Ecclesiastical investment funds - ecclesiastical... · 2 ECCLESIASTICAL InvESTmEnT FundS ... Amity uK Fund 6 Amity European Fund 8 ... Investment management Financial Services Authority

Ecclesiasticalinvestment fundsshort report

31 December 2009

ECCLESIASTICAL InvESTmEnT FundS2

Contents

Report of the Authorised Corporate director - Investment Environment 3

Investment Objectives and Policies 4

Amity uK Fund 6

Amity European Fund 8

Amity International Fund 10

Amity Sterling Bond Fund 12

Higher Income Fund 14

uK Equity Growth Fund 16

Management contact details

Authorised Corporate DirectorThe Authorised Corporate director (ACd) is Ecclesiastical Investment management Limited (EIm). The investments of Ecclesiastical Investment Funds (EIF) are managed by the ACd. The ACd has prepared financial statements that comply with the Statement of Recommended Practice for Open-Ended Investment Companies issued by the Investment management Association in november 2008.

ConstitutionEIF is an Open-Ended Investment Company (OEIC). It has variable capital and was incorporated with limited liability under the Open-Ended Investment Companies Regulations 2001 (OEIC Regulations) in Great Britain under registered number IC 00037. It is authorised and regulated by the Financial Services Authority.

EIF is an ‘umbrella’ company and comprises six authorised investment securities sub-funds.

Ecclesiastical Investment management Limited Beaufort House, Brunswick Road, Gloucester GL1 1JZ.

Tel 0845 777 3322Email [email protected]

Authorised and regulated by the Financial Services Authority

Directors of Ecclesiastical Investment Management Limitedm Hews, BSc, FIA (Chairman)mH Tripp, BSc, ARCS, FIA

Ultimate Parent Company of the ACDAllchurches Trust Limited Beaufort House, Brunswick Road, Gloucester GL1 1JZ.

DepositaryBnY mellon Trust and depositary (uK) Limited The Bank of new York mellon Centre, 160 Queen victoria Street, London EC4v 4LA.

Authorised and regulated by the Financial Services Authority

Registrarnorthern Trust Global Services Limited 50 Bank Street, Canary Wharf, London E14 5nT.

Auditorsdeloitte LLP 2 new Street Square, London EC4A 3BZ.

This Short Report is for the period from 1 January 2009 to 31 December 2009. Included in the Report by the Authorised Corporate Director (ACD), you will find information on the performance of the sub-funds and the Funds’ prospects, as well as information on the performance record and major holdings of each sub-fund.

The ACD will send a copy of the interim and annual Short Report to any shareholder whose name appears on the share register at the relevant accounting reference date or interim accounting reference date as permitted by the Financial Services Authority regulations.

Full copies of the interim and annual Long Reports will be available free of charge on request from the ACD and to download from www.ecclesiastical.com/longreport.

Copies of all reports to shareholders will be available for inspection by the general public at the ACD’s offices.

ECCLESIASTICAL InvESTmEnT FundS 3

Report of the Authorised Corporate director – Investment EnvironmentThe start of 2009 coincided with the worst of the financial crisis and the global economy appeared headed for a deep depression. Whilst the global economy and especially the developed countries did experience one of the sharpest and worst recessions in post-war history, the equity markets performed well over the year, as concerted policy actions averted outright financial collapse and most economies exited recession by the end of the year.

The gradual easing of the financial crisis and improving economic outlook provided a positive backdrop for the investment markets and consequently global equity markets and corporate bonds performed well. Government securities fared less well as the gradual recovery in the economy increased investor appetite for risk and reduced demand for ‘safe’ assets, though in the UK the gilt market was supported by Bank of England purchases through its quantitative easing programme.

The UK

The FTSE 100 Index of leading companies ended the year up 22.1%, having recovered very strongly from its low in March at the height of the financial crisis. Amid the strong market rally and move towards more risky assets the FTSE Indices for medium-sized and smaller companies performed even more strongly rising by 49.8% and 46.3% respectively.

As the UK avoided the kind of economic and financial meltdown many investors expected at the start of the year it should come as little surprise that more cyclical sectors such as mining, oil equipment and engineering performed well. In contrast, the more defensive sectors, such as the pharmaceutical, telecom and utilities sectors, which had performed well amid the financial turmoil, lagged the wider market as investor confidence improved.

The threat of financial collapse and deep recession led the government to bail out several leading banks, cut VAT and raise government expenditure whilst the Bank of England cut base rates to 0.5% and began an unprecedented quantitative easing programme. The investment markets reacted positively to these developments and were also supported by the purchase of almost £200bn in gilts as part of the quantitative easing programme which diverted investment from the gilt market in to corporate bonds and equities. The UK equity market also benefited from the weakness of Sterling which improved the competitive position of British exporters and increased the Sterling value of overseas earnings.

Europe

The European equity markets rebounded strongly after hitting lows in March and the FTSE World Europe (excluding UK) Index rose by 15.4% in Sterling terms over the course of 2009. The strength of the European economies varied greatly across the Eurozone. The smaller

‘periphery’ economies such as Portugal, Greece, Spain and Ireland struggled to cope with collapsing housing markets, high levels of debt and trade deficits. Meanwhile the ‘core’ European economies such as Germany and Scandinavia initially suffered badly as the demand for capital goods dried up but an early recovery in Asia led to a rebound in the demand for exports.

