressures and observing continued demand fromChina. We have subsequently reduced the exposure given therecent weakness in economic data. We have held investmentsthat are exposed to gold, given demand is likely to be supportedby investors that are looking for a store of value during periodsof economic uncertainty and financial stress. In addition, the‘store of value’ element is an important factor in the demand forgold given inflation levels are higher than interest rates inseveral developed markets which means cash held in deposits isnot attractive as a means of preserving purchasing power. TheSource Physical Gold Fund position (2.4%) aims to track theprice of gold. Elsewhere within alternatives we have heldpositions that provide exposure to skill based strategies. Theseinclude the BH Macro Fund (2.2%), the BlueCrest AllBlue Fund(2.2%) and a position in the BlackRock Strategic EuropeanCredit Fund (2.4%).

In the summer of 2011 activity has been focused on reducingrisk within the portfolio given the rise in risk aversion afterobserving weakening economic sentiment and focus on thesovereign debt crisis in Europe. We have reduced equity marketexposure using futures to hedge market exposure. Specifically,we implemented positions in FTSE 100 and S&P 500 Indexfutures in June. In August, we reduced equities exposure furtherthrough the sale of both EURO STOXX 50 Sept 11 Futures andFTSE 100 Sept 11 Futures. De-risking the portfolio has led to anincrease in the requirement for derivatives cover in the form ofcash. We removed the allocations to the JP Morgan andMorgan Stanley Convertible Bond Funds during the review period.

At the end of the period the portfolio is positioned fornear-term caution. We would identify two key risks to themacro economic outlook at present; the eurozone sovereigndebt crisis and global recessionary risk. We have held the viewthat the eurozone debt issue is a political crisis as much as aneconomic or market event. Our immediate focus is on theactions of policymakers, currently we require more clarity frompoliticians and the European Central Bank as to how to theregion will manage fiscal transfers, loans, and bankrecapitalization whilst wrestling with issues relating to transfersof sovereignty. In terms of global recessionary risk,we are

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conscious of negative sentiment data and the weakness inequity markets feeding back into the real economy. Asmentioned we don’t have enough evidence to suggest this willbe the most likely route but recent data releases have increasedthe probability this may happen.

Outlook

We are more cautious on the outlook for the developed marketeconomies in the medium term given recent politicaluncertainty and disappointing economic data releases.Consequently we have significantly reduced our equity exposurethrough selling riskier sections of the market and hedging usingderivatives. Additionally, given the health of corporate balancesheets, falling inflationary pressures and accommodative centralbank policy, low interest rates are likely to persist. In this case,higher yielding assets look attractive such as investment gradecredit, high yield and dividend equities.

We anticipated volatility in 2011 and identified the eurozonesovereign debt crisis as a key area of concern. Events in the USand poor economic data have compounded our concerns andreduced the probability of a second half bounce. However,weare conscious that data has yet to point to a recessionaryenvironment despite recent weakness. We remain cautious inthe near term but well placed to take advantage ofopportunities if economic data improves and we get moreclarity over issues in the US and Europe.

BlackRock Investment Management (UK) Limited(Investment Adviser)23 August 2011


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Authorised StatusThis Trust is an Authorised Unit Trust Scheme as defined insection 243 of the Financial Services and Markets Act 2000 andis a UCITS Retail Scheme within the meaning of the FSACollective Investment Schemes sourcebook.

Directors’ StatementWe hereby certify that this Manager’s Report has been preparedin accordance with the requirements of the FSA CollectiveInvestment Schemes sourcebook.

M. B. Boardman S. D.Thomas

(Director) (Director)

Legal & General (Unit Trust Managers) Limited22 September 2011

Authorised Status

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Statement of Responsibilities

Statement of the Manager’s ResponsibilitiesThe Manager of the Trust is required by the FSA CollectiveInvestment Schemes sourcebook (COLL) to prepare financialstatements for each accounting period which give a true andfair view, in accordance with United Kingdom GenerallyAccepted Accounting Practice, of the net revenue and the netgains or losses on the scheme property for the accountingperiod, and the financial position of the Trust at the end of thatperiod. In preparing these financial statements, the Manager isrequired to:

• select suitable accounting policies and then apply themconsistently;

• make judgements and estimates that are prudent andreasonable;

• state whether applicable Accounting Standards have beenfollowed, subject to any material departure disclosed andexplained in the financial statements; and

• prepare the financial statements on the basis that the Trustwill continue in operation unless it is inappropriate topresume this.

The Manager is also required to manage the Trust in accordancewith the Trust Deed, the Prospectus and the COLL,maintainproper accounting records to enable them to ensure that thefinancial statements comply with the Statement ofRecommended Practice for Authorised Funds issued by the IMAin October 2010 and the COLL and take in these respectsreasonable steps for the prevention and detection of fraud andother irregularities.

Statement of the Trustee’s ResponsibilitiesThe Trustee is responsible for the safekeeping of all of theproperty of the Scheme (other than tangible moveableproperty) which is entrusted to it and for the collection ofrevenue that arises from that property.

It is the duty of the Trustee to take reasonable care to ensurethat the Scheme is managed by the authorised fund manager inaccordance with the Financial Services Authority’s CollectiveInvestment Scheme sourcebook (COLL), as amended, theScheme’s Trust Deed and Prospectus, in relation to the pricingof, and dealings in, units in the scheme; the application ofrevenue of the Scheme; and the investment and borrowingpowers of the Scheme.

Report of the Trustee

Report of the Trustee to the Unitholders ofL&G (N) Target Return Trust (“the Trust”)Having carried out such procedures as we consider necessary todischarge our responsibilities as Trustee of the Scheme, it is ouropinion, based on the information available to us and theexplanations provided, that, in all material respects theAuthorised Fund Manager:

(i) has carried out the issue, sale, redemption and cancellation,and calculation of the price of the scheme’s units and theapplication of the Scheme’s revenue in accordance with theCOLL, the Trust Deed and Prospectus; and

(ii) has observed the investment and borrowing powers andrestrictions applicable to the Scheme.

London The Royal Bank of Scotland Plc.22 September 2011 Trustee and Depositary Services

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Holding/ Market % ofNominal Value Net

Value Investment £ Assets

UNITED KINGDOM— 24.76% (26.12%)

Government Stocks— 0.18% (0.11%)

£135,000 Treasury 4.75% 07/12/2038 152,097 0.02£865,000 Treasury 4.25% 07/09/2039 899,765 0.13£195,000 Treasury 4.25% 07/12/2040 202,426 0.03

1,254,288 0.18

Corporate Bonds— 3.62% (3.07%)

€400,000 Aviva 5.7% 29/09/2015 313,549 0.04€800,000 Barclays Bank

4.125% 15/03/2016 713,644 0.10$400,000 Barclays Bank

6.75% 22/05/2019 275,096 0.04£320,000 Barclays Bank

6.75% 16/01/2023 328,461 0.05$14,791,000 Credit Suisse 0% 21/12/2015 10,684,516 1.51

£400,000 EDF Energy Networks5.125% 11/11/2016 438,894 0.06

£615,000 Enterprise Inns6.5% 06/12/2018^^ 517,719 0.07

£300,000 Eversholt Funding6.697% 22/02/2035 315,989 0.04

€500,000 FCE Bank 9.375% 17/01/2014^ 477,332 0.07£300,000 First Group 6.875% 15/04/2013 319,572 0.05£150,000 First Group 8.125% 19/09/2018 182,230 0.03£200,000 Halifax Building Society

9.375% 15/05/2021 223,876 0.03$375,000 HSBC 3.5% 28/06/2015 236,831 0.03$415,000 HSBC 5.1% 05/04/2021 264,282 0.04£400,000 HSBC 6% 29/03/2040 388,762 0.05€700,000 Imperial Tobacco Finance

7.25% 15/09/2014 690,910 0.10£250,000 John Lewis

8.375% 08/04/2019^^ 307,633 0.04£250,000 Legal & General

10% 23/07/2041 320,026 0.05£670,000 Legal & General

5.875% Open Maturity 593,858 0.08£487,000 Lloyds TSB Bank

6.375% 15/04/2014 525,424 0.07£500,000 Lloyds TSB Bank

6.625% 30/03/2015 518,841 0.07£550,000 Lloyds TSB Bank

6.5% 17/09/2040 519,778 0.07£471,000 Marks & Spencer

5.625% 24/03/2014 504,554 0.07£405,000 National Westminster Bank

7.625% 21/01/2010^ 334,234 0.05

Portfolio Statement as at 31 July 2011All investments are in ordinary shares or fixed interest securitiesunless otherwise stated. The percentages in brackets show theequivalent sector holdings at 31 July 2010.

Portfolio Statement

Portfolio Statement continued

Corporate Bonds — (cont.)$600,000 Nationwide Building Society

6.25% 25/02/2020 387,954 0.05$460,000 Northern Rock 144A

5.625% 22/06/2017 298,608 0.04€150,000 Old Mutual 4.5% 18/01/2017 129,891 0.02£280,000 Permanent Master Issuer

Floating Rate 15/07/2042 280,840 0.04£450,000 Rolls-Royce 6.75% 30/04/2019 539,180 0.08$400,000 Royal Bank of Scotland

3.4% 23/08/2013 248,263 0.04$600,000 Smiths Group 7.2% 15/05/2019 418,160 0.06€100,000 Standard Chartered

5.75% 30/04/2014 94,486 0.01€300,000 Standard Chartered

3.625% 03/02/2017 262,367 0.04€400,000 Standard Chartered

5.875% 26/09/2017 369,507 0.05£371,000 Virgin Media 7% 15/01/2018 393,260 0.06£405,000 Virgin Media Secure

5.5% 15/01/2021 405,380 0.06£425,000 Vodafone Group

8.125% 26/11/2018 543,432 0.08£500,000 Wales & West Utilities

6.75% 17/12/2036 557,845 0.08£681,000 Western Power Distribution

East 5.25% 17/01/2023 707,208 0.10

25,632,392 3.62

Oil & Gas Producers— 2.36% (2.34%)

268,306 BG Group 3,874,339 0.55626,948 BP 2,886,469 0.41254,870 Cairn Energy 940,725 0.13818,200 EnCore Oil 486,829 0.07252,931 Royal Dutch Shell (B) 5,663,125 0.8093,416 SOCO International 338,913 0.05

205,627 Tullow Oil 2,529,212 0.35

16,719,612 2.36

Oil Equipment, Services &Distribution - 0.18% (0.00%)

194,026 Wood Group (John) 1,297,064 0.18

Mining - 1.47% (1.35%)34,900 Antofagasta 492,090 0.0785,640 BHP Billiton 1,946,597 0.27

