Global Real Estate Securities Income

Transcription

1 Schroder Global Real Estate Securities Income Final Report and Accounts April 2017

2 Contents Schroder Global Real Estate Securities Income Fund Information Investment objective and policy Financial highlights Fund information Ongoing charges figure Review of Investment Activities Risk Profile Risk and reward indicator Specific risks Statement of the Manager s Responsibilities Report of the Trustee Independent Auditors Report to the Unitholders of Schroder Global Real Estate Securities Income Comparative Tables Portfolio Statement Summary of Portfolio Transactions Largest purchases Largest sales Statement of Total Return Statement of Change in Net Assets Attributable to Unitholders Balance Sheet Notes to the Accounts Accounting policies Net capital gains Revenue Expenses Taxation Distributions Fair value hierarchy Debtors Provisions for liabilities Other creditors Contingent liabilities Related party transactions Unit classes Derivative and other financial instruments Direct transaction costs Units in issue reconciliation Remuneration Distribution Table Quarterly distribution for the three months ended 31 July Corporate unitholders (unaudited) Interim distribution for the three months ended 31 October Corporate unitholders (unaudited) Quarterly distribution for the three months ended 31 January Corporate unitholders (unaudited) Final distribution for the three months ended 30 April

3 Contents (continued) Schroder Global Real Estate Securities Income Corporate unitholders (unaudited) Equalisation General Information Authorisation Other information Collectively these comprise the Authorised Fund Manager s report.

4 Fund Information Investment objective and policy The fund aims to provide income and capital growth over the long term by investing globally in the equities of real estate companies that offer sustainable dividend payments. At least 70% of the fund s assets (excluding cash) will be invested directly in real estate investment trusts and in the equity and preferred equity of real estate companies. The fund may also invest in collective investment schemes, deposits, warrants, money market instruments and derivatives, and may hold cash. The fund may use derivative instruments for investment purposes as well as for efficient management (for more information please refer to section 6 of Appendix I of the Prospectus). The use of derivative instruments may include but is not limited to taking long or short exposures to interest rates and foreign exchange currency contracts. Financial highlights Dealing price % change A Income units 55.53p 48.93p A Accumulation units 80.54p 68.47p L Income units 59.63p 52.36p L Accumulation units 72.39p 61.21p X Income units 48.67p Z Income units 57.47p 50.48p Z Accumulation units 83.72p 70.84p to to Distributions per Z Income unit 1.017p p 4

5 Fund Information (continued) Fund information Launch date 18 February 2011 Launch price 50.00p per A Income unit 50.00p per A Accumulation unit 50.00p per Z Income unit 50.00p per Z Accumulation unit Launch date 1 October 2013 Launch price 50.00p per L Income unit 50.00p per L Accumulation unit Launch date 12 August 2016 Launch price 50.00p per X Income unit Quarterly Interim Quarterly Final Accounting dates 31 July 31 October 31 January 30 April Revenue allocation dates 30 September 31 December 31 March 30 June Ongoing charges figure For the period For the year For the year from to to A Income units 1.72% 1.79% 1.72% A Accumulation units 1.72% 1.73% 1.72% L Income units 0.89% 0.89% 0.89% L Accumulation units 0.89% 0.89% 0.89% X Income units % 0.07% Z Income units 0.97% 0.97% 0.97% Z Accumulation units 0.97% 0.96% 0.97% 1 The Ongoing charges figure is a projected figure based on the latest expenses of that unit class. 2 The Annual management charge for X Income units is invoiced directly to unitholders and is therefore not included in the Ongoing charges figure for that unit class. 5

