PHOENIX UNIT TRUST MANAGERS MANAGER S ANNUAL REPORT PUTM UK STOCK MARKET FUND (SERIES 3) For the year: 2 May 2015 to 1 May 2016

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1 PHOENIX UNIT TRUST MANAGERS MANAGER S ANNUAL REPORT For the year: 2 May 2015 to 1 May 2016 PUTM UK STOCK MARKET FUND (SERIES 3)

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3 Contents Investment review* 2-3 Portfolio of investments* 4-10 Top ten purchases and sales 11 Statistical information* Statements of total return & change in unitholders funds 15 Balance sheet 16 Notes to the financial statements Distribution tables 27 Responsibilities of the manager and the trustee 28 Trustee s report and directors statement 29 Independent auditor s report Corporate information* *These collectively comprise the Authorised Fund Manager s Report. 1

4 Investment review Dear Investor Welcome to the PUTM UK Stock Market (Series 3) Fund annual report for 12 months to 1 May Performance Review Over the review period, the accumulation units in the PUTM Stock Market (Series 3) Fund returned -1.5%. Over the same period the FTSE 250 Mid ex IT Index returned -1.3%. (Source: Lipper, bid to bid, net income reinvested for 12 months to 01/05/16). In the table below, you can see how the Fund performed against its sector average over the last five discrete one year periods. Standardised Past Performance May May May May May % growth % growth % growth % growth % growth PUTM Stock Market (Series 3) Fund FTSE 250 Mid ex IT Index Source: Lipper, bid to bid, net income reinvested to 1 May for each year. Past performance is not a guide to future performance. The value of units and the income from them can go down as well as up and is not guaranteed. You may not get back the full amount invested. Please note that all past performance figures are calculated without taking the initial charge into account. 2

5 Investment review Portfolio and Market Review UK equities began the period positively, although uncertainty over the general election capped progress as the vote drew closer. In the end, the result was more decisive than expected allayed but any positive response was largely dampened by the increasingly acrimonious Greek bailout discussions, and whether the country could make its repayments. On the economic front, data generally continued to improve. In the US, growth picked up and, combined with strong retail and housing sales, led to renewed speculation around the timing of US interest rate increases. Closer to home, UK housing price growth and mortgage approvals weakened, albeit from elevated levels, and first quarter GDP growth was stronger than expected at 2.9% annualised versus the previously announced figure of 2.4%. Consumer confidence also reached a 15-year high, partly aided by the removal of election uncertainty, but also ongoing wage growth amid persistently low inflation. Rising real wages appear to be boosting consumers propensity to spend. Bonds and bond-proxy equities were generally weak as investors anticipated positive economic developments would bring forward the time when interest rates finally resume an upward path. As the period progressed there some weakness for UK equities, despite a positive start in July. China s decision to devalue the yuan was particularly detrimental, prompting fears that the economy was much weaker than assumed. The global growth outlook appeared to be instrumental in the Federal Reserve s eventual decision to keep interest rates on hold another area of investor concern. Fears that emerging market weakness may affect the UK prompted speculation that the Bank of England may also delay its own rate increase. However, solid trade data and positive historical GDP revisions continue to suggest that the economy is stronger than believed and that the outlook remains benign. As the period drew to a close, resurgent global growth concerns, further uncertainty around central bank policy and continued commodity price fluctuations ensured it was a volatile period for UK equities. However, while 2016 started very weakly there was a sharp turnaround mid-way through February as a rebound in commodity prices led to a strong rally in associated sectors. Concerns over Chinese economic growth had been the primary driver of commodity price volatility. The Brexit referendum undoubtedly introduced event risk to the UK market and certain sectors, notably real estate and financials, felt the impact of this. Sterling was also weak as a result of the forthcoming referendum and lowering of interest rate expectations. Market Outlook and Fund Strategy Investors are nervous of recessionary risks, and while these risks have generally risen our view is that global growth will continue to remain positive, albeit somewhat dampened and relatively modest compared with longerterm trends. A growth environment will be supportive for UK equities, and we continue to identify attractive stock specific opportunities. Uncertainty and concern around the growth outlook for the Chinese economy, monetary policy in the US, and geo-political tensions, such as Brexit, will act to increase volatility. 3

6 Portfolio of investments Investments held at 1 May 2016 Market Percentage of value total net assets Holding Investment % United Kingdom (01/05/ %) Aerospace & Defence (01/05/ %) ,561 Cobham 162, ,661 Meggitt 291, ,621 Qinetiq 115, ,683 Senior 82, ,429 Ultra Electronics Holdings 114, Banks (01/05/ %) ,001 Bank of Georgia 68, ,664 OneSavings Bank 22, ,055 Shawbrook Group 32, Beverages (01/05/ %) ,488 A G Barr 44, ,420 Britvic 159, Chemicals (01/05/ %) ,016 Croda International 364, ,037 Elementis 89, ,752 Synthomer 87, ,223 Victrex 100, Construction & Materials (01/05/ %) ,764 Balfour Beatty 151, ,080 Ibstock 32, ,308 Keller 55, ,998 Kier Group 95, ,233 Marshalls Group 59, ,303 Polypipe Group 48, Electricity (01/05/ %) ,969 Drax Group 116, Electronic & Electrical Equipment (01/05/ %) ,890 Halma 306, ,526 Morgan Advanced 59, ,255 Renishaw 61, ,213 Rotork 146, ,485 Spectris 197, Financial Services (01/05/ %) ,276 AA 156, ,393 Aberdeen Asset Management 270, ,697 Allied Minds 38, ,724 Ashmore Group 111, ,162 Brewin Dolphin 69, ,317 Close Brothers 162, ,729 ICAP 227, ,760 IG Group Holdings 254,

