Schroder. MM Diversity Fund. Final Report and Accounts February 2017

Transcription

1 Schroder MM Diversity Fund Final Report and Accounts February 2017

2 Contents Schroder MM Diversity Fund Fund Information Investment objective and policy Alternative Investment Fund Managers Directive (AIFMD) 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 MM Diversity Fund 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/(losses) Revenue Expenses Taxation Distributions Fair value hierarchy Debtors Other creditors Contingent liabilities Related party transactions Unit classes Derivative and other financial instruments Direct transaction costs Units in issue reconciliation Remuneration Distribution Table Interim distribution for the six months ended 31 August Corporate unitholders (unaudited) Final distribution for the six months ended 28 February Corporate unitholders (unaudited) Equalisation General Information Authorisation Other information Collectively these comprise the Authorised Fund Manager s report.

3 Fund Information Investment objective and policy The fund s aim is to achieve long term capital growth over a rolling five year period in excess of inflation (UK Consumer Price Index) from a portfolio invested across a broad range of asset classes. The fund is intended to provide consistent rates of return with lower risk than more traditional approaches to portfolio management which tend to be largely dependent on the performance of equities. There is a risk to an investor s capital. Investors may not get back the amount originally invested. The fund will invest in global markets through a diversified portfolio of collective investment schemes and exchange traded funds. Additional investment diversification will be obtained through collective investment schemes that invest in alternative asset classes including private equity, property and commodities. Investment may also be made in approved money market funds. Although the investment policy of the fund is to invest mainly in collective investment schemes, the fund may also invest in closed ended funds, individual transferable securities, money market instruments, deposits and cash and near cash. The fund may utilise derivatives and forward transactions for the purposes of efficient portfolio management. Alternative Investment Fund Managers Directive (AIFMD) The AIFMD, as implemented in the UK by the Alternative Investment Fund Managers (AIFMs) Regulations 2013, establishes an EU wide harmonised framework for monitoring and supervising risks posed by AIFMs and the alternative investment funds (AIFs) they manage. The fund is an AIF and Schroder Unit Trusts Limited (the Manager) was authorised by the Financial Conduct Authority (FCA) to act as an AIFM on 2 July The AIFMD requires certain information to be disclosed to unitholders. It is intended that any such information will in future be provided in the report and accounts, unless such information is required to be disclosed without delay, in which case it will be made via the Schroders website at: 3

4 Fund Information (continued) Financial highlights Dealing price % change A Income units 97.06p 89.70p 8.21 A Accumulation units p 98.54p 8.18 N Income units p 96.89p 8.06 N Accumulation units p 97.26p 8.06 Q Accumulation units p 99.74p 8.98 S Income units 54.72p 50.48p 8.40 T Accumulation units p 93.91p 8.83 Z Income units 98.37p 90.75p 8.40 Z Accumulation units p 93.85p Final distribution per Z Income unit p p Fund information Launch date 22 May 2002 Launch price 50.00p per A Income unit 50.00p per A Accumulation unit Launch date 9 November 2009 Launch price Launch date 1 April 2010 Launch price 73.14p per Q Accumulation unit 77.38p per N Accumulation unit 72.32p per Z Income unit 70.58p per Z Accumulation unit Launch date 22 December 2011 Launch price 79.92p per N Income unit Launch date 1 November 2013 Launch price Launch date 1 June 2015 Launch price 50.00p per S Income unit 97.54p per T Accumulation unit Interim Final Accounting dates 31 August 28 February Revenue allocation dates 31 October 30 April 4

5 Fund Information (continued) Ongoing charges figure For the period For the year from For the year to to to A Income units 1.81% 1.76% A Accumulation units 1.81% 1.76% N Income units 2.06% 2.01% N Accumulation units 2.06% 2.01% Q Accumulation units % 1.06% % S Income units 1.11% 1.06% T Accumulation units 1.21% 1.17% 2 Z Income units 1.31% 1.26% Z Accumulation units 1.31% 1.26% 1 With effect from 2 March 2015, the Annual management charge was reduced from 0.90% to 0.40% per annum. Subsequently, from 1 May 2015, this was reduced further to 0.30% per annum, resulting in Ongoing charges figure as detailed above. 2 The Ongoing charges figure is annualised based on the fees incurred during the accounting period. 5

