CF Lindsell Train UK Equity Fund Annual Report and Financial Statements 31 May 2016

Transcription

1 CF Lindsell Train UK Equity Fund Annual Report and Financial Statements 31 May 2016

2 AUTHORISED CORPORATE DIRECTOR ( ACD ) AND ALTERNATIVE INVESTMENT FUND MANAGER ( AIFM ) Capita Financial Managers Limited Head Office: 40 Dukes Place London EC3A 7NH Telephone: Fax: enquiries@capitafinancial.com (Authorised and regulated by the Financial Conduct Authority) DIRECTORS OF THE ACD C. Addenbrooke N. Boyling B. Hammond P. Hugh-Smith K.J. Midl PORTFOLIO MANAGER Lindsell Train Limited 5th Floor 66 Buckingham Gate London SW1E 6AU (Authorised and regulated by the Financial Conduct Authority) DEPOSITARY BNY Mellon Trust & Depositary (UK) Limited The Bank of New York Mellon Centre 160 Queen Victoria Street London EC4V 4LA (Authorised and regulated by the Financial Conduct Authority) REGISTRAR Capita Financial Administrators Limited Customer Service Centre: Arlington Business Centre Millshaw Park Lane Leeds LS11 0PA Telephone: Fax: (Authorised and regulated by the Financial Conduct Authority) INDEPENDENT AUDITOR Grant Thornton UK LLP 30 Finsbury Square London EC2P 2YU CONTENTS ACD s Report... 2 Authorised Status... 2 Important Information... 2 Investment Objective and Policy... 2 Remuneration Policy... 2 Portfolio Manager s Report... 4 Fund Information... 5 Portfolio Statement Summary of Material Portfolio Changes Director s Statement Statement of ACD s Responsibilities in Relation to the Financial Statements Statement of Depositary s Responsibilities Report of the Depositary Independent Auditor s Report to the Shareholders of CF Lindsell Train UK Equity Fund FINANCIAL STATEMENTS Statement of Total Return Statement of Change in Net Assets Attributable to Shareholders Balance Sheet Notes to the Financial Statements Distribution Table General Information CF Lindsell Train UK Equity Fund 1

3 ACD S REPORT FOR THE YEAR ENDED 31 MAY 2016 ACD s Report (continued) For the year ended 31 May 2016 AUTHORISED STATUS CF Lindsell Train UK Equity Fund ( the Fund ) is an investment company with variable capital incorporated in England and Wales under registered number IC and authorised by the Financial Conduct Authority ( FCA ) with effect from 30 June The Fund has an unlimited duration. The Fund is a Non-UCITS Retail Scheme and the base currency is Pounds Sterling. Shareholders are not liable for the debts of the Fund. Shareholders are not liable to make any further payment to the Fund after they have paid the price on purchase of the shares. The Alternative Investment Fund Manager ( AIFM ) is the legal person appointed on behalf of the Fund and which (through this appointment) is responsible for managing the Fund in accordance with the AIFM Directive and The Alternative Investment Fund Managers Regulations This role is performed by the ACD and references to the ACD in this Annual Report and Financial Statements include the AIFM as applicable. IMPORTANT INFORMATION With effect from 1 June 2015, the initial charge payable to the ACD on the purchase of shares has been reduced to nil. CFML delegates portfolio management for the AIFs to various investment management firms. The portfolio managers fees and expense for providing investment management services are paid by the ACD out of its own remuneration under the ACD agreement. The investment management firms make information on remuneration publicly available in accordance with the disclosure requirements of Pillar 3 of the Capital Requirements Directive. This disclosure is in respect of CFML activities (including activities performed by its sister company Capita Financial Administrators Limited ( CFAL ) or by employees of that entity), and excludes activities undertaken by third party investment management firms. CFML staff do not perform duties in respect of particular AIFs, nor are they remunerated by reference to the performance of any individual AIF. Accordingly, the information below is for CFML as a whole. No attempt has been made to attribute remuneration to the Fund itself. Information on CFML s remuneration arrangements is collated annually, as part of its statutory accounts preparation processes. Accordingly, the information disclosed relates to the year ended 31 December 2015, being the most recent accounting period for which accounts have been prepared for CFML prior to the production of these accounts. As at 31 December 2015, CFML operated 94 UCITS and 56 AIFs, whose respective assets under management ( AuM ) were 31,166 million and 10,688 million. This Fund was valued at 1,904 million as at that date and represented 4.55% of CFML s total AuM and 17.81% of its AIF AuM. The disclosure below represents that required under FUND R (5) and (6) for funds subject to AIFMD obligations. INVESTMENT OBJECTIVE AND POLICY The investment objective of the Fund is to invest in the securities of companies which are listed, quoted or dealt on any of the markets of the London Stock Exchange, including the Alternative Investment Market ( AIM ), with the objective of achieving capital and income growth and providing a total return in excess of that of the FTSE All-Share TR Index. It is the Fund s policy to invest primarily in ordinary shares, preference shares and convertible bonds listed, quoted or dealt in or on any of the markets of the London Stock Exchange, including AIM. Whilst the primary focus will be in the UK, the Fund may also invest in other global markets. It is the Fund s policy not to invest in unlisted securities, other collective investment schemes, warrants, derivatives, immovables or gold. There is no guarantee that a positive return will be delivered. Total amount of remuneration paid by CFML for the year ended 31 December 2015 Total amount of remuneration paid to Senior Management for the year ended 31 December 2015 Total amount of remuneration paid to members of staff whose activities have a material impact on the risk profile of CFML s AIFs for the year ended 31 December 2015 Number of beneficiaries Fixed 000 Variable 000 Total , , REMUNERATION POLICY Capita Financial Managers Limited ( CFML ) is committed to ensuring that its remuneration policies and practices are consistent with, and promote, sound and effective risk management. CFML s remuneration policy is designed to ensure that excessive risk taking is not encouraged by or within CFML including in respect of the risk profile of the Alternative Investment Funds ( AIFs ) it operates, to manage the potential for conflicts of interest in relation to remuneration (having regard, inter alia, to its formal conflicts of interest policy) and to enable CFML to achieve and maintain a sound capital base. CFML acts as the operator of both UCITS funds and AIFs. CAPITA FINANCIAL MANAGERS LIMITED ACD of CF Lindsell Train UK Equity Fund 13 September CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 3