116,824 Rio Tinto 5,023,432 0.71228,900 Xstrata 2,965,400 0.42

10,427,519 1.47

General Industrials— 0.00% (0.24%)

Industrial Engineering— 0.47% (0.28%)

144,000 IMI 1,510,560 0.21326,000 Melrose 1,164,146 0.17

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Industrial Engineering — (cont.)35,635 Spirax-Sarco Engineering 668,513 0.09

3,343,219 0.47

Support Services— 0.00% (0.09%)

Beverages — 0.30% (0.08%)76,687 Diageo 954,753 0.1450,000 SABMiller 1,142,000 0.16

2,096,753 0.30

Food Producers— 0.19% (0.19%)

68,006 Unilever 1,324,757 0.19

Household Goods & HomeConstruction — 0.10% (0.12%)

20,916 Reckitt Benckiser Group 722,857 0.10

Personal Goods— 0.24% (0.26%)

83,833 Burberry Group 1,251,627 0.18117,100 PZ Cussons 442,053 0.06

1,693,680 0.24

Tobacco — 1.32% (0.70%)230,885 British American Tobacco 6,512,111 0.92135,118 Imperial Tobacco 2,859,097 0.40

9,371,208 1.32

Pharmaceuticals &Biotechnology — 0.99% (0.94%)

83,187 AstraZeneca 2,473,150 0.35330,531 GlaxoSmithKline 4,508,443 0.64

6,981,593 0.99

Food & Drug Retailers— 0.71% (0.71%)

799,000 Morrison (Wm) Supermarkets 2,323,492 0.33710,728 Tesco 2,723,865 0.38

5,047,357 0.71

Media — 0.21% (0.00%)205,900 Reed Elsevier 1,140,686 0.16

60,775 United Business Media 328,185 0.05

1,468,871 0.21

Travel & Leisure— 0.59% (0.85%)

495,516 Compass Group 2,846,739 0.4087,200 Whitbread 1,356,832 0.19

4,203,571 0.59

Mobile Telecommunications— 0.82% (0.43%)

3,361,056 Vodafone Group 5,781,016 0.82




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Gas, Water & Multiutilities— 0.11% (0.00%)

53,000 Severn Trent 758,430 0.11

Banks — 1.21% (1.97%)495,922 Barclays 1,105,410 0.16672,191 HSBC Holdings (GBP) 3,996,176 0.5668,800 HSBC Holdings (HKD) 411,628 0.06

2,669,698 Lloyds Banking Group 1,157,047 0.16121,289 Standard Chartered 1,887,863 0.27

8,558,124 1.21

Nonlife Insurance— 0.23% (0.35%)

106,951 Admiral Group 1,655,602 0.23

Life Insurance — 0.11% (0.15%)112,100 Prudential 772,930 0.11

Real Estate investment &Services — 0.00% (0.05%)

Financial Services— 0.61% (0.53%)

545,790 Ashmore Group 2,201,171 0.31235,447 Jupiter Fund Management 548,592 0.08698,341 Man Group 1,555,904 0.22

4,305,667 0.61

Equity Investment Instruments— 2.99% (4.73%)

1,181,492 Merrill Lynch British SmallerCompanies Trust 6,303,260 0.89

2,035,049 Scottish Mortgage & Trust 14,876,208 2.10

21,179,468 2.99

Nonequity InvestmentInstruments — 5.64% (6.44%)

586,140 BlackRock Gold & GeneralFund† 9,446,056 1.34

2,864,776 BlackRock UK Absolute AlphaFund* 3,495,026 0.49

7,804,209 BlackRock UK Dynamic Fund* 12,219,050 1.73939,303 BlackRock UK Special Situations

Fund† 14,720,195 2.08

39,880,327 5.64

Software & Computer Services— 0.11% (0.14%)

284,600 Sage Group 780,942 0.11

CHANNEL ISLANDS— 14.73% (13.57%)


£175,000 BAA Funding5.225% 15/02/2025 176,158 0.03

€400,000 Credit Suisse3.625% 23/01/2018 346,397 0.05



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Corporate Bonds — (cont.)£685,000 Gatwick Funding Limited

6.125% 02/03/2026 717,021 0.10$250,000 Old Mutual Capital Funding

8% 29/05/2049 150,544 0.02

1,390,120 0.20

Construction & Materials— 0.23% (0.00%)

89,020 Wolseley 1,615,713 0.23

Financial Services— 0.11% (0.00%)

292,700 Resolution 807,852 0.11


704,147 Ashmore Global Opportunities(GBP) 5,538,116 0.78

424,082 Better Capital 506,778 0.07861,908 BH Macro (GBP) 15,264,391 2.16

1,572,621 BlackRock Absolute ReturnStrategies 14,625,375 2.07

6,734,516 BlackRock Hedge Selector— UK Emerging CompaniesShares Fund 8,485,490 1.20

8,720,850 Bluecrest AllBlue Fund 14,999,862 2.126,061,483 Dexion Absolute 8,625,490 1.221,241,729 HarbourVest Global Private

Equity 5,559,811 0.7915,823,758 NB Distressed Debt Investment

Fund 10,217,894 1.4413,150,264 NB Global Floating Rate

Income Fund 13,380,394 1.89

97,203,601 13.74


30,150 ETFS Physical Platinum 3,203,719 0.45

BERMUDA — 0.07% (0.45%)


£200,000 Holcim 8.75% 24/04/2017 248,580 0.03$380,000 Ingersoll Rand 9.5% 15/04/2014 278,015 0.04

526,595 0.07


CANADA - 0.88% (0.84%)


$300,000 Canadian National Resources5.7% 15/05/2017 212,768 0.03

$425,000 Canadian National Resources6.75% 01/02/2039 306,163 0.04

$450,000 Canadian Pacific Railroad7.25% 15/05/2019 338,440 0.05




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Corporate Bonds — (cont.)$550,000 Cenovus Energy

6.75% 15/11/2039 395,834 0.06$385,000 Fairfax Financial Holdings

5.8% 15/05/2021 231,253 0.03$590,000 Husky Energy 5.9% 15/06/2014 401,238 0.06$290,000 Nexen 6.4% 15/05/2037 188,437 0.03

CAD 530,000 Shaw Communications5.65% 01/10/2019 357,489 0.05

$375,000 Teck Resources3.15% 15/01/2017 234,538 0.03

$650,000 Thomson Retuers5.85% 15/04/2040 425,415 0.06

3,091,575 0.44

Industrial Metals & Mining— 0.19% (0.19%)

16,700 First Quantum Minerals 1,379,086 0.19

Media — 0.14% (0.00%)41,709 Rogers Communications 967,720 0.14

Banks — 0.11% (0.00%)16,011 National Bank of Canada 755,930 0.11

CAYMAN ISLANDS— 0.26% (0.19%)


$500,000 China Resources Land4.625% 19/05/2016 305,397 0.04

€200,000 Hutchinson Whampoa Finance4.75% 14/11/2016 184,139 0.03

$1,045,000 Petrobras International Finance3.875% 27/01/2016 659,002 0.09

$700,000 Transocean 6% 15/03/2018 478,280 0.07€268,000 UPCB Finance

6.375% 01/07/2020^ 220,783 0.03

1,847,601 0.26

UNITED STATES— 10.87% (14.11%)


$545,000 California State5.5% 01/03/2016 366,638 0.05

$360,000 California State6.2% 01/10/2019 247,181 0.03

$525,000 US Treasury Bond3.125% 15/05/2021 328,715 0.05

$567,600 US Treasury Bond4.375% 15/05/2041 359,980 0.05

$198,100 US Treasury Inflation IndexedBond 2.125% 15/02/2040 148,007 0.02

1,450,521 0.20




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$350,000 ABN AMRO 144A 3C7 6.523%Open Maturity^ 195,090 0.03

$330,000 Airgas 2.95% 15/06/2016 204,186 0.03$700,000 Alabama Power

5.2% 01/06/2041 433,546 0.06$750,000 Alcoa 5.4% 15/04/2021 473,575 0.07$280,000 Alpha Natural Resources

6% 01/06/2019^ 177,607 0.03$533,000 Altria Group 9.25% 08/06/2019 431,683 0.06$649,000 Altria Group 10.2% 06/02/2039 587,399 0.08£950,000 American Express Credit

5.375% 01/10/2014 1,025,006 0.15$800,000 American International

Group 8.175% 15/05/2058 533,866 0.08$300,000 American Tower

4.625% 01/04/2015 195,686 0.03$1,115,000 Ameriprise Financial

5.3% 15/03/2020 740,496 0.10$500,000 Amgen 6.375% 01/06/2037 352,481 0.05$250,000 Anadarko Petroleum

6.375% 15/09/2017 179,451 0.03$585,000 Anadarko Petroleum

6.45% 15/09/2036 386,958 0.05$750,000 Anheuser-Busch InBev

Worldwide 5% 15/04/2020 511,081 0.07$505,000 Associated Banc

5.125% 28/03/2016 322,877 0.05$1,300,000 AT&T 5.8% 15/02/2019 924,900 0.13

$400,000 AT&T 6.5% 01/09/2037 274,338 0.04$510,000 Avalonbay Communities

5.7% 15/03/2017 352,378 0.05$1,005,000 BAE Systems 4.95% 01/06/2014 664,896 0.09

$225,000 Ball 6.75% 15/09/2020^ 146,527 0.02$390,000 Ball 5.75% 15/05/2021^ 236,549 0.03$275,000 Bank of America

4.5% 01/04/2015 175,152 0.03$600,000 Bank of America Floating

Rate 15/06/2016 329,403 0.05$600,000 Bank of America

6.5% 01/08/2016 408,470 0.06€700,000 Bank of America

4% 28/03/2018 557,956 0.08$1,450,000 Bank of America

7.625% 01/06/2019 1,042,122 0.15$550,000 Bank of America

5% 13/05/2021 331,260 0.05$1,600,000 Barrick North America

Finance 4.4% 30/05/2021 1,015,616 0.14$300,000 Bemis Company

6.8% 01/08/2019 215,551 0.03$1,240,000 Best Buy 5.5% 15/03/2021 757,861 0.11

$480,000 BNSF Railway5.75% 01/05/2040 313,050 0.04

$750,000 Boston Properties5.625% 15/11/2020 503,940 0.07

$350,000 Branch Banking & TrustFloating Rate 13/09/2016 197,449 0.03




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Corporate Bonds — (cont.)$560,000 Capital One Financial

10.25% 15/08/2039 363,373 0.05$550,000 Capital One Financial

8.875% 15/05/2040 347,721 0.05$450,000 Caterpillar 5.2% 27/05/2041 285,979 0.04$366,000 Chesapeake Energy

