Smith & Williamson Investment Funds ICVC. Annual Report. for the year ended 5 April 2018

Transcription

1 Smith & Williamson Investment Funds ICVC Annual Report for the year ended 5 April 2018

2 Contents Page Report of the Authorised Corporate Director ("ACD") 2 Statement of the Authorised Corporate Director's responsibilities 3 Report of the Depositary to the shareholders of Smith & Williamson Investment Funds ICVC 4 Independent Auditor's report to the shareholders of Smith & Williamson Investment Funds ICVC 5 Accounting policies of Smith & Williamson Investment Funds ICVC 7 Subfund Smith & Williamson MM Endurance Balanced Fund 9 Financial Statements Smith & Williamson MM Endurance Balanced Fund 17 Further information 32 Appointments 33 1

3 Smith & Williamson Investment Funds ICVC Report of the Authorised Corporate Director ("ACD") Smith & Williamson Fund Administration Limited, as ACD, presents herewith the Annual Report for Smith & Williamson Investment Funds ICVC for the year ended 5 April Smith & Williamson Investment Funds ICVC ( the Company ) is an authorised open ended investment company with variable capital ( ICVC ) further to an authorisation order dated 10 November The Company is incorporated under registration number IC It is a UCITS scheme complying with the investment and borrowing powers rules in the Collective Investment Schemes sourcebook ( COLL ), as published by the Financial Conduct Authority ("FCA"). The Company has been set up as an umbrella company. Provision exists for an unlimited number of subfunds to be included within the umbrella and additional subfunds may be established by the ACD with the agreement of the Depositary and the approval of the FCA. The subfunds represent segregated portfolios of assets and, accordingly, the assets of a subfund belong exclusively to that subfund and shall not be used or made available to discharge (indirectly or directly) the liabilities of claim against, any other person or body, and any other subfund and shall not be available for any such purpose. The ACD is of the opinion that it is appropriate to continue to adopt the going concern basis in the preparation of the accounts of the Company, as the assets consist predominantly of securities which are readily realisable and, accordingly, the Company has adequate financial resources to continue in operational existence for the foreseeable future. Further, appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, have been used in the preparation of these accounts and applicable accounting standards have been followed. The shareholders are not liable for the debts of the Company. The Company has no Directors other than the ACD. The base currency of the Company is UK sterling. The Instrument of Incorporation can be inspected at the offices of the ACD. Copies of the Prospectus and Key Investor Information Document ("KIID") are available on request free of charge from the ACD. Subfunds There currently is one subfund in the Company Smith & Williamson MM Endurance Balanced Fund. Investment objective and policy Smith & Williamson MM Endurance Balanced Fund The objective is to achieve long term capital growth and a reasonable income. Investment will primarily be in UK and European regulated collective investment schemes. The fund may also invest directly in transferable securities, closedended funds whose shares are listed on global exchanges in recognised markets, money market instruments, deposits and warrants. Derivative and forward transactions may be used by the Fund solely for the purposes of efficient portfolio management. Changes affecting the Company in the year There were no fundamental or significant changes to the Company in the year. Further information in relation to the Company is illustrated on page 32. In accordance with the requirements of the Financial Conduct Authority s Collective Investment Schemes sourcebook, we hereby certify the Annual Report on behalf of the ACD, Smith & Williamson Fund Administration Limited. B. McLean Director Smith & Williamson Fund Administration Limited 13 July

4 Statement of the Authorised Corporate Director's responsibilities The Collective Investment Schemes sourcebook ( COLL ) published by the FCA, requires the Authorised Corporate Director ("ACD") to prepare financial statements for each annual accounting period which give a true and fair view of the financial position of the Company and of the net revenue and net capital losses on the property of the Company for the year. In preparing the financial statements the ACD is responsible for: selecting suitable accounting policies and then applying them consistently; making judgements and estimates that are reasonable and prudent; following UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland; complying with the disclosure requirements of the Statement of Recommended Practice for UK Authorised Funds published by The Investment Association in May 2014; keeping proper accounting records which enable it to demonstrate that the financial statements as prepared comply with the above requirements; assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and taking reasonable steps for the prevention and detection of fraud and irregularities. The ACD is responsible for the management of the Company in accordance with the Instrument of Incorporation, the Prospectus and COLL. 3

