annual report and accounts - aviva · annual report and accounts for the year ended 31 december...

ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2016

BNY MELLON GLOBAL FUNDS, PLC

CONTENTS

BACKGROUND TO THE COMPANY 4

DIRECTORS’ REPORT 9

DEPOSITARY’S REPORT 14

INDEPENDENT AUDITORS’ REPORT 15

INVESTMENT MANAGERS’ REPORTS 17

PORTFOLIO OF INVESTMENTS 41

STATEMENT OF COMPREHENSIVE INCOME 184

STATEMENT OF FINANCIAL POSITION 200

STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO REDEEMABLE PARTICIPATING SHAREHOLDERS 216

NOTES TO THE FINANCIAL STATEMENTS 224

SIGNIFICANT PORTFOLIO MOVEMENTS 399

APPENDIX 1: UCITS V REMUNERATION POLICY (UNAUDITED) 427

APPENDIX 2: SECURITIES FINANCING TRANSACTIONS REGULATION DISCLOSURES (UNAUDITED) 428

MANAGER AND OTHER INFORMATION 444

IMPORTANT INFORMATION 445

4


17 July 2002 – Mellon Global Emerging Markets Fund was launched.

18 September 2002 – Mellon US Large Companies Value Fund was launched and subsequently changed its name to Mellon U.S. Dynamic Value Fund on 24 May 2005.

28 April 2003 – Mellon Euroland Bond Fund, Mellon Small Cap Euroland Fund and Mellon Small Cap Global ex-Euroland Fund were launched.

31 May 2003 – Mellon Global Tactical Asset Allocation Fund was closed (revoked by the Central Bank on 25 June 2004).

11 June 2003 – Mellon Global High Yield Bond Fund (USD) was launched.

20 January 2004 – Mellon US Large Companies Growth Fund was closed (revoked by the Central Bank on 25 May 2005).

11 February 2004 – Mellon Global High Yield Bond Fund (EUR) was launched.

15 October 2004 – Mellon Global High Yield Bond Fund (USD) was closed (revoked by the Central Bank on 25 May 2005).

10 May 2005 – Mellon Emerging Markets Debt Fund was launched.

3 October 2005 – Mellon North American Equity Fund changed its name to Mellon U.S. Equity Fund.

21 April 2006 – Mellon Small Cap Global ex-Euroland Fund was closed (revoked by the Central Bank on 11 June 2007).

28 April 2006 – Mellon Emerging Markets Debt Local Currency Fund was launched.

22 September 2006 – Mellon Evolution Global Alpha Fund was launched.

30 November 2006 – Mellon Japan Equity Value Fund was launched.

18 December 2006 – Mellon EURO STOXX 50SM Index Tracker and Mellon Global Innovation Fund were closed (revoked by the Central Bank on 11 June 2007).

10 January 2007 – Mellon Evolution Currency Option Fund was launched.

2 July 2007 – Mellon Evolution Currency Alpha Fund was launched.

6 July 2007 – Mellon Evolution Core Alpha Fund was launched.

The following information is derived from and should be read in conjunction with the full text and defi nitions section in the prospectus.

STRUCTUREBNY Mellon Global Funds, plc (the “Company”) was incorporated in the Republic of Ireland as a public limited company on 27 November 2000 with registration number 335837 under the Companies Act 2014. The Company changed its name from Mellon Global Funds, plc to BNY Mellon Global Funds, plc effective 3 June 2008.

The Company is an open-ended umbrella type investment company with variable capital organised under the laws of Ireland, with segregated liability between sub-funds, individually referred to as the “Fund” and collectively the “Funds”. The Company qualifi es and is authorised in Ireland by the Central Bank of Ireland (the “Central Bank”) as an undertaking for collective investment in transferable securities pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (as amended) (the “UCITS Regulations”). The Company currently comprises of 39 active Funds at 31 December 2016 (31 December 2015: 37).

The history of the Funds is as follows:

23 March 2001 – Mellon EURO STOXX 50SM Index Tracker, Mellon Euro Government Bond Index Tracker, Mellon S&P 500® Index Tracker and Mellon NIKKEI 225® Index Tracker were launched.

29 March 2001 – Global Tactical Asset Allocation Fund transferred to Mellon Global Funds, plc from Universal Liquidity Funds, plc*.

10 December 2001 – saw the launch ofMellon Asian Equity FundMellon Continental European Equity FundMellon Global Bond FundMellon Global Equity FundMellon Global Innovation FundMellon Global Intrepid FundMellon Japan Equity FundMellon North American Equity FundMellon Pan European Equity FundMellon Sterling Bond FundMellon Sterling Cash FundMellon UK Equity FundMellon US Dollar Cash Fund

11 January 2002 – Mellon European Ethical Index Tracker was launched.

31 May 2002 – Mellon US Large Companies Growth Fund was launched.

BACKGROUND TO THE COMPANY

55


BACKGROUND TO THE COMPANY cont’d.

11 December 2009 – BNY Mellon European Ethical Index Tracker was closed (revoked by Central Bank on 7 October 2010).

15 February 2010 – BNY Mellon Global Emerging Markets Fund changed its name to BNY Mellon Global Emerging Markets Equity Value Fund.

8 March 2010 – BNY Mellon Global Real Return Fund (EUR) was launched.

14 May 2010 – BNY Mellon Global Strategic Bond Fund changed its name to BNY Mellon Evolution Global Strategic Bond Fund.

29 July 2010 – BNY Mellon Global Equity Higher Income Fund was launched.

5 August 2010 – BNY Mellon Global Dynamic Bond Fund was launched.

31 August 2010 – BNY Mellon Latin America Infrastructure Fund was launched.

29 October 2010 – BNY Mellon Evolution Global Strategic Bond Fund was launched.

26 November 2010 – The valuation point of BNY Mellon Long-Term Global Equity was changed from 12.00 (Dublin time) to 22.00 (Dublin time).

16 December 2010 – BNY Mellon Evolution Long/Short Emerging Currency Fund was closed (revoked by the Central Bank on 23 September 2011).

22 December 2010 – BNY Mellon Global Intrepid Fund changed its name to BNY Mellon Global Opportunities Fund.

31 January 2011 – BNY Mellon Absolute Return Equity was launched.

11 March 2011 – BNY Mellon Evolution U.S. Equity Market Neutral Fund was launched.

20 June 2011 – BNY Mellon Emerging Markets Local Currency Investment Grade Debt Fund was launched.

24 June 2011 – BNY Mellon Japan Equity Fund was closed (revoked by the Central Bank on 3 September 2012).

18 August 2011 – The valuation point of BNY Mellon U.S. Dynamic Value Fund was changed from 12.00 (Dublin time) to 22.00 (Dublin time).

31 August 2007 – Mellon Brazil Equity Fund was launched.

17 December 2007 – Mellon Dynamic Europe Equity Fund was launched.

17 December 2007 – Mellon NIKKEI 225® Index Tracker was closed (revoked by the Central Bank on 13 October 2008).

31 January 2008 – Mellon Global Extended Alpha Fund was launched.

4 April 2008 – Mellon Long-Term Global Equity Fund was launched.

23 April 2008 – Mellon Global Property Securities Fund was launched.

3 June 2008 – Mellon Global Funds, plc changed its name to BNY Mellon Global Funds, plc and all registered Funds were prefi xed with BNY.

6 June 2008 – BNY Mellon Sterling Cash Fund merged into Universal Sterling Fund* (a sub-fund of Universal Liquidity Funds, plc*) and BNY Mellon US Dollar Cash Fund merged into Universal Liquidity Plus Fund* (a sub-fund of Universal Liquidity Funds, plc*) (both Funds were revoked by the Central Bank on 29 January 2010).

16 June 2008 – BNY Mellon Vietnam, India and China (VIC) Fund was launched.

9 December 2008 – BNY Mellon Dynamic Europe Equity Fund was closed (revoked by the Central Bank on 29 January 2010).

18 March 2009 – BNY Mellon Emerging Markets Equity Fund was launched.

25 March 2009 – BNY Mellon Evolution Long/Short Emerging Currency Fund was launched.

8 April 2009 – BNY Mellon Evolution Core Alpha Fund, BNY Mellon Evolution Currency Alpha Fund and BNY Mellon Global Extended Alpha Fund were closed (revoked by Central Bank on 7 October 2010).

22 June 2009 – BNY Mellon Euro High Yield Bond Fund was approved by the Central Bank.

30 June 2009 – BNY Mellon Global Real Return Fund (USD) was launched.

22 July 2009 – BNY Mellon Euro Corporate Bond Fund was launched.

66



1 October 2013 – BNY Mellon Evolution Global Strategic Bond Fund changed its name to BNY Mellon Global Opportunistic Bond Fund.