The US

Over the course of 2009 the Dow Jones Industrial Average Index rose 18.8%, while the more broadly spread S&P500 Index performed more strongly and rose 25.5%. High consumer debts, a de-leveraging banking system, high unemployment and weak housing market all led to deep recession. The US economy officially exited recession in the third quarter of 2009, but only after a massive policy stimulus and huge aid packages to shore up the country’s financial system. Although the US economy has formidable strengths, that perhaps allow the country to be more profligate than others, sooner or later it will have to tackle the issue of its budget deficit which is expected to reach 12% of GDP.

Japan

The Japanese stock market underperformed most of the major equity markets in 2009 with the Nikkei 225 Index up 19.0%. Japanese companies suffered badly from the collapse in world trade and the strength of the Yen which led to a collapse in corporate profits. The Japanese market is still almost 75% below its peak reached in December 1989 and many world class Japanese companies are trading at large discounts to book value.

China and the rest of Asia

Most Asian equity markets performed strongly with the Hong Kong Hang Seng Index up 52.0% over the course of the year. Prudent macroeconomic policies and resilient banking systems contributed to China recording 8.7% GDP growth in 2009, without generating significant inflationary pressures.

Outlook

Though the worst of the economic downturn may now be behind us, the high debt levels prevalent in many developed western economies provide good reason to be cautious. The global economy may have stabilised but only after record monetary and fiscal stimulus which at some point will have to be withdrawn. In this environment, the global growth is likely to remain weak, especially in the West, and the financial markets volatile.


Fund Name & Investment Objectives Investment Policy

Amity UK

The Fund aims to achieve long-term capital appreciation and a reasonable level of income by investing principally in UK companies

Amity European

To achieve long-term capital growth with a reasonable level of income primarily through a diversified portfolio of European companies

UK Equity Growth

To achieve long-term capital growth with a reasonable level of income.

Amity International

To achieve long-term capital growth with a reasonable level of income primarily through a diversified portfolio of International companies

Amity Sterling Bond

The Fund aims to provide an attractive level of income.

Higher Income

To provide an above average and growing level of income together with capital growth over the longer term.

These Funds seek to invest in a portfolio of companies which make a positive contribution to society and the environment through sustainable and socially responsible practices.

These Funds seek to avoid investment in certain areas such as companies which have a material involvement in alcohol, tobacco and weapon production, gambling and publication of violent or explicit materials.

The UK Equity Growth Fund is designed to invest primarily in a range of UK incorporated and/or listed companies which the Manager believes offer good potential for long-term capital growth.

The Amity Sterling Bond Fund seeks to invest in a highly diversified portfolio of Government and good quality fixed interest securities issued by companies which make a positive contribution to society and the environment through sustainable and socially responsible practices.

The Fund seeks to avoid investment in certain areas such as companies which have a material involvement in alcohol, tobacco and weapon production, gambling and publication of violent or explicit materials.

The Manager will seek to achieve the investment objective by investing in a mix of equities, fixed interest securities and such other investments that the Manager considers suitable.


Risks

These Funds are marketable to all retail investors.

These Funds are managed in line with the requirements for inclusion in an ISA. The portfolio will consist primarily of transferable securities but the Manager may also invest in units in collective investment schemes, money-market instruments, derivatives and forward transactions, deposits, nil and partly paid securities, bonds, convertible bonds, cash and near cash as deemed economically appropriate to meet the Funds’ objectives.

The Manager does not currently intend to use derivatives for any purpose other than the efficient portfolio management ofthe Funds, although it may, subject to obtaining and maintaining the requisite permissions from the FSA under theFinancial Services and Markets Act 2000 and on giving not less than 60 days notice to shareholders in the Funds, usederivatives in pursuit of their investment objectives in the future. If derivatives are used for the purpose of meeting theinvestment objectives of the Funds it is not intended that the use of derivatives would cause the Net Asset Value of theFunds to have higher volatility or otherwise cause the existing risk profiles of the Funds to change.

g most of the assets will be invested in the uK stock market so could be affected by any change in this market. g Selecting stocks due to our ethical criteria means that the choice of stocks is limited to a sub set of the stock market and this could lead to greater volatility.

g The investment’s value may be affected by changes in exchange rates.g The entire market of European stocks and shares might decline thus affecting the prices and values of the assets. g Selecting stocks due to our ethical criteria means that the choice of stocks is limited to a sub set of the stock market and this could lead to greater volatility.

g The investment’s value may be affected by changes in exchange rates.g The equity markets invested in might decline thus affecting the prices and values of the assets. g Some of the investments may be in emerging markets, which can be more volatile and carry risks associated with changes in their economies and political status. Also they may not offer the same level of investor protection as would apply in more developed jurisdictions. g Selecting stocks due to our ethical criteria means that the choice of stocks is limited to a sub set of the stock market and this could lead to greater volatility.

g The Fund holds a variety of different fixed interest securities including government and corporate bonds, preference shares and permanent interest bearing shares with a spread of durations. The Fund may invest in index or inflation linked bonds as well as conventional fixed interest instruments. Some of the bonds hold credit ratings however the Fund also invests in unrated bonds and other fixed interest instruments.g The investment’s value may be affected by changes in inflation and interest rates.g An issuer of fixed interest stock may default, so causing a reduction in the capital value and income value of the Fund. g The annual management charge is taken from capital not income so the capital value of the Fund could be reduced over time. g Selecting stocks due to our ethical criteria means that the choice of stocks is limited to a sub set of the stock market and this could lead to greater volatility.

g most of the assets will be invested in the uK stock market so could be affected by any change in this market.g The Fund holds Corporate and Government bonds of a spread of durations. The various bonds have a spread of different security ratings as the investment managers do not set minimum security standards for such bonds. g The annual management charge is taken from capital not income so the capital value of the Fund could be reduced over time.g An issuer of fixed interest stock may default, so causing a reduction in the capital and income value of the Fund.g The investment’s value may be affected by changes in exchange rates and interest rates.

g most of the assets will be invested in the uK stock market so could be affected by any change in this market.