5 Report of the Depositary to the shareholders of Smith & Williamson Investment Funds ICVC ("the Company") Depositary's responsibilities The Depositary must ensure that the Company is managed in accordance with the Financial Conduct Authority's Collective Investment Schemes sourcebook, the OpenEnded Investment Companies Regulations 2001 (SI 2001/1228) (the OEIC Regulations), as amended, the Financial Services and Markets Act 2000, as amended, (together "the Regulations"), the Company's Instrument of Incorporation and Prospectus (together "the Scheme documents") as detailed below. The Depositary must in the context of its role act honestly, fairly, professionally, independently and in the interests of the Company and its investors. The Depositary is responsible for the safekeeping of all custodial assets and maintaining a record of all other assets of the Company in accordance with the Regulations. The Depositary must ensure that: the Company's cash flows are properly monitored and that cash of the Company is booked into the cash accounts in accordance with the Regulations; the sale, issue, redemption and cancellation of shares are carried out in accordance with the Regulations; the value of shares of the Company is calculated in accordance with the Regulations; any consideration relating to transactions in the Company's assets is remitted to the Company within the usual time limits; the Company's revenue is applied in accordance with the Regulations; and the instructions of the Authorised Corporate Director ("ACD") are carried out (unless they conflict with the Regulations). The Depositary also has a duty to take reasonable care to ensure that the Company is managed in accordance with the Regulations and the Scheme documents in relation to the investment and borrowing powers applicable to the Company. Having carried out such procedures as we considered necessary to discharge our responsibilities as Depositary of the Company, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Company, acting through the ACD: (ii) (ii) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Company s shares and the application of the Company s revenue in accordance with Regulations and the Scheme documents of the Company; and has observed the investment and borrowing powers and restrictions applicable to the Company. National Westminster Bank Plc Trustee and Depositary Services 13 July

6 Independent Auditor s report to the shareholders of Smith & Williamson Investment Funds ICVC ( the Company ) Opinion We have audited the financial statements of the Company for the year ended 5 April 2018 which comprise the Statement of Total Return, the Statement of Change in Net Assets Attributable to Shareholders, the Balance Sheet, the Related Notes and Distribution Tables for the Company s subfund listed on page 2 and the accounting policies set out on pages 7 to 8. In our opinion the financial statements: give a true and fair view, in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, of the financial position of the Company's subfund as at 5 April 2018 and of the net revenue and the net capital losses on the property of the Company's subfund for the year then ended; and have been properly prepared in accordance with the Instrument of Incorporation, the Statement of Recommended Practice relating to UK Authorised Funds, and the COLL Rules. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ( ISAs (UK) ) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard. We have received all the information and explanations which we consider necessary for the purposes of our audit and we believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Going concern We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in these respects. Other information The Authorised Corporate Director (Smith & Williamson Fund Administration Limited) is responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work: we have not identified material misstatements in the other information; and in our opinion the information given in Authorised Corporate Director s Report is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where under the COLL Rules we are required to report to you if, in our opinion: proper accounting records for the Company have not been kept; or the financial statements are not in agreement with the accounting records. Authorised Corporate Director's responsibilities As explained more fully in their statement set out on page 3, the Authorised Corporate Director is responsible for: the preparation of financial statements that give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company and it's subfund's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or its subfund or to cease operations, or have no realistic alternative but to do so. 5

7 Independent Auditor s report to the shareholders of Smith & Williamson Investment Funds ICVC (continued) Auditor s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC s website at The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company s shareholders, as a body, in accordance with Rule of the Collective Investment Schemes sourcebook ( the COLL Rules ) published by the Financial Conduct Authority under the OpenEnded Investment Companies Regulations Our audit work has been undertaken so that we might state to the Company s shareholders those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Grant Archer for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Saltire Court 20 Castle Terrace Edinburgh EH1 2EG 13 July

8 Accounting policies of Smith & Williamson Investment Funds ICVC for the year ended 5 April 2018 The accounting policies relate to the subfund within the Company. a Basis of accounting The financial statements have been prepared under the historical cost convention, as modified by the revaluation of investments. They have been prepared in accordance with FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland ("FRS 102") and in accordance with the Statement of Recommended Practice for UK Authorised Funds ("the SORP") published by The Investment Association in May As described in the ACD's report, the ACD continues to adopt the going concern basis in the preparation of the accounts. b Valuation of investments The purchase and sale of investments are included up to close of business on 5 April Purchases and sales of investments are recognised when a legally binding and unconditional right to obtain, or an obligation to deliver an asset arises. Investments are stated at their fair value at the balance sheet date. In determining fair value, the valuation point is global close of business on 5 Apil 2018 with reference to quoted bid prices from reliable external sources. Collective investment schemes are valued at the bid price for dual priced funds and at the single price for single priced funds. Where an observable market price is unreliable or does not exist, investments are valued at the ACD's best estimate of the amount that would be received from an immediate transfer at arm's length. c Foreign exchange The base currency of the subfund is UK sterling which is taken to be the subfund's functional currency. All transactions in foreign currencies are converted into sterling at the rates of exchange ruling at the dates of such transactions. The resulting exchange differences are disclosed in note 2 of the Notes to the financial statements. Any foreign currency assets and liabilities at the end of the accounting period are translated at the exchange rate prevailing at the balance sheet date. d Revenue Revenue is recognised in the Statement of total return on the following basis: Dividends from quoted equity instruments and non equity shares are recognised as revenue, net of attributable tax credits on the date when the securities are quoted exdividend. Overseas dividends are recognised as revenue gross of any withholding tax and the tax consequences are recognised within the tax expense. Dividends from unquoted equity shares are recognised when declared. Distributions from collective investment schemes are recognised as revenue on the date the securities are quoted exdividend. Equalisation on distributions from collective investment schemes is deducted from the cost of the investment and does not form part of the subfund's distribution. Distributions from collective investment schemes which are reinvested on behalf of the subfund are recognised as revenue on the date the securities are quoted exdividend and form part of the subfund's distribution. Distributions from reporting offshore funds are recognised as revenue when the reported distribution rate is available and forms part of the subfund's distribution. Interest on bank deposits and short term deposits is recognised on an accruals basis. e Expenses All expenses, with the exception of those expenses directly related to the purchase and sale of securities, which are charged to the capital property of the subfund, are charged to revenue and 50% of the annual management charge is reallocated to capital. 7