25 November 2013 – BNY Mellon Crossover Credit Fund was launched.

6 December 2013 – BNY Mellon Euro Government Bond Index Tracker and BNY Mellon Vietnam, India and China (VIC) Fund were closed (revoked by the Central Bank on 28 August 2014).

10 December 2013 – BNY Mellon Japan All Cap Equity Fund was launched.

12 December 2013 – BNY Mellon Japan Small Cap Equity Focus Fund was launched.

14 March 2014 – BNY Mellon Evolution Global Alpha Fund and BNY Mellon Latin America Infrastructure Fund were closed (revoked by the Central Bank on 10 November 2015 and 2 November 2015, respectively).

9 May 2014 – BNY Mellon Asian Income Fund was launched.

16 May 2014 – BNY Mellon U.S. Equity Fund was closed (revoked by the Central Bank on 10 November 2015)

16 June 2014 – BNY Mellon US Opportunities Fund was launched.

30 June 2014 – BNY Mellon Absolute Insight Fund was launched.

25 July 2014 – BNY Mellon Asian Bond Fund was launched.

20 November 2014 – BNY Mellon Japan Equity Value Fund was closed (revoked by the Central Bank on 2 November 2015).

31 December 2014 – The registered offi ce of the Company changed from 33 Sir John Rogerson’s Quay, Dublin 2, Ireland to Guild House, Guild Street, IFSC, Dublin 1, Ireland.

15 May 2015 – BNY Mellon Dynamic Total Return Fund was launched.

16 June 2015 – BNY Mellon Emerging Markets Local Currency Investment Grade Debt Fund was closed (pending application to the Central Bank to revoke the Fund’s registration and hence removal from the prospectus).

4 August 2015 – BNY Mellon Emerging Equity Income Fund changed its name to BNY Mellon Global Emerging Markets Fund and its distribution frequency from quarterly to annual.

30 November 2011 – BNY Mellon Evolution U.S. Market Neutral Fund was closed (revoked by the Central Bank on 16 April 2014).

31 January 2012 – BNY Mellon Emerging Markets Corporate Debt Fund was launched.

9 March 2012 – BNY Mellon Absolute Return Bond Fund was launched.

14 June 2012 – BNY Mellon Global Real Return Fund (GBP) was launched.

4 September 2012 – BNY Mellon Emerging Markets Equity Core Fund was launched.

13 November 2012 – BNY Mellon Emerging Equity Income Fund was launched.

19 December 2012 – The valuation point of BNY Mellon Emerging Markets Debt Fund was changed from 12.00 (Dublin time) to 22.00 (Dublin time).

12 February 2013 – BNY Mellon European Credit Fund was launched.

18 February 2013 – The valuation point of BNY Mellon Emerging Markets Debt Local Currency Fund was changed from 12.00 (Dublin time) to 22.00 (Dublin time).

21 February 2013 – BNY Mellon Evolution Currency Option Fund was closed (revoked by the Central Bank on 28 August 2014).

25 April 2013 – BNY Mellon Continental European Equity Fund, BNY Mellon Sterling Bond Fund and BNY Mellon UK Equity Fund were closed (revoked by the Central Bank on 28 August 2014).

8 May 2013 – The valuation point of BNY Mellon U.S. Equity Fund was changed from 12.00 (Dublin time) to 22.00 (Dublin time).

11 July 2013 – BNY Mellon Euro Corporate Bond Fund was closed (revoked by the Central Bank on 28 August 2014).

29 July 2013 – The base currency of BNY Mellon Global High Yield Bond Fund (EUR) changed from EUR to USD and the Fund changed its name to BNY Mellon Global High Yield Bond Fund.

27 September 2013 – BNY Mellon Emerging Markets Debt Opportunistic Fund was launched.

77



17 January 2017 – BNY Mellon U.S. Equity Income Fund was launched.

28 February 2017 - BNY Mellon U.S. Municipal Infrastructure Debt Fund was approved by the Central Bank.

9 March 2017 – BNY Mellon Pan European Equity Fund closed (pending application to the Central Bank to revoke the Fund’s registration and hence removal from the Prospectus).

A separate pool of assets (a “Portfolio”) is maintained for each Fund, each being invested in accordance with the investment objective applicable to the Fund to which the Portfolio relates.

The Funds of the Company are listed on the Irish Stock Exchange.

* Effective 1 March 2010, Universal Liquidity Funds, plc changed its

name to BNY Mellon Liquidity Funds, plc and the “Universal” prefi x was

removed from the name of all registered sub-funds and replaced with

“BNY Mellon”.

INVESTMENT OBJECTIVEThe assets of each Fund are invested separately in accordance with the investment objectives and policies of the relevant Fund, which are set out in the relevant supplements to the prospectus.

OTHER RELEVANT INFORMATIONAudited annual reports and fi nancial statements and unaudited semi-annual reports are available to the public at the registered offi ce of the Company or on www.bnymellonim.com. They can also be sent to shareholders at their registered address.

As at the date of signing of this report, the Funds within the Company are:

BNY Mellon Absolute Insight FundBNY Mellon Absolute Return Bond Fund BNY Mellon Absolute Return Equity Fund BNY Mellon Alpha Equity Select Fund**BNY Mellon Asia Rising Stars FundBNY Mellon Asian Bond FundBNY Mellon Asian Equity FundBNY Mellon Asian Income FundBNY Mellon Brazil Equity FundBNY Mellon Crossover Credit Fund*BNY Mellon Dynamic Total Return FundBNY Mellon Emerging Markets Corporate Debt FundBNY Mellon Emerging Markets Debt FundBNY Mellon Emerging Markets Debt Local Currency Fund

12 August 2015 – BNY Mellon Euro High Yield Bond Fund was revoked by the Central Bank (never launched after approval).

15 September 2015 – BNY Mellon Alpha Equity Select Fund was approved by the Central Bank.

2 October 2015 – BNY Mellon Emerging Markets Equity Core Fund was closed (pending application to the Central Bank to revoke the Fund’s registration and hence removal from the prospectus).

16 November 2015 – BNY Mellon Targeted Return Bond Fund was launched.

30 November 2015 – The valuation point of BNY Mellon Brazil Equity Fund was changed from 12.00 (Dublin time) to 22.00 (Dublin time). BNY Mellon Global Equity Higher Income Fund changed its name to BNY Mellon Global Equity Income Fund.

9 December 2015 – BNY Mellon Emerging Markets Equity Fund was closed (pending application to the Central Bank to revoke the Fund’s registration and hence removal from the prospectus).

1 January 2016 – BNY Mellon Global Property Securities Fund changed its distribution frequency from annual to quarterly.

26 February 2016 – BNY Mellon Global Emerging Markets Equity Value Fund was closed (pending application to the Central Bank to revoke the Fund’s registration and hence removal from the prospectus).

29 February 2016 – BNY Mellon Global Credit Fund was launched.

20 September 2016 – BNY Mellon Crossover Credit Fund merged into Oddo Compass Crossover Credit, a sub-fund of Oddo Compass SICAV (pending application to the Central Bank to revoke the Fund’s registration and hence removal from the prospectus).

30 November 2016 – BNY Mellon Global Short-Dated High Yield Bond Fund was launched

7 December 2016 – BNY Mellon Global Leaders Fund was launched.

13 December 2016 – BNY Mellon Japan REIT Alpha Fund was launched.

10 January 2017 – BNY Mellon Asia Rising Stars Fund was launched.

88



BNY Mellon Emerging Markets Debt Opportunistic FundBNY Mellon Emerging Markets Equity Fund*BNY Mellon Emerging Markets Equity Core Fund*BNY Mellon Emerging Markets Local Currency Investment Grade Debt Fund*BNY Mellon Euroland Bond FundBNY Mellon European Credit FundBNY Mellon Global Bond FundBNY Mellon Global Credit FundBNY Mellon Global Dynamic Bond FundBNY Mellon Global Emerging Markets Equity Value Fund* BNY Mellon Global Emerging Markets FundBNY Mellon Global Equity Fund BNY Mellon Global Equity Income Fund BNY Mellon Global High Yield Bond Fund BNY Mellon Global Leaders FundBNY Mellon Global Opportunistic Bond FundBNY Mellon Global Opportunities Fund BNY Mellon Global Property Securities FundBNY Mellon Global Real Return Fund (EUR)BNY Mellon Global Real Return Fund (GBP)BNY Mellon Global Real Return Fund (USD)BNY Mellon Global Short-Dated High Yield Bond FundBNY Mellon Japan All Cap Equity FundBNY Mellon Japan REIT Alpha FundBNY Mellon Japan Small Cap Equity Focus FundBNY Mellon Long-Term Global Equity FundBNY Mellon Pan European Equity Fund*BNY Mellon S&P 500® Index Tracker BNY Mellon Small Cap Euroland FundBNY Mellon Targeted Return Bond FundBNY Mellon U.S. Dynamic Value FundBNY Mellon U.S. Equity Income FundBNY Mellon U.S. Municipal Infrastructure Debt Fund**BNY Mellon US Opportunities Fund

* Funds pending application to the Central Bank to revoke the Funds’

registration and hence removal from the prospectus.