6 Review of Investment Activities From 29 April 2016 to 28 April 2017, the price of Z Accumulation units on a dealing price to dealing price basis, which reflects the reinvestment of the distribution paid to unitholders, rose 18.18%. The key market event over the period was the victory of Donald Trump in the US presidential election. The result unleashed a strong risk rally as Trump campaigned promising pro-growth measures. This fuelled already rising optimism over growth. The period saw two interest rate rises in the US though these were well flagged in advance. Security selection in the US and Australia made the strongest contribution to returns. In Australia, integrated property group Mirvac Group performed strongly. This group has spent the past four years positioning its strong and diversified real estate towards the urban centres of Sydney and Melbourne. Both markets have been strong over the past year. In the US, Simon Property Group, a mall operator, was a key contributor as it delivered positive operating performance and increased its dividend by 9.4% year on year. We focus on investing for the long term in a small number of exceptional companies located in cities that drive global growth. We believe that this provides investors with exposure to irreplaceable real estate assets. It is these assets that should provide long term compound returns. The objective of the fund is to continue to distribute an attractive level of income through a portfolio of REITs and other property securities. Please remember that past performance is not a guide to future performance and it might not be repeated. The value of investments and the revenue from them may go down as well as up and investors may not get back the amount originally invested. Because of this, you are not certain to make a profit on your investments and you may lose money. Co-Fund Manager: Tom Walker Tom joined Schroders in July 2014 and has over 18 years of real estate experience Tom had previously spent nine years at AMP Capital where he was Deputy Head of Global Listed Real Estate. He began his career in real estate at Jones Lang LaSalle Tom holds a BA Hons in Politics from the University of Newcastle Upon Tyne and a Graduate Diploma in Real Estate from London South Bank University Tom is also a Member of the Royal Institution of Chartered Surveyors (MRICS) Co-Fund Manager: Hugo Machin Hugo joined Schroders in July 2014 and has over 18 years of real estate experience Hugo had previously spent eight years at AMP Capital where he was Head of European Listed Real Estate. Prior to his time at AMP Capital, Hugo had held positions with both ING and the Welcome Trust where he gained experience in both indirect and direct property investment Hugo holds a BA Hons in English Literature from Durham University, MSc in Real Estate Finance and Investment from Reading University and a Diploma in Cross Border Valuation from Oxford Said Business School He is also a member of the EPRA Report and Accounts Committee 6

7 Risk Profile Risk and reward indicator The risk category was calculated using historical performance data and may not be a reliable indicator of the fund s future risk profile. The fund is in this category because it can take higher risks in search of higher rewards and its price may rise and fall accordingly. The fund s risk category is not guaranteed to remain fixed and may change over time. A fund in the lowest category does not mean a risk free investment. Specific risks The fund invests in assets which are exposed to currencies other than sterling. Exchange rates may cause the value of overseas investments and the revenue from them to rise or fall. The fund may invest in emerging markets and the Far East. This involves a high degree of risk and should be seen as long term in nature. The fund focuses on specific sectors. This carries more risk than funds spread across a number of different industry sectors. The fund invests in smaller companies which may be less liquid than larger companies and price swings may therefore be greater than in larger company funds. The fund may invest in a wide range of derivatives in order to meet its investment objectives and for leverage. The use of leverage can increase gains as well as losses and expose the fund to increased risk. As a result of the expenses being charged wholly to capital, the distributable revenue of the fund may be higher, but the capital value of the fund may be eroded which may affect future performance. For these reasons, the purchase of units should not normally be regarded as a short term investment. 7

8 Statement of the Manager s Responsibilities The Financial Conduct Authority s Collective Investment Schemes sourcebook (COLL) requires the Manager to prepare accounts for each annual and half yearly accounting period, in accordance with United Kingdom Generally Accepted Accounting Practice, which give a true and fair view of the financial position of the fund and of its net revenue and the net capital gains on the property of the fund for the year. In preparing the accounts the Manager is required to: select suitable accounting policies and then apply them consistently; comply with the disclosure requirements of the Statement of Recommended Practice (SORP) for UK Authorised Funds issued by the Investment Management Association (IMA (now the Investment Association (IA))) in May 2014; follow generally accepted accounting principles and applicable accounting standards; prepare the accounts on the basis that the fund will continue in operation unless it is inappropriate to do so; keep proper accounting records which enable it to demonstrate that the accounts as prepared comply with the above requirements; make judgements and estimates that are prudent and reasonable. The Manager is responsible for the management of the fund in accordance with its Trust Deed, the Prospectus and the COLL and for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law or regulations. The Manager s report and accounts for the year ended 30 April 2017 were signed on 30 June 2017 on behalf of the Manager by: J.A. Walker-Hazell Directors P. Chislett 8