Amity uK Fund

Report of the Authorised Corporate Director

This review covers the year from 1 January 2009 to 31 December 2009.

g Over the course of the year the share price of the Amity UK Fund rose by 27.6%* with income reinvested, compared to a rise of 30.1% in the FTSE All Share Index measured on a similar basis and 30.4%* in the IMA UK All Companies Sector Average.

g Cash balances at 31 December 2009 were 4.8%.

g Good performances came from holdings in general retailers such as Next, Dunelm and Marks & Spencer which benefited from stronger than expected retail sales. China Shineway (pharmaceuticals), Standard Chartered (banks), Rentokil (support Services) and Volex (engineering) were also among the best performing companies. On the debit side, the weak housing market and slump in office construction had a negative impact on the performance of the building merchants, SIG and Wolseley and on the home builder, Berkeley Group. Several defensive holdings also fell in value over the year including United Utilities, Severn Trent and Cable & Wireless.

g Fund activity included purchases in Astra Zeneca (pharmaceuticals), HSBC and Standard Chartered (banks), Booker (food wholesale) and National Grid (utilities). The Fund also increased holdings in companies involved in affordable housing including Galliford Try, Mears, WSP Group and Morgan Sindall. There were numerous rights issues during the year as companies attempted to strengthen their balance sheets amid the economic and financial uncertainty. The rights issues the Fund participated in included Land Securities, British Land, Cookson, Marshalls, HSBC, Lloyds and Holidaybreak.

g The Fund benefited from the proceeds of the takeover of BPP Holdings. The Fund took some profits in holdings of Dechra Pharmaceuticals and Great Portland Estates.

Prospects

The economic environment remains challenging and it is possible that there will be further bad news to come. Consequently the Fund will continue to follow a cautious approach to investment, maintaining a bias towards the more defensive sectors. The weakness of Sterling should support the performance of companies which generate a high proportion of their revenues overseas. Despite the disappointing outcome of the Copenhagen Summit, we believe that there are still good opportunities to invest in companies providing services or products in environmental markets particularly energy conservation, pollution control and water treatment.

* mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer

Asset allocation by sector at 31 December 2009

The figures in brackets show allocation at 31 December 2008

Performance

Graph showing the growth of the Amity UK Fund compared to IMA UK All Companies Sector Average from 31 December 2004 to 31 Dec 2009, mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Prices re-based to 100. Source: Morningstar.

Performance and ranking

Table showing % growth and ranking of the Amity UK Fund against IMA UK All Companies Sector Average and total number of funds. Figures compared on a mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Source: Morningstar.

31/12/08 - 31/12/09 27.6% 174 30.4% 306

31/12/07 - 31/12/08 -30.9% 159 -31.6% 298

31/12/06 - 31/12/07 -4.3% 250 2.3% 281

31/12/05 - 31/12/06 20.7% 54 17.8% 259

31/12/04 - 31/12/05 16.6% 222 21.2% 239

Amity UK Fund

IMA UK All Companies Sector Average

Growth Rank Growth Number

Figures exclude cash

Amity UK Fund


Consumer Services 22.4% (21.7%)

Industrials 21.9% (18.7%)

Financials 18.3% (20.5%)

Healthcare 14.8% (14.2%)

Telecommunications 5.8% (7.0%)

Utilities 4.7% (6.0%)

Oil & Gas 4.7% (5.0%)

Consumer Goods 3.2% (3.3%)

Basic Materials 2.5% (2.0%)

Technology 1.7% (1.6%)

60

70

80

90

100

110

120

130

140

150

160

31/12/04

30/06/05

31/12/05

30/06/06

31/12/06

30/06/07

31/12/07

30/06/08

31/12/08

30/06/09

31/12/09

Ecclesiastical Amity UK A (IMA) UK All Companies31/1

2/04

30/0

6/05

31/1

2/05

30/0

6/06

31/1

2/06

30/0

6/09

31/1

2/08

30/0

6/08

31/1

2/07

30/0

6/07

31/1

2/09

160

150

140

130

120

110

100

90

80

70

60


Major holdings Net income distribution/accumulation

Total expense ratio at 31 December 2009

Share prices and Fund size

1

2

3

4

5

6

7

8

9

10

morrison (Wm) Supermarkets 3.00%

Tesco 2.75%

dunelm Group 2.65%

GlaxoSmithKline 2.63%

dechra Pharmaceuticals 2.44%

BG Group 2.36%

Centrica 1.92%

Halma 1.83%

China Shineway Pharmaceuticals 1.81%

Smith & nephew 1.76%

Top ten holdings Percentage of total net assets at 31 december 2009

Share Class A Share Class B Share Class C

1.63% 0.88% 1.38%

Please note: Stocks and shares should be viewed as a medium to long-term investment, usually for a period of 5 years or more. The value of investments can fall as well as rise. Past performance should not be seen as an indication of future performance.

net income Pence per share Per £1,000 invested distribution/ at 2 January 2005 (£) accumulation