** Funds approved by the Central Bank but not yet launched.

9


The Directors submit their annual report together with the audited fi nancial statements for the year ended 31 December 2016.

PRINCIPAL ACTIVITIESThe investment objective of each of the Funds is outlined in the prospectus and discussed in the Investment Managers’ Reports.

DIRECTORS’ RESPONSIBILITIESThe Directors are responsible for preparing the Directors’ Report and fi nancial statements in accordance with the Companies Act 2014.

Irish company law requires the Directors to prepare fi nancial statements for each fi nancial year. Under that law, the Directors have elected to prepare the fi nancial statements in accordance with Financial Reporting Standard (“FRS”) 102: “The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland” (“FRS 102”). Under company law, the Directors must not approve the fi nancial statements unless they are satisfi ed that they give a true and fair view of the assets, liabilities and fi nancial position of BNY Mellon Global Funds, plc (the “Company”) at the fi nancial year end date and of the profi t or loss of the Company for the fi nancial year and otherwise comply with the Companies Act 2014. In preparing the fi nancial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether the fi nancial statements have been prepared in accordance with applicable accounting standards, identify those standards and note the effect and the reasons for any material departure from those standards; and

• prepare the fi nancial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in operation.

The Directors confi rm that they have complied with the above requirement when preparing the fi nancial statements.

DIRECTORS’ COMPLIANCE STATEMENTThe Directors, in accordance with Section 225(2) of the Companies Act 2014 (the “Act”), acknowledge that they are responsible for securing the Company’s compliance with its “Relevant Obligations” as defi ned in that section and which constitute: (i) certain provisions under the Act, a breach of which is a category 1 or 2 offence; (ii) serious

market abuse offences as referred to in Section 1368 of the Act; and (iii) the Irish tax laws referred to in Section 225 of the Act.

It is the policy of the Company to secure compliance with its Relevant Obligations and to foster an environment in the Company which raises awareness of, and promotes a culture of compliance with, those obligations (the “Compliance Policy”).

In order to give effect to the Compliance Policy, the Board, with the assistance of the relevant advisers, have identifi ed the Relevant Obligations that they consider apply to the Company.

The Directors confi rm that:

• appropriate arrangements and structures (the “Compliance Arrangements”) that, in their opinion, are designed to secure material compliance with the Company’s Relevant Obligations, have been put in place; and

• a review has been conducted, during the fi nancial year, of the Compliance Arrangements that have been put in place to secure the Company’s compliance with its Relevant Obligations.

This Compliance Policy Statement will be subject to periodic review and may be supplemented from time to time. The Compliance Arrangements will be subject to annual review with the aim of establishing that they continue to provide a reasonable assurance of compliance, in all material respects, with the Company’s Relevant Obligations.

ACCOUNTING RECORDSThe Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the fi nancial position of the Company and to enable them to ensure that the fi nancial statements are prepared in accordance with FRS 102 and comply with the Companies Act 2014, the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (as amended) (the “UCITS Regulations”) and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2015, as amended (the “Central Bank UCITS Regulations”).

The measures taken by the Directors to secure compliance with the Company’s obligation to keep adequate accounting records are the use of appropriate systems and procedures and employment of competent persons. To this end, BNY Mellon Fund Services (Ireland) Designated Activity Company* (the “Administrator”) has been appointed for the purpose of

DIRECTORS’ REPORT

1010


DIRECTORS’ REPORT cont’d.

RESULTSThe results for the year are set out in the Statement of Comprehensive Income.

EVENTS SINCE THE YEAR ENDThere have been no signifi cant events affecting the Company since the year end other than as disclosed in Note 20 to the fi nancial statements.

RELATED PARTY TRANSACTIONS AND BALANCESOther than as disclosed in Note 11 to the fi nancial statements, the Directors are not aware of any contracts or arrangements of any signifi cance in relation to the business of the Company in which the Directors had any benefi cial interest as defi ned in the Companies Act 2014, at any time during the year ended 31 December 2016 and 31 December 2015.

CONNECTED PERSON TRANSACTIONSIn accordance with the requirements of Section 41(1) of the Central Bank UCITS Regulations, any transaction carried out with the Company by its management company or depositary, and the delegates or sub-delegates of such a management company or depositary (excluding any non-group company sub-custodian appointed by a depositary), and any associated or group company of such a management company, depositary, delegate or sub-delegate (“connected persons”) must be carried out as if negotiated at arm’s length. Such transactions must be in the best interests of the shareholders. In addition to those transactions, there are also transactions carried out by connected persons on behalf of the Company to which the Directors have no direct access and in respect of which the Directors must rely upon assurances from its delegates that the connected persons carrying out those transactions do carry them out on a similar basis.

Shareholders should have regard to the governance structure of the Company as more particularly described in the Corporate Governance Statement section of this Directors’ Report and the roles and responsibilities of the Company’s respective delegates subject to the overall supervision of the Board. Further, shareholders should refer to the prospectus which identifi es many of the connected person transactions and the general nature of the contractual arrangements with the principal connected persons but it is not exhaustive of all connected person transactions. Shareholders should also refer to the provisions of the prospectus dealing with confl icts of interest.

Therefore, having regard to confi rmations from the Manager and its relevant delegates, the Board of Directors of the Company is satisfi ed that:

(i) there are arrangements (as evidenced by written procedures documented by the Investment Managers) in place to ensure that the obligations described above are applied to all transactions with connected persons; and

maintaining adequate accounting records. Accordingly, the accounting records are kept at Guild House, Guild Street, IFSC, Dublin 1, Ireland. The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under the Central Bank UCITS Regulations, the Directors are required to entrust the assets of the Company to the depositary for safe-keeping. In carrying out this duty, the Company has delegated custody of its assets to BNY Mellon Trust Company (Ireland) Limited (the “Depositary”).

* Please refer to Note 19 of the fi nancial statements

The fi nancial statements of the Company are published on the website of BNY Mellon Investment Management EMEA Limited (www.bnymellonim.com). The Directors are responsible for the maintenance and integrity of the corporate and fi nancial information of the Company included on this website. Legislation in the Republic of Ireland governing the preparation and dissemination of fi nancial statements may differ from legislation in other jurisdictions.

DISTRIBUTIONSDistributions paid to redeemable participating shareholders are recognised in the Statement of Comprehensive Income as fi nance costs when they are declared to the Irish Stock Exchange (“ISE”), as detailed in the prospectus. Distributions are declared to the extent necessary to enable the Company to pursue a full distribution policy in accordance with the current UK tax legislation.

Details of the distributions paid to redeemable participating shareholders are disclosed in the Statement of Comprehensive Income and distributions declared subsequent to the year end to redeemable participating shareholders are disclosed in Note 20 to the fi nancial statements.

REVIEW OF BUSINESS AND FUTURE DEVELOPMENTThe Company is an open-ended investment company with variable capital which has been authorised by the Central Bank under the UCITS Regulations. There was no change in the nature of the Company’s business during the year.

There is a detailed review in the Investment Managers’ Reports of factors contributing to the Funds’ performance. The Directors do not anticipate any change in the structure or investment objectives of the Company.

RISK MANAGEMENT OBJECTIVES AND POLICIESThe Company’s investment activities expose it to the various types of risk, which are associated with the fi nancial instruments and markets in which it invests.

Details of the risks inherent in investing in the Company are disclosed in Note 16 to the fi nancial statements.

1111



These delegations of functions and the appointment of regulated third party entities are detailed in the Company’s prospectus. In summary, they are:

1. The Company has appointed BNY Mellon Global Management Limited (the “Manager”) as its Manager pursuant to the Management Agreement. Under the terms of the Management Agreement, the Manager has responsibility for the management and administration of the Company’s affairs and the distribution of the shares of the Funds. The Manager is regulated by and under the supervision of the Central Bank;

2. The Manager has delegated the performance of the investment management functions in respect of the Company and of its Funds to the respective Investment Managers as detailed in the prospectus and listed in the directory to these fi nancial statements.