7 Portfolio of investments Investments held at 1 May 2016 Market Percentage of value total net assets Holding Investment % Financial Services (continued) 28,887 Intermediate Capital Group 179, ,211 International Personal Finance 54, ,314 Investec 241, ,218 IP Group 83, ,868 John Laing Group 72, ,074 Man Group 202, ,640 Paragon Group of Companies 77, ,364 Rathbone Brothers 90, ,506 Tullett Prebon 73, ,510 Virgin Money Holdings 75, Fixed Line Telecommunications (01/05/ %) ,605 Cable & Wireless Communications 186, ,160 TalkTalk Telecom Group 125, ,201 Telecom Plus 50, Food & Drug Retailers (01/05/ %) ,254 Booker Group 238, ,984 Greggs 94, ,925 Ocado Group 109, Food Producers (01/05/ %) ,460 Cranswick 102, ,280 Dairy Crest Group 68, ,509 Tate & Lyle 245, Gas, Water & Multiutilities (01/05/ %) ,009 Pennon Group 300, General Industrials (01/05/ %) ,594 DS Smith 318, ,946 RPC Group 197, ,236 Smiths Group 397, General Retailers (01/05/ %) ,534 AO World 27, ,874 Card Factory 76, ,143 Debenhams 86, ,491 Dignity 110, ,360 Dunelm Group 75, ,093 Halfords Group 76, ,553 Home Retail Group 125, ,039 Inchcape 267, ,115 JD Sports Fashion 63, ,998 Lookers 41, ,478 N Brown Group 39, ,010 Pendragon 44, ,738 Sports Direct International 90, ,862 SuperGroup 35, ,918 WH Smith 167,

8 Portfolio of investments Investments held at 1 May 2016 Market Percentage of value total net assets Holding Investment % Healthcare Equipment & Services (01/05/ %) ,839 NMC Health 60, ,223 Spire Healthcare Group 83, Household Goods (01/05/ %) ,020 Bellway 269, ,310 Bovis Homes Group 107, ,838 Crest Nicholson Holdings 112, ,714 DFS Furniture 44, ,580 Galliford Try 97, ,557 Redrow 74, Industrial Engineering (01/05/ %) ,803 Bodycote International 102, ,203 IMI 227, ,626 Melrose Industries 51, ,897 Weir Group 231, Industrial Metals (01/05/ %) ,626 Evraz Group 64, Industrial Transportation (01/05/ %) ,081 BBA Group 185, ,116 Clarkson 51, Leisure Goods (01/05/ %) ,101 Pets at Home Group 78, Life Insurance (01/05/ %) ,457 Just Retirement Group 48, Media (01/05/ %) ,372 Euromoney Institutional Investor 33, ,415 Moneysupermarket.com 148, ,027 Rightmove 311, Mining (01/05/ %) ,893 Acacia Mining 44, ,430 Kaz Minerals 40, ,864 Vedanta Resources 36, Mobile Telecom (01/05/ %) 0.00 Non-Equity Investment Instruments (01/05/ %) ,991 Jupiter Fund Management 160, ,410 SVG Capital 75, Non-Life Insurance (01/05/ %) ,500 esure Group 58, ,331 Hastings Group 19, ,750 Jardine Lloyd Thompson 93,

9 Portfolio of investments Investments held at 1 May 2016 Market Percentage of value total net assets Holding Investment % Oil & Gas Producers (01/05/ %) ,443 Cairn Energy 116, ,431 Ophir Energy 49, ,662 Tullow Oil 232, ,801 Vesuvius 77, Oil Equipment & Services (01/05/ %) ,519 Amec 172, ,712 John Wood Group 204, Personal Goods (01/05/ %) ,797 Jimmy Choo 13, ,404 PZ Cussons 85, ,324 Ted Baker 56, Pharmaceuticals & Biotechnology (01/05/ %) ,902 BTG 203, ,562 Circassia Holdings 44, ,040 Dechra Pharmaceuticals 90, ,419 Genus 83, ,557 Hikma Pharmaceuticals 279, ,100 Indivior 97, ,106 Vectura Group 65, Real Estate Investment & Services (01/05/ %) ,061 Assura 84, ,315 CLS Holdings 22, ,667 Capital & Counties 229, ,929 Countrywide 49, Daejan Holdings 26, ,739 Grainger 81, ,438 McCarthy & Stone 56, ,814 Redefine International 51, ,389 Savills 84, ,350 St Modwen Properties 51, ,747 Unite Group 124, Real Estate Investment Trusts (01/05/ %) ,045 Big Yellow Group REIT 104, ,858 Derwent London REIT 293, ,619 Great Portland Estates 233, ,283 Hansteen Holdings REIT 68, ,193 LondonMetric Property 83, ,602 Safestore Holdings REIT 62, ,190 Segro REIT 269, ,632 Shaftesbury REIT 226, ,263 Tritax Big Box REIT 102, ,231 Workspace Group REIT 85,