6.625% 15/08/2020^ 240,248 0.03$710,000 Chesapeake Energy

6.125% 15/02/2021^ 453,621 0.06$3,400,000 Citigroup 6.01% 15/01/2015 2,299,689 0.33

$950,000 Citigroup 4.75% 19/05/2015 620,135 0.09$350,000 Comcast 5.9% 15/03/2016 245,845 0.03$250,000 Comcast 6.95% 15/08/2037 178,092 0.03$333,000 Consol Energy

8.25% 01/04/2020^ 225,171 0.03$400,000 Crown Castle Towers

6.113% 15/01/2020 269,431 0.04$235,000 CSX 4.25% 01/06/2021 147,877 0.02$750,000 CVS Caremark

6.6% 15/03/2019 547,184 0.08$525,283 Dbubs Mortgage Trust LC1A A1

3.742% 10/11/2046 328,730 0.05$200,000 Devon Energy

7.95% 15/04/2032 163,143 0.02$350,000 Devon Energy 5.6% 07/15/2041 220,929 0.03$440,000 Diamond Offshore Drilling

5.875% 01/05/2019 309,422 0.04$1,000,000 Directv Holdings 5% 01/03/2021 650,044 0.09

$330,000 Dish DBS 6.625% 01/10/2014^ 214,147 0.03$740,000 Dominion Resources

4.45%15/03/2021 475,925 0.07$225,000 Domtar 10.75% 01/06/2017 175,101 0.02$250,000 Duke Energy 5.45% 01/04/2019 174,512 0.02$255,000 Enbridge Energy

5.2% 15/03/2020 169,699 0.02$150,000 Enterprise Products




6.45% 01/09/2040 491,130 0.07$280,000 EOG Resources

5.625% 01/06/2019 195,982 0.03$605,000 Florida Power & Light

5.125% 01/06/2041 384,159 0.05$2,100,000 FNMA Single Family

Mortgage 4% 01/08/2041^^ 1,299,261 0.18$1,500,000 General Electric Capital

2.95% 09/05/2016 929,414 0.13$1,250,000 General Electric Capital

5.625% 01/05/2018 847,256 0.12$1,000,000 General Electric Capital

6.875% 10/01/2039 705,589 0.10$250,000 General Mills

5.65% 15/02/2019 176,260 0.03




17

Corporate Bonds — (cont.)$220,000 Georgia-Pacific

5.4% 01/11/2020 140,560 0.02€900,000 Goldman Sachs

5.375% 15/02/2013 812,489 0.12€800,000 Goldman Sachs

5.125% 16/10/2014 727,593 0.10€700,000 Goldman Sachs

4.375% 16/03/2017 602,112 0.09$700,000 Goldman Sachs

6% 15/06/2020 461,120 0.07$60,000 Halliburton 6.15% 15/09/2019 43,675 0.01

$595,000 Hasbro 6.35% 15/03/2040 383,283 0.05$950,000 Health Care REIT

6.5% 15/03/2041 580,573 0.08$400,000 Health Care Service

4.7% 15/01/2021 254,020 0.04$1,000,000 Home Depot

5.875% 16/12/2036 657,921 0.09$320,000 Hospira 6.4% 15/05/2015 225,560 0.03$855,000 HSBC 4.875% 24/08/2020 522,985 0.07$900,000 HSBC Finance

6.676% 15/01/2021 578,609 0.08$440,000 International Paper

7.95% 15/06/2018 328,831 0.05$255,000 Jabil Circuit

7.75% 15/07/2016^ 174,836 0.02$1,600,000 JP Morgan Chase

4.65% 01/06/2014 1,048,960 0.15€500,000 JP Morgan Chase

4.625% 31/05/2017 422,540 0.06€500,000 JP Morgan Chase

3.875% 31/03/2018 427,921 0.06$600,000 JP Morgan Chase

6.3% 23/04/2019 420,334 0.06$900,000 Juniper Networks

4.6% 15/03/2021 574,617 0.08$340,000 Keycorp 5.1% 24/03/2021 216,289 0.03$105,000 Kinder Morgan

6.85% 15/02/2020 76,218 0.01$550,000 Kinder Morgan Energy

Partners 7.3% 15/08/2033 388,807 0.06$350,000 Liberty Mutual Group

10.75% 06/15/2058 285,077 0.04$44,000 Life Technologies

4.4% 01/03/2015 28,824 -$1,056,000 Life Technologies

6% 01/03/2020 720,425 0.10$1,100,000 Metlife 6.75% 01/06/2016 793,021 0.11

$300,000 Metlife Capital Trust X 144A9.25% 08/04/2038 226,615 0.03

€700,000 Metropolitan Life GlobalFunding 4.625% 16/05/2017 644,436 0.09

$2,100,000 Morgan Stanley 6% 13/05/2014 1,392,853 0.20€350,000 Morgan Stanley

4.5% 29/10/2014 313,381 0.04$900,000 News America

6.15% 15/02/2041 546,804 0.08




18

Corporate Bonds — (cont.)$550,000 Northwestern Mutual Life

6.063% 30/03/2040 361,562 0.05$800,000 ONEOK Partners

6.125% 01/02/2041 524,387 0.07$180,000 Pacific Life Insurance Series

144A 9.25% 15/06/2039 145,064 0.02$600,000 Pennsylvania Electric

6.15% 01/10/2038 385,968 0.05$1,100,000 Progress Energy

5.625% 15/01/2016 766,713 0.11$650,000 Prudential Financial

3.625% 17/09/2012 406,896 0.06$500,000 Prudential Financial

3.875% 14/01/2015 321,053 0.05$144,000 Qwest Communications

International 7.5% 15/02/2014 88,709 0.01$511,000 Qwest Communications

International7.125% 01/04/2018 335,416 0.05

$1,000,000 Republic Services3.8% 15/05/2018 629,990 0.09

$635,000 Sempra Energy6.5% 01/06/2016 457,144 0.06

$200,000 SLM 6.25% 25/01/2016 128,230 0.02$810,000 Southern California Edison

5.5% 15/03/2040 540,229 0.08$365,000 Suntrust Banks 3.6% 15/04/2016 227,500 0.03$430,000 Tesco Finance

5.15% 15/03/2020 281,718 0.04$620,000 Time Warner 6.25% 29/03/2041 407,435 0.06

$1,000,000 Time Warner Cable5% 01/02/2020 653,419 0.09

$850,000 Trans-Alegheny InterstateLine 4% 15/01/2015 543,515 0.08

$400,000 Travelers Companies5.9% 02/06/2019 274,511 0.04

$550,000 Unitedhealth Group5.95% 15/02/2041 363,977 0.05

$660,000 Valero Energy6.625% 15/06/2037 434,264 0.06

$505,000 Ventas Realty4.75% 01/06/2021 309,454 0.04

$900,000 Verizon Communications6.35% 01/04/2019 657,608 0.09

$200,000 Virginia Electric & Power8.875% 15/11/2038 188,865 0.03

$300,000 Wachovia 5.75% 01/02/2018 205,655 0.03$745,000 WEA Finance

4.625% 10/05/2021 456,208 0.06$400,000 WEA Finance

5.75% 02/09/2015 274,039 0.04$750,000 Wells Fargo 5.25% 23/10/2012 480,799 0.07$600,000 Wells Fargo 3.75% 01/10/2014 387,479 0.06$600,000 Wells Fargo 3.676% 15/06/2016 384,021 0.05

$1,000,000 Wells Fargo 4.6% 01/04/2021 633,755 0.09€400,000 Zurich Finance USA

6.5% 14/10/2015 395,835 0.06

57,544,294 8.13




19


17,499 Chevron 1,108,858 0.16

Electronic & ElectricalEquipment — 0.06% (0.00%)

14,780 Emerson Electric 441,991 0.06

Beverages — 0.11% (0.00%)18,497 Coca-Cola 765,887 0.11

Food Producers— 0.25% (0.00%)

46,388 Kraft Foods 972,098 0.1420,748 PepsiCo 809,040 0.11

1,781,138 0.25

Tobacco — 0.69% (0.00%)79,987 Altria Group 1,281,994 0.1818,793 Lorillard 1,215,354 0.1727,958 Philip Morris International 1,212,300 0.1754,845 Reynolds American 1,176,384 0.17

4,886,032 0.69


26,476 Johnson & Johnson 1,043,363 0.1522,562 Merck & Co 469,231 0.07

122,731 Pfizer 1,438,485 0.20

2,951,079 0.42

Travel & Leisure— 0.15% (0.00%)

19,749 Mcdonald's 1,040,656 0.15

Fixed Line Telecommunications— 0.36% (0.00%)

61,842 Verizon Communications 1,329,854 0.1968,634 AT&T 1,222,539 0.17

2,552,393 0.36

Electricity — 0.10% (0.00%)24,672 Dominion Resources 728,189 0.10


165,109 Morgan Stanley EmergingMarkets Domestic Debt Fund† 1,733,013 0.24

BRITISH VIRGIN ISLANDS— 0.21% (0.12%)


$400,000 CLP Power Hong KongFinancing 4.75% 12/07/2021 248,726 0.04

$650,000 CNOOC Finance5.75% 26/01/2041 425,047 0.06

673,773 0.10




20

Software & Computer Services— 0.11% (0.12%)

206,833 Playtech 775,624 0.11

CHILE — 0.07% (0.00%)


$745,000 Inversiones CMPC4.75% 19/01/2018 461,662 0.07

MEXICO — 0.17% (0.21%)Corporate Bonds— 0.17% (0.21%)

$450,000 America Movil 5% 16/10/2019 295,445 0.04$585,000 America Movil

6.125% 30/03/2040 391,466 0.06$750,000 Petroleos Mexicanos

4.875% 15/03/2015 495,227 0.07

1,182,138 0.17

BELGIUM — 0.05% (0.06%)


£300,000 Anheuser-Busch Inbev6.5% 23/06/2017 350,770 0.05

CZECH REPUBLIC— 0.03% (0.04%)


€250,000 CEZ 5.75% 26/05/2015 240,479 0.03

DENMARK — 0.38% (0.17%)Corporate Bonds— 0.38% (0.17%)

€350,000 Danske Bank 4.75% 04/06/2014 320,078 0.05£402,000 Finance for Danish Industry

6% 06/02/2012^ 402,000 0.06DKK 16,650,000 Nykredit 4% 01/10/2041 1,844,961 0.26

€100,000 TDC 6.5% 19/04/2012 90,221 0.01

2,657,260 0.38

FRANCE — 1.50% (1.30%)


€350,000 Unibail-Rodamco4.625% 23/09/2016 329,663 0.05


$700,000 BNP Paribas 3.6% 23/02/2016 430,754 0.06$1,050,000 BNP Paribas 5% 15/01/2021 650,948 0.09