The respective Investment Managers have direct responsibility for the decisions relating to the day-to-day running of the Funds which they manage and they are accountable to the Directors for the investment performance of the Funds which they manage. The respective Investment Managers have internal controls and risk management processes in place to ensure that all applicable risks pertaining to their management of the Funds are identifi ed, monitored and managed at all times and appropriate reporting is made to the Directors on a regular basis. The Investment Managers are regulated by and under the supervision of the regulator of their operating jurisdiction;

3. The Manager has delegated its responsibility as Administrator, Registrar and Transfer Agent to the Administrator, which entity has responsibility for the day-to-day administration of the Company and the Funds including the calculation of the net asset values. The Administrator is regulated by and under the supervision of the Central Bank; and

4. BNY Mellon Investment Management EMEA Limited acts as a distributor for the Funds of the Company.

The Company also has appointed the Depositary as depositary of its assets which entity has responsibility for the safekeeping of such assets in accordance with the Central Bank UCITS Regulations and for exercising independent oversight over how the Company is managed. The Depositary is regulated by and under the supervision of the Central Bank.

The Directors receive reports on a regular (and at least quarterly) basis from each of its delegate service providers and the Depositary which enable it to assess the performance of the delegate service providers and the Depositary (as the case may be).

(ii) transactions with connected persons entered into during the year complied with these obligations, as attested by the Investment Managers through regular updates to the Directors.

Note 11 details related party transactions during the year as required by Section 33 “Related Party Disclosures” of FRS 102. However, shareholders should understand that not all “connected persons” are related parties as defi ned by Section 33 of FRS 102. Details of fees paid to related parties and certain connected persons are set out in Notes 3, 5 – 7 and 11.

CORPORATE GOVERANCE STATEMENTThe Company is subject to corporate governance practices imposed by:

(i) The Memorandum and Articles of Association of the Company;

(ii) The Irish Companies Act 2014 (the “Companies Acts”);

(iii) The Central Bank UCITS Regulations; and

(iv) The ISE Code of Listing Requirements and Procedures.

Copies of all of the above documents are available for inspection at the Company’s registered offi ce at Guild House, Guild Street, IFSC, Dublin 1, Ireland.

On 14 December 2011, the Irish Funds Industry Association (“IF”) published a corporate governance code (“IF Code”) that may be adopted on a voluntary basis by Irish authorised collective investment schemes. The IF Code became effective from 1 January 2012 with a twelve month transitional period until 1 January 2013. It should be noted that the IF Code refl ects the existing corporate governance policies imposed on Irish authorised collective investment schemes.

The Directors have reviewed the IF Code and adopted this code on 20 December 2012 following assessment of the measures included in the IF Code as being consistent with its existing corporate governance principles and procedures for the fi nancial year. The IF Code can be viewed on the IF website (www.irishfunds.ie). Consistent with the regulatory framework applicable to investment fund companies such as the Company (and in contrast to normal operating companies with a full time executive management and employees), the Company, consequently, operates under the delegated model whereby it has delegated management (including investment management), administration and distribution functions to third parties without abrogating the Directors’ overall responsibility. The Directors have in place mechanisms for monitoring the exercise of such delegated functions, which are always subject to the supervision and direction of the Directors.

1212



In accordance with the Companies Act 2014, shareholders representing not less than one-tenth of the paid up share capital of the Company may also request the Directors to convene a shareholders’ meeting. Not less than twenty one clear days’ notice of every annual general meeting and any meeting convened for the passing of a special resolution must be given to shareholders.

Two shareholders present either in person or by proxy constitutes a quorum at a general meeting. Votes may be cast in person or by proxy. On a show of hands, every shareholder who is present in person or by proxy shall have one vote and every management shareholder shall have one vote in respect of all non-participating shares. On a poll, every shareholder is entitled to one vote in respect of each participating share held by him and every management shareholder is entitled to one vote in respect of all non-participating shares held by him. The chairman of a general meeting of the Company or at least fi ve shareholders present or a shareholder or shareholders representing at least one tenth of the shares in issue having the right to vote at such meeting may demand a poll.

Shareholders may resolve to sanction an ordinary resolution or special resolution at a shareholders’ meeting. An ordinary resolution of the Company or of the shareholders of a particular fund or class requires an absolute majority of the votes cast by the shareholders voting in person or by proxy at the meeting at which the resolution is proposed. A special resolution of the Company or of the shareholders of a particular fund or share class requires a majority of not less than 75% of the shareholders present in person or by proxy and voting in general meeting in order to pass a special resolution including a resolution to amend the Memorandum and Articles of Association.

COMPOSTION AND OPERATION OF BOARD OF DIRECTORS AND COMMITTEESUnless otherwise determined by an ordinary resolution of the Company in general meeting, the number of Directors may not be less than two nor more than twelve. Currently the Board of Directors of the Company is composed of fi ve Directors, being those listed in the directory in these fi nancial statements.

The business of the Company is managed by the Directors, who exercise all such powers of the Company as are not by the Companies Act 2014 or by the Articles of Association of the Company required to be exercised by the Company in general meeting. A Director may, and the company secretary of the Company on the requisition of a Director will, at any time summon a meeting of the Directors. Questions arising

FINANCIAL REPORTING PROCESS – DESCRIPTION OF MAIN FEATURESThe Directors are responsible for establishing and maintaining adequate internal control and risk management systems of the Company in relation to the fi nancial reporting process. Such systems are designed to manage rather than eliminate the risk of error or fraud in achieving the Company’s fi nancial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Directors have entrusted the administration of the accounting records to the Administrator.

The Directors, through delegation to the Administrator, have procedures in place to ensure all relevant accounting records are properly maintained and are readily available, including production of annual and semi-annual fi nancial statements. The annual and semi-annual fi nancial statements of the Company are required to be approved by the Directors of the Company and fi led with the Central Bank. The annual fi nancial statements are also required to be fi led with the ISE and be audited by independent auditors who report annually to the Board on their fi ndings.

The Directors have hired an independent external audit fi rm to audit the fi nancial statements in accordance with the Companies Act 2014. The Directors evaluate and discuss signifi cant accounting and reporting issues as the need arises.

An Audit Committee, currently consisting of Jonathan Lubran (Chairman), David Dillon and Michael Meagher, has also been formed on 20 October 2016 and is charged with oversight of the Company’s audit and fi nancial control functions.

The Administrator has operating responsibility in respect of its internal controls in relation to the fi nancial reporting process and the Administrator’s report to the Directors. The Administrator is authorised and regulated by the Central Bank and complies with the rules imposed by the Central Bank.

SHAREHOLDER MEETINGSThe convening and conduct of shareholders’ meetings are governed by the Memorandum and Articles of Association of the Company and the Companies Act 2014. Although the Directors may convene an extraordinary general meeting of the Company at any time, the Directors are required to convene an annual general meeting of the Company within eighteen months of incorporation and fi fteen months of the date of the previous annual general meeting thereafter provided that an annual general meeting is held within nine months of the end of each accounting period for the Company.

1313



connection with preparing their report, which they have not disclosed to the auditors. Each Director has taken all the steps that they are obliged to take as a Director in order to make themselves aware of any relevant audit information and to ensure that it is disclosed to the auditors.

INDEPENDENT AUDITORSErnst & Young have indicated their willingness to remain in offi ce in accordance with Section 383 (2) of the Companies Act 2014.

On behalf of the board

Director – David Dillon

Director – Jonathan Lubran

Date: 19 April 2017

at any meeting of the Directors are determined by a majority of votes. In the case of an equality of votes, the chairman has a second or casting vote. The quorum necessary for the transaction of business at a meeting of the Directors may be fi xed by the Directors and unless so fi xed is two. The key management functions of the Manager are delegated to the designated Directors in accordance with its business plan.

DIRECTORSThe names of the persons who were Directors at any time during the year ended 31 December 2016 are set out below.

David Dillon (Irish)1*^David Turnbull (New Zealand)Greg Brisk (British)Jonathan Lubran (British)1**Michael Meagher (Irish)1^

All of the Directors listed are non-executive Directors.

1 Audit Committee Member

* Chairman of the Board of Directors

** Chairman of the Audit Committee

^ Independent Director

DIRECTORS AND SECRETARY’S INTERESTSThe Directors and their families and the Secretary, Tudor Trust Limited, had no interests in the shares of the Company at any time during the year ended 31 December 2016 and 31 December 2015.