9 Accounting policies of Smith & Williamson Investment Funds ICVC (continued) for the year ended 5 April 2018 f Allocation of revenue and expenses to multiple share classes All revenue and expenses which are directly attributable to a particular share class are allocated to that class. All revenue and expenses which are attributable to the subfund are allocated to the subfund and are normally allocated across the share classes pro rata to the net asset value of each class on a daily basis. g Taxation Tax payable on profits is recognised as an expense in the period in which profits arise. The tax effects of tax losses available to carry forward are recognised as an asset when it is probable that future taxable profits will be available, against which these losses can be utilised. UK corporation tax is provided as amounts to be paid/recovered using the tax rates and laws that have been enacted at the balance sheet date. Deferred taxation is provided in full on timing differences that result in an obligation at 5 April 2018 to pay more or less tax, at a future date, at rates expected to apply when they crystallise based on current rates and tax laws. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements. Deferred tax assets and liabilities are not discounted. Provision for deferred tax assets are only made to the extent the timing differences are expected to be of future benefit. All foreign dividend revenue is recognised as a gross amount which includes any withholding tax deducted at source. Where foreign tax is withheld in excess of the applicable treaty rate a tax debtor is recognised to the extent that the overpayment is considered recoverable. When a disposal of a holding in a nonreporting offshore fund is made, any gain is an offshore income gain and tax will be charged to capital. There may be instances where tax relief is due to revenue for the utilisation of excess management expenses. h Efficient portfolio management i Where appropriate, certain permitted instruments such as derivatives or forward currency contracts may be used for efficient portfolio management purposes. Where such instruments are used to protect or enhance revenue, the revenue or expenses derived therefrom are included in the Statement of total return as revenue related items and form part of the distribution. Where such instruments are used to protect or enhance capital, the gains and losses derived therefrom are included in the Statement of total return as capital related items. Dilution levy The need to charge a dilution levy will depend on the volume of sales or redemptions. The ACD may charge a discretionary dilution levy on the sale and redemption of shares if, in its opinion, the existing shareholders (for sales) or remaining shareholders (for redemptions) might otherwise be adversely affected, and if charging a dilution levy is, so far as practicable, fair to all shareholders and potential shareholders. Please refer to the Prospectus for further information. j Distribution policies i Basis of distribution The distribution policy is to distribute all available revenue after deduction of expenses payable from revenue. Distributions attributable to income shares are paid to shareholders. ii Unclaimed distributions Distributions to shareholders outstanding after 6 years are taken to the capital property of the subfund. iii Revenue All revenue is included in the final distribution with reference to policy d. iv Expenses Expenses incurred against the revenue of the subfund are included in the final distribution, subject to any expense which may be transferred to capital for the purpose of calculating the distribution, with reference to policy e. v Equalisation Group 2 shares are shares purchased on or after the previous XD date and before the current XD date. Equalisation applies only to group 2 shares. Equalisation is the average amount of revenue included in the purchase price of group 2 shares and is refunded to holders of these shares as a return of capital. Being capital it is not liable to income tax in the hands of the shareholders but must be deducted from the cost of shares for capital gains tax purposes. Equalisation per share is disclosed in the Distribution table. 8