9 Report of the Trustee Statement of the Trustee s responsibilities in relation to the accounts of the Scheme The Trustee is responsible for the safekeeping of all of the property of the Scheme (other than tangible moveable property) which is entrusted to it and for the collection of revenue that arises from that property. It is the duty of the Trustee to take reasonable care to ensure that the Scheme is managed by the Authorised Fund Manager in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook (COLL) and the Scheme s Trust Deed and Prospectus, as appropriate, in relation to the pricing of, and dealings in, units in the Scheme; the application of revenue of the Scheme; and the investment and borrowing powers of the Scheme. Report of the Trustee for the accounting period from 1 May 2016 to 30 April 2017 Schroder Global Real Estate Securities Income ( the Scheme ) Having carried out such procedures as we consider necessary to discharge our responsibilities as Trustee of the Scheme, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Authorised Fund Manager: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Scheme s units and the application of the Scheme s revenue in accordance with the COLL as appropriate, and, where applicable, the Scheme s Trust Deed and Prospectus; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Scheme. J.P. Morgan Europe Limited Trustee Bournemouth 22 May

10 Independent Auditors Report to the Unitholders of Schroder Global Real Estate Securities Income Report on the financial statements Our opinion In our opinion, Schroder Global Real Estate Securities Income s financial statements, (the financial statements ): give a true and fair view of the financial position of the fund as at 30 April 2017 and of the net revenue and the net capital gains of its scheme property for the year then ended; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, the Statement of Recommended Practice for UK Authorised Funds, the Collective Investment Schemes sourcebook and the Trust Deed. What we have audited The financial statements, included within the Final Report and Accounts, which are prepared by Schroder Unit Trusts Limited (the Authorised Fund Manager ), comprise: the balance sheet as at 30 April 2017; the statement of total return for the year then ended; the statement of change in net assets attributable to unitholders for the year then ended; the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information; and the distribution table. The financial reporting framework that has been applied in their preparation is United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and applicable law), the Statement of Recommended Practice Financial Statements of UK Authorised Funds issued by the Investment Management Association (the Statement of Recommended Practice for UK Authorised Funds ), the Collective Investment Schemes sourcebook and the Trust Deed. In applying the financial reporting framework, the Authorised Fund Manager has made judgements where appropriate, for example in respect of substantive accounting estimates. In preparing such estimates, they have considered future events and related assumptions. 10

11 Independent Auditors Report to the Unitholders of Schroder Global Real Estate Securities Income (continued) Opinions on matters prescribed by the Collective Investment Schemes sourcebook In our opinion: we have obtained all the information and explanations we consider necessary for the purposes of the audit; and the information given in the Authorised Fund Manager s Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Other matters on which we are required to report by exception Propriety of accounting records and information and explanations received Under the Collective Investment Schemes sourcebook we are required to report to you if, in our opinion: proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Responsibilities for the financial statements and the audit Our responsibilities and those of the Authorised Fund Manager As explained more fully in the Authorised Fund Manager s Responsibilities Statement set out on page 8, the Authorised Fund Manager is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) ( ISAs (UK & Ireland) ). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the fund s unitholders as a body in accordance with paragraph of the Collective Investment Schemes sourcebook and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 11

12 Independent Auditors Report to the Unitholders of Schroder Global Real Estate Securities Income (continued) What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). 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 Fund Manager; and the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the Authorised Fund Manager s judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Final Report and Accounts (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. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 30 June 2017 (a) The maintenance and integrity of the Schroders website is the responsibility of the Authorised Fund Manager; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 12

13 Comparative Tables A Income units Financial year to 30 April p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (0.98) (0.77) (0.81) Return after operating charges* Distributions 1 (2.17) (2.71) (3.19) Closing net asset value *after direct transaction costs of (0.10) (0.05) (0.05) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 2,509 2,765 9,989 Closing number of units 4,591,212 5,739,538 21,204,789 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

14 Comparative Tables (continued) A Accumulation units Financial year to 30 April p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (1.36) (1.05) (1.04) Return after operating charges* Distributions 1 (3.12) (3.67) (4.11) Retained distributions Closing net asset value *after direct transaction costs of (0.15) (0.07) (0.06) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 2,019 1,566 2,791 Closing number of units 2,526,879 2,303,463 4,442,405 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

15 Comparative Tables (continued) L Income units Financial year to 30 April p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (0.52) (0.43) (0.45) Return after operating charges* Distributions 1 (2.33) (2.88) (3.43) Closing net asset value *after direct transaction costs of (0.11) (0.06) (0.05) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 5,729 5,395 5,640 Closing number of units 9,807,245 10,502,543 11,258,688 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