6 Review of Investment Activities From 26 February 2016 to 28 February 2017, the price of Z Accumulation units on a dealing price to dealing price basis rose 8.79%. In comparison, the Consumer Price Index increased by 2.30% 1. 1 Source: Thomson Reuters Datastream. Risk assets ended 2016 on a high note with equities rallying, particularly cyclical markets, where the election of Donald Trump lifted reflation hopes. By contrast, government bond yields climbed to give away most of the year s returns. The fund s best performing holdings over the period were Man GLG Japan CoreAlpha Equity Fund, BlackRock Gold and General Fund and Invesco Perpetual European Equity Fund. The worst performer was Odey European Income Hedge Fund, which proved a drag on returns. Our current market view is reflected in a barbell portfolio combining selective areas of value across equity markets alongside higher levels of short term liquidity/cash. That is, we would rather take risk in equity than bonds, but only selectively and in moderation. The growing threat of inflation should signal an end to this bull market in the beneficiaries of deflation ( safety, quality and income). Whilst we can become more positive for the prospects of inflation related areas, we are cognisant that sectors like materials (which typically benefit from higher inflation) are also vulnerable in an economic slowdown. A prospect we cannot discount at this juncture. Co-Fund Manager: Marcus Brookes Joined Schroders in July 2013 following the acquisition of Cazenove Capital Previous to the acquisition he was the Head of Multi Manager at Cazenove Capital, which he joined in January 2008 Prior to this Marcus was the Deputy Head of Multi Manager at Gartmore, a position he held from November 2004 Up to this time he spent 3.5 years from May 2001 as the Co-Manager of Multi Manager, at Rothschild Asset Management Marcus began his career on 28 September 1994 when he joined Friends, Ivory & Sime, where he became the Multi Manager Fund Manager Marcus qualified from University of Stirling with MSc. Investment Analysis Our short term liquidity/cash holding offers a counterbalance to this more cyclical risk, particularly at a time where bond markets and equity markets often move in tandem and are not necessarily providing investors with the diversification benefits they have offered historically. 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: Robin McDonald Joined Schroders in July 2013 following the acquisition of Cazenove Capital Previous to the acquisition he was a Fund Manager at Cazenove Capital, which he joined in October 2007, responsible for co-managing the multi manager fund range as well as a few segregated mandates Prior to this Robin was a Multi Manager Analyst at Gartmore, a position he held from September 2003 Up to this time he worked as a Multi Manager Analyst for Insight Investment Management, following its acquisition of Rothschild Asset Management in 2003, whom he joined in 2001 Robin began his career in September 1999 when he joined Bank of New York (Europe) Limited as a Client Relationship Executive Robin is a CFA charterholder 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 seeks to provide rewards whilst limiting price volatility. 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 is authorised as a non-ucits retail scheme. The investment and borrowing powers of these types of scheme are wider than those for UCITS funds whilst still aiming to provide a prudent spread of risk. 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 is index unconstrained and has the potential for greater volatility. The fund may invest in unregulated collective investment schemes, which involves a higher degree of risk as they are not regulated by the FCA. The funds may not be readily realisable and priced less frequently than listed shares or authorised unit trusts, and therefore price swings may be more volatile. More than 35% of the property of the fund may be invested in Government securities. The fund may invest in higher yielding bonds (non-investment grade). The risk of default is higher with non-investment grade bonds than with investment grade bonds. Higher yielding bonds may also have an increased potential to erode your capital sum than lower yielding bonds. 7

8 Risk Profile (continued) The fund may invest in a wide range of derivatives and in alternative investments (including commodities, hedge funds, real estate funds and private equity) in order to meet its investment objectives. One of the aims of the Manager is to achieve volatility targets for the portfolio and in order to do this leverage will be used. The use of leverage can increase gains as well as losses and expose the fund to increased risk. Whilst it is intended that the additional risk that leverage exposes the fund to is controlled by value at risk methodology, there can be no guarantee that this risk control may be achieved especially under extreme or changing market conditions. The fund may invest in derivatives and in alternative investments (including commodities, hedge funds, real estate funds and private equity) which involves a higher degree of risk and can be more volatile. They should only be considered as a long term investment. For these reasons, the purchase of units should not normally be regarded as a short term investment. 8