10 Investment Manager's report Investment activities The portfolio has retained its preference for equities (65.1%) over bonds (16.8%). The remainder of the subfund s assets are in hedge funds (7.0%), property (3.0%), private equity (4.9%), infrastructure (2.3%) and cash (0.9%). The United Kingdom weighting fell to 30.7% as we reduced our exposure and switched into areas that we felt were more attractive. We exited our positons in Marlborough Multi Cap Income Fund and Artemis UK Select Fund as well as taking profits in Man GLG UK ICVC Undervalued Assets Fund and City of London Investment Trust but topped up the relatively defensive holding in Trojan Investment Funds Trojan Income Fund. Invesco Perpetual UK Strategic Income Fund was also reduced and the proceeds used to initiate a new holding in LF Miton UK Multi Cap Income Fund which we have subsequently added to a couple of times. Towards the end of the period we also reduced Janus Henderson UK Absolute Return Fund with the proceeds being reinvested into City Financial Absolute Equity Fund which sits in our hedge fund allocation. The weighting to North America remained relatively stable at 14.5%. Our only trades in this part of the portfolio were to topslice our position in Gabelli Value Plus + Trust and topup UBS Investment Funds US Equity Fund. In Europe our weighting increased to 6.5%. The key trade here was to switch out of the hedged share class of BlackRock Continental European Income Fund into the unhedged share class of BlackRock European Dynamic Fund. This new fund is run by long serving and highly regarded manager Alister Hibbert. He aims to achieve longterm capital growth by taking a flexible allcap approach that will invest in a focused portfolio of between 35 and 65 stocks. The process is primarily bottomup, but topdown views form trends and drivers which help to prioritise team research. Turnover can be high and significant over and underweight positions can arise. This move to a more growth focussed manager, where we also significantly increased our weighting, reflects our increasing confidence in the outlook for the European market. In Japan our weighting increased slightly to 4.9%, primarily due to the strength of our two selections in the area as well as the benefit of having a significant amount of our yen exposure hedged. Towards the end of 2017 we took off our yen hedge in its entirety by selling the hedged share class of Man International ICVC Japan Core Alpha and switching into the unhedged class of the same fund. The Asia weighting increased significantly to 6.0% as did the Emerging Market weighting, albeit to a lesser degree, to 2.7%. The key trade here was to start a new position in Fidelity Asian Values, which provides substantial exposure to mid and small cap companies. We also sold out of Fidelity Institutional Funds Emerging Markets Fund and switched into BlackRock Emerging Europe, which significantly increased our exposure to Russia, one of the cheapest global emerging markets currently. Finally we exercised our subscription rights in Utilico Emerging Markets upon the expiry of the subscription shares. The weighting to bonds increased slightly to 16.8% despite their relative underperformance to equities over the period. This was due to us increasing the position in Sequoia Economic Infrastructure Fund where we took up our rights in a 5 for 1 open offer as part of a fundraising conducted by the company. We also exited the holding in Fidelity Investment Funds Strategic Bond Fund and reinvested the proceeds into the existing positions in Muzinich Funds Global Tactical Credit Fund and Kames ICVC Investment Grade Bond Fund. In our alternative asset sectors private equity increased to 4.9% as we added to both Riverstone Energy and HarbourVest Global Private Equity. The property weighting remained fairly steady at 3.0%, with our only activity here being to add to the position in Empiric Student Property. This was despite a disappointing dividend cut from the company as well as a significant discount to net asset value opening up. The weighting to hedge funds rose to 7.0% despite us reducing Syncona on the back of its strong performance following some very positive news from a couple of its underlying life sciences investments. As mentioned earlier, we also added to City Financial Absolute Equity Fund. The weighting to infrastructure fell to 2.3% as we sold out of Lazard Global Listed Infrastructure Equity Fund. Investment performance* Over the twelve month period the subfund s NAV ('B' income shares) rose by 0.1% (mid prices at 12pm) ranking it in the fourth quartile of its IA Mixed Investment 4085% peer group. This has also underperformed the MSCI WMA Private Investor Balanced Index (+2.6%). Over the past three years the subfund s NAV has risen by 10.5% ranking it in the fourth quartile of its IA Mixed Investment 4085% peer group. This has also underperformed the MSCI WMA Private Investor Balanced Index (+20.7%). Over the past five years subfund s NAV has risen by 30.2% ranking it in the fourth quartile of its IA Mixed Investment 40 85% peer group. This has also underperformed the MSCI Private Investor Balanced Index (+45.2%). * Source: Morningstar. 9