16 Comparative Tables (continued) L Accumulation units Financial year to 30 April p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (0.63) (0.49) (0.48) Return after operating charges* Distributions 1 (2.80) (3.27) (3.64) Retained distributions Closing net asset value *after direct transaction costs of (0.14) (0.07) (0.05) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 9,650 2,619 2,689 Closing number of units 13,450,437 4,314,650 4,819,560 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

17 Comparative Tables (continued) X Income units 2017 Financial period to 30 April p per unit Change in net asset value Opening net asset value Return before operating charges (1.74) Operating charges (0.02) Return after operating charges* (1.76) Distributions 1 (1.24) Closing net asset value *after direct transaction costs of (0.09) Performance Return after charges (%) (3.52) Other information Closing net asset value ( 000 s) 1,722 Closing number of units 3,662,909 Operating charges (%) 0.07 Direct transaction costs (%)** 0.19 Prices Highest dealing price (p) Lowest dealing price (p) The unit class was launched on 12 August

18 Comparative Tables (continued) Z Income units Financial year to 30 April p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (0.55) (0.45) (0.47) Return after operating charges* Distributions 1 (2.24) (2.77) (3.30) Closing net asset value *after direct transaction costs of (0.11) (0.06) (0.05) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 32,459 34,395 50,043 Closing number of units 57,650,285 69,444, ,545,827 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

19 Comparative Tables (continued) Z Accumulation units Financial year to 30 April p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (0.79) (0.62) (0.60) Return after operating charges* Distributions 1 (3.24) (3.79) (4.23) Retained distributions Closing net asset value *after direct transaction costs of (0.16) (0.08) (0.06) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 7,714 4,587 3,453 Closing number of units 9,295,695 6,529,872 5,345,217 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p) These figures have been rounded to 2 decimal places. ** Direct transaction costs have been stated after deducting the proportion of the amounts collected from dilution adjustments. For Accumulation unit classes, prior years figures have been updated in line with the Investment Association circular, issued on 6 October The Operating charges are calculated on an ex-post basis and as such may differ from the Ongoing charges figure where the Ongoing charges figure has been annualised for a unit class that has not been in existence for a full year. Please remember that past performance is not a guide to future performance and it might not be repeated. The value of investments and the revenue from them may go down as well as up and investors may not get back the amount originally invested. Because of this, you are not certain to make a profit on your investments and you may lose money. 19

20 Portfolio Statement Holding at Market Value % of net s assets Australia 12.86% ( %) Charter Hall Retail REIT 566,889 1, GPT Group 598,672 1, Mirvac Group 961,600 1, Scentre Group 715,321 1, Stockland 582,964 1, , Belgium 1.73% ( %) Befimmo 23,710 1, , Canada 6.73% ( %) Artis Real Estate Investment Trust 306,312 2, RioCan Real Estate Investment Trust 124,149 1, , Finland 1.07% ( %) Citycon 351, France 5.36% ( %) Klepierre 49,300 1, Unibail-Rodamco 9,587 1, , Hong Kong 2.22% ( %) Link REIT 246,500 1, , Mexico 1.55% ( %) Concentradora Fibra Danhos 713,

21 Portfolio Statement (continued) Holding at Market Value % of net s assets Netherlands 3.51% ( %) Eurocommercial Properties 29, Vastned Retail 18, Wereldhave 20, , Singapore 6.70% ( %) Ascendas Real Estate Investment Trust 829,200 1, Fortune Real Estate Investment Trust 1,529,000 1, Mapletree Commercial Trust 1,006, Mapletree Industrial Trust 715, , United Kingdom 5.52% ( %) British Land 218,985 1, LondonMetric Property 605,499 1, NewRiver REIT 276, , United States 49.80% ( %) Community Healthcare Trust 47, DDR 106, DiamondRock Hospitality 84, EPR Properties 18,932 1, Gaming and Leisure Properties 79,579 2, Gramercy Property Trust 109,344 2, HCP 90,618 2, Hersha Hospitality Trust 86,836 1, Hersha Hospitality Trust Preference D 5, Hersha Hospitality Trust Preference E 10, Host Hotels & Resorts 133,417 1, Kilroy Realty 24, Lamar Advertising 6, LaSalle Hotel Properties Preference 25, Lexington Realty Trust 136,993 1, Life Storage 25,159 1,