4 ACD s Report (continued) For the year ended 31 May 2016 FUND INFORMATION PORTFOLIO MANAGER S REPORT We think it is important to note that several of the best performers in your Fund over the year were technology companies, or companies doing interesting things with technology. These include RELX, Sage Group, Hargreaves Lansdown (which we analyse as a technology platform company, rather than an IFA), and Fidessa Group. Meanwhile, just as important, technology-related companies feature amongst the poorest performers too. These include Daily Mail & General Trust, Pearson and Burberry Group (which is investing heavily into digital marketing). We would not be at all surprised to discover in another twelve months that this theme has continued, with technology change becoming an increasingly important driver of fund performance, both good and bad. It may well also be that some of our weaker performers those above could turn out to be the next winners. It is notable, for instance, that as 2016 has progressed one of our best stocks has been Pearson, up 14% since the start of the calendar year. Yet Pearson was an exceptionally disappointing holding for us in What has changed for Pearson in 2016 is that, at the margin, investors have gained slightly more confidence that the company s strategy of investing in digital products and software services for the education sector will succeed. Again this key theme of technology change. I emphasise this point because technology is self-evidently becoming not only more important for your Fund, but for the UK stock market too creating winners and losers in almost every industry sector. It seems to us to be a credible proposition that getting technology right in terms of avoiding the industries or companies being crunched by the Internet or identifying those which can use digital to enhance their products or market positions will be the determining factor for equity investment performance over the next few years. It is also important here to emphasise that to our minds this technology theme is of far more significance for investment success than responding to the short term macro-economic and political worries associated with Brexit. Of course these political uncertainties will produce volatility in markets, but we will do our best to ignore it, except to the extent it may create opportunities for us to add to existing holdings. The truth is stock market history confirms time and again that what creates wealth for patient investors is not the attempt to trade in and out of stocks in response to changes in interest rates, currencies or shades of government. No, what creates wealth is the development of new technology that helps existing companies do their job better, more usefully or more productively or new technology that brings into being new companies and even new industries. If you think I m being fanciful just consider the huge value built up in Amazon, Facebook, Google, Netflix and others over the last decade. It is no accident, we think, that the US stock market, which is home to these emergent companies, has been the best performer for a number of years as it dominates the propagation of new tech. This is why we continue to be optimistic for all the companies I highlighted in the first paragraph of this report. The UK may not have its own Facebook, but we do have the world s leading digital professional publishing company RELX, the world s most visited English language newspaper website MailOnline and the leading educational software developer in Pearson. We expect these and others to be the big contributors to our performance in years to come. SYNTHETIC RISK AND REWARD INDICATOR Typically lower rewards Lower risk Typically higher rewards Higher risk This indicator shows how much a fund has risen and fallen in the past, and therefore how much a fund s returns have varied. It is a measure of a fund s volatility. The higher a fund s past volatility the higher the number on the scale and the greater the risk that investors in that fund may have made losses as well as gains. The lowest number on the scale does not mean that a fund is risk free. The Fund has been classed as 5 because its volatility has been measured as above average. Non-UCITS Retail Scheme (NURS): The Fund can be less diversified than UCITS schemes as it has higher investment limits for certain types of asset. It can also invest in assets which are not available to UCITS schemes. This can increase the potential rewards but can also increase risk. This indicator is based on historical data and may not be a reliable indication of the future risk profile of this Fund. The risk and reward profile shown is not guaranteed to remain the same and may shift over time. RISK WARNING An investment in an open-ended investment company should be regarded as a medium to long term investment. Investors should be aware that the price of shares and the income from them can fall as well as rise and investors may not receive back the full amount invested. Past performance is not a guide to future performance. Investments denominated in currencies other than the base currency are subject to fluctuation in exchange rates, which can be favourable or unfavourable. LINDSELL TRAIN LIMITED Portfolio Manager 11 July CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 5