11 Investment Manager's report (continued) Investment strategy and outlook 2017 saw the lowest equity market volatility for 90 years but the first quarter of 2018 has been a very different story. The benign market conditions encouraged a buildup of leverage by volatilityrelated funds seeking to enhance their returns and the growth of market trendfollowing strategies which bet on markets continuing to rise. When US Treasury yields increased on concerns that the Federal Reserve (Fed) might increase interest rates more aggressively than consensus forecasts, the aforementioned funds dramatically reduced their market exposure. The result in early February was a huge jump in market volatility and losses in global markets, although by the end of the month markets had recovered the majority of their losses. Another source of market volatility has been US trade protectionism. The White House has been purged of socalled globalists, like Rex Tillerson, the exsecretary of State, and Gary Cohn, the President s chief economic advisor. President Trump has since announced trade tariffs to tackle intellectual property rights that explicitly target China, which accounts for the bulk of the US trade deficit. Beijing has responded with measures of its own with tariffs on US exports to China. However, the measures announced by both sides are small economically; US tariffs account for 2.5% of annual Chinese global exports, while Chinese tariffs are less than 1% of US global exports. It is possible that President Trump s protectionist agenda may actually lead to a constructive response from China, similar to trade pressure on Japan in the 1980s that forced the country to open up its market to foreign imported goods. Indeed, Chinese Premier Li Keqiang recently showed a willingness to open up China s domestic market and enhance intellectual property. President Xi Jinping also offered $250bn in business deals with US companies during President Trump s visit to Beijing last November. What will be critical for the markets is how economic and consumer sentiment holds up during these titfortat trade protectionist measures. While it remains to be seen if China and US are able to work out trade disagreements, at least trade tariffs are relatively low historically. Global economic growth is also broadening and US share buybacks are running at a record annualised pace of over $800bn. We therefore believe that the recent market volatility is likely to be a classic midcycle tantrum, rather than the start of a bear market. Contagion from the equity market has not spread to the credit markets and underlying measures of inflation remain relatively subdued. As long as inflation remains low, central banks are likely to remove monetary accommodation slowly. The new Fed Chair, Jerome Powell, is somewhat of an unknown quantity, and until markets become more comfortable with his approach, it is likely that they will remain jittery. Essentially, however, we remain relatively positive on equity markets. Despite the Fed increasing rates in March, interest rates are still too low to concern credit markets about rising debt defaults, which would represent a serious risk to equity markets. The cost of servicing US household debt is close to historical lows of takehome pay and over the past 10 years US households have reduced their debt levels relative to takehome pay by the largest factor since World War Two. Lower debt burdens should increase the ability of households to absorb higher interest rates. There is a risk that inflation rates surprise on the upside. Under that scenario, markets may well become concerned that global central banks are behind the curve in terms of tightening monetary policy. This could result in a rise in bond yields and negatively affect economic growth, increasing the probability that we are nearing the end of this economic cycle. In such an environment, equities would struggle to outperform. The traditional Western view of China s expansion is that it has been driven by an unsustainable expansion in low quality debt exposure. Low market valuations on Chinese equities, excluding a narrow peer group of internet related names, suggest that investors have discounted a high probability that China faces an investment bust and sharp economic downturn. Little attention is given to positive economic reforms which have resulted in improving productivity and efficiency. Assuming that the direction of change is maintained, it is reasonable to suggest that China has a good chance of successfully transitioning into an economy with a sustainable growth rate and fulfilling the definition of a developed economy. Smith & Williamson Investment Management LLP 23 April

12 Portfolio changes for the year ended 5 April 2018 The following represents the total purchases and the total sales in the year to reflect a clearer picture of the investment activities. Cost Purchases: BlackRock European Dynamic Fund 1,181,760 Man International ICVC Japan CoreAlpha 939,995 Fidelity Asian Values 773,956 LF Miton UK Multi Cap Income Fund 757,527 Kames ICVC Investment Grade Bond Fund 692,065 Riverstone Energy 497,509 Trojan Investment Funds Trojan Income Fund 423,727 City Financial Absolute Equity Fund 407,283 BlackRock Emerging Europe 399,009 HarbourVest Global Private Equity 318,410 Muzinich Funds Global Tactical Credit Fund 174,353 UBS Investment Funds ICVC US Equity Fund 82,068 Empiric Student Property 49,487 Proceeds Sales: MAN Funds MAN GLG Japan CoreAlpha Equity 936,144 Fidelity Investment Funds Strategic Bond Fund 863,635 Artemis UK Select Fund 738,032 BlackRock Continental European Income Fund 699,300 Lazard Global Listed Infrastructure Equity Fund 657,743 Man GLG UK ICVC Undervalued Assets Fund 655,420 Janus Henderson UK Absolute Return Fund 654,309 Marlborough Multi Cap Income Fund 648,267 Invesco Perpetual UK Strategic Income Fund 509,894 Fidelity Institutional Funds Emerging Markets Fund 397,937 Syncona 359,588 City of London Investment Trust 344,986 NextEnergy Solar Fund 139,158 Gabelli Value Plus + Trust 84,782 11