2009

2008

2005

2007

2006

Share Class A 1.8699 16.4026Share Class B 2.7581 24.1093Share Class C 3.7065 22.0232

Share Class A 3.1623 27.7395Share Class B 5.0377 44.0358 Share Class C 5.6199 33.3922




Share Class A 124.30 82.43 21,711,794 122.57 17,713,365Share Class B 124.00 81.92 2,793,589 121.70 2,295,436 Share Class C 202.90 132.90 29,678,683 201.59 14,722,436


Share Class A 170.90 141.90 24,632,455 145.87 16,886,673Share Class B 172.00 143.20 725,537 146.30 495,935 Share Class C 261.70 218.30 35,642,809 226.96 15,704,525



31 December 2005

31 December 2006

31 December 2007

31 December 2008

31 December 2009

Highest for the year Lowest for the year net asset value net asset value number of (pence) (pence) (£) (pence per share) shares in issue

Share price range Fund size

Portfolio turnover rate

31/12/09 31/12/08

6.86% 25.61%







Oil & Gas 4.7% (5.0%)





1.70% 0.82% 1.32%



Amity European Fund



g Over the course of the year the share price of the Amity European Fund rose by 18.2%*, compared to gains of 20.1% in the FTSE World Europe ex UK Index (£ terms) measured on a similar basis and 19.3%* in the IMA Europe (excluding UK) Sector Average.

g Cash balances were reduced during the year and fell from 17.6% at the start of the year down to 8.8% on 31 December 2009.

g Amid the strong rally in the equity market, good performances came from some of the more cyclical equities including the capital goods companies, CargoTec and Kone and the chemical companies Kemira and Yara. The watch company Swatch also performed strongly over the year. In contrast the more defensive holdings in companies such as Vivendi, France Telecom and Gas Natural all recorded negative returns as did the insurance companies, Munich Re and Zurich Financial Services.

g The Fund acquired new holdings in the telecom companies, France Telecom and KPN, the utility company, Fortum, the life assurance company, Allianz and a leading manufacturer of artificial limbs, Ossur. There were also additional purchases in Yara, Swatch, Merck Kgaa, Roche and Suez Environment.

g The economic downturn and banking crisis led numerous companies to strengthen their balance sheets through rights issues and the Fund took up shares in Enel, Imerys, Nordea Bank, Saint Gobain, Husqvarna and Gas Natural.

g The Fund disposed out of its holdings in Husqvarna, Nordea Bank and Brisa. The Fund also took some profits in Swatch, Schneider Electric, Terna and Kone.

Prospects

Europe currently faces an environment of weak domestic demand and a loss of competitiveness from the strength of the Euro. The growing debt crisis among some ‘periphery’ Eurozone economies such as Greece, Portugal, Ireland and Spain is leading to the early withdrawal of expansionary fiscal policy which threatens to strangle any nascent recovery in these economies. The ‘core’ European economies such as Germany and Scandinavian countries are in a stronger position and already benefiting from the pick up in global trade led by China and the Asian economies. The Fund will continue to maintain a relatively cautious stance holding higher than normal cash balances and having a bias towards defensive investments in the core European economies.


Asset allocation by geographical area at 31 December 2009


Performance

Graph showing the growth of the Amity European Fund compared to IMA Europe (excluding UK ) Sector Average from 31 Dec 2007 to 31 Dec 2009, mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Prices re-based to 100. Source: Morningstar.

Performance and ranking*

Table showing % growth and ranking of the Amity European Fund against IMA Europe (excluding UK) Sector Average and IMA Europe (including UK) Sector Average and total number of funds. Figures compared on a mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Prior to the 31 December 2007 figures compared on a bid-to-bid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Source: Morningstar.

*On the 1st July 2008 The Amity European Fund transferred from the IMA Europe (including UK) Sector to the IMA Europe (excluding UK) Sector. From the 31st December 2007 the portfolio had been rebalanced to meet the new sector requirements which is reflected in the performance graph above.

31/12/06 - 31/12/07 8.4% 14 11.1% 17

31/12/05 - 31/12/06 17.5% 6 17.1% 16

31/12/04 - 31/12/05 20.1% 12 22.1% 16

Amity European Fund

IMA Europe (Including UK) Sector Average


31/12/08 - 31/12/09 18.2 54 19.3 103

31/12/07 - 31/12/08 -17.8 8 -24.2 100

Amity European Fund

IMA Europe (excluding UK) Sector Average


Amity European Fund

IMA Europe (excluding UK) Sector Average

United Kingdom 1.1% (2.8%)

Switzerland 11.0% (11.4%)

Germany 24.8% (22.7%)

Netherlands 9.4% (6.4%)

Other Continental Europe

4.5% (9.7%)

Scandinavia 21.7% (18.5%)

France 22.6% (24.0%)

Spain 3.9% (3.9%)

Ireland 1.0% (0.6%)


50

60

70

80

90

100

110

31/12/07

31/03/08

30/06/08

30/09/08

31/12/08

31/03/09

30/06/09

30/09/09

31/12/09

Ecclesiastical Amity European (IMA) Europe Excluding UK31/1

2/07

31/0

3/08

30/0

6/08

30/0

9/08

31/1

2/08

31/1

2/09

30/0

9/09

30/0

6/09

31/0

3/09

110

100

90

80

70

60

50




1

2

3

4

5

6

7

8

9

10

Roche 3.66%

Yara International 2.56%

Swatch 2.37%

Statoil Hydro 2.34%

metro 2.29%

Bayer 2.26%

Sanofi-Aventis 2.21%

munich Re 2.20%

Suez Environnement 2.17%

Carbone Lorraine 2.15%



2009

2008

2005

2007

2006






Share Class A 154.40 102.50 3,502,311 150.63 2,325,058Share Class B 156.00 103.40 29,201,429 151.76 19,242,265 Share Class C 159.00 104.60 543,101 156.11 347,900