5 ACD s Report (continued) Fund Information (continued) COMPARATIVE TABLES Income shares Change in net assets per share (p/share) (p/share) (p/share) Accumulation shares Change in net assets per share (p/share) (p/share) (p/share) Opening net asset value per share Return before operating charges* Operating charges (1.66) (1.58) (1.52) Return after operating charges Distributions on income shares (4.89) (4.68) (4.77) Closing net asset value per share * after direct transaction costs of: Performance Return after charges 1.19% 16.99% 14.25% Other Information Closing net asset value ( 000) 866, , ,303 Closing number of shares 379,223, ,010, ,931,189 Operating charges 0.74% 0.75% 0.79% Direct transaction costs 0.19% 0.15% 0.19% Prices Highest share price Lowest share price Opening net asset value per share Return before operating charges* Operating charges (2.14) (2.00) (1.87) Return after operating charges Closing net asset value per share Retained distributions on accumulation shares * after direct transaction costs of: Performance Return after charges 1.22% 17.09% 14.33% Other Information Closing net asset value ( 000) 1,102, , ,481 Closing number of shares 369,178, ,411, ,933,591 Operating charges 0.74% 0.75% 0.79% Direct transaction costs 0.19% 0.15% 0.19% Prices Highest share price Lowest share price CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 7

6 ACD s Report (continued) Fund Information (continued) COMPARATIVE TABLES (continued) D Income shares Change in net assets per share (p/share) (p/share) (p/share) D Accumulation shares Change in net assets per share (p/share) (p/share) (p/share) Opening net asset value per share Return before operating charges* Operating charges (0.62) (0.59) (0.15) Return after operating charges Distributions on income shares (2.57) (2.46) (0.88) Closing net asset value per share * after direct transaction costs of: Performance Return after charges 1.38% 17.23% 2.01% Other Information Closing net asset value ( 000) 37,502 25,178 6,280 Closing number of shares 32,575,505 21,688,615 6,209,992 Operating charges 0.54% 0.55% 0.59%2 Direct transaction costs 0.19% 0.15% 0.19%2 Prices Highest share price Lowest share price From 27 February Estimated annualised figure due to share class launched less than one year. Opening net asset value per share Return before operating charges* Operating charges (0.63) (0.61) (0.15) Return after operating charges Closing net asset value per share Retained distributions on accumulation shares * after direct transaction costs of: Performance Return after charges 1.41% 17.33% 2.02% Other Information Closing net asset value ( 000) 254, ,590 38,250 Closing number of shares 209,245, ,190,827 37,494,018 Operating charges 0.54% 0.55% 0.59%2 Direct transaction costs 0.19% 0.15% 0.19%2 Prices Highest share price Lowest share price From 27 February Estimated annualised figure due to share class launched less than one year. 8 CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 9

7 ACD s Report (continued) Fund Information (continued) FUND PERFORMANCE TO 31 MAY 2016 (%) CF Lindsell Train UK Equity Fund FTSE All-Share TR Index# # Source: Bloomberg. 1 year 3 years 5 years 1.21) (6.31) The performance of the Fund is based on the published price per Accumulation share which includes reinvested income The performance of the Fund disclosed in the above table may differ from the Return after charges disclosed in the Comparative Table due to the above performance being calculated on the latest published price prior to the year end, rather than the year end return after operating charges. Details of the distributions per share for the year are shown in the Distribution Table on pages 35 and 36. PORTFOLIO STATEMENT AS AT 31 MAY 2016 Holding Portfolio of Investments Value % UNITED KINGDOM 80.07% ( %) CONSUMER GOODS 25.70% ( %) BEVERAGES 10.80% ( %) 4,247,816 Barr (A.G.) 23, ,749,500 Diageo 220, , FOOD PRODUCERS 9.95% ( %) 7,118,000 Unilever 225, PERSONAL GOODS 4.95% ( %) 10,325,000 Burberry Group 111, TOTAL CONSUMER GOODS 581, CONSUMER SERVICES 21.15% ( %) MEDIA 18.16% ( %) 14,052,500 Daily Mail & General Trust 94, ,624,500 Euromoney Institutional Investor 15, ,650,000 Pearson 80, ,711,000 RELX 220, , TRAVEL & LEISURE 2.99% ( %) 6,169,000 Celtic* 4, ,527 Celtic 6% cumulative convertible preference* ,768 Fuller Smith & Turner 1, ,780,320 Greene King 33, ,010,500 Young & Co s Brewery A * 12, ,659,816 Young & Co s Brewery non-voting * 15, , TOTAL CONSUMER SERVICES 478, CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 11