9 Statement of the Manager s Responsibilities The FCA 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 28 February 2017 were signed on 27 April 2017 on behalf of the Manager by: J.M. Cardew Directors P. Chislett 9

10 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 29 February 2016 to 28 February 2017 Schroder MM Diversity Fund ( 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 23 March

11 Independent Auditors Report to the Unitholders of Schroder MM Diversity Fund Report on the financial statements Our opinion In our opinion, Schroder MM Diversity Fund s financial statements, (the financial statements ): give a true and fair view of the financial position of the fund as at 28 February 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 28 February 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. 11

12 Independent Auditors Report to the Unitholders of Schroder MM Diversity Fund (continued) Opinions on matters prescribed by the Collective Investment Schemes sourcebook 12 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 9, 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.

13 Independent Auditors Report to the Unitholders of Schroder MM Diversity Fund (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 27 April 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. 13

14 Comparative Tables A Income units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges 8.83 (0.95) 3.92 Operating charges (1.70) (1.65) (1.57) Return after operating charges* 7.13 (2.60) 2.35 Distributions (0.13) Nil Nil Closing net asset value *after direct transaction costs of (0.01) Performance Return after charges (%) 7.92 (2.81) 2.60 Other information Closing net asset value ( 000 s) 25,360 30,129 62,829 Closing number of units 26,139,669 33,469,658 67,838,318 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

15 Comparative Tables (continued) A Accumulation units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges 9.69 (1.04) 4.30 Operating charges (1.86) (1.81) (1.73) Return after operating charges* 7.83 (2.85) 2.57 Distributions (0.15) Nil Nil Retained distributions 0.15 Nil Nil Closing net asset value *after direct transaction costs of (0.01) Performance Return after charges (%) 7.92 (2.80) 2.59 Other information Closing net asset value ( 000 s) 222, , ,660 Closing number of units 208,482, ,502, ,204,388 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

16 Comparative Tables (continued) N Income units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges (1.07) 4.24 Operating charges (2.15) (1.98) (1.95) Return after operating charges* 7.85 (3.05) 2.29 Distributions Nil Nil Nil Closing net asset value *after direct transaction costs of (0.01) Performance Return after charges (%) 8.07 (3.04) 2.34 Other information Closing net asset value ( 000 s) 127 7,490 13,593 Closing number of units 120,479 7,702,518 13,553,243 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

17 Comparative Tables (continued) N Accumulation units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges (1.09) 4.25 Operating charges (2.15) (1.98) (1.95) Return after operating charges* 7.87 (3.07) 2.30 Distributions Nil Nil Nil Retained distributions Nil Nil Nil Closing net asset value *after direct transaction costs of (0.01) Performance Return after charges (%) 8.06 (3.05) 2.34 Other information Closing net asset value ( 000 s) 1,232 72, ,304 Closing number of units 1,167,723 73,841, ,426,735 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

18 Comparative Tables (continued) Q Accumulation units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges 9.85 (1.14) 4.32 Operating charges (1.16) (1.05) (1.63) Return after operating charges* 8.69 (2.19) 2.69 Distributions 1 (0.91) (0.66) Nil Retained distributions Nil Closing net asset value *after direct transaction costs of (0.01) Performance Return after charges (%) 8.68 (2.14) 2.70 Other information Closing net asset value ( 000 s) 59,674 60,284 66,662 Closing number of units 54,858,942 60,227,064 65,177,629 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

19 Comparative Tables (continued) S Income units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges 4.92 (0.56) 2.17 Operating charges (0.58) (0.56) (0.52) Return after operating charges* 4.34 (1.12) 1.65 Distributions 1 (0.43) (0.33) (0.22) Closing net asset value *after direct transaction costs of (0.00) Performance Return after charges (%) 8.60 (2.16) 3.27 Other information Closing net asset value ( 000 s) 6,801 5,609 4,643 Closing number of units 12,512,168 11,117,076 8,947,544 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

20 Comparative Tables (continued) T Accumulation units Financial year to 28 February p per unit p per unit Change in net asset value Opening net asset value Return before operating charges 9.21 (2.16) Operating charges (1.19) (1.14) Return after operating charges* 8.02 (3.30) Distributions 1 (0.70) (0.61) Retained distributions Closing net asset value *after direct transaction costs of Performance Return after charges (%) 8.51 (3.38) Other information Closing net asset value ( 000 s) 48,957 52,884 Closing number of units 47,875,812 56,114,193 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p) The unit class was launched on 1 June