Share Class A 166.40 146.70 2,777,851 159.98 1,736,353Share Class B 168.10 148.00 31,004,613 161.13 19,242,264Share Class C 164.10 144.30 400,601 156.00 256,800



31 December 2005

31 December 2006

31 December 2007

31 December 2008

31 December 2009





1.62% 0.87% 1.37%



31/12/09 31/12/08

29.60% 68.66%


1.81% 0.83% 1.37%



Amity International Fund

Report of the Authorised Corporate DirectorThis review covers the year from 1 January 2009 to 31 December 2009.g Over the course of the year the share price of the Amity International Fund rose

by 26.0%*, compared to a rise of 19.6% in the FTSE World Index measured on a similar basis and 22.8%* in the IMA Global Growth Sector Average.

g Cash balances were kept high throughout the period due to continued caution over the outlook for global economy and at 31 December 2009 were 18.3%.

g The Fund benefited from a high exposure to Asian companies as the region has weathered the global economic turmoil better than the developing countries. Some China related holdings which performed strongly included China Shineway (pharmaceuticals), Lonking Holdings (engineering), Hop Fung (cardboard boxes), SIA Engineering (aircraft maintenance) and VTech (electronics). Other good performers included the UK engineering company Fenner, the Swiss watch manufacturer, Swatch and the Norwegian fertiliser company, Yara.

g Portfolio activity included the acquisition of shares in defensive sectors in the more developed markets including the purchase of pharmaceutical companies such as AstraZeneca, GlaxoSmithKline and Johnson & Johnson and food retailers such as Carrefour, Metro, Morrison and Tesco. The Fund also invested in crop science and fertiliser companies, as growing populations and income levels in developing countries increase food demand, through purchases of Syngenta and Yara. Other purchases in developed markets included Alstom, Aviva, BT Group and Swatch Group.

g The Fund increased its exposure to Asia and especially to China related stocks as this economy was less affected and recovered more quickly from the global downturn. Acquisitions in this region included purchases of Advanced Info Services (telecoms), China Resources Power (electricity generation), China Hongxing (sports shoes), DBS Group (banking), Li & Fung (trading) and Jardine Matheson.

g The Fund participated in a number of rights issues including AXA, Malayan Banking, Husqvarna and Wolseley. The Fund also benefited from proceeds from the takeover of Singapore Petroleum and British Energy. Sales included Segro, Lloyds Banking Group Rights and China Oriental.

ProspectsCredit conditions have begun to ease and global equity markets have enjoyed a strong bull run, but there is little evidence of any meaningful improvement in Western economic fundamentals. Japan has experienced many false dawns over the last 20 years, but was unable to escape the economic consequences of its banking crisis and the high debt levels in many Western economies is likely to impede recovery. Lower exposure to the financial industry meant that Asia was less exposed to the banking crisis better positioned to deal with the threat of deflation than many of the western economies and appears a more attractive region for investment. The Fund continues to hold higher than normal cash balances and our intention is to adopt a gradual and selective strategy, endeavouring to increase the levels of net investment when the outlook seems darkest.


Asset allocation by geographical area at 31 December 2009


Performance

Graph showing the growth of the Amity International Fund compared to IMA Global Growth Sector Average from 31 December 2004 to 31 December 2009, mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Prices re-based to 100. Source: Morningstar.


Table showing % growth and ranking of the Amity International Fund against IMA Global Growth Sector Average and total number of funds. Figures compared on a mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Source: Morningstar.

31/12/08 - 31/12/09 26.0% 53 22.8% 184

31/12/07 - 31/12/08 -15.3% 11 -24.5% 172

31/12/06 - 31/12/07 24.0% 5 10.0% 155

31/12/05 - 31/12/06 17.6% 6 8.1% 145

31/12/04 - 31/12/05 23.3% 92 26.1% 134


IMA Global Growth Sector Average



IMA Global Growth Sector Average

Europe 39.6% (39.4%)

United Kingdom 17.3% (23.0%)

Asia (ex Japan) 34.6% (25.2%)

North & South America 7.7% (11.0%)

Australasia 0.5% (0.9%)

Japan 0.3% (0.5%)


60

80

100

120

140

160

180

200

31/12/04

30/06/05

31/12/05

30/06/06

31/12/06

30/06/07

31/12/07

30/06/08

31/12/08

30/06/09

31/12/09

Ecclesiastical Amity International (IMA) Global Growth31/1

2/04

30/0

6/05

31/1

2/05

30/0

6/06

31/1

2/06

30/0

6/09

31/1

2/08

30/0

6/08

31/1

2/07

30/0

6/07

31/1

2/09

200

180

160

140

120

100

80

60




1

2

3

4

5

6

7

8

9

10


Lonking Holdings 2.06%

Yara International 2.04%

Telefonica AdR 1.98%

Statoil Hydro 1.97%


Roche 1.91%

Sanofi-Aventis 1.77%

Swatch 1.71%

SIA Engineering 1.60%



2009

2008

2005

2007

2006










Share Class A 114.70 92.66 1,055,239 113.57 929,184Share Class B 116.40 93.33 23,702,311 114.10 20,773,269Share Class C 104.80 84.21 263,958 102.81 256,750