$750,000 BNP Paribas 6.45% 27/04/2017 445,815 0.06$750,000 BNP Paribas Home Loan

2.2% 02/11/2015 452,362 0.06€550,000 CNP Assurances

4.75% 22/12/2016 365,103 0.05€200,000 CNP Assurances

6% 14/09/2040 163,467 0.02




21

Corporate Bonds — (cont.)£250,000 Credit Agricole

7.589% Open Maturity 226,268 0.03€200,000 Credit Agricole

7.875% Open Maturity 178,655 0.03$350,000 Credit Argicole

7.875% 29/05/2049 182,282 0.03$800,000 EDF 6.5% 26/01/2019 581,202 0.08€250,000 EDF 4.625% 26/04/2030 213,702 0.03€450,000 Lafarge 7.625% 27/05/2014 442,801 0.06€400,000 Natixis Floating Rate

06/07/2017 336,291 0.05€400,000 Pernod-Ricard

5% 15/03/2017^ 357,463 0.05€345,000 RCI Banque

8.125% 15/05/2012 314,947 0.05€700,000 Société Générale

5.875% 21/12/2016 641,309 0.09€450,000 Société Générale

6.999% Open Maturity 365,519 0.05€200,000 Veolia Environnement

5.25% 24/04/2014 187,628 0.03

6,536,516 0.92


33,618 Total 1,112,289 0.16


39,070 Sanofi-Aventis 1,857,579 0.26

Media — 0.11% (0.00%)30,460 Eutelsat Communications 801,201 0.11

GERMANY - 0.50% (1.94%)



€600,000 Commerzbank 4% 16/09/2020 497,758 0.07€300,000 Commerzbank

7.75% 16/03/2021 262,719 0.04$800,000 Deutsche Bank

4.875% 20/05/2013 515,713 0.07$1,000,000 Deutsche Bank London

3.25% 11/01/2016 619,134 0.09£600,000 E.ON 6.375% 29/05/2012 624,084 0.09€350,000 HSE NETZ 6.125% 23/04/2041 314,475 0.04€65,000 HSH Nordbank

4.375% 14/02/2017^ 39,275 0.01€500,000 Rohen-Klinikum

3.875% 11/03/2016 446,544 0.06€230,000 Unitymedia Hessen

8.125% 01/12/2017^ 209,858 0.03

3,529,560 0.50

Structured Notes— 0.00% (1.17%)




22

IRELAND — 10.50% (6.09%)


€665,000 Ireland Treasury 5% 18/10/2020 390,252 0.05


€300,000 Ardagh Packaging Finance7.375% 15/10/2017^ 261,414 0.04

$500,000 XL Group 6.5% Open Maturity 284,435 0.04

545,849 0.08



35,004,741 Institutional Cash Series- Institutional Sterling LiquidityFund† 35,004,741 4.95

169,443 Source Physical Gold P-ETC† 16,674,376 2.36117,668 Stone Harbor Investment Funds

- Emerging Markets LocalCurrency Fund* 21,636,873 3.06

73,315,990 10.37

ITALY — 0.50% (0.06%)Corporate Bonds— 0.22% (0.06%)

€400,000 Enel-Societa Per Azioni3.5% 26/02/2016 341,798 0.05

€400,000 Intesa Sanpaolo6.625% 08/05/2018 347,196 0.05

$600,000 Intesa Sanpaolo6.5% 24/02/2021 370,571 0.05

€200,000 Mediobanca 4.625% 11/10/2016 174,736 0.02€400,000 UniCredit 6.125% 19/04/2021 321,277 0.05

1,555,578 0.22


65,755 Eni 874,147 0.12

Electricity — 0.16% (0.00%)311,798 Enel 1,096,607 0.16

LUXEMBOURG— 18.92% (16.59%)


$300,000 Arcelormittal 6.125% 01/06/2018 199,867 0.03$540,000 Covidien 6% 15/10/2017 392,742 0.06€500,000 ENEL Finance International

4% 14/09/2016 440,848 0.06AUD 720,000 European Investment Bank

6% 06/08/2020 481,049 0.07€500,000 Fiat Finance & Trade

9% 30/07/2012^ 452,657 0.06€250,000 Michelin Finance Luxembourg

8.625% 24/04/2014 252,527 0.04




Corporate Bonds — (cont.)$700,000 Telecom Italia 7.2% 18/07/2036 404,325 0.06$600,000 Unicredit Luxumbourg Floating

Rate 13/01/2017 354,931 0.04

2,978,946 0.42


1,026,991 BlackRock Global - AsianDragon Fund† 17,920,985 2.53

302,390 BlackRock Global - LatinAmerica Fund† 17,078,982 2.42

570,025 BlackRock Global - US BasicValue Fund† 17,095,049 2.42

426,546 BlackRock Global - WorldAgriculture Fund† 3,327,059 0.47

679,004 BlackRock Global - WorldEnergy Fund† 13,030,087 1.84

164,863 BlackRock Strategic -European Credit Strategic Fund† 16,933,079 2.39

50,047 BlackRock Strategic - GlobalCurrency Absolute Return Fund† 5,324,293 0.75

4,065,473 Goldman Sachs Global HighYield Portfolio Fund† 40,166,878 5.68

130,876,412 18.50

NETHERLANDS — 3.83% (0.97%)Corporate Bonds— 3.77% (0.97%)

€200,000 Allianz Finance4.375% 17/02/2017 151,643 0.02

€500,000 Brenntag Finance5.5% 19/07/2018 445,380 0.06

€300,000 ELM (Swiss Life)5.849% Open Maturity 214,890 0.03

€150,000 Eureko 5.125% 29/06/2049 109,338 0.01€205,600 Globaldrive Auto Receivables

4% 20/10/2016 181,404 0.03€600,000 Heineken 7.125% 07/04/2014^^ 585,272 0.08£150,000 Heineken 7.25% 10/03/2015^^ 171,948 0.02€650,000 ING Bank 2.25% 23/09/2013 568,007 0.08£600,000 ING Bank 5.375% 15/04/2021 622,116 0.09

$25,086 JP Morgan Structured Products0.000% 15/11/2011 12,900,824 1.82

€200,000 Lanxess Finance7.75% 09/04/2014 198,359 0.03

$795,000 MDC-GMTN 3.75% 20/04/2016 503,055 0.07$6,510 Morgan Stanley 0% 20/05/2014

(Series D1450) 4,381,804 0.62$22,873 Morgan Stanley 0% 20/05/2014

(Series D1451) 2,820,960 0.40€290,000 OI European Group

6.75% 15/09/2020^ 251,836 0.04£350,000 Rabobank 5.25% 23/05/2041 350,784 0.05€650,000 RWE Finance 5% 10/02/2015 611,771 0.09€710,000 Trafigura Beheer

6.375% 08/04/2015^^ 594,243 0.08$775,000 Volkswagen International

Finance 1.625% 12/08/2013 477,063 0.07

23




24

Corporate Bonds — (cont.)€645,000 Ziggo Finance

6.125% 15/11/2017^ 552,154 0.08

26,692,851 3.77


48,676 KPN 423,939 0.06

NETHERLANDS ANTILLES— 2.31% (1.22%)


£2,381,000 Société Générale Acceptance0% 22/09/2011 2,677,673 0.38

£13,758,000 Société Générale Acceptance0% 28/04/2016 13,641,057 1.93

16,318,730 2.31

NORWAY — 0.24% (0.11%)


£450,000 DnB NOR Bank6.52% 21/11/2017 468,682 0.07

€500,000 DnB NOR Bank4.375% 24/02/2021 444,263 0.06

$250,000 Statoilhydro 5.25% 15/04/2019 172,561 0.02

1,085,506 0.15

Banks — 0.09% (0.00%)72,107 DnB NORBank 641,460 0.09

POLAND — 0.15% (0.00%)


$1,690,000 Republic of Poland5.125% 21/04/2021 1,067,226 0.15

PORTUGAL — 0.00% (0.06%)


SPAIN — 0.72% (0.40%)


€800,000 BBVA Senior Finance2.75% 10/09/2012 692,829 0.10

€500,000 Iberdrola Finanzas3.875% 10/02/2014 442,766 0.06

£300,000 Santander 7.3% 27/07/2019 303,330 0.04€400,000 Telefonica Emisiones

5.431% 03/02/2014 364,529 0.05$1,200,000 Telefonica Emisiones

3.992% 16/02/2016 736,974 0.11$100,000 Telefonica Emisiones

5.462% 16/02/2021 61,284 0.01

2,601,712 0.37




25

Travel & Leisure — 0.17% (0.00%)503,151 International Consolidated

Airlines Group 1,192,468 0.17


91,968 Telefonica 1,252,020 0.18

SWEDEN — 0.51% (0.48%)


€1,100,000 Nordea Bank 4% 29/06/2020 969,826 0.14£500,000 Skandinaviska Enskilda Banken

6.625% 09/07/2014 556,248 0.08£250,000 Svenska Handelsbanken

5.375% 29/09/2049 250,509 0.04£600,000 Svenska Handelsbanken

5.5% Open Maturity 594,000 0.08

2,370,583 0.34

General Retailers— 0.08% (0.00%)

26,409 Hennes & Mauritz (B) 550,228 0.08

Banks — 0.09% (0.00%)33,154 Svenska Handelsbanken (A) 637,451 0.09

SWITZERLAND — 1.71% (0.49%)


£6,859,000 Credit Suisse 0% 24/04/2014 6,653,230 0.94€300,000 Credit Suisse 6.125% 16/05/2014 287,016 0.04$600,000 Credit Suisse 3.5% 23/03/2015 379,401 0.06$800,000 Credit Suisse 5.4% 14/01/2020 500,863 0.07

$1,300,000 Credit Suisse New York5.5% 01/05/2014 869,742 0.12

$200,000 Tyco International Finance7% 15/12/2019 147,775 0.02

$200,000 UBS 5.875% 20/12/2017 134,855 0.02€800,000 UBS 4.125% 25/09/2018 695,408 0.10

9,668,290 1.37

Food Producers — 0.16% (0.00%)29,854 Nestlé 1,160,986 0.16


34,719 Novartis 1,303,159 0.18

SOUTH AFRICA — 0.28% (0.00%)


57,132 MTN Group 752,776 0.11


ZAR 13,640,000 Republic of South Africa7.25% 05/01/2020 1,171,516 0.17




26


HONG KONG — 0.18% (0.00%)

Electricity — 0.18% (0.00%)247,000 Hong Kong Electric Holdings 1,250,960 0.18

INDIA — 0.15% (0.00%)


$300,000 Bank of Baroda London5% 24/08/2016 189,362 0.03

$475,000 Bank of India 6.25% 16/02/2021 305,186 0.04$220,000 Canara Bank London

5.125% 09/09/2016 139,650 0.02$350,000 Icici Bank 4.75% 25/11/2016 214,895 0.03$300,000 Rural Electrification