David Dillon, David Turnbull, Greg Brisk, Jonathan Lubran and Michael Meagher are also Directors of the Manager. Management fees of USD 144,077,063 (31 December 2015: USD 134,600,432) were incurred during the year.

David Dillon acts as a consultant to Dillon Eustace, which provide legal services to the Company.

David Turnbull and Greg Brisk have waived their right to receive a fee for their services as Directors during the year ended 31 December 2016 and 31 December 2015.

POLITICAL DONATIONSThere were no political donations made by the Company during the year ended 31 December 2016 and 31 December 2015.

DISCLOSURE OF INFORMATION TO THE AUDITORSSo far as each person who was a Director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditors in

14


For the period from 1 January 2016 to 31 December 2016 (the “Period”)

BNY Mellon Trust Company (Ireland) Limited (the “Depositary”, “us” “we”, or “our”), has enquired into the conduct of BNY Mellon Global Funds plc (the “Company”) for the period, in its capacity as Depositary to the Company.

This report including the opinion has been prepared for and solely for the shareholders in the Company, in accordance with our role as depositary to the Company and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown.

RESPONSIBILITIES OF THE DEPOSITARYOur duties and responsibilities are outlined in Regulation 34 of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (S.I. No 352 of 2011), as amended (the “Regulations”).

Our report shall state whether, in our opinion, the Company has been managed in that period in accordance with the provisions of the Company’s constitutional documentation and the Regulations. It is the overall responsibility of the Company to comply with these provisions. If the Company has not been so managed, we as depositary must state in what respects it has not been so managed and the steps which we have taken in respect thereof.

BASIS OF DEPOSITARY OPINIONThe Depositary conducts such reviews as it, in its reasonable opinion, considers necessary in order to comply with its duties and to ensure that, in all material respects, the Company has been managed (i) in accordance with the limitations imposed on its investment and borrowing powers by the provisions of its constitutional documentation and the appropriate regulations and (ii) otherwise in accordance with the Company’s constitutional documentation and the appropriate regulations.

OPINIONIn our opinion, the Company has been managed during the period, in all material respects:

(i) in accordance with the limitations imposed on the investment and borrowing powers of the Company by the constitutional documentation and the Regulations; and

(ii) otherwise in accordance with the provisions of the constitutional documentation and the Regulations.

BRIAN MCFADDEN

Brian McFaddenBNY Mellon Trust Company (Ireland) LimitedGuild HouseGuild StreetIFSCDublin 1Ireland

Date: 19 April 2017

DEPOSITARY’S REPORT

15

We have audited the fi nancial statements of BNY Mellon Global Funds plc for the year ended 31 December 2016 which comprise the Statement of Comprehensive Income, the Statement of Financial Position, Statement of Changes in Net Assets Attributable to Redeemable Participating Shareholders and the related notes 1 to 21. The fi nancial reporting framework that has been applied in their preparation is Irish law, the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertaking for Collective Investment in Transferable Securities) Regulations 2015 (as amended) and accounting standards issued by the Financial Reporting Council and promulgated by the Institute of Chartered Accountants in Ireland including FRS 102 The Financial Reporting Standard Applicable in the UK and the Republic of Ireland.

This report is made solely to the company’s members, as a body, in accordance with section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORSAs explained more fully in the Directors’ Responsibilities Statement set out on page 9 the directors are responsible for the preparation of the fi nancial statements and for being satisfi ed that they give a true and fair view and otherwise comply with the Companies Act 2014. Our responsibility is to audit and express an opinion on the fi nancial statements in accordance with Irish law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTSAn audit involves obtaining evidence about the amounts and disclosures in the fi nancial statements suffi cient to give reasonable assurance that the fi nancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of signifi cant accounting estimates made by the directors; and the overall presentation of the fi nancial statements. In addition, we read all the fi nancial and non-fi nancial information in the Investment Managers’ Reports, Directors’ Report, Depositary’s Report and the Directory to identify material inconsistencies with the audited fi nancial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

OPINION ON FINANCIAL STATEMENTSIn our opinion the fi nancial statements:

• give a true and fair view of the assets, liabilities and fi nancial position of the company as at 31 December 2016 and of its profi t for the year then ended;

• have been properly prepared in accordance with Generally Accepted Accounting Practice in Ireland including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland; and

• have been properly prepared in accordance with the requirements of the Companies Acts 2014, the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (as amended) and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2015 (as amended).

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BNY MELLON GLOBAL FUNDS PLC


1616


INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BNY MELLON GLOBAL FUNDS PLC cont’d.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTIONWe have nothing to report in respect of sections 305 to 312 of the Companies Act 2014 which require us to report to you if, in our opinion, the disclosures of directors’ remuneration and transactions specifi ed by law are not made.

LISA KEALY

Lisa Kealyfor and on behalf of Ernst & YoungChartered Accountants and Statutory Audit FirmDublin

20 April 2017

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY THE COMPANIES ACT 2014• We have obtained all the information and explanations

which we consider necessary for the purposes of our audit.

• In our opinion the accounting records of the company were suffi cient to permit the fi nancial statements to be readily and properly audited.

• The fi nancial statements are in agreement with the accounting records.

• In our opinion the information given in the Directors’ report is consistent with the fi nancial statements.

17

INVESTMENT MANAGERS’ REPORTS

ECONOMIC & MARKET OVERVIEW

INTRODUCTIONThe year was characterised by a number of unexpected outcomes, namely the election of Donald Trump as US president in November against the odds and the UK’s referendum vote on 23 June to leave the EU. Rounding off 2016, the US Federal Reserve (Fed) raised interest rates by 0.25% in mid-December.

The speculation around Trump’s agenda including the prospect of tax cuts and his plans for expansionary policies caused markets to rally. This rally continued right to the end of the year on the back of optimism about renewed growth in the US and, to some degree, around the view that infl ation and interest-rate hikes would be modest in terms of degree. Earlier in the year, market participants shrugged off the news of the UK’s referendum result after the initial shock.

As well as signalling higher infl ation and increases in interest rates, it was also a period that heralded a potential turning point in the long-term rally in bond markets. In November, yields in US Treasuries rose across the yield curve, while the bond market sold off and the US dollar rose to a 14-year high against major currencies. (The yield curve is the graphic depiction of the relationship between the yield on bonds of the same credit quality but with different maturities. It can be used as an indicator of future interest rates.).

Commodity prices began to stabilise and the oil price climbed higher in the fi nal months of 2016 as it became clear that initially OPEC, and ultimately non-OPEC, members were serious about cutting back on supply.

In contrast, there had been a diffi cult start to the year when equity markets fell, as worries around the Chinese economy, coupled with the US interest-rate hike late in 2015, had combined to unsettle investor sentiment.

Over the year, global equity markets made progress in aggregate, with the FTSE All-World Index rising by 9.92%.

NORTH AMERICAThe US economy continued to grow and in the three months to the end of September, the economy went up by 3.5%, representing a higher rate than in the previous quarters of the year.

The Fed had raised interest rates at the end of 2015 and markets participants speculated that further rate hikes would follow in relatively quick succession. However, this did not transpire as the Fed judged it prudent to hang back from raising rates in spite of an increasingly tight employment market.

Indeed, unemployment fell to 4.7% in December. US non-farm payroll data and benefi t claims were also supportive of this narrative of a robust US economy. (Non-farm payroll is the total number of people employed in non-agricultural businesses and is a closely watched indicator of unemployment.)

Infl ation showed renewed growth with the November producer price index rising 0.4%, ahead of expectations. Markets participants began to price in likely higher infl ation levels based on Trump’s expansionary and tax-cutting agenda.

The Fed did fi nally raise interest rates again in December by 0.25% and raised its expectation of the number of rate hikes in 2017 from two to three. This was in recognition of a changed infl ationary environment.

In this environment, the FTSE All-World North America Index (which includes Canada) returned 12.25%.

EUROPEThe UK’s referendum on EU membership and the aftermath of the vote to leave dominated the investment backdrop. With the unexpected vote for Brexit, markets fell initially but subsequently recovered to forge ahead in many instances. Sterling fell away against major currencies, providing UK exporters with a welcome boost.

In August, the Bank of England (BoE) opted for caution with regards to the potential effects of the UK vote to leave the EU and cut interest rates to 0.25%. Despite fears of a downturn, the UK economy grew by 0.7% in the fi nal three months of 2016, according to data from the Offi ce for National Statistics.