22 Portfolio Statement (continued) Holding at Market Value % of net s assets United States (continued) Omega Healthcare Investors 64,242 1, Pennsylvania Real Estate Investment Trust 7, Physicians Realty Trust 75,219 1, Ramco-Gershenson Properties Trust 130,917 1, Retail Properties of America 3, Spirit Realty Capital 46, Sun Communities 4, Taubman Centers 13, Uniti Group 54,883 1, Ventas 29,885 1, Vornado Realty Trust 30, Washington Prime Group 252,780 1, Welltower 57,651 3, , Portfolio of investments 59, Net other assets 1, Net assets attributable to unitholders 61, Unless otherwise stated the above securities are admitted to official stock exchange listings or traded on a regulated market. 22

23 Summary of Portfolio Transactions Largest purchases Largest sales Cost For the year ended 30 April s HCP 2,772 Washington Prime Group 2,566 Gramercy Property Trust 2,459 Gaming and Leisure Properties 2,150 Scentre Group 2,040 DDR 1,795 Life Storage 1,767 Ramco-Gershenson Properties Trust 1,734 Klepierre 1,699 Ventas 1,561 Proceeds For the year ended 30 April s Mirvac Group 2,807 Ventas 2,731 Liberty Property Trust 2,329 Medical Properties Trust 2,054 LaSalle Hotel Properties 1,956 Simon Property Group 1,912 DuPont Fabros Technology 1,910 HCP 1,811 Dexus 1,782 Chesapeake Lodging Trust 1,539 23

24 Statement of Total Return For the year ended 30 April Notes 000 s 000 s 000 s 000 s Income Net capital gains 2 7, Revenue 3 2,792 4,736 Expenses 4 (579) (655) Net revenue before taxation 2,213 4,081 Taxation 5 (381) (780) Net revenue after taxation 1,832 3,301 Total return before distributions 9,305 3,612 Distributions 6 (2,296) (3,825) Change in net assets attributable to unitholders from investment activities 7,009 (213) Statement of Change in Net Assets Attributable to Unitholders For the year ended 30 April s 000 s 000 s 000 s Opening net assets attributable to unitholders 51,327 74,605 Amounts receivable on issue of units 24,924 11,885 Amounts payable on cancellation of units (22,113) (35,454) 2,811 (23,569) Dilution adjustment Change in net assets attributable to unitholders from investment activities 7,009 (213) Retained distribution on Accumulation units Closing net assets attributable to unitholders 61,802 51,327 24

25 Balance Sheet As at 30 April Notes 000 s 000 s Assets Investments 59,976 51,620 Current assets Debtors 8 2, Cash and bank balances Total assets 62,588 52,525 Liabilities Provisions for liabilities 9 (5) (7) Creditors Distributions payable (527) (464) Other creditors 10 (254) (727) Total liabilities (786) (1,198) Net assets attributable to unitholders 61,802 51,327 25

26 Notes to the Accounts 1 Accounting policies Basis of preparation The accounts have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with the SORP for UK Authorised Funds issued by the IMA in May 2014 and in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 102 (The Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102)). Revenue Dividends and real estate income distributions receivable from equity investments are recognised net of attributable tax credits and are credited to revenue when they are first quoted ex-dividend. For US Real Estate Investment Trust s, on receipt of the capital/revenue split in the following calendar year, the allocation of the dividend is adjusted within the accounts. Interest receivable from bank balances is accounted for on an accruals basis. Special dividends Special dividends are treated as revenue or capital depending on the facts of each particular case. Expenses Costs associated with the purchase and sale of investments are allocated to the capital of the fund. All other expenses are initially charged to revenue but ultimately borne by the capital of the fund. The Annual management charge is invoiced directly to X Income unitholders. Taxation Corporation tax is provided for on the revenue liable to corporation tax less deductible expenses. The tax effect of different items of revenue or expenses is allocated between revenue and capital using the marginal basis. Deferred taxation is provided for on all timing differences that have originated but not reversed by the balance sheet date, other than those differences regarded as permanent. Any liability to deferred taxation is provided for at the average rate of taxation expected to apply. Deferred tax assets and liabilities are not discounted to reflect the time value of money. 26