8 ACD s Report (continued) Portfolio Statement (continued) ACD s Report (continued) Portfolio Statement (continued) Holding Portfolio of Investments Value % FINANCIALS 23.52% ( %) GENERAL FINANCIALS 23.52% ( %) 11,425,500 Hargreaves Lansdown 153, ,103,000 London Stock Exchange Group 167, ,766,435 Rathbone Brothers 54, ,776,000 Schroders 156, TOTAL FINANCIALS 531, Value % Portfolio of investments 2,211, Net other assets 48, Net assets 2,260, The investments have been valued in accordance with note 1(h) and are ordinary shares listed on a regulated market unless stated otherwise. * Quoted on the Alternative Investment Market (AIM). TECHNOLOGY 9.70% ( %) SOFTWARE & COMPUTER SERVICES 9.70% ( %) 2,845,500 Fidessa Group 67, ,933,500 Sage Group 152, TOTAL TECHNOLOGY 219, TOTAL UNITED KINGDOM 1,810, OVERSEAS 17.76% ( %) FRANCE 2.34% ( %) 938,333 Remy Cointreau 53, NETHERLANDS 6.64% ( %) 2,678,000 Heineken 150, UNITED STATES 8.78% ( %) 875,000 Dr Pepper Snapple Group 55, ,000 Kraft Heinz Company (The) 38, ,411,000 Mondeléz International 104, TOTAL UNITED STATES 198, TOTAL OVERSEAS 401, CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 13

9 ACD s Report (continued) SUMMARY OF MATERIAL PORTFOLIO CHANGES FOR THE YEAR ENDED 31 MAY 2016 Total purchases for the year 000 (note 13) 636,319 Major purchases Cost 000 Diageo 88,175 RELX 70,527 Schroders 66,818 Burberry Group 65,755 Unilever 61,693 London Stock Exchange Group 49,705 Hargreaves Lansdown 41,595 Remy Cointreau 39,241 Daily Mail & General Trust 37,212 Sage Group 25,566 Mondeléz International 22,727 Heineken 19,857 Pearson 16,318 Fidessa Group 9,526 Rathbone Brothers 5,613 Young & Co s Brewery non-voting 3,685 Kraft Heinz Company (The) 3,539 Euromoney Institutional Investor 2,725 Barr (A.G.) 2,155 Celtic 1,606 Total sales for the year 000 (note 13) 12,786 Sales Proceeds 000 Unilever 6,452 Kraft Heinz Company (The) 6,334 The summary of material portfolio changes represents the 20 largest purchases and all of the sales during the year. DIRECTOR S STATEMENT This report has been prepared in accordance with the requirements of the Collective Investment Schemes Sourcebook and the Investment Funds Sourcebook, as applicable, as issued and amended by the Financial Conduct Authority together with the relevant provisions of the Alternative Investment Fund Manager s Directive and modified by a direction given by the Financial Conduct Authority where the ACD has opted to provide a NURS KII Document, a Key Investor Information Document for Non-UCITS Retail Schemes. N. BOYLING CAPITA FINANCIAL MANAGERS LIMITED ACD of CF Lindsell Train UK Equity Fund 13 September 2016 STATEMENT OF ACD S RESPONSIBILITIES IN RELATION TO THE FINANCIAL STATEMENTS The ACD is responsible for preparing the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland with early application of Amendments to FRS 102 Fair value hierarchy disclosures, issued in March The Financial Conduct Authority s Collective Investment Schemes Sourcebook (the COLL Sourcebook ) and the Investment Funds Sourcebook (the FUND Sourcebook ), as applicable, require the ACD to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Fund and of the net revenue/expense and of the net capital gains/losses on the scheme property of the Fund for that year. In preparing those financial statements, the ACD is required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable United Kingdom accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements in accordance with the requirements of the IA SORP; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Fund will continue in business. 14 CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 15

10 Statement of ACD s Responsibilities in Relation to the STATEMENT OF DEPOSITARY S RESPONSIBILITIES The ACD is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Fund and to enable it to ensure that the financial statements comply with the COLL and FUND Sourcebooks. The ACD is also responsible for safeguarding the assets of the Fund and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the ACD is aware: there is no relevant audit information of which the Fund s Auditor is unaware; and the ACD has taken all steps that it ought to have taken to make itself aware of any relevant audit information and to establish that the Auditor is aware of that information. The Depositary must ensure that the Fund is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook and, from 22 July 2014 the Investment Funds Sourcebook, the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228), as amended, the Financial Services and Markets Act 2000, as amended, (together the Regulations ), the Fund 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 Fund and its investors. The Depositary is responsible for the safekeeping of all custodial assets and maintaining a record of all other assets of the Fund in accordance with the Regulations. The Depositary must ensure that: the Fund s cash flows are properly monitored and that cash of the Fund is booked into the cash accounts in accordance with the Regulations; the issue, sale, repurchase, redemption and cancellation of shares are carried out in accordance with the Regulations; the value of shares of the Fund are calculated in accordance with the Regulations; any consideration relating to transactions in the Fund s assets is remitted to the Fund within the usual time limits; the Fund s income is applied in accordance with the Regulations; and the instructions of the Alternative Investment Fund Manager ( AIFM ) are carried out (unless they conflict with the Regulations). The Depositary also has a duty to take reasonable care to ensure that the Fund is managed in accordance with the Scheme documents and the Regulations in relation to the investment and borrowing powers applicable to the Fund. REPORT OF THE DEPOSITARY FOR THE YEAR ENDED 31 MAY 2016 Having carried out such procedures as we consider necessary to discharge our responsibilities as Depositary of the Fund, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Fund, acting through the AIFM: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Fund s shares and the application of the Fund s income in accordance with the Regulations and the Scheme documents of the Fund; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Fund in accordance with the Regulations and Scheme documents of the Fund. BNY MELLON TRUST & DEPOSITARY (UK) LIMITED Depositary of CF Lindsell Train UK Equity Fund 13 September CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 17