10 Portfolio of investments Investments held at 1 May 2016 Market Percentage of value total net assets Holding Investment % Software & Computer Services (01/05/ %) ,275 Auto Trader Group 328, ,778 AVEVA Group 93, ,208 Computacenter 52, ,410 Fidessa Group 82, ,835 Just Eat 159, ,978 Micro Focus International 258, ,176 NCC Group 66, ,118 Softcat 22, ,740 Sophos Group 45, ,698 Zoopla Property Group 63, Support Services (01/05/ %) ,504 Aggreko 236, ,314 Aldermore Group 30, ,866 Atkins (WS) 120, ,199 Berendsen 180, ,438 Carillion 113, ,409 Diploma 76, ,651 Electrocomp Holding 102, ,116 Essentra 188, ,870 G4S 265, ,471 Hays 160, ,785 Homeserve 94, ,977 Howden Joinery Group 276, ,468 Interserve 57, ,217 Michael Page International 111, ,223 Mitie Group 90, ,895 Northgate 49, ,718 Paypoint 48, ,299 Rentokil Initial 289, ,691 SIG 65, ,344 Serco Group 93, Technology, Hardware & Equipment (01/05/ %) ,878 Laird 88, ,466 Spirax Sarco Engineering 221, Travel & Leisure (01/05/ %) ,351 Cineworld Group 89, ,286 Domino s Pizza Group 113, ,235 FirstGroup 111, ,903 Go-Ahead Group 101, ,483 Greene King 227, ,276 Ladbrokes 104, ,004 Marstons 74,

11 Portfolio of investments Investments held at 1 May 2016 Market Percentage of value total net assets Holding Investment % Travel & Leisure (continued) 10,235 Millennium & Copthorne Hotels 47, ,830 Mitchells & Butlers 59, ,515 National Express 125, ,981 Rank Group 39, ,591 Restaurant Group 50, ,004 Saga 201, ,848 SSP Group 124, ,966 Stagecoach Group 98, ,683 Thomas Cook Group 122, ,779 Wetherspoon (JD) 52, ,521 William Hill 250, Bermuda (01/05/ %) 1.27 Mining (01/05/ %) 0.00 Non-Life Insurance (01/05/ %) ,262 Hiscox 228, ,146 Lancashire Holdings 100, Canada (01/05/ %) 0.28 Media (01/05/ %) ,074 Entertainment One 71, Cayman Islands (01/05/ %) 0.68 Life Insurance (01/05/ %) ,455 Phoenix Group Holdings* 176, Channel Islands (01/05/ %) 6.03 Equity Investment Instruments (01/05/ %) ,463 UK Commercial Property Trust 50, Financials Services (01/05/ %) ,188 Henderson Group 248, Media (01/05/ %) ,916 UBM 222, Mining (01/05/ %) ,138 Centamin 109, ,898 Polymetal International 162, Non-Life Insurance (01/05/ %) ,280 Beazley Group 150, Oil Equipment & Services (01/05/ %) ,077 Petrofac 198, Real Estate Investment & Services (01/05/ %) ,696 F&C Commercial Property Trust 64, ,743 Kennedy Wilson Europe Real Estate 116,

12 Portfolio of investments Investments held at 1 May 2016 Market Percentage of value total net assets Holding Investment % Real Estate Investment Trusts (01/05/ %) Support Services (01/05/ %) ,754 Regus Group 166, Travel & Leisure (01/05/ %) ,077 Wizz Air Holdings 76, Gibraltar (01/05/ %) Ireland (01/05/ %) 1.54 Food & Drug Retailers (01/05/ %) ,583 UDG Healthcare 132, Food Producers (01/05/ %) ,317 Greencore Group 132, Non-Life Insurance (01/05/ %) 0.00 Support Services (01/05/ %) ,371 Grafton Group New Units 135, Isle of Man (01/05/ %) 1.23 Software & Computer Services (01/05/ %) ,375 Optimal Payments 167, ,815 Playtech 152, Luxembourg (01/05/ %) 0.67 General Retailers (01/05/ %) ,548 B&M European Value Retail 173, Portfolio of investments 25,622, Net other assets 372, Net assets 25,995, All investments are listed on recognised stock exchanges and are approved securities within the meaning of the FCA rules unless otherwise stated. *A related party to the Fund (see Note 14). 10

13 Top ten purchases and sales For the year ended 1 May 2016 Purchases Cost Paddy Power 435,563 Smiths Group 401,848 Auto Trader Group 344,054 Aggreko 343,161 G4S 314,880 Wm Morrison Supermarkets 300,414 Meggitt 266,427 Aberdeen Asset Management 262,672 Weir Group 254,377 Mediclinic International 244,667 Sales Proceeds Paddy Power 644,464 DCC 485,433 Provident Financial 479,999 Infroma 448,262 Berkeley Group Holdings 420,945 Rexam 415,095 Inmarsat 414,871 Wm Morrison Supermarkets 401,153 Amlin 324,635 Mediclinic International 291,670 Total purchases 8,551,087 Total sales 11,164,885 11