4.25% 25/01/2016 185,263 0.03

1,034,356 0.15

JAPAN — 0.08% (0.00%)


$250,000 Sumitomo Mitsui Banking2.9% 22/07/2016 152,524 0.02

€550,000 Tokyo Electric Power4.5% 24/03/2014^ 435,094 0.06

587,618 0.08

QATAR — 0.00% (0.13%)


MALAYSIA — 0.02% (0.00%)


$255,000 Hong Leong Bank3.75% 17/03/2016 158,598 0.02

SINGAPORE — 0.33% (0.00%)

Industrial Transportation— 0.12% (0.00%)

1,533,000 Singapore Post 849,470 0.12


151,000 Singapore Telecommunications 255,984 0.04


389,000 MobileOne 511,817 0.07

Banks — 0.10% (0.00%)94,000 DBS Holdings 738,263 0.10

SOUTH KOREA — 0.07% (0.00%)


$300,000 Lotte Shopping3.875% 07/04/2016 186,173 0.03

$265,000 Posco 5.25% 14/04/2021 166,500 0.02$279,000 Woori Bank 5.875% 13/04/2021 174,654 0.02

527,327 0.07



TAIWAN — 0.46% (0.00%)


40,796 Chunghwa Telecom 864,605 0.12


40,500 Far EasToneTelecommunications 602,732 0.09

306,000 Taiwan Mobile 511,692 0.07

1,114,424 0.16

Technology Hardware& Equipment — 0.18% (0.00%)

171,567 Taiwan SemiconductorManufacturing (ADR) 1,290,763 0.18

UNITED ARAB EMIRATES— 0.10% (0.00%)


$670,000 Mubadala Development5.75% 06/05/2014 449,488 0.06

$455,000 Qatari Diar Finance QSC5% 21/07/2020 293,591 0.04

743,079 0.10

AUSTRALIA — 0.57% (0.55%)


$1,086,000 Asciano Finance 5% 07/04/2018 693,682 0.10£300,000 Australia & New Zealand

Banking Group6.375% 13/08/2017 308,347 0.04

$1,100,000 Commonwealth Bank ofAustralia 3.5% 19/03/2015 697,706 0.10

€267,000 Commonweath Bank4.25% 10/11/2016 244,948 0.03

AUD 850,000 Holcim Finance 8.5% 07/08/2012 583,175 0.08$300,000 Rio Tinto 9% 01/05/2019 246,099 0.04

$1,055,000 Rio Tinto Finance3.5% 02/11/2020 629,581 0.09

$300,000 Westpac Banking4.2% 27/02/2015 194,235 0.03

3,597,773 0.51

Banks — 0.06% (0.00%)30,313 Westpac Banking 414,243 0.06

OPTIONS — 0.17% (0.00%)598 FTSE 100 Index Put

16/09/2011 5500 (406,640) (0.06)598 FTSE 100 Index Put

16/09/2011 5800 935,870 0.131,133 FTSE 100 Index Call

16/12/2011 6800 33,990 0.01428 S&P 500 Index Put

17/09/2011 1225 (515,589) (0.07)428 S&P 500 Index Put

17/09/2011 1300 1,140,263 0.16

1,187,894 0.17

27




FUTURES — 0.50% (-0.03%)(85) 90 Day MSE Bank Accept Future

Expiry December 2011 (9,133) —(53) Australia 3 Year SFE Bond Future

Expiry September 2011 (45,519) (0.01)114 Australia 10 Year SFE Bond Future

Expiry September 2011 205,926 0.0341 Canada 10 Year Bond Future

Expiry September 2011 90,341 0.01(540) E Mini S&P 500

Expiry September 2011 (24,672) —9 Euro-Bund Future

Expiry September 2011 39,488 0.015 Euro-Buxl Future

Expiry September 2011 25,222 —(22) Euro-Schatz Future

Expiry September 2011 (21,220) —(1,258) FTSE 100 Index Future

Expiry September 2011 134,050 0.02(29) LIFFE Long Gilt Future

Expiry September 2011 (153,920) (0.02)(16) US Treasury Bond Future

Expiry September 2011 (30,859) (0.01)(1) US Treasury Note 2 Year Future

Expiry September 2011 (20) —(110) US Treasury Note 5 Year Future

Expiry September 2011 (107,845) (0.02)(652) US Treasury Note 10 Year Future

Expiry September 2011 (839,396) (0.12)923 DJ Euro Stoxx 50 Index

Dividend FutureExpiry December 2012 3,827,821 0.54

1,354 FTSE 100 Dividend FutureExpiry December 2012 223,095 0.03

507 DJ Euro Stoxx 50 IndexDividend FutureExpiry December 2013 67,840 0.01

1,713 FTSE 100 Dividend FutureExpiry December 2013 331,466 0.05

175 DJ Euro Stoxx 50 IndexDividend FutureExpiry December 2014 (156,717) (0.02)

3,555,948 0.50

FORWARD CURRENCYCONTRACTS — 0.45% (1.19%)

€(34,941,000) Sold Euros£31,126,480 For Sterling

(Expires 20/09/2011)‡ 536,830 0.07£(17,784,907) Sold Sterling

€20,241,000 For Euros(Expires 20/09/2011)‡ (64,604) (0.01)

£(6,174,123) Sold Sterling$9,851,752 For US Dollars

(Expires 20/09/2011)‡ (170,746) (0.02)$(174,664,337) Sold US Dollars£106,704,387 For Sterling

(Expires 20/09/2011)‡ 268,913 0.04

28




FORWARD CURRENCYCONTRACTS — (cont.)

$(1,840,000) Sold Australian Dollars£1,190,473 For Sterling

(Expires 07/10/2011)‡ (31,945) —CAD(512,000) Sold Canadian Dollars

£324,617 For Sterling(Expires 07/10/2011)‡ (1,576) —

DKK(15,726,000) Sold Danish Krone£1,886,771 For Sterling

(Expires 07/10/2011)‡ 39,678 —€(33,388,000) Sold Euros

£29,846,804 For Sterling(Expires 07/10/2011)‡ 632,363 0.09

€(271,000) Sold Euros£237,033 For Sterling

(Expires 07/10/2011)‡ (92) —ZAR(12,882,500) Sold South African Rand

£1,161,785 For Sterling(Expires 07/10/2011)‡ (3,927) —

£(2,220,443) Sold Sterling€2,723,200 For Euros

(Expires 07/10/2011)‡ (60,579) (0.01)£(1,105,904) Sold Sterling

$1,775,955 For US Dollars —(Expires 07/10/2011)‡ (23,275) —

$(129,233,000) Sold US Dollars£80,864,139 For Sterling

(Expires 07/10/2011)‡ 2,083,204 0.29

3,204,244 0.45

Portfolio of investments** 687,951,372 97.23

Net other assets 19,630,024 2.77

Net assets £707,581,396 100.00%

Income units or shares.

Accumulation units or shares.

Including derivative liabilities.

These are sub-investment grade fixed interest securities and represent0.86% if the net asset of the Trust.

These are unrated fixed interest securities and represent 0.47% of the netasset of the Trust.

These are unlisted securities and have been valued at the Manager’s bestassessment of their fair value. .

Total purchases for the year: £413,225,192.Total sales for the year: £275,530,526.

29




†

*

**

^

^^

‡

30


The portfolio is analysed as follows:

Market % of % ofValue as at Trust as at Trust as at31/07/11 31/07/11 31/07/10

Investment £Equities 249,198,828 35.21 31.29Nonequity Investment Instruments 249,009,461 35.20 28.99Government Stocks 5,663,466 0.80 3.26Corporate Bonds 176,131,531 24.90 21.54Structured Notes — — 1.17Derivatives 7,948,086 1.12 1.18

Portfolio of Investments 687,951,372 97.23 87.43

Net other assets 19,630,024 2.77 12.57

Net assets £707,581,396 100.00% 100.00%

31

Independent Auditors’ Report

Independent Auditors’ Report to the Unitholders ofL&G (N) Target Return Trust (“the Trust”)We have audited the financial statements of L&G (N) TargetReturn Trust (the “Trust”) for the year ended 31 July 2011 whichcomprise the statement of total return, the statement of changein net assets attributable to unitholders, the balance sheet, therelated notes and the distribution tables. The financial reportingframework that has been applied in their preparation isapplicable law and United KingdomAccounting Standards(United Kingdom Generally Accepted Accounting Practice) andthe Statement of Recommended Practice ‘Financial Statementsof Authorised Funds’ issued by the Investment ManagementAssociation (the “Statement of Recommended Practice forAuthorised Funds”).

Respective responsibilities of Authorised Fund Managerand auditorsAs explained more fully in the Statement of the Manager’sResponsibilities the Authorised Fund Manager is responsible forthe preparation of the financial statements and for beingsatisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on thefinancial statements in accordance with applicable law andInternational Standards on Auditing (UK and Ireland). Thosestandards require us to comply with the Auditing PracticesBoard’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for andonly for the Trust’s unitholders as a body in accordance withparagraph 4.5.12 of the Collective Investment Schemessourcebook and for no other purpose. We do not, in givingthese opinions, accept or assume responsibility for any otherpurpose or to any other person to whom this report is shownor into whose hands it may come save where expressly agreedby our prior consent in writing.

Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts anddisclosures in the financial statements sufficient to givereasonable assurance that the financial statements are free frommaterial misstatement,whether caused by fraud or error. Thisincludes an assessment of: whether the accounting policies areappropriate to the Trust’s circumstances and have beenconsistently applied and adequately disclosed; thereasonableness of significant accounting estimates made by theAuthorised Fund Manager; and the overall presentation of thefinancial statements.

In addition,we read all the financial and non-financialinformation in the Authorised Fund Manager’s Report to identifymaterial inconsistencies with the audited financial statements.If we become aware of any apparent material misstatements orinconsistencies we consider the implications for our report.

Independent Auditors’ Report continued

Opinion on financial statementsIn our opinion the financial statements:

• give a true and fair view of the financial position of the Trustat 31 July 2011 and of the net revenue and the net gains ofthe scheme property of the Trust for the year then ended; and

• have been properly prepared in accordance with theStatement of Recommended Practice for Authorised Funds,the Collective Investment Schemes sourcebook and the TrustDeed.

Opinion on other matters prescribed by the CollectiveInvestment Schemes sourcebookIn our opinion:• we have obtained all the information and explanations weconsider necessary for the purposes of the audit; and

• the information given in the Authorised Fund Manager’sReport for the financial year for which the financialstatements are prepared is consistent with the financialstatements.