27 Notes to the Accounts (continued) Distributions The revenue available for distribution is the total revenue earned by the fund, less deductible expenses and taxation charged to revenue. The revenue is distributed annually on 30 June to Income unitholders. An interim distribution and two quarterly distributions, based on available revenue are distributed on 31 December, 31 March and 30 September respectively to Income unitholders. For Accumulation units this revenue is not distributed but automatically reinvested in the fund and is reflected in the value of these units. Dilution adjustment In certain circumstances the Manager may apply a dilution adjustment on subscriptions and redemptions of units. If applied, the dilution adjustment is paid to the fund. See Prospectus for further details. Dilution adjustments include an estimate of dealing costs and the spread on underlying investments. From 1 January 2017 the transactional revenue earned from the spread (the difference between the creation price and the cancellation price), to the extent that in respect of any Dealing Day subscriptions are netted off against redemptions has been paid by the Manager into the fund and will be included within the dilution adjustment in the Statement of Change in Assets Attributable to Unitholders. Valuation Listed investments of the fund have been valued at market value at 18:00 on the balance sheet date. Market value is defined by the SORP as fair value which generally is the bid value of each security. Options contracts Net losses are reflected within Derivative contracts under Net capital gains in the Notes to the Accounts. Foreign currencies Transactions in foreign currencies are translated into sterling at the exchange rate prevailing on the date of the transaction. Assets and liabilities valued in foreign currencies have been translated into sterling at the exchange rates prevailing at the balance sheet date and the net gains/(losses) are reflected under Net capital gains in the Notes to the Accounts. 27

28 Notes to the Accounts (continued) 2 Net capital gains The net capital gains during the year comprise: s 000 s Non-derivative securities 7,448 1,556 Derivative contracts 0 (1,217) Foreign currency gains/(losses) 31 (11) Transaction costs (6) (17) Net capital gains 7, Revenue s 000 s UK dividends Overseas dividends Real estate income distributions 2,722 2,251 1 Bank interest 3 3 Net revenue return from derivative contracts 0 2,413 Total revenue 2,792 4,736 1 These revenue amounts include a reallocation adjustment of 2,146,272 between Overseas dividends and Real estate income distributions. 28

29 Notes to the Accounts (continued) 4 Expenses Payable to the Manager, associates of the Manager and agents of either of them: s 000 s Annual management charge Administration charge Payable to the Trustee, associates of the Trustee and agents of either of them: Trustee s fees 6 7 Safe custody fees 3 4 Interest payable 1 1 Other expenses: Audit fee Professional fee Total expenses Professional fee includes 836 which were paid to PricewaterhouseCoopers LLP in relation to tax reclaims. 5 Taxation (a) Analysis of the tax charge for the year s 000 s Corporation tax Double tax relief (335) (213) Overseas withholding tax Prior year adjustment (7) 0 Total current tax (Note 5(b)) Deferred tax (Note 5(c)) Origination and reversal of timing differences (2) (18) Total taxation Corporation tax has been provided for at a rate of 20% ( %). 29

30 Notes to the Accounts (continued) (b) Factors affecting the current tax charge for the year The tax assessed for the year is different from that calculated when the standard rate of corporation tax for authorised unit trusts of 20% ( %) is applied to the net revenue before taxation. The differences are explained below s 000 s Net revenue before taxation 2,213 4,081 Net revenue for the year before taxation multiplied by the standard rate of corporation tax Effects of: Revenue not subject to corporation tax (14) (104) Expenses not deductible for tax purposes 2 1 Recoverable overseas withholding tax (40) 0 Irrecoverable overseas withholding tax 0 72 Movement in revenue taxable in different periods (1) 13 Prior year adjustment (7) 0 Current tax charge for the year (Note 5(a)) (c) Provision for deferred tax s 000 s Revenue taxable in different periods Provision at the start of the year 7 25 Movement in deferred tax for the year (Note 5(a)) (2) (18) Provision at the end of the year

31 Notes to the Accounts (continued) 6 Distributions Distributions The distributions take account of revenue received on the issue of units and revenue deducted on the cancellation of units, and comprise: s 000 s Quarterly Dividend distribution Interim Dividend distribution 556 1,184 Quarterly Dividend distribution Final Dividend distribution ,325 3,673 Add: Revenue deducted on cancellation of units Deduct: Revenue received on issue of units (165) (98) Distributions 2,296 3,825 Net revenue after taxation 1,832 3,301 Expenses taken to capital Tax relief on capital gains (115) (130) Distributions 2,296 3,825 Details of the distributions per unit are set out in the Distribution Table on pages 40 to Fair value hierarchy Assets Assets Valuation technique 000 s 000 s Quoted prices for identical instruments in active markets 59,976 51,620 Total 59,976 51,620 8 Debtors s 000 s Amounts receivable for issue of units 1, Accrued UK dividends 14 0 Accrued real estate income distributions Overseas withholding tax recoverable Total debtors 2,