14 Statistical information Comparative tables Accumulation 01/05/16 01/05/15 01/05/14 pence pence pence Change in net assets per unit Opening net asset value per unit Return before operating charges* (2.36) Operating charges (0.46) (0.25) (0.24) Return after operating charges* (2.82) Closing net asset value per unit Retained distributions on accumulation units *after direct transaction costs of: Performance Return after charges (0.60%) 12.55% 17.60% Other information Closing net asset value ( 000) 25,996 29,842 28,969 Closing number of units 5,539,343 6,321,005 6,906,266 Operating charges 0.11% 0.06% 0.06% Direct transaction costs 0.17% 0.11% 0.11% Prices Highest unit price (pence) Lowest unit price (pence)

15 Statistical information Investment objective The objective of the Fund is to provide long term total return derived from the capital and income returns of UK Equities. Investment policy The Fund will usually be invested in a diversified portfolio of UK Equities. This will be achieved by investment in equities to achieve a return in line with a representative index, FTSE 250 Mid ex IT index. The Manager may choose to invest in equities of other Geographical areas or invest in other securities issued by Governments, Public Authorities, Supranationals and Corporate entities if such investment in the opinion of the Manager is considered appropriate for achieving the objective of the Fund. The Fund may also invest in deposits, collective investment schemes, money market instruments and use derivative contracts within the scope set out in the Prospectus. Revenue distribution and pricing Units of the Fund are available as Accumulation units (where revenue is reinvested to enhance the unit price). There will be two potential distributions in each accounting year: an interim distribution as at 1 November and a final distribution as at 1 May. At each distribution the net revenue after deduction of expenses, arising in the preceding six months from the investments of the Fund is apportioned amongst the unitholders. Unitholders receive a tax voucher giving details of the distribution and the Manager's Report no later than two months after these dates. 13

16 Statistical information Risk and reward profile The Risk and Reward Indicator table demonstrates where the Fund ranks in terms of its potential risk and reward. The higher the rank the greater the potential reward but the greater the risk of losing money. It is based on past data, may change over time and may not be a reliable indication of the future risk profile of the Fund. The shaded area in the table below shows the Fund s ranking on the Risk and Reward Indicator. fi Typically lower rewards, Typically higher rewards, lower risk higher risk fi This Fund is ranked at 6 because funds of this type have experienced high rises and falls in value in the past. Although this is a high risk ranking it is not the highest. The above figure applies to the following unit class: Accumulation Please note that even the lowest risk class can lose you money and that extreme market circumstances can mean you suffer severe losses in all cases. Please note the Fund's risk category may change in the future. The indicator does not take into account the following risks of investing in this Fund: The small differences in the returns between the index tracking Fund and the Index (and tracking error) are due to levels of cash, expenses and portfolio turnover. Counterparty Risk: the insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss. The Fund may use derivatives to reduce risk or cost or to generate additional capital or income at low risk, or to meet its investment objective. For more information on the Risk and Reward profiles of our funds, please refer to the most up to date relevant fund and Unit Class Key Investor Information Documents (KIIDs). These are available online at 14

17 Annual financial statements For the year ended 1 May 2016 Statement of total return 01/05/16 01/05/15 Notes Income Net capital (losses)/gains 4 (908,509) 2,523,318 Revenue 5 796, ,309 Expenses 6 (24,193) (15,172) Interest payable and similar charges (4) Net revenue before taxation 771, ,133 Taxation 7 (2,476) 2,247 Net revenue after taxation 769, ,380 Total (deficit)/return before distributions (139,069) 3,362,698 Distributions 8 (769,520) (839,511) Change in unitholders funds from investment activities (908,589) 2,523,187 Statement of change in unitholders funds 01/05/16 01/05/15 Opening net assets 29,842,114 28,968,815 Amounts receivable on issue of units 506,391 Amounts payable on cancellation of units (4,201,220) (2,476,258) (3,694,829) (2,476,258) Change in unitholders funds from investment activities (908,589) 2,523,187 Retained distributions on accumulation units 756, ,370 Closing net assets 25,995,612 29,842,114 15

18 Annual financial statements As at 1 May 2016 Balance sheet 01/05/16 01/05/15 Notes Assets: Fixed assets: Investments 25,622,704 29,190,565 Current assets: Debtors 9 290, ,700 Cash and bank balances , ,196 Total current assets 493, ,896 Total assets 26,116,485 29,911,461 Liabilities: Creditors: Other creditors 11 (120,873) (69,347) Total liabilities (120,873) (69,347) Net assets 25,995,612 29,842,114 Unitholders funds 25,995,612 29,842,114 16