In December, Italian Prime Minister Matteo Renzi resigned following the overwhelming rejection in a referendum of his proposals for constitutional reform. Europe witnessed the rise of more populist and far-right parties, many of which are anti-establishment and want to exit either the euro or the EU, or both. Despite this trend, Austria narrowly voted down the far-right candidate in its presidential election in the same month.

Infl ation remained at low levels and well below the target of 2% stipulated by the European Central Bank (ECB), in spite of rising oil and other commodity prices towards the end of the year. Consumer prices in the eurozone recovered from the negative levels of the fi rst half of the year to grow 1.1% year on year in November.

1818


INVESTMENT MANAGERS’ REPORTS cont’d.

ECONOMIC & MARKET OVERVIEW cont’d.

Another leg of support was taken away from bond markets when the ECB announced it would be reducing the level of monthly bond purchases from €80bn to €60bn. Mario Draghi, president of the ECB, denied it was ‘tapering’. However, to most market commentators, it appeared to be tapering in deed if not in word.

Over the 12 months as a whole, the JP Morgan Global Government Bond (Unhedged) Index increased by 1.57% in local currency terms.

CURRENCY AND COMMODITIESThe US dollar strengthened noticeably following the election of Trump to the US presidency in anticipation of the pursuit of expansionary policies by the new administration.

Other currencies to experience major moves were sterling and the yen. Sterling came under pressure following the UK’s vote to leave the EU, although in the months after the vote it recovered somewhat on the back of resilient economic performance. The yen plunged against the US dollar, given the strength of the US economy, and the Fed’s increase in the number of projected interest-rate hikes for 2017.

Commodity prices recovered as they were given added impetus in the fi nal few months of 2016, partly as a result of Trump’s election and the implication of more expansionary policy. OPEC’s agreement to cut oil production (a decision that was followed by non-OPEC members) was another factor.

Most major commodities such as iron ore and copper recovered through the period, a trend that seemed to have started in early 2016. Reduced supply, cuts in investment in existing and new projects, as well as stability in demand, brought about the gradual recovery.

Meanwhile gold sold off on the rise in infl ationary expectations following Trump’s election.

All performance data is from 1 January 2016 to 31 December 2016, total return in local currency terms unless otherwise indicated, sourced from Lipper and Bloomberg.

Against this backdrop, the FTSE All-World Europe ex UK Index returned 4.59%. The UK stock market outperformed most of its continental peers, with the FTSE All-World UK Index returning 18.91%. The UK market was helped by its heavy exposure to oil and mining, as commodity prices recovered.

ASIAAt the beginning of the year, investors were preoccupied about the health of Chinese economy as growth slowed and concerns returned about the magnitude of the bad debts that had been accumulated and their impact upon the fi nancial system. Despite this, the Chinese economy grew by 6.7% in 2016. Although it was the slowest growth since 1990, the fi gure was within the offi cial target range of 6.5%-7.0%.

The Bank of Japan tried more unorthodox means in an effort to reignite economic growth and infl ation, by introducing ‘yield curve control’. (The yield curve is the graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities. It can be used as an indicator of future interest rates.) Essentially, the policy will keep its 10-year government bond yield at zero. One likely side effect of ‘yield curve control’ is that greater banking activity will result that, in turn, spurs greater economic activity and higher infl ation.

Trump’s election had a signifi cant impact on the Asian economic and market backdrop. The soaring value of the US dollar gave rise to concerns about the high amount of dollar-denominated debt within the region and there was also disquiet at the prospect of Trump’s re-examining US trade relations around the world as well as rising commodity prices, especially the cost of oil.

Against this backdrop, the FTSE All-World Asia Pacifi c ex Japan Index returned 8.64% over the period. The FTSE All-World Japan Index returned -0.28%.

FIXED INCOMEFor most of the year, bond markets were underpinned by the loose monetary policies pursued by most central banks with the aim of expanding the money supply in order to encourage economic growth. In particular, government bonds in the eurozone and Japan were supported by central-bank purchases. Negative yields in key government bond markets – where investors pay for the privilege of lending money to governments – also became a feature.

Following Trump’s election, investors sold their bond holdings more aggressively given the discussion around his plans to cut taxes and boost fi scal spending radically. Rising infl ation levels on the back of climbing commodity prices gave further impetus to this.

The Fed increased interest rates in December by 0.25% in a move that had been widely anticipated.

1919



quality. A spread measures how much more a business pays to borrow money than the government does.)

In the fi nal three months of the year, credit spreads widened, as corporate bond prices fell more sharply than those of government bonds. (Credit refers to fi xed-income instruments.) The election of Donald Trump as US president in November raised fears that interest rates would rise more quickly and more steeply than had previously been expected. In addition, the result soured sentiment towards emerging market credit due to fears over a more protectionist attitude towards international trade from the new US administration.

Market allocation was positive, having detracted from performance towards the start of 2016. The two other main contributors to performance were duration (sensitivity to interest rates), which was managed actively throughout the year ending in a marginally short position, and asset-backed securities (ABS) which were fuelled primarily by increasing demand for income in an environment of low interest-rates. Negative contributions came from currency exposure management and the high-yield bonds (those with a rating below BBB) and loans segment.

The main events during 2016 were the UK vote on EU membership and the US presidential election. The Fund navigated both with a small gain.

Insight Investment Management (Global) LimitedFebruary 2017

BNY MELLON ABSOLUTE RETURN EQUITY FUNDOver the review period, the Fund’s R share class returned -0.67%, compared with 0.41% for LIBOR GBP 1 Month, both in sterling terms.

Contributions came from a range of positions. In the fi rst half of the year, macroeconomic data and central-bank policy dominated markets and the difference between stock returns within sectors was very low. This suppressed the opportunities for active stock picking. In the second half of 2016, leadership within the equity markets decisively shifted to banks and cyclicals, away from bond proxies and growth stocks, for instance. (Cyclical refers to companies whose share price is subject to the ups and downs of the overall economy. Bond proxies are shares that behave somewhat like bonds. They are typically more mature companies that have relatively stable cash fl ows and pay dividends to shareholders. Growth stocks are expected to rise in price over time, outperforming the overall market.) Encouragingly, the difference in returns between stocks within sectors started to increase. This provided a better environment for the Fund, allowing the manager to recoup most of the earlier losses.


ABSOLUTE RETURN & TOTAL RETURN

BNY MELLON ABSOLUTE INSIGHT FUNDOver the review period, the Fund’s S share class returned -1.55%, compared with -0.26% for EURIBOR 3 Months, both in euro terms.

Performance was affected by losses from the strategies in credit (fi xed-income instruments) and currency, which more than offset gains elsewhere. The credit strategy generated a negative performance contribution, led by asset-backed securities holdings. In this strategy, there was a bias towards securities with a higher volatility and UK positions. The currency strategy also generated a negative performance contribution, largely the result of long US dollar positions against a number of currencies, including the euro, Australian dollar, New Zealand dollar and emerging market currencies. (A long position is the buying of a currency with the expectation that it will rise in value. A short position is the reverse.) The emerging market debt strategy generated a positive contribution, mainly from non-local currency positions in debt borrowed from foreign lenders including commercial banks, governments or international fi nancial institutions. The dynamic opportunities strategy’s contribution was positive, aided by positions focused on generating stable returns and relative value strategies. The equity strategy generated a small positive contribution, as a result of a range of positions.


BNY MELLON ABSOLUTE RETURN BOND FUNDOver the review period, the Fund’s S share class returned 1.29%, compared with -0.26% for EURIBOR 3 Months, both in euro terms.

UK, US and European government bonds prices rose over the 12-month period. Yields trended lower before reversing slightly in the fi nal three months of the year. Longer dated bonds saw the strongest demand and this resulted in a fl attening of the yield curve. (The yield curve is the graphic depiction of the relationship between the yield on bonds of the same credit quality but with different maturities. It can be used as an indicator of future interest rates. A yield curve is said to be fl at when there is little difference between short-term and long-term interest rates.) The fall in yields was driven by the continuing hunt for income in an environment of low deposit rates alongside sizeable demand from the asset-purchase programmes of central banks. (Asset-purchasing programmes are intended to create new money to use in the economy.) Both the European Central Bank in March and the Bank of England in August broadened their asset-purchase schemes to include corporate bonds. On both occasions, this resulted in the spread of corporate bonds relative to government bonds tightening. (The spread on bonds is usually expressed as the yield difference between bonds of the same maturity but different credit

2020



ABSOLUTE RETURN & TOTAL RETURN cont’d. BNY MELLON DYNAMIC TOTAL RETURN FUNDOver the review period, Fund’s A share class returned 2.64% in euro terms.