31 December 2005

31 December 2006

31 December 2007

31 December 2008

31 December 2009





1.59% 0.84% 1.34%



31/12/09 31/12/08

9.82% 73.36%


1.76% 0.83% 1.33%



Amity Sterling Bond Fund



g Over the course of the year the share price of the Amity Sterling Bond Fund rose by 12.9%*, compared to a rise of 22.2%* in the IMA £ Strategic Bond Sector Average. The FTSE All-Stocks Index decreased by 1.2% measured on a similar basis.

g The Fund benefited from the narrowing in the yield advantage of corporate bonds compared to gilts during the year as confidence in the financial markets improved. The sharp fall in yield for stocks such as Hammerson 5 ¼% 2016, Next 5 7/8% 2016 and Rentokil 5 ¾% 2016 led to large rises in the price of the bonds.

g Portfolio activity involved reducing the exposure of the Fund to government securities in order to take advantage of the high credit spreads available from corporate bonds and preference shares. Purchases included bonds from RSA, British Telecom, Kingfisher, RaboBank and British Sugar. The Fund also invested in issues from the International Finance Facility for Immunisation and BUPA. A purchase was also made in an Anglian Water floating rate note which offered some protection from inflation as its yield is linked to LIBOR.

g The Fund sold holdings in Co-op after it merged with Britannia Building Society as this increased our exposure to a single non-gilt credit to over 5% of Fund assets which was considered too high.

Prospects

There are strong reasons to believe that gilt yields will be pushed higher in 2010. Inflation is moving up as the depreciation of Sterling and rising commodity prices feed through to higher import prices. Loose monetary and fiscal policy could also push up domestically generated inflation. Furthermore the size of the UK budget deficit may encourage investors to demand higher yields. In this environment the fall in demand for gilts brought about by the end of quantitative easing should be expected to drive yields higher.

The Fund has no conventional gilt exposure and will continue to concentrate on opportunities in corporate bond markets. Whilst corporate bonds do not represent as compelling a case as they did at the start of 2009, we still believe they look good value, especially when compared to gilts and cash. We remain wary of the danger of higher inflation following the extensive use of quantitative easing, high budget deficits and loose monetary policy and are looking for opportunities to increase the exposure of the Fund to index-linked bonds. Overall the aim of the Fund will be to maintain a balanced and diversified portfolio, with a significant degree of income security.


Asset allocation by Bond Rating at 31 December 2009


Performance

Graph showing the growth of the Amity Sterling Bond Fund compared to IMA £ Strategic Bond Sector Average from 11 April 2008 to 31 Dec 2009, mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Prices re-based to 100. Source: Morningstar.

Table showing % growth and ranking of the Amity Sterling Bond Fund against IMA £ Strategic Bond Sector Average and total number of funds. Figures compared on a mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Source: Morningstar.


31/12/08 - 31/12/09 12.9% 42 22.2% 62

31/12/07 - 31/12/08 n/A n/A n/A n/A


IMA £ Strategic Bond Sector Average



IMA £ Strategic Bond Sector Average

Unrated 24.6% (30.4%)

BBB 37.0% (34.5%)

BB 3.7% (0.0%)

A 21.1% (26.0%)

AA 2.6% (0.0%)

AAA 4.6% (8.4%)

Cash 6.4% (0.7%)

80

85

90

95

100

105

110

115

11/04/20

08

11/05/20

08

11/06/20

08

11/07/20

08

11/08/20

08

11/09/20

08

11/10/20

08

11/11/20

08

11/12/20

08

11/01/20

09

11/02/20

09

11/03/20

09

11/04/20

09

11/05/20

09

11/06/20

09

11/07/20

09

11/08/20

09

11/09/20

09

11/10/20

09

11/11/20

09

11/12/20

09

Ecclesiastical Amity Sterling Bond (IMA) £ Strategic Bond11/0

4/08

11/0

5/08

11/0

6/08

11/0

7/08

11/0

8/08

11/0

1/09

11/1

2/08

11/1

1/08

11/1

0/08

11/0

9/08

11/0

2/09

115

110

105

100

95

90

85

80

11/0

3/09

11/0

4/09

11/0

5/09

11/0

6/09

11/0

7/09

11/1

2/09

11/1

1/09

11/1

0/09

11/0

9/09

11/0

8/09




1

2

3

4

5

6

7

8

9

10

marks & Spencer 5.625% 24/03/2014 3.12%

IFFIm 3.375% 15/05/2014 3.04%

Aviva 8.75% 3.03%

British Sugar 10.75% 02/07/2013 2.93%

Lewis (John) 10.5% 23/01/2014 2.93%

BuPA 7.5% 07/04/2016 2.89%

Pearson 7% 27/10/2014 2.66%

Smith Industries 7.25% 30/06/2016 2.62%

Compass 6.375% 29/05/2012 2.60%

British Telecom 4.5% I/L 25/04/2025 2.59%


net income Pence per share Per £1,000 invested distribution/ at launch (£) accumulation

2009

2008

Share Class A 5.0780 50.7800 Share Class B 5.3374 53.3740Share Class C* n/A n/A

Share Class A† 5.6112 56.1120Share Class B† 2.3530 23.5300Share Class C* n/A n/A

Share Class A 99.81 90.15 5,312,065 96.34 5,513,606Share Class B 104.16 93.80 11,159,189 101.45 11,000,000 Share Class C* n/A n/A n/A n/A n/A