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matterswhere the Collective Investment Schemes sourcebook requiresus to report to you if, in our opinion:

• proper accounting records for the Trust have not been kept;or

• the financial statements are not in agreement with theaccounting records and returns.

London PricewaterhouseCoopers LLP22 September 2011 Chartered Accountants

& Statutory Auditors

The accounts are published at:http://www.legalandgeneral.com/investments/fund-information/managers-reports, which is a website maintained by the Manager.

• The maintenance and integrity of the Legal & General website isthe responsibility of the Authorised Fund Manager; the workcarried out by the auditors does not involve consideration of thesematters and, accordingly, the auditors accept no responsibility forany changes that may have occurred to the financial statementssince they were initially presented on the website.

• Legislation in the United Kingdom governing the preparation anddissemination of financial statements may differ from legislation inother jurisdictions.

32

33

Statement of Total Returnfor the year ended 31 July 2011

31/07/11 31/07/10

Notes £ £ £ £

Income

Net capital gains 2 42,588,855 48,037,617

Revenue 3 16,912,242 12,351,498

Expenses 4 (10,826,085) (8,942,847)

Finance costs: Interest 6 (523,008) (25,380)

Net revenuebefore taxation 5,563,149 3,383,271

Taxation 5 (238,609) (29,460)

Net revenue aftertaxation for the year 5,324,540 3,353,811

Total returnbefore distributions 47,913,395 51,391,428

Finance costs:Distributions 6 (5,328,523) (3,353,792)

Change in net assetsattributable to Unitholdersfrom investment activities £42,584,872 £48,037,636

Statement of Change in Net Assets attributable toUnitholders for the year ended 31 July 2011

31/07/11 31/07/10

£ £ £ £

Opening net assetsattributable to Unitholders 584,795,228 489,162,077

Amounts receivedon creation of units 119,073,088 73,939,683

Amounts paid oncancellation of units (44,213,992) (29,614,198)

74,859,096 44,325,485

Stamp Duty Reserve Tax (163,534) (151,043)

Change in net assetsattributable to Unitholdersfrom investment activities 42,584,872 48,037,636

Retained distributionon accumulation units 5,505,734 3,421,073

Closing net assetsattributable to Unitholders £707,581,396 £584,795,228

Financial Statements

34

Balance Sheet as at 31 July 2011

31/07/11 31/07/10

Notes £ £ £ £

ASSETS

Investment assets 690,619,646 514,050,961

Debtors 7 5,420,025 5,581,502

Cash andbank balances 8 21,947,243 65,273,497

Amount held atclearing andbroker houses 8 — 5,871,881

Total other assets 27,367,268 76,726,880

Total assets 717,986,914 590,777,841

LIABILITIES

Investment liabilities (2,668,274) (2,739,198)

Creditors 9 (3,863,481) (2,633,780)

Bank overdrafts 8 (639,534) —

Amount held atclearing andbroker houses 8 (3,234,229) (609,635)

Total other liabilities (7,737,244) (3,243,415)

Total liabilities (10,405,518) (5,982,613)

Net assets attributableto Unitholders £707,581,396 £584,795,228

Financial Statements continued

35

Notes to the Financial Statements

1. Accounting policies

(a) Changes to accounting policiesThe financial statements have been prepared under thehistorical cost convention, as modified by the revaluation ofinvestments, and in accordance with the Statement ofRecommended Practice for Authorised Funds issued by theIMA in October 2010 ('the IMA SORP 2010').

As at 31 July 2010, the financial statements were preparedin accordance with the Statement of RecommendedPractice for Authorised Funds issued by the IMA inNovember 2008.

There has been no impact on the financial statements or ondisclosure for the year.

(b) Recognition of revenueRevenue from quoted equities and non-equity shares isrecognised net of attributable tax credits when the securityis quoted ex-dividend. Revenue from unquoted equityinvestments is recognised net of attributable tax creditswhen the dividend is declared.

Bond revenue is accounted for on an effective yield basis,calculated with reference to the purchase price.

Underwriting commission is taken to revenue andrecognised when the issue takes place, except where theTrust is required to take up all or some of the sharesunderwritten, in which case an appropriate proportion ofthe commission is deducted from the cost of those shares.

Overseas revenue received after the deduction ofWithholding tax is shown gross of taxation,with thetaxation consequences shown within the taxation charge.

Special dividends are treated as either revenue or capitaldepending on the facts of each particular case.

Equalisation on distributions received from CollectiveInvestment Schemes is treated as capital property ofthe Trust.

Rebates received from underlying investments managedoutside the Legal & General Group are treated as revenue orcapital depending on the treatment of the Manager’s fees inthe underlying Fund.

Revenue from derivative instruments will be treated inaccordance with Note 1(h).

All other revenue is recognised on an accruals basis.

(c) Treatment of expensesAll expenses (other than those relating to the purchase andsale of investments and Stamp Duty Reserve Tax) arecharged against revenue on an accruals basis.

36

(d) Distribution policyThe policy is to distribute all available revenue, afterdeduction of those expenses which are chargeable incalculating the distribution. In order to conduct acontrolled dividend flow, interim distributions will be at theManager’s discretion, up to a maximum of the distributablerevenue for the period. All remaining revenue is distributedin accordance with the COLL.

The Manager’s periodic fee is deducted from revenue forthe purpose of calculating the distribution.

The ordinary element of stock dividends is treated asrevenue and forms part of the distribution. In the case ofan enhanced stock dividend, the value of the enhancementis treated as capital and does not form part of thedistribution.

Distributions which have remained unclaimed byUnitholders for over six years are credited to the capitalproperty of the Trust.

(e) Basis of valuation of investmentsAll investments are valued at their fair value as at 9pm on29 July 2011, being the last working day of the accountingyear. The fair value for non-derivative securities is the bidmarket price, excluding any accrued interest and the fairvalue for derivative instruments is the cost of closing outthe contract at the balance sheet date. The fair value forunits in Collective Investment Schemes is the cancellationprice or bid price for dual priced funds and single price forsingle priced funds.

Where values cannot be readily determined, the securitiesare valued at the Manager's best assessment of their fairvalue.

(f) TaxationProvision is made for taxation at current rates on the excessof investment revenue over expenses,with relief foroverseas taxation taken where appropriate.

Deferred tax is provided for on all timing differences thathave originated but not reversed by the balance sheet date,other than those differences that are regarded aspermanent. Any liability to deferred tax is provided for atthe average rate of tax expected to apply. Deferred taxassets and liabilities are not discounted to reflect the timevalue of money.

(g) Exchange ratesTransactions in foreign currencies are translated at the rateof exchange ruling on the date of the transaction. Whereapplicable, assets and liabilities denominated in foreigncurrencies are translated into Sterling at the rates ofexchange ruling at 9pm on 29 July 2011, being the lastworking day of the accounting year.

Notes to the Financial Statements continued

37

(h) Derivative instrumentsAs well as the use of financial derivative instruments as partof efficient portfolio management, the Trust may also makeuse of derivatives in the pursuit of the investment objective.Derivative instruments can be used to adjust investmentexposure or to try to take advantage of perceivedmovements in prices or spreads. Derivative instrumentsheld within theTrust are accounted for and taxed inaccordance with the Statement of Recommended Practicefor Authorised Funds (IMA SORP 2010). Derivativetransactions will be treated as either revenue or capitaldepending on the motives and circumstances on acquisition.

2. Net capital gains

31/07/11 31/07/10

£ £

The net capital gainsduring the year comprise:

Non-derivative securities 43,209,002 48,688,280

Derivative contracts (4,584,405) (485,454)

Forward currency contracts 3,902,473 (252,931)

Currency gains 42,273 87,722

Management fee rebates 23,681 —

Transaction charges (4,169) —

Net capital gains 42,588,855 48,037,617

3. Revenue

31/07/11 31/07/10

£ £

UK Franked dividends 2,840,711 2,261,231

UK Unfranked dividends 13,660 —

Interest distributions 2,991,186 —

Non-taxable overseasdividends 2,657,059 260,698

Property distributions — 23,042

Stock dividends 52,661 164,967

Bond interest 7,012,699 6,192,601

Term deposit interest 47,370 347,543

Bank interest 5,621 1,063

HMRC Interest — 1,429

Underwriting commission 18,048 20,747

Management fee rebates 1,069,054 1,505,251

Franked dividend distributions 204,173 1,088,269

Unfranked dividenddistributions — 484,657

16,912,242 12,351,498


38


4. Expenses

31/07/11 31/07/10

£ £

Payable to the Manager,associates of the Managerand agents of either of them:

Manager's periodic fee 9,834,624 8,308,401

Registration fees 983,462 634,446

10,818,086 8,942,847

Payable to the Trustee,associates of the Trusteeand agents of either of them:

Safe custody fees 6,878 —

6,878 —

Other expenses:

Legal Fee 1,121 —

1,121 —

Total expenses 10,826,085 8,942,847

Audit fees of £10,200 and VAT on Audit fees of £2,040 (Audit fees of£10,000 and VAT on Audit fees of £1,750 as at 31July 2010) plus Trusteefees of £58,442 (£35,995 as at 31 July 2010) and all other expenses havebeen borne by the Manager out of its periodic charge.

39

5. Taxation

(a) Analysis of taxation charge in year

31/07/11 31/07/10

£ £Overseas tax 235,988 31,126

Irrecoverable tax 2,621 3,182

Prior year CorporationTax adjustment — (2,042)

Current tax [note 5(b)] 238,609 32,266

Deferred tax [note 5(c)] — (2,806)

Total taxation 238,609 29,460

(b) Factors affecting taxation charge for the yearThe Current tax charge excludes capital gains and losses forthe reason that Authorised Unit Trusts are not subject toCorporation Tax on these items. Current tax differs fromtaxation assessed on net revenue before taxation as follows:

Net revenue before taxation 5,563,149 3,383,271

Net revenue before taxationmultiplied by the applicablerate of Corporation Tax at 20%(2010: 20%) 1,112,630 676,654

Effects of:Overseas tax 235,988 31,126

Irrecoverable tax 2,621 3,182

Prior yeartax adjustment — (2,042)

Revenue not subjectto taxation (1,150,921) (755,033)

Capitalised income notsubject to taxation 4,736 —

Movement in taxablerevenue accruals — 2,806

Excess unutilisedmanagement expenses 33,555 75,573

Current tax 238,609 32,266

(c) Provision for deferred tax

Provision at start of year — 2,806

Deferred tax charge for year — (2,806)

Provision at end of year — —

At the period end there is a potential deferred tax asset of£101,652 (£75,573 as at 31 July 2010) due to surplusmanagement expenses. It is unlikely the Trust will generatesufficient taxable profits in the future to utilise theseamounts and therefore no deferred tax asset has beenrecognised (31 July 2010: same).