Currency allocations, mainly short positions in sterling and the euro, drove the gain from diversifying assets. (With a short position, an investor enters into an agreement to sell a currency for a predetermined price on a specifi ed future date. The trading strategy is aimed at taking advantage of an expected fall in the value of the currency. A long position is the reverse.) The US dollar rose against both currencies on continued divergence in monetary policy and later in the year as the interest-rate differential widened. Sterling was particularly weak against the dollar as it tumbled immediately following the UK’s vote in the referendum to leave the EU and remained under pressure late in the year as the Bank of England eased monetary policy.

A timely allocation to high-yield bonds and long exposure to US equities drove the gain from growth assets. (High yield is debt rated below BBB by the credit rating agency Standard & Poor’s.) The managers increased the position in high-yield bonds during March, after which the sector rallied as the low yields of government bonds drove investors to seek higher yields. Real-asset exposure was modestly positive due to the allocation to US Treasury Infl ation-Protected Securities. (Real assets are physical or tangible and include precious metals, commodities, real estate, agricultural land and oil.)

Defensive assets detracted due to a short position in German bonds and a long in Australian bonds. The managers held a short position in German bonds throughout the year due to their low yields and narrow-term premium relative to other markets. However, demand for German bonds remained fi rm due to ‘safe-haven’ fl ows and the European Central Bank’s asset-purchase programme. (‘Safe-haven’ assets are favoured by investors in times of crisis because they are judged to be stable and easy to liquidate.) Australian bonds were an attractive long position due to their relatively high yield. However, during the sovereign-bond sell-off late in the year, Australian yields fell sharply along with US Treasuries, representing a cost to the long position.

Mellon Capital Management CorporationFebruary 2017

BNY MELLON GLOBAL DYNAMIC BOND FUNDOver the review period, the Fund’s A share class returned 3.22%, compared with a return of 2.50% for LIBOR 1 Month + 200bps, both in US dollar terms.

UK Gilts, US Treasuries, emerging-market sovereign bonds and investment-grade credit drove returns through the bulk of the period. (Investment grade debt is rated BBB and above by the credit rating agency Standard & Poor’s. Credit refers to fi xed-income instruments.) However, they did give

back some performance later, in November and December, as yields began to rise following Donald Trump’s election as US president. UK Gilts were particularly buoyant following the UK’s decision to leave the EU and the cut in interest rates from the Bank of England in August. Investment-grade credit rallied as yields fell and as spreads tightened. (The spread on bonds is usually expressed as the yield difference between bonds of the same maturity but different credit quality. A spread measures how much more a business pays to borrow money than the government.) The Fund’s holding in the 10-year Treasury Corporation of Victoria also rallied strongly, as expectations for Australian interest rates declined amid weak global growth.

The currency weighting was a positive factor as long positioning in US dollar assets aided the Fund’s performance. (A long position is the buying of a currency with the expectation that it will rise in value. A short position is the reverse.) The US dollar rallied in the run-up to and on the back of the increase in interest rates in December and on the prospect of higher infl ation and further US rate hikes in 2017. Exposure to the Mexican peso was a negative infl uence on performance, however.

In terms of activity, US duration (sensitivity to interest rates) was added in January with the purchase of 2025 and 2043 US Treasuries. The manager added duration in emerging-market government bonds in early March with the purchase of a local-currency exchange-traded fund (ETF) position, alongside 2031 Colombia and 2021 Mexico holdings. This left headline duration at approximately 4.1 years at the end of June.

The manager reduced the Fund’s headline duration over much of the remainder of the year. In the US, the manager reduced duration with the sale of longer dated US Treasuries and bought put options on US 10-year futures to hedge the remaining US government bond holdings. (Put options give the right to sell an asset at a set price by a certain date.) The manager also reduced the Fund’s emerging-market duration. In addition, the manager adjusted emerging-market currency positioning, with the sale of Mexican peso exposure in exchange for the US dollar, on confi rmation of the new US administration. Into year end, the manager took profi ts on short Turkish lira positions (among the world’s weakest currencies).

As the prospects for high-yield credit improved with the US growth outlook over the period, the manager increased exposure by year end, aided by the purchase of Antero Resources 2023, Range Resources 2023, Frontier 2025, Tullow 2020 and Yum! Brands 2024 positions. (High yield is debt rated below BBB by the credit rating agency Standard & Poor’s.)

Newton Investment Management LimitedFebruary 2017

2121



ABSOLUTE RETURN & TOTAL RETURN cont’d.

BNY MELLON GLOBAL REAL RETURN FUND (EUR)Over the review period, the Fund’s A share class returned 0.50%, compared with a return of 3.66% for EURIBOR 1 Month + 400bps, both in euro terms.

The Fund generated a positive return but behind that of the performance reference.

During the fi rst half of 2016, investors were largely gripped by fear and in the second half optimism returned.

All the while, the backdrop as observed though the lens of Newton’s view of the world has changed little. The portfolio has therefore remained consistently positioned throughout the period.

Gains made in the fi rst half of the year, predominantly from equity, government bonds and gold were largely reversed in the second half of the year.

For the 12-month period as a whole, the exposure of the Fund to gold and precious-metal mining equities was benefi cial to performance, with Barrick Gold one of the top performing stocks over the period. On an individual stock basis, there were strong returns generated from technology stocks, such as Accenture and Microsoft. The media sector, which has been a long-running area of focus within the Fund, made an impressive contribution, with Wolters Kluwer providing strong performance.

The Fund’s derivative protection generated a negative contribution, as global equities made gains over the period. (Derivatives are fi nancial instruments whose value is derived from the value of an underlying asset, such as gold or a bond.) Additionally, pharmaceutical stocks such as Teva Pharmaceutical Industries, Roche Holdings and Novartis all detracted from performance.

In terms of activity, the manager initiated new positions, among others, in Japanese food-and-beverage business Suntory, semiconductor manufacturer Maxim Integrated and Adecco, an international employment business. The manager also bought consumer goods company Unilever, retailer Associated British Foods and beverages company Diageo. Additions were made to information services companies RELX and Wolters Kluwer and Dong Energy. Following the US presidential election, the manager implemented protection on a signifi cant portion of the portfolio’s bond exposure in order to dampen the impact of further volatility.

In the manager’s view the euphoria produced by the US election result is misplaced and the positive market reaction overdone. Financial assets, notably equity and corporate debt markets, are reaching historic highs, which, combined with the manager’s assessment of the backdrop,

BNY MELLON GLOBAL OPPORTUNISTIC BOND FUNDOver the review period, the Fund’s A share class returned 1.10%, compared with a return of 0.75% for LIBOR USD 3-Month, both in US dollar terms.

The earlier weakness experienced during the fi rst three months of 2016 reversed through the remainder of the year, despite the surprise outcomes of both the UK’s referendum on EU membership in June and the US presidential election in November. The year ended with the US Federal Reserve (Fed) resuming its increase in interest rates with a 0.25% hike in the Fed’s funds rate in December, the fi rst such move since December 2015. Ahead of this move, global bond yields had already begun to rise from the record lows recorded mid-year.

Yields across developed and emerging economies rose sharply in the latter half of the year with the 10-year US Treasury yield nearly doubling from its summer low. This was as the impact of higher infl ation expectations and the further raising of interest rates by the Fed, in the face of a strengthening US economy, took hold. Against this backdrop, the Fund benefi ted from its exposure to high-yield and investment-grade corporate debt securities where spreads tightened through the end of the year. (High yield is debt rated below BBB by the credit rating agency Standard & Poor’s, whereas Investment-grade debt is rated BBB and above by the same agency. The spread on bonds is usually expressed as the yield difference between bonds of the same maturity but different credit quality. A spread measures how much more a business pays to borrow money than the government does.) While the duration position on the Fund remains relatively low, the sharp moves higher in interest rates across markets detracted from overall performance. (Duration is a measure of the sensitivity of the price of a fi xed-income investment to a change in interest rates.)

In addition to corporate bond exposure, the Fund had taken exposure to emerging market debt, which enjoyed strong performance for the year despite some volatility in the immediate wake of the November US presidential election. Exposure to global Treasury Infl ation-Protected Securities was also positive for Fund performance as market participants began to price in higher infl ation expectations. Positioning across developed and emerging-market currencies detracted from overall performance. The positive contribution from the Fund’s holdings in asset-backed securities and commercial mortgage backed securities for the nine months from 31 March 2016 failed to offset entirely the marked underperformance experienced during the period of market turbulence in the fi rst three months of 2016. (Securitised assets are the pooling of assets, such as mortgages, into securities that are divided up and sold to investors.)