19 Notes to the financial statements Note 1 (a) (b) (c) (d) (e) (f) (g) Accounting policies Basis of preparation The financial statements have been prepared under the historical cost basis, as modified by the revalution of investments and in compliance with FRS102 and in accordance with the Statement of Recommended Practice (2014 SORP) for financial statements of Authorised Funds issued by The Investment Association in May This is the first set of final financial statements to be prepared for the Fund under the 2014 SORP. Unless otherwise stated all accounting policies are consistent with those of the prior year. Presentational amendments to the Statement of total return, Statement of change in unitholders funds and the Balance sheet have been made. Additionally, further disclosures have been made, including the Reconciliation of units note and the Fair value of assets and liabilities note.these presentational amendments have no impact on the current or previous year Net Asset Value. Valuation of investments The listed investments of the Fund have been valued at bid dealing prices as at 12 noon, 29 April 2016 in accordance with the Trust Deed. Foreign exchange Transactions in foreign currencies during the year are translated into Sterling at the rates of exchange ruling on the transaction date. Amounts held in foreign currencies have been translated at the rate of exchange ruling at 12 noon, 29 April Revenue Dividends receivable from equity investments are credited to revenue when they are first quoted ex-dividend. Interest receivable on bank deposits is accounted for on an accruals basis. Special dividends Special dividends are treated either as revenue or repayments of capital depending on the facts of each particular case. It is likely that where the receipt of a special dividend results in a significant reduction in the capital value of the holding, then the special dividend should be treated as capital in nature so as to ensure the matching principle is applied to gains and losses. Otherwise, the special dividends should be treated as revenue. Stock dividends The ordinary element of stocks received in lieu of cash is recognised as revenue. Any excess in value of shares received over the amount of cash forgone would be treated as capital. Expenses Expenses are accounted for on an accruals basis. Expenses of the Fund are charged against revenue, except for costs associated with the purchase and sale of investments and an element of safe custody fees relating to Key Investor Information, which are charged to capital. 17

20 Notes to the financial statements Note 1 (h) Accounting policies (continued) Deferred taxation Deferred tax is provided at current rates of corporation tax on all timing differences which have originated but not reversed by the Balance sheet date. Deferred tax is not recognised on permanent differences. Deferred tax assets are recognised only to the extent that the Manager considers it is more likely than not that there will be taxable profits from which underlying timing differences can be deducted. Note 2 (a) (b) (c) (d) Note 3 (a) Distribution policies Basis of distribution Revenue produced by the Fund s investments accumulates during each accounting period. If, at the end of each accounting period, revenue exceeds expenses, the net revenue of the Fund is available to be distributed/accumulated to unitholders. The Fund is not more than 60% invested in qualifying investments (as defined by SI 2006/964, Reg 20) and will pay a dividend distribution. Unclaimed distributions Distributions remaining unclaimed after six years are paid into the Fund as part of the capital property. Stock dividends It is the policy of the Fund, where applicable, to distribute the revenue element of stock dividends. Expenses In determining the net revenue available for distribution, charges in relation to the safe custody of investments are ultimately borne by capital. Risk management policies The main risks arising from the Fund s financial instruments are market price risk, interest rate risk, foreign currency risk, liquidity risk and counterparty risk. The Manager s policies for managing these risks are summarised below and have been applied throughout the year. Market price risk Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Fund might suffer through holding market positions in the face of price movements. The Fund s investment portfolio is exposed to market fluctuations which are monitored by the Manager in pursuit of the investment objectives and policies. Adherence to investment guidelines and to investment and borrowing powers set out in the Trust Deed, the Prospectus and in the Collective Investment Schemes Sourcebook ( the Sourcebook ) mitigates the risk of excessive exposure to any particular type of security or issuer. 18

21 Notes to the financial statements Note 3 (b) (c) (d) (e) (f) Risk management policies (continued) Interest rate risk The majority of the Fund s financial assets are equity shares and other investments which neither pay interest nor have a maturity date. Interest receivable on bank deposits or payable on bank overdraft positions will be affected by fluctuations in interest rates. Foreign currency risk The Fund has no significant exposure to foreign currency risk. Liquidity risk The Fund s assets are comprised of mainly readily realisable securities. If insufficient cash is available to finance unitholder redemptions then securities held by the Fund may need to be sold. The risk of low market liquidity, through reduced trading volumes, may affect the ability of the Fund to trade financial instruments at values previously indicated by financial brokers. From time to time, liquidity may also be affected by stock specific or economic events. To manage these risks the Manager performs market research in order to achieve the best price for any transactions entered into on behalf of the Fund. All stocks are valued daily but those stocks identified as being less liquid are reviewed on a regular basis for pricing accuracy. Counterparty risk Certain transactions in securities that the Fund enters into expose it to the risk that the counterparty will not deliver the investment (purchase) or cash (sale) after the Fund has fulfilled its responsibilities. The Fund only buys and sells investments through brokers which have been approved by the Manager as an acceptable counterparty. This list is reviewed annually. Derivatives Derivative transactions may be used by the Fund for the purposes of meeting its investment objectives and also for hedging. In doing so the Manager may make use of a variety of derivative instruments in accordance with the Sourcebook. The use of derivatives for investment purposes means that the net asset value of the Fund may at times have high volatility, although derivatives will not be used with the intention of raising the risk profile of the Fund. Where derivatives are used for hedging this will not compromise the risk profile of the Fund. Use of derivatives will not knowingly contravene any relevant investment objective or limits. There are no derivatives held at the year end. 19