13 Portfolio statement as at 5 April 2018 Nominal Market % of total value or value net assets Investment holding Equities 35.95% (31.79%) Equities United Kingdom 35.95% (31.79%) Equities incorporated in the United Kingdom 19.51% (15.91%) Real Estate 2.96% (3.11%) Empiric Student Property 1,168, , Financial Services 16.55% (12.80%) BlackRock Emerging Europe 110, , City of London Investment Trust 354,800 1,452, Fidelity Asian Values 196, , Gabelli Value Plus + Trust 713, , Temple Bar Investment Trust 116,000 1,424, Utilico Emerging Markets 224, , ,342, Total equities incorporated in the United Kingdom 6,297, Equities incorporated outwith the United Kingdom 16.44% (15.88%) Real Estate 0.00% (0.00%) Invista European Real Estate Trust SICAF* 1,110,000 Financial Services 16.44% (15.88%) BH Global 33, , Fair Oaks Income Fund 781, , HarbourVest Global Private Equity 65, , NextEnergy Solar Fund 650, , Pershing Square Holdings 49, , Riverstone Energy 67, , Sequoia Economic Infrastructure Fund 925, , Syncona 330, , ,306, Total equities incorporated outwith the United Kingdom 5,306, Total equities United Kingdom 11,604, Collective Investment Schemes 63.11% (66.07%) UK Authorised Collective Investment Schemes 55.69% (54.98%) Artemis US Extended Alpha Fund 1,217,492 2,214, AXA Fixed Interest Investment Sterling Index Linked Bond Fund 295, , AXA Framlington Japan Fund 255, , BlackRock European Dynamic Fund 720,000 1,118, City Financial Absolute Equity Fund 227, , Invesco Perpetual UK Strategic Income Fund 371,525 1,033, Investec Fund Series i UK Alpha Fund 1,507,940 1,794,

14 Portfolio statement (continued) as at 5 April 2018 Nominal Market % of total value or value net assets Investment holding UK Authorised Collective Investment Schemes (continued) Janus Henderson European Focus Fund 467, , Janus Henderson UK Absolute Return Fund 608, , Kames ICVC Investment Grade Bond Fund 1,333,550 1,310, LF Miton UK Multi Cap Income Fund 375, , Man GLG UK ICVC Undervalued Assets Fund 832,804 1,208, Man International ICVC Japan CoreAlpha 495, , Standard Life Investment Co II Global Index Linked Bond Fund 474, , Trojan Investment Funds Trojan Income Fund 727,308 1,278, UBS Investment Funds US Equity Fund 611,203 1,242, Total UK authorised collective investment schemes 17,982, Offshore Collective Investment Schemes 7.42% (11.09%) Muzinich Funds Global Tactical Credit Fund 13,942 1,003, Odey Swan Fund 4, , Schroder International Selection Fund Asian Total Return 3,390 1,165, Total offshore collective investment schemes 2,395, Total collective investment schemes 20,378, Portfolio of investments 31,982, Other net assets 303, Total net assets 32,286, All investments are listed on recognised stock exchanges and are approved securities or regulated collective investment schemes within the meaning of the FCA rules unless otherwise stated. The comparative figures in brackets are as at 5 April * Invista European Real Estate Trust has been suspended from trading and the fair value pricing committee have priced this at zero. United Kingdom equities are grouped in accordance with the Industry Classification Benchmark. The Industry Classification Benchmark (ICB) is a joint product of FTSE International Limited and Dow Jones & Company, Inc. and has been licensed for use. "FTSE" is a trade and service mark of London Stock Exchange and the Financial Times Limited. "Dow Jones" and "DJ" are trade and service marks of Dow Jones & Company Inc. FTSE and Dow Jones do not accept any liability to any person for any loss or damage arising out of any error omission in the ICB. 13

15 Risk and reward profile The risk and reward profile is representative of all share classes. The risk and reward indicator table demonstrates where the subfund 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 subfund. The shaded area in the table below shows the subfund's ranking on the risk and reward indicator. Typically lower rewards, lower risk The price of the subfund and any income from it can go down as well as up and is not guaranteed. Investors may not get back the amount invested. Past performance is not a guide to future performance. Where this subfund invests into other investment funds, they may invest in different assets, countries or economic sectors and therefore have different risk profiles not in line with those of this subfund. There have been no changes to the risk and reward indicator in the year. Typically higher rewards, higher risk The subfund is in a medium category because the price of its investments have risen or fallen to some extent. The category shown is not guaranteed to remain unchanged and may shift over time. Even the lowest category does not mean a riskfree investment. Investment trusts and closed ended funds may borrow to purchase additional investments. This can increase returns when stock markets rise but will magnify losses when markets fall. The value of an investment trust or a closedended fund moves in line with stock market demand and its unit/share price may be less than or more than the net value of the investments it holds. The subfund is entitled to use derivative instruments for efficient portfolio management. Derivatives may not achieve their intended purpose. Their prices may move up or down significantly over relatively short periods of time which may result in losses greater than the amount paid. This could adversely impact the value of the subfund. The organisation from which the subfund buys a derivative may fail to carry out its obligations, which could also cause losses to the subfund. For further information please refer to the Key Investor Information Document ("KIID"). For full details on risk factors for the subfund, please refer to the Prospectus. 14