Standish Mellon Asset Management Company, LLCFebruary 2017

2222




In the manager’s view the euphoria produced by the US election result is misplaced and the positive market reaction overdone. Financial assets, notably equity and corporate debt markets, are reaching historic highs, which, combined with the manager’s assessment of the backdrop, point towards a potentially unfavourable outcome that even President Donald Trump cannot overcome.


BNY MELLON GLOBAL REAL RETURN FUND (USD)Over the review period, the Fund’s A share class returned 1.69%, compared with a return of 4.50% for LIBOR USD 1 Month + 400bps, both in US dollar terms.







In terms of activity, the manager initiated new positions, among others, in Japanese food-and-beverage business Suntory, semiconductor manufacturer Maxim Integrated and Adecco, an international employment business. The manager also bought consumer goods company Unilever, retailer Associated British Foods and beverages company Diageo. Additions were made to information services

point towards a potentially unfavourable outcome that even President Donald Trump cannot overcome.


BNY MELLON GLOBAL REAL RETURN FUND (GBP)Over the 12-month period, the Fund’s C share class returned 3.53%, compared with a return of 4.41% for LIBOR GBP 1 Month + 400bps, both in sterling terms.







In terms of activity, the manager initiated new positions, among others, in Japanese food-and-beverage business Suntory, semiconductor manufacturer Maxim Integrated and Adecco, an international employment business. The manager also bought consumer goods company Unilever, retailer Associated British Foods and beverages company Diageo. Additions were made to information services companies RELX and Wolters Kluwer and Dong Energy. Following the US presidential election, the manager implemented protection on a signifi cant portion of the portfolio’s bond exposure in order to dampen the impact of further volatility.

BNY MELLON GLOBAL REAL RETURN FUND (EUR) cont’d.

2323




companies RELX and Wolters Kluwer and Dong Energy. Following the US presidential election, the manager implemented protection on a signifi cant portion of the portfolio’s bond exposure in order to dampen the impact of further volatility.

In the manager’s view the euphoria produced by the US election result is misplaced and the positive market reaction overdone. Financial assets, notably equity and corporate debt markets, are reaching historic highs, which, combined with the manager’s assessment of the backdrop, point towards a potentially unfavourable outcome that even President Donald Trump cannot overcome.


BNY MELLON TARGETED RETURN BOND FUNDOver the review period, the Fund’s A share class returned 0.66%, compared with a return of 3.96% for the Lipper Global Bond Global sector, both in US dollar terms.

The earlier weakness in risk markets experienced during fi rst three months of 2016 reversed through the remainder of the year, despite the surprise outcomes of both the UK’s referendum on EU membership in June and the US presidential election in November. The year ended with the US Federal Reserve (Fed) resuming its increase in interest rates with a 0.25% hike in the Fed’s funds rate in December, the fi rst such move since December 2015. Ahead of this move, global bond yields had already begun to rise from the record lows recorded mid-year. Yields across developed and emerging economies rose sharply in the latter half of the year, with the 10-year US Treasury yield nearly doubling from its summer low. This was as the impact of higher infl ation expectations and the further raising of interest rates by the Fed in response to a strengthening US economy took hold.

Against this backdrop, the largest contributors to performance came from the Fund’s exposure to high-yield and investment-grade credit, and US dollar emerging-market debt where spreads tightened through year end. (High yield is debt rated below BBB by the credit rating agency Standard & Poor’s, whereas Investment-grade debt is rated BBB and above by the same agency. The spread on bonds is usually expressed as the yield difference between bonds of the same maturity but different credit quality. A spread measures how much more a business pays to borrow money than the government does.) An additional source of return came from the Fund’s holdings in government bond infl ation-linked instruments, which provide protection against rises in observed consumer and producer price indices. With commodity prices stabilising by mid-year, market participants began pricing in higher

infl ation expectations and the Fund’s holdings in bonds with these protection features increased in value. Currency positioning in both developed and emerging-economy currencies nevertheless detracted from Fund performance. The increase in bond yields experienced in the latter half of the year similarly resulted in a negative contribution to overall fund performance, as while duration is maintained at relatively low levels, the rise in rates affected the total return, notwithstanding accrued income. (Duration is a measure of the sensitivity of the price of a fi xed-income investment to a change in interest rates.)

Standish Mellon Asset Management Company, LLC February 2017

BNY MELLON GLOBAL REAL RETURN FUND (USD) cont’d.

2424



GLOBAL EQUITY

BNY MELLON GLOBAL EQUITY FUNDOver the review period, the Fund’s A share class returned -0.64% against a return of 7.86% for the MSCI All-Country World Index NR and 3.61% for the Lipper Global Equity Global sector, all in US dollar terms.

Both asset allocation and stock selection detracted from performance.

As investors moved more into cyclical stocks, the Fund’s exposure to less cyclical areas, such as healthcare, was a negative infl uence as these sectors were laggards within the comparative index. (Cyclical refers to companies whose share price is subject to the ups and downs of the overall economy.) Consequently, the Fund’s underweight exposure to energy, materials and fi nancials was detrimental, as these sectors recovered. The energy sector benefi ted from the increase in commodity prices, particularly, the price of the oil following the production cuts agreed by OPEC and non-OPEC members alike. Financials recovered on the prospects for higher interest rates which will assist banks in resetting their loan pricing more favourably.

The largest individual detractor was the holding in Teva Pharmaceutical Industries. This was attributable to various factors including politicking in the US presidential election around drug pricing and a lack of confi dence from some investors in Teva’s ability to defend its Copaxone franchise (a treatment for multiple sclerosis) as well as pressure on the pricing of generics. The potential pricing scrutiny also exerted pressure on the shares of pharmacy benefi t manager Express Scripts. Another prominent negative was TripAdvisor, which suffered as the company confi rmed that the transition to its Instant Booking platform was taking longer than expected and that it would not contribute signifi cantly to its revenues until 2017 – rather than in the second half of 2016, as had been expected. As investors favoured fi nancials and resources stocks, telecoms stocks were also relatively weak over the period. In this regard, the Fund’s holdings in Vodafone Group detracted from returns.

US IT company Trimble, which makes a range of high-tech equipment including GPS and navigation systems, was a signifi cant contributor. Shares in technology giant Microsoft were buoyant as its substantial investment in the ‘cloud’ began to pay off, which was refl ected in its robust earnings. Principal Financial Group performed well following the release of a strong set of third-quarter results. Operating earnings beat consensus forecasts, net infl ows were good, and there was broad-based strength across all strategies. Rising interest rates could also act to alleviate a drag on earnings that had persisted since 2012. The holding in Citigroup benefi ted from the expectation that the Federal Reserve would raise interest rates in December (which it did) and from the pick-up in bond yields, which accelerated after the US election result.

The manager initiated a position in Cisco Systems, the world leader in switching and routing equipment and software for IT networks. The company is highly profi table and boasts dominant market share and cash on the balance sheet. The manager used share-price weakness to initiate a position in US oil & gas exploration company ConocoPhillips. The management is focusing on returns to shareholders; it will stop the search for oil and gas in deep-water fi elds by 2017 and is dramatically cutting capital expenditure. While the manager remains cautious on the outlook for the oil price, the decision to cut production by OPEC and non-OPEC members goes some way to underpinning a ‘fl oor’ level.

The manager sold the holding Sawai Pharmaceutical, as, although the company’s valuation is not excessive, the free cash fl ow is not high and it seems that capital expenditure will rise over the next two years at least. (Free cash fl ow is the cash a company has left over after all outgoings, including dividends, debt payments, tax, operating cost and capital expenditure.) Entry into the US market is the key priority but, as a non-US company, there remains signifi cant risk associated with building a presence in the US. The manager also sold another pharmaceutical company, GlaxoSmithKline. The manager also sold the Fund’s long-standing holding in Swiss staple company Nestle and used the proceeds to buy Anglo-Dutch consumer-goods company Unilever. Unilever was preferred for its greater exposure to the emerging markets.

The backdrop of fragile economic growth and a challenging pricing environment emphasise the importance of cash-fl ow generation, strength of balance sheets and the ability to sustain pricing or adapt to lower prices.


BNY MELLON GLOBAL EQUITY INCOME FUNDOver the review period, the Fund’s A share class returned 5.87%, compared with a return of 8.65% for the FTSE World Index TR

annual report and accounts - aviva · annual report and accounts for the year ended 31 december...

Documents