40

6. Finance costs

DistributionsThe distributions take account of revenue received on thecreation of units and revenue deducted on the cancellationof units and comprise:

31/07/11 31/07/10

£ £

Interim distribution 4,636,372 1,586,843

Final distribution 869,362 1,834,230

5,505,734 3,421,073

Add: Revenue deducted oncancellation of units 99,467 56,446

Less: Revenue received oncreation of units (276,678) (123,727)

Distributions for the year 5,328,523 3,353,792

Interest

Bank overdraft interest 7,860 (7,246)

Futures Expense 488,257 —

Margin interest 26,891 32,626

Total finance costs 5,851,531 3,379,172

The differences between the net revenue after taxation andthe distributions for the year are as follows:

Net revenue after taxationfor the year 5,324,540 3,353,811

Less: Taxation forcapitalised income 4,736 —

Net movement inrevenue account (753) (19)

Distributions for the year 5,328,523 3,353,792


41

7. Debtors

31/07/11 31/07/10

£ £

Amounts receivable forcreation of units 1,751,948 1,229,243

Sales awaiting settlement 674,986 1,544,886

Accrued revenue 2,583,450 2,350,011

Bank interest 55 —

Recoverable overseas tax 47,861 4,587

Rebate of Manager'speriodic fees 361,725 452,775

5,420,025 5,581,502

8. Cash and bank balances31/07/11 31/07/10

£ £

Amount held at broker houses (3,234,229) 5,262,246

Cash and bank balances 21,947,243 35,273,497

Bank overdrafts (639,534) —

Term deposits — 30,000,000

Net uninvested cash 18,073,480 70,535,743

9. Creditors31/07/11 31/07/10

£ £

Amounts payable forcancellation of units 1,005,830 499,009

Purchases awaiting settlement 1,859,001 548,015

Accrued expenses 998,643 1,586,756

Bank overdraft interest 7 —

3,863,481 2,633,780

10. Contingent liabilities and outstanding commitmentsThere were no contingent liabilities or outstandingcommitments at the balance sheet date (31 July 2010: same).


42

11. Risk in relation to financial instrumentsThe Trust’s investment objective is stated on page 2. Inpursuing its objective, the Trust holds financial instrumentswhich expose it to various types of risk. The main risks, andthe Manager’s policy for managing these risks,which wereapplied consistently throughout the current and precedingyear, are set out below.

(a) Credit and liquidity riskCredit risk is the risk of suffering loss due to another partynot meeting its financial obligations. The primary source ofthis risk to the Trust is for trade counterparties to fail tomeet their transaction commitments. This risk is managedby appraising the credit profile of financial instruments andtrade counterparties.

Liquidity risk relates to the capacity to meet liabilities. Theprimary source of this risk to the Trust is the liability toUnitholders for any cancellation of units. This risk isminimised by holding cash and readily realisable securitiesand via access to overdraft facilities.

(b) Market riskMarket risk arises mainly from uncertainty about futureprices. The primary source of this risk to the Trust is thepotential movement in the value of financial instrumentsheld as a result of price fluctuations. Given that the Trustinvests in other Collective Investment Schemes, there ismarket risk exposure in respect of the financial instrumentsheld by these entities. The Manager adheres to theinvestment guidelines and borrowing powers established inthe Trust Deed, Prospectus and the COLL. In this way, theManager monitors and controls the exposure to risk fromany type of security, sector or issuer.


43


(c) Foreign currency riskForeign currency risk is the risk of movements in thevalue of overseas financial instruments as a result offluctuations in exchange rates. This risk is managed by theutilisation of forward currency contracts as necessary.Given that the Trust invests in other Collective InvestmentSchemes, there is currency risk in respect of the financialinstruments held by these entities. Forward currencycontracts were utilised during the current and precedingyear.

The foreign currency profile of the Trust’s net assets at thebalance sheet date was:

Net foreign currency assets/(liabilities)Monetary Non-monetary

31/07/11 exposures exposures TotalCurrency £’000 £’000 £’000Australian Dollar (1,027) 1,478 451Canadian Dollar (232) 2,081 1,849Danish Krone (1,841) 1,845 4Euro (35,618) 34,467 (1,151)Hong Kong Dollar (290) 1,662 1,372Norwegian Krone — 641 641Singapore Dollar 13 2,356 2,369South African Rand (1,161) 1,924 763Swedish Kroner — 1,188 1,188Swiss Francs 20 2,464 2,484Taiwan Dollar — 512 512US Dollar (178,351) 165,322 (13,029)

Net foreign currency assets/(liabilities)Monetary Non-monetary

31/07/10 exposures exposures TotalCurrency £’000 £’000 £’000Australian Dollar (811) 915 104Canadian Dollar (213) 345 132Euro (61,912) 54,008 (7,904)Japanese Yen (27) — (27)Singapore Dollar — 1,627 1,627US Dollar (125,766) 109,584 (16,182)

44


(d) Interest rate riskInterest rate risk is the risk of movements in the value offinancial instruments as a result of fluctuations in interestrates. This risk is managed by the active monitoring andadjustment of the portfolio.

The interest rate profile of the Trust’s net assets at thebalance sheet date was:

Total Floating Fixed Norate rate interest

31/07/11 £’000 £’000 £’000 £’000

Portfolio 687,951 14,879* 166,916 506,156

Other assets 27,367 21,947** — 5,420

Other liabilities (7,737) (3,874)** — (3,863)

Total 707,581 32,952 166,916 507,713

31/07/10

Portfolio 511,312 1,410* 143,644 366,258

Other assets 76,727 41,145** 30,000 5,582

Other liabilities (3,244) (610)** — (2,634)

Total 584,795 41,945 173,644 369,206

The Trust’s floating rate investments earn interest which isvariable, based on LIBOR or its overseas equivalent.

The Trust’s floating rate other assets and liabilities arerepresented by its bank balances and overdraft facilities.Cash is deposited, and overdraft facilities utilised, on normalcommercial terms and earn or bear interest based on LIBORor its overseas equivalent.

Fixed Rate Financial Assets

Weighted averageWeighted average period for which

interest rate rate is fixedCurrency % Years

31/07/11 31/07/10 31/07/11 31/07/10Sterling 2.42 5.44 8.44 13.94Australian Dollar 6.00 6.51 4.64 5.60Canadian Dollar 4.78 4.97 8.18 9.18Danish Krone 4.34 — 30.19 —Euro 5.08 4.22 7.71 9.63South African Rand 8.24 — 8.47 —US Dollar 3.31 3.27 10.00 9.86

The bonds shown in the Portfolio Statement with openmaturity dates are assumed to mature on31 December 2049 for the purpose of calculating theweighted average period for which the rate is fixed.

(e) Derivative risk — Sensitivity analysisThe Trust currently utilises forward currency contracts andindex futures.

Forward currency contracts are used to hedge the effect ofcurrency risk,while index futures and options are used fortwo purposes under Efficient Portfolio Management (EPM).

*

**

45


Futures and options are used to adjust market exposurefrom cash flows to ensure asset allocation views can bemaintained without adjusting underlying holdings toofrequently. They are also used to adjust the tactical assetallocation of the Trust. Futures and options allow a low costand liquid mechanism of achieving these aims.

The effective exposure of all derivatives must be fullycovered with a corresponding cash balance or appropriatestock position at all times.

The greatest effective exposure of the derivatives at thebalance sheet date related to futures and as such the effectsof an increase or decrease in the index on the net assetvalue of the Trust are shown below.

Impact on Net Assets ofEffective Trust from movement in underlying

Derivative Exposure value of below percentage

31/07/11 £’000 (20%) (10%) 10% 20%90 Day MSE BankAccept (13,358) 0.38% 0.19% (0.19%) (0.38%)Australia 10 Year SFE 63,773 (1.80%) (0.90%) 0.90% 1.80%Australia 3 Year SFE (9,623) 0.27% 0.14% (0.14%) (0.27%)Canada 10 Year Bond 3,332 (0.09%) (0.05%) 0.05% 0.09%DJ Euro Stoxx 50 15,939 (0.45%) (0.23%) 0.23% 0.45%E Mini S&P 500 (21,152) 0.60% 0.30% (0.30%) (0.60%)Euro-Bund 1,030 (0.03%) (0.01%) 0.01% 0.03%Euro-Buxl 488 (0.01%) (0.01%) 0.01% 0.01%Euro-Schatz (2,090) 0.06% 0.03% (0.03%) (0.06%)FTSE 100 (72,354) 2.05% 1.02% (1.02%) (2.05%)FTSE 100 Dividend 6,046 (0.18%) (0.09%) 0.09% 0.18%LIFFE Long Gilt (3,628) 0.10% 0.05% (0.05%) (0.10%)US Treasury Bond (1,249) 0.04% 0.02% (0.02%) (0.04%)US Treasury Note2 Year (134) 0.00% 0.00% 0.00% 0.00%US Treasury Note5 Year (8,143) 0.23% 0.12% (0.12%) (0.23%)US Treasury Note10 Year (49,958) 1.41% 0.71% (0.71%) (1.41%)

Total (91,081) 2.58% 1.29% (1.29%) (2.58%)

Impact on Net Assets ofEffective Trust from movement in underlying

Derivative Exposure value of below percentage

31/07/10 £’000 (20%) (10%) 10% 20%Australia SFE 24,768 (0.85%) (0.42%) 0.42% 0.85%Canada 10 YearBond 4,073 (0.14%) (0.07%) 0.07% 0.14%DJ Euro Stoxx 50 11,416 (0.39%) (0.20%) 0.20% 0.39%DJ Euro Stoxx 600Healthcare 11,695 (0.40%) (0.20%) 0.20% 0.40%Euro-Bobl (3,093) 0.11% 0.05% (0.05%) (0.11%)Euro-Bund (107) 0.00% 0.00% 0.00% 0.00%Euro-Buxl 643 (0.02%) (0.01%) 0.01% 0.02%Euro-Schatz (5,811) 0.20% 0.10% (0.10%) (0.20%)FTSE 100 (18,905) 0.65% 0.32% (0.32%) (0.65%)Japan 10 Year TSE (2,093) 0.07% 0.04% (0.04%) (0.07%)LIFFE Long Gilt (6,564) 0.22% 0.11% (0.11%) (0.22%)US Treasury Note (22,992) 0.79% 0.39% (0.39%) (0.79%)

Total (6,970) 0.24% 0.11% (0.11%) (0.24%)

46


(f) Fair valueThe fair value of a financial instrument is the amount forwhich it could be exchanged between knowledgeable,willing parties in an arm’s length transaction. There is nosignificant difference between the value of the financialassets and liabilities, as shown in the financial statements,and their fair value.