16 Comparative table The following disclosures give a shareholder an indication of the performance of a share in the subfund. It also discloses the operating charges and direct transaction costs applied to each share. Operating charges are those charges incurred in operating the subfund and direct transaction costs are costs incurred when purchasing or selling securities in the portfolio of investments. A income shares were issued at 100.0p on 12 February B income shares were issued at 100.0p on 29 June A income shares B income shares p p p p p p Change in net assets per share Opening net asset value per share Return before operating charges (9.16) (5.03) Operating charges (3.04) (2.87) (4.12) (1.96) (1.84) (1.77) Return after operating charges * (13.28) (6.80) Distributions^ (4.10) (4.21) (2.99) (2.40) (2.46) (2.13) Closing net asset value per share * after direct transaction costs of: Performance Return after charges 0.96% 16.86% (6.05%) 0.87% 16.32% (5.20%) Other information Closing net asset value ( ) 18,557,472 19,550,518 19,486,000 13,728,997 13,847,248 10,872,403 Closing number of shares 8,023,723 8,385,671 9,594,441 9,936,594 9,936,616 8,917,327 Ongoing charges 1.26% 1.31% 1.94% 1.36% 1.40% 1.40% Direct transaction costs 0.02% 0.01% 0.01% 0.02% 0.01% 0.01% Prices Lowest share price (p) Highest share price (p) ^ Rounded to 2 decimal places. Investments carry risk. Past performance is not a guide to future performance. Investors may not get back the amount invested. 15

17 Ongoing charges figure The ongoing charges figure ("OCF") provides investors with a clearer picture of the total annual costs in running a collective investment scheme. The ongoing charges figure consists principally of the ACD's periodic charge and the Investment Manager's fee which are included in the annual management charge net of any rebates, but also includes the costs for other services paid. The subfund has invested in collective investment schemes and the expenses incurred by these schemes in relation to the subfund are included in the ongoing charges calculation. This is known as 'Synthetic OCF'. The Synthetic OCF is calculated on the underlying collective investment schemes held within the subfund at the reporting date. A Income shares Annual management charge 0.65% 0.66% Other expenses 0.07% 0.07% Synthetic OCF 0.54% 0.58% Ongoing charges figure 1.26% 1.31% B Income shares Annual management charge 0.75% 0.75% Other expenses Synthetic OCF 0.07% 0.07% 0.54% 0.58% Ongoing charges figure 1.36% 1.40% Please note the ongoing charges figure is indicative of the charges which the share classes may incur in a year as it is calculated on historical data. 16

18 Financial statements S&W MM Endurance Balanced Fund Statement of total return for the year ended 5 April 2018 Income: Notes Net capital (losses) / gains 2 (134,932) 4,504,994 Revenue 3 721, ,754 Expenses 4 (260,070) (246,233) Net revenue before taxation 461, ,521 Taxation 5 Net revenue after taxation 461, ,521 Total return before distributions 326,389 5,008,515 Distributions 6 (574,035) (615,790) Change in net assets attributable to shareholders from investment activities (247,646) 4,392,725 Statement of change in net assets attributable to shareholders for the year ended 5 April Opening net assets attributable to shareholders 33,397,766 30,358,403 Amounts receivable on issue of shares 424, ,814 Amounts payable on cancellation of shares (1,287,689) (1,560,176) (863,651) (1,353,362) Change in net assets attributable to shareholders from investment activities (247,646) 4,392,725 Closing net assets attributable to shareholders 32,286,469 33,397,766 17

19 Balance sheet as at 5 April 2018 Assets: Notes Fixed assets: Investments 31,982,715 32,682,884 Current assets: Debtors 7 76, ,221 Cash and bank balances 8 860, ,378 Total assets 32,920,556 34,200,483 Liabilities: Creditors: Bank overdrafts 8 (193,514) Distribution payable (567,294) (597,195) Other creditors 9 (66,793) (12,008) Total liabilities (634,087) (802,717) Net assets attributable to shareholders 32,286,469 33,397,766 18

20 Notes to the financial statements for the year ended 5 April Accounting policies The accounting policies are disclosed on pages 7 to Net capital (losses) / gains Nonderivative securities realised gains 1,850, ,266 Nonderivative securities movement in unrealised (losses) / gains (1,986,048) 3,742,932 Currency gains / (losses) 944 (3,429) Transaction charges (661) (1,775) Total net capital (losses) / gains (134,932) 4,504,994 Unrealised gains/(losses) are disclosed as the movement in unrealised gains/(losses) on investments between the prior year and the current year. Where realised gains/(losses) on investments include unrealised gains/(losses) arising in previous periods, a corresponding gain/(loss) is included in unrealised gains/(losses). 3. Revenue Franked revenue 386, ,613 Unfranked revenue 69,947 73,029 Overseas revenue 264, ,006 Bank and deposit interest 396 3,106 Total revenue 721, , Expenses Payable to the ACD and associates Annual management charge 403, ,692 Annual management charge rebate (167,255) (218,218) Registration fees 1,256 1, , ,725 Payable to the Depositary Depositary fees 11,248 10,682 Other expenses: Audit fee 6,180 5,940 Safe custody fees FCA fee KIID production fee Publication fee 3,532 2,576 10,949 9,826 Total expenses 260, ,233 19