22 Notes to the financial statements Note 4 Net capital (losses)/gains The net capital (losses)/gains during the year comprise: 01/05/16 01/05/15 (Losses)/gains on non-derivative securities (949,571) 2,524,956 Handling charges (2,591) (1,638) Capital special dividend 41,475 Currency gains 2,093 Manager s fee rebates 85 Net capital (losses)/gains (908,509) 2,523,318 Note 5 Revenue 01/05/16 01/05/15 UK dividends 660, ,115 UK REIT property income distributions 26,593 20,944 Overseas dividends 107, ,448 Stock dividends 17,918 Bank interest Total revenue 796, ,309 Note 6 Expenses 01/05/16 01/05/15 (a) Payable to the Manager or associates of the Manager and agents of either of them: Manager s periodic charge* 4,647 2,805 (b) (c) Payable to the Trustee or associates of the Trustee and agents of either of them: Trustee s fees 10,726 3,369 Other expenses: Audit fee 7,980 7,980 Safe custody charges FCA fee ,820 8,998 Total expenses 24,193 15,172 *Managers fees have increased from 2 November Details of the changes are shown in the Prospectus and the current rate is 0.025%. 20

23 Notes to the financial statements Note 7 Taxation 01/05/16 01/05/15 (a) Analysis of tax charge for the year Corporation tax Prior year corporation tax adjustment 3,010 (2,208) Reclaimable tax recovered (91) Overseas withholding tax 459 (1,990) Total current taxation (Note 7(b)) 4,163 (3,934) Deferred tax (Note 7(c)) (1,687) 1,687 Total taxation 2,476 (2,247) (b) Factors affecting the current tax charge for the year The tax assessed for the year is lower than that calculated when the standard rate of corporation tax for Authorised Unit Trusts is applied to total revenue return. The differences are explained below: Net revenue before taxation 771, ,133 Corporation tax at 20% (01/05/15: 20%) 154, ,427 Effects of: Revenue not subject to taxation (153,706) (164,429) Taxable revenue in capital 17 Reclaimable tax recovered (91) Overseas withholding tax 459 (1,990) Prior year corporation tax adjustment 3,010 (2,208) Prior year deferred tax adjustment (1,687) Excess management expenses utilised (956) Tax charge for the year (Note 7(a)) 2,476 (2,247) Authorised Unit Trusts are exempt from tax on capital gains in the UK. Therefore, any capital return is not included in the above reconciliation. (c) Provision for deferred tax 01/05/16 01/05/15 Provision at the start of the year 1,687 Deferred tax charge in year (Note 7(a)) (1,687) 1,687 Provision at the end of the year 1,687 21

24 Notes to the financial statements Note 8 Distributions The distributions take account of amounts added on the issue of units and amounts deducted on the cancellation of units, and comprise: 01/05/16 01/05/15 Interim 410, ,449 Final 346, , , ,370 Amounts deducted on cancellation of units 16,198 13,141 Amounts added on issue of units (3,594) Net distribution for the year 769, ,511 Net revenue after taxation 769, ,380 Expenses taken to capital Corporation tax credit taken to capital 2 (31) Movement of undistributed income 6 Net distribution for the year 769, ,511 Details of the distributions per unit are set out in the tables on page 27. Note 9 Debtors 01/05/16 01/05/15 Sales awaiting settlement 124,949 Other debtors 276,567 Accrued income 164, ,246 Overseas tax recoverable 6 Corporation tax recoverable 1,881 Income tax recoverable 798 Total debtors 290, ,700 Note 10 Cash and bank balances 01/05/16 01/05/15 Total cash and bank balances 203, ,196 Note 11 Creditors 01/05/16 01/05/15 Cancellations awaiting settlement 54,800 59,000 Purchases awaiting settlement 57,027 Management fee payable Trustee s fees payable Safe custody charges payable Audit fee payable 7,980 7,980 FCA fee payable Handling charges payable Deferred tax payable 1,687 Total creditors 120,873 69,347 22

25 Notes to the financial statements Note 12 Reconciliation of units Accumulation Opening units issued at 02/05/15 6,321,005 Unit movements in period: Units issued 111,085 Units cancelled (892,747) Conversions Closing units at 01/05/16 5,539,343 Note 13 Contingencies and commitments At 1 May 2016, the Fund had no outstanding calls on partly paid shares, no potential underwriting commitments, or any other contingent liabilities (01/05/15: nil). Note 14 Related party transactions The Manager is a related party to the Fund by virtue of their controlling influence. The Manager is part of the Phoenix Group. Phoenix Life Limited which is also part of the Phoenix Group, is a material unitholder in the Fund and therefore a related party, holding 100% of the units at the year end (01/05/15: 100%). Manager s periodic charge paid to the Manager, Scottish Mutual Investment Managers Limited (to 2 November 2015) and Phoenix Unit Trust Managers Limited thereafter; or its associates, are shown in Note 6(a) and details of the units issued and cancelled by the Manager are shown in the Statement of change in unitholders funds and Note 8. Any balances due to/from the Manager or its associates at 1 May 2016 in respect of these transactions are shown in Notes 9 and 11. Note 15 Financial instruments In accordance with the investment objective, the Fund may hold certain financial instruments. These comprise: securities held in accordance with the investment objective and policies; derivative transactions which the Fund may also enter into, the purpose of which is to manage the currency and market risks arising from the Fund s investment activities; and cash and short term debtors and creditors arising directly from operations. Interest profile At the year end date, 0.78% (01/05/15: 0.88%) of the Fund s net assets by value were interest bearing. Interest rates earned/paid on deposits are earned/paid at a rate linked to LIBOR (London Interbank Offered Rate) or international equivalent. Sensitivity analysis Interest rate risk sensitivity As the majority of the Fund s financial assets are non-interest bearing, the Fund is only subject to limited exposure to fair value interest rate risk due to fluctuations in levels of market interest rates. 23