32 Notes to the Accounts (continued) 9 Provisions for liabilities s 000 s Deferred taxation 5 7 Total provisions for liabilities Other creditors s 000 s 000 s 000 s Amounts payable for cancellation of units Purchases awaiting settlement Accrued expenses Manager and Agents Annual management charge Administration charges Trustee and Agents Trustee s fees 1 1 Safe custody fees 1 0 Transaction costs Other accrued expenses Corporation tax payable Total other creditors Contingent liabilities There were no contingent liabilities at the balance sheet date (2016 Nil). 12 Related party transactions The Manager exercises control over the fund and is therefore a related party by virtue of its controlling influence. Amounts paid during the year or due to the Manager at the balance sheet date are disclosed under Expenses and Other creditors in the Notes to the Accounts. The Manager acts as principal on all transactions of units in the fund. The aggregate monies received through the issue and cancellation of units are disclosed in the Statement of Change in Net Assets Attributable to Unitholders and Distributions in the Notes to the Accounts. Amounts due from or to the Manager in respect of unit transactions at the balance sheet date are disclosed under Debtors and Other creditors in the Notes to the Accounts. 32

33 Notes to the Accounts (continued) Units held or managed by the Manager or associates of the Manager as a percentage of the fund s net asset value at the balance sheet date were 2.79% ( %). 13 Unit classes The fund currently has seven unit classes: A Income units, A Accumulation units, L Income units, L Accumulation units, X Income units, Z Income units and Z Accumulation units. The Annual management charge is based on the average value of the fund, calculated on a daily basis, and covers the remuneration of the Manager, the Investment Adviser and their overhead expenses and for each unit class is as follows: A Income units 1.50% A Accumulation units 1.50% L Income units 0.675% L Accumulation units 0.675% Z Income units 0.75% Z Accumulation units 0.75% The expense is invoiced directly to X Income unitholders, resulting in a 0% charge to the fund. The closing net asset value of each unit class, the closing net asset value per unit and the closing number of units in issue are given in the Comparative Tables on pages 13 to 19. The distributions per unit class are given in the Distribution Table on pages 40 to 43. All classes have the same rights on winding up. 14 Derivative and other financial instruments In accordance with the investment objective, the fund may hold certain financial instruments. These comprise: securities held in accordance with the investment objective and policy; cash and short term debtors and creditors arising directly from operations. Under normal circumstances, the Manager would expect substantially all of the assets of the fund to be invested in securities appropriate to the fund s investment objective. The fund may invest in deposits without limitation, only with an approved bank and which are repayable on demand or has the right to withdraw and maturing in no more than twelve months. Cash and near cash may only be held in order to assist in the redemption of units, the efficient management of the fund or purposes regarded as ancillary to the fund. 33

34 Notes to the Accounts (continued) The fund has little exposure to credit risk. The main risks arising from the fund s financial instruments are market price, foreign currency, liquidity and interest rate risks. The Manager s policies for managing these risks are summarised below and have been applied throughout the year and the prior year. Market price risk The fund s investment portfolio is exposed to market price fluctuations which are monitored by the Manager in pursuance of the investment objective and policy. Adherence to investment guidelines and to investment and borrowing powers set out in the Trust Deed, the Prospectus and in the COLL mitigates the risk of excessive exposure to any particular type of security or issuer. Foreign currency risk The fund invests in overseas securities and the balance sheet can be significantly affected by movements in foreign exchange rates. The Manager seeks to manage exposure to currency movements by using forward foreign exchange contracts. Revenue received in other currencies is translated to sterling on or near the date of receipt. The fund does not hedge or otherwise seek to avoid currency movement risk on accrued revenue. Currency risk profile The currency risk profile of the fund s net assets and liabilities at the balance sheet date was as follows: Monetary Non-monetary exposure exposure Total Currency 000 s 000 s 000 s Australian dollar ,950 7, ,218 7,218 Canadian dollar ,160 4, ,891 2,905 Euro ,213 7, ,328 4,394 Hong Kong dollar ,741 2, ,669 3,670 Japanese yen