12. Portfolio transaction costs

31/07/11 31/07/10

£ £ £ £

Analysis of totalpurchase costs:

Purchases beforetransaction costs 412,951,056 368,154,545

Commissions 98,684 149,206

Taxes 175,452 169,631

Total purchase costs 274,136 318,837

Gross purchases total 413,225,192 368,473,382

Analysis of totalsale costs:

Sales beforetransaction costs 275,622,908 253,148,174

Commissions (60,920) (117,596)

Futures commissions (29,538) (17,406)

Fees (1,924) (368)

Total sale costs (92,382) (135,370)

Total sales net oftransaction costs 275,530,526 253,012,804

13. Unit classThe Trust currently has two unit classes: R-Class and A-Class.The annual management charge on each unit class can befound on page 51. The net asset value of each unit class, thenet asset value per unit and the number of units in eachclass are given in the comparative table on page 50. Thedistributions per unit class are given in the distributiontables on page 48. All classes have the same rights onwinding up.

47


14. Ultimate controlling party and related partytransactionsThe Manager and Trustee are regarded as controlling partiesof the Trust by virtue of having the ability to act in concertin respect of Trust operations. The ultimate controllingparties of the Manager and Trustee are Legal & GeneralGroup Plc and The Royal Bank of Scotland Plc, respectively.These entities and their subsidiaries are also related partiesof the Trust.

Legal & General (Unit Trust Managers) Limited acts asprincipal on all the transactions of units in the Trust. Theaggregate monies received through creations or paid oncancellations are disclosed in the Statement of Change inNet Assets attributable to Unitholders.

At the year end, the Manager and its associates held 0.00%(0.00% as at 31 July 2010) of the Trust’s units in issue. Therewere no units held by the Trustee or its associates. Detailsof all other material related party transactions during theyear and any payment amounts outstanding at the balancesheet date are disclosed in notes 4, 6, 7 and 9 to thefinancial statements and the Statement of Change in NetAssets attributable to Unitholders. Within note 9, accruedexpenses and bank overdraft interest (including amounts dueto associates and agents) of £5,148 (Nil as at 31 July 2010)are due to the Trustee and £993,481 (£1,586,756 as at31 July 2010) are due to the Manager.

15. Post balance sheet market movementsAs at the close of business on the balance sheet date the NetAsset Value per unit was 129.17p. The Net Asset Value per unitfor theTrust as at 9pm on 20 September 2011 was 126.40p.This represents a decrease of 2.1% from the year end value.

48

Distribution Tables

Distribution Tables for the year ended 31 July 2011

Group 1: units purchased prior to a distribution period

Group 2: units purchased during a distribution period

Equalisation is the average amount of revenue included in thepurchase price of all Group 2 units and is refunded to theholders of these units as a return of capital. As capital it is notliable to IncomeTax but must be deducted from the cost ofunits for Capital Gains Tax purposes.

Interim dividend distribution in pence per unit Period

01/08/10 — 31/01/11Net Equalisation Distribution Distribution

Revenue 31/03/11 31/03/10

A-Class Accumulation unitsGroup 1 0.9058 — 0.9058 0.3349Group 2 0.5491 0.3567 0.9058 0.3349

R-Class Accumulation unitsGroup 1 0.9058 — 0.9058 0.3349Group 2 0.5001 0.4057 0.9058 0.3349

Final dividend distribution in pence per unit Period

01/02/11 — 31/07/11Net Equalisation Distribution Distribution

Revenue 30/09/11 30/09/10

A-Class Accumulation unitsGroup 1 0.1587 — 0.1587 0.3750Group 2 — 0.1587 0.1587 0.3750

R-Class Accumulation unitsGroup 1 0.1587 — 0.1587 0.3750Group 2 — 0.1587 0.1587 0.3750

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Total Expense Ratio

31 Jul 11 31 Jul 10

A-Class 1.80% A-Class 1.75%R-Class 1.80% R-Class 1.75%

The Total Expense Ratio is the ratio of the Trust’s operatingcosts (excluding overdraft interest) and all costs sufferedthrough holdings in underlying Collective Investment Schemes,to the average net assets of the Trust.

Trust Facts

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Performance Record

Net Asset Values

Net Asset Net Asset Number OfAccounting Value Of Value Per UnitsDate Trust Unit In Issue

31 July 2009A-Class £489,162,077 108.52p 450,739,948

31 July 2010A-Class £527,023,512 119.56p 440,807,155R-Class* £57,771,716 119.56p 48,320,778

31 July 2011A-Class £526,258,256 129.17p 407,423,579R-Class* £181,323,140 129.17p 140,378,458

R-Class units became available from 29 August 2009.


The price of units and any income from them may go down aswell as up.


Unit Price Range and Net Revenue

A-Class Units

Highest Lowest NetYear Price Price Revenue

Accumulation Units

2006 112.20p 106.70p 2.4995p2007 120.90p 110.80p 2.1293p2008 123.20p 96.59p 2.0497p2009 117.80p 97.42p 1.2230p2010 127.60p 115.60p 0.7099p2011(2) 131.60p 126.90p 1.0645p

R-Class Units

Highest Lowest NetYear Price Price Revenue

Accumulation Units

2009(1) 117.80p 110.70p —2010 127.60p 115.60p 0.7099p2011(2) 131.60p 126.90p 1.0645p

(1) From 29 August 2009.(2) The above tables show highest and lowest prices to31 July 2011 and the net revenue per unit to30 September 2011.


The price of units and any income from them may go down aswell as up.


*

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General Information

Constitution

Launch date: 17 January 2005

Period end dates for distributions: 31 January, 31 July

Distribution dates: 31 March, 30 September

Minimum initial lumpsum investment: A Class £20

R-Class £20

Valuation point: 9pm

Management charges: A Class 1.5%R-Class 1.5%

Initial charges: A Class NilR-Class 3%

Pricing and DealingThe prices are published on the internet atwww.legalandgeneral.com/investments/fund-information/daily-fund-prices immediately after they become available.

Dealing in units takes place on a forward pricing basis, from9.00am to 4.00pm,Monday to Friday.

Buying and Selling UnitsUnits may be bought on any business day from the Manager bytelephoning or completing an application form. Units maynormally be sold back to the Manager on any business day atthe bid price calculated at the following valuation point.

ISA StatusThis Trust may be held within this tax advantaged savingsarrangement. The favourable tax treatment of ISAs may not bemaintained. For full written information please ring0370 050 0955.

Call charges will vary. We may record and monitor calls.

Stamp Duty Reserve TaxStamp Duty ReserveTax suffered on the surrender of units whereapplicable, has been charged against the capital assets of theTrust.

Prospectus and Manager’s ReportsThe Manager will send to all persons on the Unitholder Registerannual and interim short form reports.

Copies of the Prospectus and the most recent annual or interimreports are available free of charge by telephoning0370 050 0955 or by writing to the Manager.

Do you have difficulty in reading information in print becauseof a disability? If so,we can help. We are able to produceinformation for our clients in large print and braille. If youwould like to discuss your particular requirements, pleasecontact us on 0370 050 0955.

Call charges will vary. We may record and monitor calls.

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Effective YieldAt the balance sheet date, the Trust is accounting for revenuefrom debt securities on an effective yield basis. Effective yieldconsiders the difference between purchase and redemptionprice of each security, and spreads that discount or premiumacross the life of the security. This may result in an increase indistributable revenue but will be offset by a correspondingdecrease in capital value. As a result, it does not affect the totalreturn of the Trust.

EU Savings DirectiveThe Trust has been reviewed against the requirements of thedirective 2003/48/EC on taxation of savings in the form ofinterest payments (ESD), following the HM Revenue & Customs’debt investment reporting guidance notes.

Under the Directive, information is collected about the paymentof distributions to residents in certain other countries and isreported to HM Revenue & Customs to be exchanged with taxauthorities in those countries.

The Trust falls within the 25% debt investment reportingthreshold. This means that details of all distributions andredemption proceeds paid to non UK investors will be reportedby Legal & General (Unit Trust Managers) Limited toHM Revenue & Customs to be exchanged with the relevanttax authorities.

Significant ChangesChange in TrusteeThe Trustee of the Trust has changed. JPMorgan Trustee andDepositary Company Limited ceased to be the Trustee on19 February 2011 and The Royal Bank of Scotland Plc Trusteeand Depositary Services has taken on responsibility thereafter.

Following the balance sheet date, the below changes were alsomade:

Change in RegistrarThe Registrar of the Trust has changed. The Bank of NewYorkMellon (International) Limited ceased to be the Registrar on27 August 2011 and Legal & General (Portfolio ManagementServices) Limited has taken on responsibility thereafter.

Change in Fund AccountantThe Fund Accountant of the Trust has changed. Bank of NewYork Mellon (International) Limited ceased to be the FundAccountant on 1 August 2011 and Northern Trust GlobalServices Limited has taken on responsibility thereafter.

General Information continued

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ManagerLegal & General (Unit Trust Managers) LimitedRegistered in England No. 01009418Registered office:One Coleman Street,London EC2R 5AATelephone: 0370 050 3350Authorised and regulated by the Financial Services Authority

Directors of the ManagerM. B. BoardmanS. C. EllisM. J. GregoryS. R. PistellS. D.Thomas

SecretaryA. Fairhurst

RegistrarLegal & General (Portfolio Management Services) LimitedPO Box 6080WolverhamptonWV1 9RBAuthorised and regulated by the Financial Services Authority

Dealing: 0370 050 0955Enquiries: 0370 050 0955Registration: 0370 050 0955Call charges will vary. We may record and monitor calls.

Prior to 27 August 2011Bank of NewYork Mellon (International) LimitedBNY Mellon HouseIngrave RoadBrentwoodEssex CM15 8TGAuthorised and regulated by the Financial Services Authority

TrusteeThe Royal Bank of Scotland PlcTrustee and Depositary ServicesGogarburnP.O. Box 1000Edinburgh EH12 1HQAuthorised and regulated by the Financial Services Authority

Prior to 19 February 2011 theTrustee of theL&G (N)Target ReturnTrust was:JPMorgan Trustee and Depositary Company LimitedChasesideBournemouthBH7 7DAAuthorised and regulated by the Financial Services Authority


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Independent AuditorsPricewaterhouseCoopers LLP7 More London RiversideLondon SE1 2RT

Investment AdviserBlackRock Investment Management (UK) Limited33 KingWilliam StreetLondon EC4R 9ASAuthorised and regulated by the Financial Services Authority


Authorised and regulated by theFinancial Services Authority

Legal & General(Unit Trust Managers) LimitedRegistered in England No. 01009418Registered office:One Coleman Street,London EC2R 5AAwww.legalandgeneral.com

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