11 INDEPENDENT AUDITOR S REPORT TO THE SHAREHOLDERS OF CF LINDSELL TRAIN UK EQUITY FUND Independent Auditor s Report to the Shareholders of CF Lindsell Train UK Equity Fund (continued) We have audited the financial statements of CF Lindsell Train UK Equity Fund ( the Fund ) for the year ended 31 May These financial statements comprise the Statement of Total Return, the Statement of Change in Net Assets Attributable to Shareholders, the Balance Sheet, the related notes and the Distribution Table. 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 the Statement of Recommended Practice Financial Statements of UK Authorised Funds issued by the Investment Association in May This report is made solely to the Fund s shareholders, as a body, in accordance with regulation 67(2) of the Open-Ended Investment Companies Regulations 2001, and with Rule of the Collective Investment Schemes Sourcebook. Our audit work has been undertaken so that we might state to the Fund 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 Fund and the Fund s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF THE AUTHORISED CORPORATE DIRECTOR AND THE AUDITOR As explained more fully in the Statement of ACD s Responsibilities on pages 15 and 16, the Authorised Corporate Director 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 (APB 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 Authorised Corporate Director; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the 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. 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 31 May 2016 and of the net revenue and net capital gains on the scheme property of the Fund for the year then ended, and have been properly prepared in accordance with the Statement of Recommended Practice Financial Statements of UK Authorised Funds issued by the Investment Association in May 2014, the Collective Investment Schemes Sourcebook, and the Fund s Instrument of Incorporation. OTHER REPORTING RESPONSIBILITIES OPINION ON OTHER MATTERS PRESCRIBED BY THE COLLECTIVE INVESTMENT SCHEMES SOURCEBOOK In our opinion: we have been given all the information and explanations, which, to the best of our knowledge and belief, are necessary for the purposes of our audit, and the information given in the ACD s Report (which comprises the information on the inside cover, the Authorised Status, the Important Information, the Investment Objective and Policy, the Portfolio Manager s Report, the Synthetic Risk and Reward Indicator, the Portfolio Statement and the Summary of Material Portfolio Changes) 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 the Collective Investment Schemes Sourcebook requires us to report to you if in our opinion: proper accounting records for the Fund have not been kept, or the financial statements are not in agreement with those accounting records. GRANT THORNTON UK LLP Statutory Auditor, Chartered Accountants London, United Kingdom 13 September CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 19

12 FINANCIAL STATEMENTS STATEMENT OF TOTAL RETURN FOR THE YEAR ENDED 31 MAY 2016 Notes Income: Net capital gains 2 6, ,520 Revenue 3 48,467 33,586 Expenses 4 (13,045) (9,194) Net revenue before taxation 35,422 24,392 Taxation 5 (807) (521) Net revenue after taxation 34,615 23,871 Total return before distributions 40, ,391 Distributions 6 (41,139) (28,470) Change in net assets attributable to shareholders from investment activities (304) 186,921 STATEMENT OF CHANGE IN NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS FOR THE YEAR ENDED 31 MAY 2016 Note Opening net assets attributable to shareholders 1,610,607 1,069,314 Amounts receivable on issue of shares 683, ,344 Amounts payable on cancellation of shares (60,180) (82,661) BALANCE SHEET AS AT 31 MAY 2016 ASSETS Notes Fixed assets Investments 2,211,679 1,581,610 Current assets Debtors 7 16,493 16,158 Cash and bank balances 52,048 31,178 Total assets 2,280,220 1,628,946 LIABILITIES Creditors Distribution payable (11,538) (7,805) Other creditors 8 (8,046) (10,534) Total liabilities (19,584) (18,339) Net assets attributable to shareholders 2,260,636 1,610, , ,683 Stamp duty reserve tax 1(f) (3) Change in net assets attributable to shareholders from investment activities (304) 186,921 Retained distributions on Accumulation shares 26,970 17,692 Closing net assets attributable to shareholders 2,260,636 1,610, CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 21