21 Notes to the financial statements (continued) for the year ended 5 April Taxation a. Analysis of the tax charge for the year Total taxation (note 5b) b. Factors affecting the tax charge for the year The tax assessed for the year is lower (2017: lower) than the standard rate of UK corporation tax for an authorised collective investment scheme of 20% (2017: 20%). The differences are explained below: Net revenue before taxation 461, ,521 Corporation 20% 92, ,704 Effects of: Franked revenue (77,343) (83,723) Overseas revenue (33,051) (44,003) Excess management expenses 18,130 27,022 Total taxation (note 5a) c. Provision for deferred taxation At the year end, a deferred tax asset has not been recognised in respect of timing differences relating to excess management expenses as there is insufficient evidence that the asset will be recovered. The amount of asset not recognised is 821,014 (2017: 802,884). 6. Distributions The distributions take account of revenue added on the issue of shares and revenue deducted on the cancellation of shares, and comprise: Final income distribution 567, ,195 Equalisation: Amounts deducted on cancellation of shares 10,493 19,149 Amounts added on issue of shares (3,752) (1,119) Net equalisation on conversions 565 Total net distributions 574, ,790 Reconciliation between net revenue and distributions: Net revenue after taxation per Statement of total return 461, ,521 Undistributed revenue brought forward Expenses paid from capital 118, ,237 Marginal tax relief (5,530) Undistributed revenue carried forward (125) (61) Distributions 574, ,790 Details of the distribution per share are disclosed in the Distribution table. 20

22 Notes to the financial statements (continued) for the year ended 5 April Debtors Amounts receivable on issue of shares 33,940 4,272 Sales awaiting settlement 619,329 Accrued revenue 42,716 60,265 Prepaid expenses 213 Recoverable income tax 7,548 76, ,414 Payable from the ACD and associates Management charge rebate 14,807 14,807 Total debtors 76, , Cash and bank balances Bank balances 546,111 Cash on deposit 314, ,378 Total cash and bank balances 860, ,378 Bank overdraft (193,514) Total cash and bank balances 860, , Other creditors Amounts payable on cancellation of shares 50,827 Accrued expenses: Payable to the ACD and associates Annual management charge 7,395 5,535 Registration fees ,419 5,554 Other expenses: Depositary fees Safe custody fees Audit fee 6,180 5,940 KIID production fee 119 Publication fee 1,971 Transaction charges ,547 6,454 Total accrued expenses 15,966 12,008 Total other creditors 66,793 12, Commitments and contingent liabilities At the balance sheet date there are no commitments or contingent liabilities. 21

23 Notes to the financial statements (continued) for the year ended 5 April Share classes The subfund currently has two share classes: A income shares and B income shares. The following reflects the change in shares in issue for each share class in the year: A Income shares Opening shares in issue 8,385,671 Total shares issued in the year 2,347 Total shares cancelled in the year (364,295) Closing shares in issue 8,023,723 B Income shares Opening shares in issue 9,936,616 Total shares issued in the year 293,896 Total shares cancelled in the year (293,918) Closing shares in issue 9,936,594 For the year ended 5 April 2018, the annual management charge for the A Income share class is 0.65% after rebates and the B Income share class is 0.75% after rebates. The annual management charge includes the ACD's periodic charge and the Investment Manager's fee. Further information in respect of the return per share is disclosed in the Comparative table. On the winding up of a subfund all the assets of the subfund will be realised and apportioned to the share classes in relation to the net asset value on the closure date. Shareholders will receive their respective share of the proceeds, net of liabilities and the expenses incurred in the termination in accordance with the FCA regulations. Each share class has the same rights on winding up. 12. Related party transactions Smith & Williamson Fund Administration Limited, as ACD, is a related party due to its ability to act in respect of the operations of the subfund. The ACD acts as principal in respect of all transactions of shares in the subfund. The aggregate monies received and paid through the issue and cancellation of shares are disclosed in the Statement of change in net assets attributable to shareholders. The Investment Manager, Smith & Williamson Investment Management LLP is a related party to the ACD as they are within the same corporate body. Amounts payable to the ACD and its associates are disclosed in note 4. The amount due to the ACD and its associates at the balance sheet date is disclosed in note 9. A shareholder with a holding in excess of 20% of the value of the subfund may be able to exercise significant influence over the financial and operating policies of the subfund with reference to shareholders' voting rights at general meetings and as such is deemed to be a related party. Parties with an interest in excess of 20% of the subfund are as follows: Smith & Williamson Nominees Limited 50.61% 51.90% J.P. Morgan International Bank Nominees Limited 41.40% 40.58% 13. Events after the balance sheet date Subsequent to the year end, the net asset value per A income share has increased from p to p and the net asset value per B income share has increased from p to p as at 12 July This movement takes into account routine transactions but also reflects the market movements of recent months. 22