26 Notes to the financial statements Note 15 Financial instruments (continued) Foreign currency risk sensitivity As the majority of the Fund s financial assets are in the base currency of the Fund (Sterling), the Fund is only subject to limited exposure to fluctuations in foreign currency. Price risk sensitivity A five per cent increase in the value of the Fund s portfolio would have the effect of increasing the return and net assets by 1,300,915 (01/05/15: 1,492,122). A five per cent decrease would have an equal and opposite effect. Note 16 Fair value of financial assets and liabilities The fair value of the Fund s investments has been determined using the hierarchy below. This complies with the Amendments to FRS102 Fair value hierarchy disclosures issued by the Financial Reporting Council in March Although not required to be applied until accounting periods beginning on or after 1 January 2017, the Manager has decided to apply this early. Level 1 The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date. Level 2 Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly. Level 3 Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability. For the year ended 01/05/16 Level Total Investment assets Equities 25,622,704 25,622,704 25,622,704 25,622,704 For the year ended 01/05/15 Level Total Investment assets Equities 29,190,565 29,190,565 29,190,565 29,190,565 24

27 Notes to the financial statements Note 17 Portfolio transaction costs For the year ended 01/05/16 Value Commission Taxes Analysis of total purchases costs % % Equity transactions 8,298,565 7, , Pooled investment vehicles 19, Corporate actions 189, Total 8,507,325 7,718 36,044 Value Commission Taxes Analysis of total sales costs % % Equity transactions 9,917,362 (3,008) (0.03) (89) 0.00 Corporate actions 1,250, Total 11,167,982 (3,008) (89) Commission and taxes as % of average net assets: Commission 0.04% Taxes 0.13% For the year ended 01/05/15 Value Commission Taxes Analysis of total purchases costs % % Equity transactions 5,988,696 1, , Total 5,988,696 1,774 27,242 Value Commission Taxes Analysis of total sales costs % % Equity transactions 7,870,208 (2,140) (0.03) (222) 0.00 Total 7,870,208 (2,140) (222) Commission and taxes as % of average net assets: Commission 0.01% Taxes 0.10% Portfolio transaction costs are incurred by the Fund when buying and selling underlying investments. These costs vary depending on the class of investment, country of exchange and method of execution. These costs can be classified as either direct or indirect transaction costs: Direct transaction costs: Broker comissions, fees and taxes. Indirect transaction costs: "Dealing spread" the difference between buying and selling prices of the underlying investments. At the Balance sheet date the portfolio dealing spread was 0.15% (01/05/15: 0.24%) being the difference between the respective bid and offer prices for the Funds investments. 25

28 Notes to the financial statements Note 18 Significant events during the period Please note the Manager of the Fund has changed from Scottish Mutual Investment Managers Limited to Phoenix Unit Trust Managers Limited (PUTM) with effect from 2 November As a result the Fund was re-named PUTM UK Stock Market Fund (Series 3). 26

29 Distribution tables For the year ended 1 May 2016 Interim distribution in pence per unit Group 1: units purchased prior to 2 May 2015 Group 2: units purchased 2 May 2015 to 1 November pence pence Tax per unit per unit Gross credit Net paid paid income at 10% income Equalisation 1 Jan 1 Jan Accumulation Group Group Final distribution in pence per unit Group 1: units purchased prior to 2 November 2015 Group 2: units purchased 2 November 2015 to 1 May pence pence per unit per unit Net payable paid income* Equalisation 1 Jul 1 Jul Accumulation Group Group *with effect from 6 April 2016 the tax credit on UK dividend income has been abolished. Equalisation This applies only to units purchased during the distribution period (Group 2 units). It is the average amount of revenue included in the purchase price of all Group 2 units and is refunded to the holders of these units as a return of capital. Being capital it is not liable to income tax but must be deducted from the cost of the units for capital gains tax purposes. 27

30 Responsibilities of the manager and the trustee a) The Manager of the Fund is required by the Financial Conduct Authority s Collective Investment Schemes Sourcebook ( the Sourcebook ) to prepare financial statements for each annual accounting period which give a true and fair view of the financial position of the Fund at the end of that period and the net revenue or expense and the net gains or losses on the property of the Fund for the year then ended. In preparing these financial statements, the Manager is required to: select suitable accounting policies and then apply them consistently make judgements and estimates that are prudent and reasonable state whether applicable accounting standards have been followed subject to any material departure disclosed and explained in the financial statements prepare the financial statements on the basis that the Fund will continue in operation unless it is inappropriate to presume this. The Manager is also required to manage the Fund in accordance with the Trust Deed, the Prospectus and the Sourcebook, maintain proper financial records to enable them to ensure that the financial statements comply with the Statement of Recommended Practice for Authorised Funds as issued by the IA (formerly the IMA) in May 2014 and the Sourcebook and take reasonable steps for the prevention and detection of fraud and other irregularities. b) The Trustee is under a duty to take into custody and to hold the property of the Scheme in trust for the holders of units. Under the Sourcebook relating to Reports, it is the duty of the Trustee to enquire into the conduct of the Manager in the management of the Fund in each annual accounting period and report thereon to unitholders in a report which shall contain the matters prescribed by the Sourcebook. 28