Share Class A† 101.75 86.99 373,688 89.87 415,789Share Class B† 101.61 90.52 10,281,283 93.47 11,000,000 Share Class C* n/A n/A n/A n/A n/A

31 December 2008

31 December 2009



†Fund launched on 18 February 2008*Share Class C is currently inactive

†Fund launched on 18 February 2008*Share Class C is currently inactive



1.37% 0.77% N/A*



31/12/09 31/12/08

7.70% 128.35%


1.31% 0.50% N/A*



Higher Income Fund



g Over the course of the year the share price of the Higher Income Fund rose by 23.0%*, compared to a rise in the IMA UK Equity & Bond Income Sector Average of 19.3%*. The FTSE All-Share Index rose 30.1% and the FT All-Stock Government Securities Index decreased by 1.2%, both on a similar basis.

g Cash balances increased over the year and at 31 December 2009 reached 6.9%.

g The performance of the Fund benefited from the strong returns from UK companies including Fenner (engineering), Marks & Spencer, Spirent Communications (telecom equipment) and Yule Catto (chemicals). Some China related equities also generated good returns including China Shineway, Hop Fung and Ta Yang. The Fund also benefited from the strong performance of corporate bonds, which rose in value as credit spreads fell. In contrast, some of the worst performing holdings included large, high yielding, defensive companies, such as Cable & Wireless, Ladbrokes, RSA Insurance, Sainsbury and Severn Trent.

g The bond weighting fell from 57.7% to 45.8% as most new investment was targeted towards equities. New purchases of corporate bonds mainly occurred at the start of the year when credit spreads were at their widest. Equity investment was mainly in high yielding defensive equities including the pharmaceutical companies, AstraZeneca, GlaxoSmithKline and Roche, the brewer, Diageo, and the telecommunications companies, Cable & Wireless and BT Group. The Fund also invested in the insurance industry through purchases of Aviva, RSA Insurance and Prudential. The Fund reduced its gilt holdings to raise cash for re-investment in other areas. The Fund also received cash from the takeover of British Energy.

Prospects

The ‘Great Recession’ of 2009 proved less catastrophic than many had feared. Though growth has stabilised, it appears fragile and anaemic. If it were not for Government support and corporate restocking, demand, in the West at least, would probably still be falling. Many of the imbalances which caused the crisis remain unresolved. Despite the liquidity and monetary stimuli, property prices continue to fall in most countries. Banking stresses still persist, made worse by the high level of over-indebtedness in the West.

We are continuing with the strategy that served us well during the market downturn, with higher than normal fixed interest exposure and overweight positions to those sectors that should prove resilient in the event that there is a further economic downturn. We prefer Asian over Western focussed companies with Sterling’s weakness providing extensive opportunities for profitable expansion.


Asset allocation at 31 December 2009


Performance

Graph showing the growth of the Higher Income Fund compared to IMA UK Equity & Bond Income Sector Average from 31 Dec 2004 to 31 Dec 2009, mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Prices re-based to 100. Source: Morningstar.


Table showing % growth and ranking of the Higher Income Fund against IMA UK Equity & Bond Income Sector Average and total number of funds.Figures compared on a mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Source: Morningstar.

31/12/08 - 31/12/09 23.0% 2 19.3% 21

31/12/07 - 31/12/08 -12.4% 2 -22.3% 20

31/12/06 - 31/12/07 7.7% 1 0.5% 20

31/12/05 - 31/12/06 12.5% 12 13.4% 20

31/12/04 - 31/12/05 17.9% 7 17.3% 19

Higher Income Fund

IMA UK Equity & Bond Income Sector Average


Higher Income Fund

IMA UK Equity & Bond Income Sector Average

Net Other Assets (Inc cash)

7.3% (1.8%)

Equities 49.6% (42.1%)

Fixed Interest 43.1% (56.1%)

60

70

80

90

100

110

120

130

140

150

160

31/12/04

30/06/05

31/12/05

30/06/06

31/12/06

30/06/07

31/12/07

30/06/08

31/12/08

30/06/09

31/12/09

Ecclesiastical Higher Income (IMA) UK Equity & Bond Income31/1

2/04

30/0

6/05

31/1

2/05

30/0

6/06

31/1

2/06

30/0

6/09

31/1

2/08

30/0

6/08

31/1

2/07

30/0

6/07

31/1

2/09

160

150

140

130

120

110

100

90

80

70

60




1

2

3

4

5

6

7

8

9

10

Treasury 3.25% 07/12/2011 9.68%

Treasury 4.5% 07/03/2013 8.57%


Fenner 1.72%


Roche-Finance 5.375% 29/08/2023 1.55%

national Grid 3.603% 08/07/2018 1.48%

vodafone 1.48%

General Accident 7.875% 1.19%

Prudential 0.99%



2009

2008

2005

2007

2006








Share Class A 111.70 101.00 27,889,243 104.11 26,788,998Share Class B 112.80 101.70 13,689,532 103.56 13,218,959Share Class C 185.30 166.20 4,389,221 168.18 2,609,894



31 December 2005

31 December 2006

31 December 2007

31 December 2008

31 December 2009





1.38% 0.88% 1.13%



31/12/09 31/12/08

14.27% 78.01%


1.43% 0.83% 1.08%



uK Equity Growth Fund



g Over the course of the year the share price of the UK Equity Fund rose by 24.2%*. The FTSE All Share Index rose 30.1% on a similar basis and the IMA UK All Companies Sector Average increased by 30.4%*.