13 NOTES TO THE FINANCIAL STATEMENTS AS AT 31 MAY ACCOUNTING POLICIES The principal accounting policies, which have been applied in both the current and prior year, are set out below. (a) Basis of accounting The financial statements have been prepared under the historical cost basis, as modified by the revaluation of investments and in accordance with FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland including early application of Amendments to FRS 102 Fair value hierarchy disclosures, issued in March The financial statements have been prepared in accordance with the Statement of Recommended Practice ( SORP ) for Financial Statements of UK Authorised Funds issued by the Investment Association ( IA ) in May Previously, the requirements of the SORP issued by the IA in October 2010 were applied; there are no changes to the financial statements on adoption of the new SORP and FRS 102, other than minor presentational amendments and additional disclosures in notes 11 to 14. (b) Recognition of revenue Dividends on quoted equities and preference shares are recognised when the securities are quoted ex-dividend. Interest on bank and other cash deposits is recognised on an accruals basis. Revenue is recognised gross of any withholding taxes but excludes attributable tax credits. (c) Treatment of stock and special dividends The ordinary element of stock received in lieu of cash dividends is credited to capital in the first instance followed by a transfer to revenue of the cash equivalent being offered and this forms part of the distributable revenue of the Fund. Special dividends are reviewed on a case by case basis in determining whether the dividend is to be treated as revenue or capital. Amounts recognised as revenue will form part of the distributable revenue. Amounts recognised as capital are deducted from the cost of the investment. The tax accounting treatment follows the treatment of the principal amount. (d) Treatment of expenses All expenses, except for those relating to the purchase and sale of investments and stamp duty reserve tax, are charged initially against revenue. (e) Allocation of revenue and expenses to multiple share classes Any revenue or expense not directly attributable to a particular share class will normally be allocated pro-rata to the net assets of the relevant share classes unless a different allocation method is more appropriate. (f) All share classes are ranked pari passu and have no particular rights or terms attached, including rights on winding up. Taxation Corporation tax is provided at 20% on taxable revenue, after deduction of allowable expenses. Where overseas tax has been deducted from overseas revenue that tax can, in some instances, be set off against the corporation tax payable by way of double tax relief and where this is the case the offset is reflected in the tax charge. Notes to the 1. ACCOUNTING POLICIES (continued) (f) Taxation (continued) Deferred tax is provided using the liability method on all timing differences arising on the treatment of certain items for taxation and accounting purposes, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset. Stamp duty reserve tax suffered on surrender of shares is deducted from capital. (g) Distribution policy For the purpose of calculating the distributable amount 50% of all charges, costs and expenses (excluding transaction charges, SDRT and the cost of establishing the Fund which will be wholly allocated to capital) are allocated to the capital of the Fund. This will increase the amount of revenue available for distribution; however, will erode capital and may constrain capital growth. Surplus revenue, as disclosed in the financial statements, after adjustment for items of a capital nature, is distributable to shareholders. Any deficit of revenue is deducted from capital. Interim distributions may be made at the ACD s discretion. Final distributions are made in accordance with the COLL Sourcebook. Distributions which have remained unclaimed by shareholders for more than six years are credited to the capital property of the Fund. (h) Basis of valuation of investments All investments are valued at their fair value as at 10.00am (London time) on 31 May 2016, being the last business day of the financial year. (i) (j) Quoted investments are valued at fair value which generally is the bid price, excluding any accrued interest in the case of debt securities. Accrued interest on debt securities is included in revenue. Exchange rates The base and functional currency of the Fund is Pounds Sterling. Transactions in foreign currencies are recorded in sterling at the rate ruling at the date of the transactions. Assets and liabilities expressed in foreign currencies at the end of the accounting period are translated into sterling at the exchange rate prevailing at 10.00am (London time) on the last business day of the financial year. Dilution levy The ACD may require a dilution levy on the purchase and redemption of shares if, in its opinion, the existing shareholders (for purchases) or remaining shareholders (for redemptions) might otherwise be adversely affected. For example, the dilution levy may be charged in the following circumstances: where the scheme property is in continual decline; where the Fund is experiencing large levels of net purchases relative to its size; on large deals (typically being a purchase or redemption of shares to a size exceeding 5% of the Net Asset Value of the Fund); in any case where the ACD is of the opinion that the interests of existing or remaining shareholders require the imposition of a dilution levy. 22 CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 23