31 Trustee s report and directors statement Trustee s report The Trustee is responsible for the safekeeping of all the property of the Scheme (other than tangible moveable property) which is entrusted to it and for the collection of income that arises from that property. It is the duty of the Trustee to take reasonable care to ensure that the Scheme is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook, the Financial Services and Markets Act 2000, as amended, (together the Regulations ), the Scheme s Trust Deed and Prospectus, in relation to the pricing of, and dealings in, units in the Scheme; the application of income of the Scheme; and the investment and borrowing powers of the Scheme. Having carried out such procedures as we considered necessary to discharge our responsibilities as Trustee of the Scheme, it is our opinion, based on the information available to us and the explanations provided, that, in all material respects, the Manager: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Scheme s units and the application of the Scheme s income in accordance with the Regulations, the Trust Deed and Prospectus, and (ii) has observed the investment and borrowing powers and restrictions applicable to the Scheme. Edinburgh 11 August 2016 National Westminster Bank Directors statement In accordance with the requirements of the Collective Investment Schemes Sourcebook as issued and amended by the Financial Conduct Authority, we hereby certify the report on behalf of the Directors of Phoenix Unit Trust Managers Limited. Birmingham Craig Baker, Director 11 August 2016 Shamira Mohammed, Director 29

32 Independent auditor s report to the unitholders of PUTM UK Stock Market Fund (Series 3) We have audited the financial statements of the PUTM UK Stock Market (Series 3) ( the Fund ) for the year ended 1 May 2016 which comprise the Statement of Total Return, the Statement of Change in Unitholders Funds, the Balance Sheet, the related notes 1 to 18 and the Distribution Tables. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS102 The Financial Reporting Standard applicable to the UK and the Republic of Ireland. This report is made solely to the unitholders of the Fund, as a body, pursuant to Paragraph of the rules of the Collective Investment Schemes Sourcebook of the Financial Conduct Authority. Our audit work has been undertaken so that we might state to the unitholders 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 Fund and the unitholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Manager and Auditor As explained more fully in the Manager s responsibilities statement set out on page 28, the Manager is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable 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 statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial 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 Fund s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Manager; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Manager s annual report to identify material inconsistencies with the audited financial 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. 30

33 Independent auditor s report to the unitholders of PUTM UK Stock Market Fund (Series 3) Opinion on financial statements In our opinion the financial statements: give a true and fair view of the financial position of the Fund as at 1 May 2016 and of the net revenue and the net capital losses on the scheme property of the Fund for the year then ended; and have been properly prepared in accordance with the United Kingdom Generally Accepted Accounting Practice. Opinion on matters prescribed by the rules of the Collective Investment Schemes Sourcebook of the Financial Conduct Authority In our opinion: the financial statements have been properly prepared in accordance with the Statement of Recommended Practice relating to Authorised Funds, the rules of the Collective Investment Schemes Sourcebook of the Financial Conduct Authority and the Trust Deed; the information given in the Manager s report for the financial year for which the financial statements are prepared is consistent with the financial statements; there is nothing to indicate that proper accounting records have not been kept or that the financial statements are not in agreement with those records; and we have received all the information and explanations which, to the best of our knowledge and belief, are necessary for the purposes of our audit. Ernst & Young LLP Statutory Auditor Edinburgh 11 August

34 Corporate information The information in this report is designed to enable unitholders to make an informed judgement on the activities of the Fund during the period it covers and the results of those activities at the end of the period. Phoenix Unit Trust Mangers Limited is part of the Phoenix Group. Ignis Investment Services Limited are part of the Standard Life Investments group (Standard Life Investments (Holdings) Limited) and its subsidiaries. Unit prices appear daily on our website Remuneration The Manager has adopted a remuneration policy, up-to-date details of which can be found on These details describe how remuneration and benefits are calculated and identify the committee which oversees and controls the policy. A paper copy of these details can be requested free of charge from the Manager. Following the implementation of UCITS V in the UK on 18 March 2016, all authorised UCITS Managers are required to comply with the UCITS V Remuneration Code from the start of their next accounting year. Under the UCITS V Directive, the Manager is required to disclose information relating to the remuneration paid to its staff for the financial year, split into fixed and variable remuneration. The Manager s Financial Year end is 31 December, it is therefore anticipated that the Manager's Remuneration Policy and associated financial disclosures will be made within the Annual Reports starting from 31 December 2017, following its first full performance period. Prior to this date, and in line with the FCA s guidance on the UCITS V remuneration disclosures, the Manager would be part way through its first performance period and the information available would not be relevant or provide a proper basis for comparison. Risk The price of units and the income from them can go down as well as up and investors may not get back the amount they invested, particularly in the case of early withdrawal. Tax levels and reliefs are those currently applicable and may change. The value of any tax relief depends on personal circumstances. Depending on the fund, the value of your investment may change with currency movements. 32