g At 31 December 2009, 55.0% of the fund was invested in FTSE 100 companies, 24.7% in mid cap companies and 14.8% in Smaller UK companies. Cash balances at 31 December 2009 were 5.5% (31 December 2008: 16.7%).

g Good performances came from many of the smaller companies in the portfolio including Volex (engineering), Pace (electronics), Dunelm (general retail) and Spirent (telecom equipment). Some of the larger companies to perform strongly compared to the market included Rentokil (support services), Next (general retail), Standard Chartered (banks) and Prudential (life assurance). Amid the slowdown in the construction industry, Wolseley, Balfour Beatty and Berkeley all lagged the index. In the sharp market rally some of the large defensive companies, such as Sainbury, Morrison Supermarkets, Cable & Wireless, BT and National Grid, underperformed as investors switched into more cyclical sectors.

g Fund activity during the year included the purchase of companies in the real estate sector, such as Songbird Estates, Quintain Estates & Development and London & Stamford which appear cheap following the collapse in value of the property sector during the financial crisis. The Fund also sought to increase exposure to companies with stable earnings that were placed to withstand the difficult economic environment including Booker (food wholesale), Astra Zeneca (pharmaceuticals) and Cable & Wireless (telecoms). Other purchases included Galiform, Intec, Melrose and Valiant Petroleum.

g The outlook for the retail sector remains poor as some of the financial stimuli put in place at the height of the financial crisis are slowly withdrawn and the Fund made sales of Marks & Spencer, Home Retail and Next. The Fund made some disposals in the life assurance sector of Prudential and Legal & General though these were balanced by purchases of Friends Provident and Resolution.

Prospects

2010 is shaping up to be a tug of war between economic growth driven from emerging markets and the likelihood of monetary and fiscal tightening in developed markets, a potent mix which could lead to a period of range bound trading. The Fund will remain focused on companies able to demonstrate earnings and balance sheet resilience.


Asset allocation at 31 December 2009


Performance

Graph showing the growth of the UK Equity Growth Fund compared to IMA UK All Companies Sector Average from 31 Dec 2004 to 31 Dec 2009, mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Prices re-based to 100. Source: Morningstar.


Table showing % growth and ranking of the UK Equity Growth Fund against IMA UK All Companies Sector Average and total number of funds. Figures compared on a mid-to-mid basis excluding initial charges with net income reinvested for a basic rate UK taxpayer. Source: Morningstar.

31/12/08 - 31/12/09 24.2% 235 30.4% 306

31/12/07 - 31/12/08 -28.4% 78 -31.6% 298

31/12/06 - 31/12/07 -1.4% 219 2.3% 281

31/12/05 - 31/12/06 17.5% 109 17.8% 259

31/12/04 - 31/12/05 18.4% 203 21.2% 239

UK Equity Growth Fund




UK Equity Growth Fund











Oil & Gas 9.2% (10.6%)

60

70

80

90

100

110

120

130

140

150

160

31/12/04

30/06/05

31/12/05

30/06/06

31/12/06

30/06/07

31/12/07

30/06/08

31/12/08

30/06/09

31/12/09

Ecclesiastical UK Equity Growth (IMA) UK All Companies31/1

2/04

30/0

6/05

31/1

2/05

30/0

6/06

31/1

2/06

30/0

6/09

31/1

2/08

30/0

6/08

31/1

2/07

30/0

6/07

31/1

2/09

160

150

140

130

120

110

100

90

80

70

60




1

2

3

4

5

6

7

8

9

10

Pace 3.81%


BG Group 3.08%

BP 2.66%

British American Tobacco 2.51%

Compass 2.35%

next 2.35%

AstraZeneca 2.10%

unilever 2.08%

vodafone 2.06%



2009

2008

2005

2007

2006


Share Class A 2.5371 25.6221 Share Class B 3.7039 36.7815Share Class C 3.5753 31.6959

Share Class A 1.4932 15.0798 Share Class B 2.8197 28.0010 Share Class C 2.4733 21.9264








31 December 2005

31 December 2006

31 December 2007

31 December 2008

31 December 2009





1.61% 0.86% 1.36%



31/12/09 31/12/08

39.30% 24.42%


1.77% 0.80% 1.33%


Savings & Investments

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For further information on any of our products, call us on

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Ecclesiastical Insurance Office plc. (EIO) Reg. No. 24869. Ecclesiastical Insurance Group plc. (EIG) Reg. No. 1718196. Ecclesiastical Life Ltd. (ELL) Reg. No. 243111. Ecclesiastical Investment Management Ltd (EIM) Reg. No. 2170173. Allchurches Mortgage Company Ltd. (AMC) Reg. No. 1974218. Ecclesiastical Financial Advisory Services Ltd. (EFAS) Reg. No. 2046087. Ecclesiastical Risk Services Ltd. (ERS) Reg. No. 6290300. All companies are registered in England at Beaufort House, Brunswick Road, Gloucester, GL1 1JZ, UK. EIO, ELL, EIM & EFAS are authorised and regulated by the Financial Services Authority and are members of the Financial Ombudsman Service. EIO & ELL are members of the Association of British Insurers and EIM is a member of the Investment Management Association.

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© Ecclesiastical Insurance Office plc 2009

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