35 Notes to the Accounts (continued) Monetary Non-monetary exposure exposure Total Currency 000 s 000 s 000 s Mexican peso Singapore dollar ,767 2, ,018 4,042 Sterling ,588 3,414 5, (448) 2,760 2,312 Swedish krona US dollar ,775 30, ,736 26,762 Liquidity risk The primary source of this risk to the fund is the liability to unitholders for any cancellation of units. This risk is minimised by holding cash, readily realisable securities and access to overdraft facilities up to the amount prescribed by the COLL. Interest rate risk Interest receivable on bank balances will be affected by fluctuations in interest rates. Interest rate risk profile of financial assets and financial liabilities The interest rate risk profile of financial assets and liabilities at the balance sheet date was as follows: Financial assets Floating rate not carrying financial assets interest Total Currency 000 s 000 s 000 s Australian dollar ,951 7, ,218 7,218 Canadian dollar ,181 4, ,905 2,905 35

36 Notes to the Accounts (continued) Financial assets Floating rate not carrying financial assets interest Total Currency 000 s 000 s 000 s Euro ,259 7, ,385 4,394 Hong Kong dollar ,742 2, ,669 3,670 Japanese yen Mexican peso Singapore dollar ,779 2, ,042 4,042 Sterling ,388 5, ,844 3,403 Swedish krona US dollar ,812 30, ,766 26,869 Financial liabilities not carrying interest Total Currency 000 s 000 s Sterling ,091 1,091 US dollar There are no material amounts of non-interest bearing financial assets, other than equities, which do not have a maturity date. 36

37 Notes to the Accounts (continued) Floating rate financial assets and financial liabilities Sterling denominated bank balances bear interest at rates based on the Sterling Overnight Index Average rate. Foreign currency bank balances bear interest at rates based on the London Interbank Offer Rate or its international equivalent. 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. Derivatives During the year the fund entered into derivative contracts for specific investment purposes in addition to being used for efficient management. The aim of any derivative or forward used for specific investment purposes is not to materially alter the risk profile of the fund, rather their use is to assist the Manager in meeting the investment objective of the fund. 15 Direct transaction costs In the case of shares, broker commissions and transfer taxes/stamp duty are paid by the fund on each transaction. In addition, there is a dealing spread between buying and selling prices of the underlying investments. Unlike shares, other types of investments (such as bonds, money market instruments, derivatives) have no separately identifiable transaction costs; these costs form part of the dealing spread. Dealing spreads vary considerably depending on the transaction value and market sentiment. Commissions Taxes Principal Commissions Taxes Total cost % of % of s 000 s 000 s 000 s principal principal Purchases Purchases 1 : Equities 46, , Corporate actions purchases: Equities , ,066 Sales Sales 1 : Equities 44,460 (40) (5) 44,415 (0.09) (0.01) Corporate action sale activity: Equities 1, , ,010 (40) (5) 45,965 Total cost of the fund s average net asset value (%) Excluding corporate actions. 37

38 Notes to the Accounts (continued) Commissions Taxes Principal Commissions Taxes Total cost % of % of s 000 s 000 s 000 s principal principal Purchases Purchases 1 : Equities 47, , Corporate actions purchases: Equities , ,850 Sales Equities 72,641 (31) (5) 72,605 (0.04) (0.01) Total cost of the fund s average net asset value (%) Excluding corporate actions. Average portfolio dealing spread As at the balance sheet date the average portfolio dealing spread was 0.15% ( %). This spread represents the difference between the values determined respectively by reference to the bid and offer prices of investments expressed as a percentage of the value determined by reference to the offer price. 16 Units in issue reconciliation Number Number of units Number Number Number of units in issue as of units of units of units in issue as at issued cancelled converted at A Income units 5,739, ,384 (1,340,278) (91,432) 4,591,212 A Accumulation units 2,303,463 1,494,820 (1,253,396) (18,008) 2,526,879 L Income units 10,502,543 4,706,691 (5,570,365) 168,376 9,807,245 L Accumulation units 4,314,650 10,609,530 (1,518,069) 44,326 13,450,437 X Income units 0 3,662, ,662,909 Z Income units 69,444,883 10,477,522 (22,073,809) (198,311) 57,650,285 Z Accumulation units 6,529,872 6,945,218 (4,236,706) 57,311 9,295,695 38