14 Notes to the 1. ACCOUNTING POLICIES (continued) (k) Portfolio transaction costs Direct transaction costs may consist of fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Direct transaction costs do not include any difference between the quoted bid and offer prices or internal administrative or holding costs. The average portfolio dealing spread disclosed is the difference between the bid and offer prices of investments at the balance sheet date, including the effect of foreign exchange, expressed as a percentage of the value determined by reference to the offer price. 2. NET CAPITAL GAINS The net capital gains during the year comprise: Non-derivative securities 6, ,680 Transaction charges (12) (9) Currency losses (304) (151) Net capital gains 6, ,520 The net capital gains figure includes realised gains of 4,390 thousand and unrealised gains of 541,028 thousand ( : includes realised gains of 3,535 thousand and unrealised gains of 538,882 thousand). The realised gains on investments in the current year include amounts previously recognised as unrealised gains in the prior year. 3. REVENUE Non-taxable dividends 48,405 33,550 Bank interest Total revenue 48,467 33, EXPENSES Payable to the ACD, associates of the ACD and agents of either of them: Annual Management Charge 11,403 7,913 Accounting fee Legal and professional fees 9 10 Printing costs 6 8 Registration fees Tax fees ,724 8,957 Notes to the 4. EXPENSES (continued) Payable to the Depositary, associates of the Depositary and agents of either of them: Depositary s fees Safe custody and other bank charges Other expenses: Audit fees 7 7 Postage and distribution costs Total expenses 13,045 9,194 The Portfolio Management fees and expenses (plus VAT thereon) for providing investment management services are paid by the ACD out of its remuneration under the ACD agreement. 5. TAXATION a) Analysis of charge for the year Corporation tax at 20% Overseas tax Current tax charge Deferred tax origination and reversal of timing differences (note 5c) Total taxation (note 5b) b) Factors affecting the tax charge for the year The tax assessed for the year differs from the standard rate of corporation tax in the UK for an authorised fund (20%) ( : 20%). The difference is explained below. Net revenue before taxation 35,422 24,392 Corporation tax at 20% 7,084 4, CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 25

15 Notes to the Notes to the 5. TAXATION (continued) Effects of: Non-taxable dividends (9,681) (6,710) Unutilised excess management expenses 2,597 1,832 Corporation tax charge Overseas tax Total tax charge (note 5a) c) Deferred tax At the year end there is a potential deferred tax asset of 8,252 thousand ( : 5,655 thousand) in relation to surplus management expenses. It is unlikely that the Fund will generate sufficient taxable profits in the future to utilise this amount and, therefore, no deferred tax asset has been recognised in the current or prior year. 6. DISTRIBUTIONS The distributions take account of revenue received on the issue of shares and revenue deducted on cancellations of shares, and comprise: Interim 16,098 11,302 Final 28,742 19,135 44,840 30,437 Add: Revenue deducted on cancellation of shares Deduct: Revenue received on issue of shares (3,996) (2,409) Net distributions for the year 41,139 28,470 Details of the distributions per share are set out in the table on pages 35 and DISTRIBUTIONS (continued) Distributions represented by: Net revenue after taxation 34,615 23,871 Allocations to capital: Expenses 6,523 4,597 Equalisation on conversions* 1 2 Balance brought forward Balance carried forward Net distributions for the year 41,139 28,470 * Where an investor converts to a class with a higher income yield, the investor will receive an equalisation as if they had held the new class throughout the period from the last distribution to the conversion date. The yield differential at the point of conversion is an equalisation which will be offset by capital erosion for the converted investor. 7. DEBTORS Amounts receivable for issue of shares 9,266 11,405 Accrued revenue: Non-taxable dividends 6,999 4,632 Bank interest 5 4 7,004 4,636 Taxation recoverable: Overseas withholding tax Total debtors 16,493 16, CREDITORS Amounts payable for cancellation of shares 5,744 7,803 Purchases awaiting settlement 964 1, CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 27

16 Notes to the 8. CREDITORS (continued) Accrued expenses: Amounts payable to the ACD, associates of the ACD and agents of either of them: Annual Management Charge 1, Accounting fee Legal and professional fees 1 2 Printing costs 3 4 Registration fees Tax fees 3 1, Amounts payable to the Depositary, associates of the Depositary and agents of either of them: Depositary s fees Transaction charges 2 3 Safe custody and other bank charges Other expenses 9 8 Taxation payable: Stamp duty reserve tax 3 Total creditors 8,046 10, RELATED PARTY TRANSACTIONS Annual Management Charge and legal and professional fees payable to Capita Financial Managers Limited ( the ACD ), accounting fees, tax fees and registration fees payable to Capita Financial Administrators Limited and printing costs payable to Capita Sinclair Henderson Limited (both companies are associates of the ACD) are disclosed in note 4 and amounts due at the year end are disclosed in note 8. The aggregate monies received by the ACD through the issue of shares and paid on cancellation of shares are disclosed in the Statement of Change in Net Assets Attributable to Shareholders on page 20 and amounts due at the year end are disclosed in notes 7 and 8. Capita Financial Managers Limited and its associates (including other authorised investment funds managed by Capita Financial Managers or its associates) held 5,415,150 ( : 5,606,150) of the Fund s shares at the balance sheet date. A shareholder may be able to exercise significant influence over the financial and operating policies of the Fund and as such is deemed to be a related party. At the balance sheet date the following shareholder held in excess of 20% of the shares in issue of the Fund: Hargreaves Lansdown Nominees Ltd 25.07% ( : 24.04%) Notes to the 10. CONTINGENT LIABILITIES AND COMMITMENTS There are no contingent liabilities or unrecorded outstanding commitments ( : none). 11. SHAREHOLDERS FUNDS Income Accumulation Annual Management Charge 0.65% 0.65% Opening shares in issue 273,010, ,411,256 Issues 110,211, ,968,547 Cancellations (10,781,443) (10,873,680) Conversions 6,783,060 (6,328,110) Closing shares in issue 379,223, ,178,013 D Income D Accumulation Annual Management Charge 0.45% 0.45% Opening shares in issue 21,688, ,190,827 Issues 12,237,971 65,376,189 Cancellations (1,781,312) (2,561,954) Conversions 430,231 2,240,847 Closing shares in issue 32,575, ,245, RISK MANAGEMENT POLICIES In pursuing the investment objective a number of financial instruments are held which may comprise securities and other investments, cash balances and debtors and creditors that arise directly from operations. The main risks from the Fund s holding of financial instruments, together with the ACD s policy for managing these risks, are set out below: The ACD has in place a Risk Management Policy and Procedures Document ( RMPPD ) that sets out the risks that may impact a fund and how the ACD seeks, where appropriate, to manage, monitor and mitigate those risks. The RMPPD sets out both the framework and the risk mitigations operated by the ACD in managing the identified risks of the fund. The ACD requires that the appointed Portfolio Manager to the fund has in place its own governance structure, policies and procedures that are commensurate with its regulatory obligations and the risks posed by the fund managed. 28 CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 29

17 Notes to the 12. RISK MANAGEMENT POLICIES (continued) i. Credit risk Credit risk is the risk that a counterparty may be unable or unwilling to make a payment or fulfil contractual obligations. This may be in terms of an actual default or by deterioration in a counterparty s credit quality. ii. iii. Certain transactions in securities that the Fund enters into expose it to the risk that the counterparty will not deliver the investment for a purchase, or cash for a sale after the Fund has fulfilled its obligations. As part of its due diligence process, the ACD undertakes a review of the controls operated over counterparties by the Portfolio Manager, including initial and ongoing due diligence and business volumes placed with each counterparty. In cases which are dependent on the counterparty settling at the transaction s maturity date, the ACD has policies in place which set out the minimum credit quality expected of a market counterparty or deposit taker at the outset of the transaction. Interest rate risk Interest rate risk is the risk that the value of the Fund s investments will fluctuate as a result of interest rate changes. Changes in the rate of return in one asset class may influence the valuation basis of other classes. The amount of revenue receivable from floating rate investments and bank balances or payable on bank overdrafts will be affected by fluctuations in interest rates. As the Fund seeks to obtain its return from investing in equities and has no material exposure to interest rate risk, the risk is not actively managed. Foreign currency risk Foreign currency risk is the risk that the sterling value of investments will fluctuate as a result of exchange rate movements. Assets denominated in currencies other than sterling will provide direct exposure to currency risk as a consequence of the movement in foreign exchange rates when calculating the sterling equivalent value. Where the Fund invests in non-sterling assets, the Portfolio Manager allows for the foreign currency risk when considering whether to invest and does not seek to hedge this risk. The table below shows the direct foreign currency risk profile: Currency: Euros 203, ,996 US dollars 198, , , ,274 Notes to the 12. RISK MANAGEMENT POLICIES (continued) iv. Leverage The ACD is required to calculate and monitor the level of leverage of the Fund, expressed as a ratio between the exposure of the Fund and its Net Asset Value, under both the gross and commitment methods (in accordance with articles 7 and 8 of The Alternative Investment Fund Managers Regulations 2013). For a fund with no borrowing or derivative usage the leverage ratio would be 1:1 under the commitment method. The gross method calculation excludes cash and cash equivalents which are highly liquid., leverage under the gross method was 0.98:1 and leverage under the commitment method was 1:1 ( : 0.98:1 and 1:1 respectively). v. Liquidity risk The main liability of the Fund is the cancellation of any shares that investors want to sell. Investments may have to be sold to fund such cancellations should insufficient cash be held at the bank to meet this obligation. To reduce liquidity risk the Portfolio Manager will ensure that a substantial portion of the Fund s assets consist of cash and readily realisable investments. vi. All financial liabilities are payable in one year or less, or on demand. Market price risk Market price risk is the risk that the value of the Fund s financial instruments will fluctuate as a result of changes in market prices caused by factors other than interest rate or foreign currency movement. Market price risk arises primarily from uncertainty about the future prices of financial instruments that the Fund holds. Market price risk represents the potential loss the Fund may suffer through holding market positions in the face of price movements. The Fund s investment portfolio is exposed to price fluctuations, which are monitored by the ACD in pursuance of the investment objective and policy. The risk is generally regarded as consisting of two elements stock specific risk and market risk. Adhering to investment guidelines and avoiding excessive exposure to one particular issuer can limit stock specific risk. Subject to compliance with the investment objective, spreading exposure across a broad range of global stocks can mitigate market risk. vii. Fair value of financial assets and financial liabilities There is no material difference between the value of the financial assets and liabilities, as shown in the balance sheet, and their fair value. Pounds sterling 1,858,748 1,362,333 Net assets 2,260,636 1,610, CF Lindsell Train UK Equity Fund CF Lindsell Train UK Equity Fund 31