21 Comparative Tables (continued) Z Income units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges 8.91 (0.96) 3.96 Operating charges (1.24) (1.20) (1.13) Return after operating charges* 7.67 (2.16) 2.83 Distributions 1 (0.63) (0.43) (0.24) Closing net asset value *after direct transaction costs of (0.01) Performance Return after charges (%) 8.45 (2.31) 3.12 Other information Closing net asset value ( 000 s) 62,409 88,807 80,198 Closing number of units 63,798,499 97,829,289 85,896,254 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

22 Comparative Tables (continued) Z Accumulation units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges 9.26 (0.99) 4.08 Operating charges (1.30) (1.24) (1.17) Return after operating charges* 7.96 (2.23) 2.91 Distributions 1 (0.65) (0.44) (0.25) Retained distributions Closing net asset value *after direct transaction costs of (0.01) Performance Return after charges (%) 8.45 (2.31) 3.11 Other information Closing net asset value ( 000 s) 486, , ,930 Closing number of units 476,145, ,460, ,613,897 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. 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 longer than a year. For Accumulation unit classes, prior years figures have been updated in line with the Investment Association circular, issued on 6 October 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. 22

23 Portfolio Statement Cash Funds 23.48% ( %) Holding at Market Value % of net s assets Schroder Special Situations Fund SICAV Sterling Liquidity Plus I Accumulation 1 2 1,800, , , Commodity Funds 3.74% ( %) ishares Physical Gold ETC USD 1,715,000 34, , European Equity Funds 1.57% ( %) Invesco Perpetual European Equity Fund Accumulation 3 7,500,000 14, , Global Equity Funds 16.83% ( %) BlackRock Gold and General Fund A Accumulation 3 2,000,000 20, GAM Global Diversified Fund Institutional Accumulation 3 3,600,000 71, JOHCM Global Opportunities Fund X Income 3 14,750,000 23, RWC Income Opportunities Fund B Distribution 3 312,072 38, , Hedge Funds 29.65% ( %) Artemis Strategic Assets Fund I Accumulation 3 41,412,185 37, Majedie Tortoise Fund G Accumulation 41,600,000 82, Morgan Stanley Diversified Alpha Plus Fund ZH Accumulation 3 2,450,000 67, Odey European Income Hedge Fund B Income 223,935 21, Schroder European Equity Absolute Return Fund P2 Accumulation GBP Hedged 1 3 7,000,000 8,

24 Portfolio Statement (continued) Hedge Funds (continued) Holding at Market Value % of net s assets TM Sanditon European Select Fund F Accumulation 3 59,000,000 52, , Japanese Equity Funds 6.10% ( %) Man GLG Japan CoreAlpha Equity Fund I H Accumulation 218,000 39, Man GLG Japan CoreAlpha Fund Professional D Income 3 6,450,000 16, , UK Equity Funds 7.61% ( %) Investec UK Special Situations Fund A Income 3 6,000,000 27, Majedie UK Equity Fund X Income 3 5,000,000 7, Majedie UK Income Fund X Income 3 16,000,000 24, Treligga Ardevora UK Income Fund C Distribution 3 6,368,891 9, , Global Fixed Income Funds 10.20% ( %) JPMorgan Income Opportunity Plus Fund C Distribution GBP Hedged 3 906,000 93, , Sterling Denominated Derivatives 0.00% ( %) 24

25 Portfolio Statement (continued) Market Value % of net 000 s assets Portfolio of investments 4 905, Net other assets 7, Net assets attributable to unitholders 913, Unless otherwise stated the above securities are admitted to official stock exchange listings or traded on a regulated market, or are collective investment schemes permitted under the FCA s COLL. 1 A related party to the fund (Note 11). 2 Cash equivalents. 3 Collective investment scheme permitted under the FCA s COLL, not listed on any exchange. 4 Including cash equivalents. 25

26 Summary of Portfolio Transactions Largest purchases Largest sales For the year ended 28 February 2017 Cost 000 s JPMorgan Income Opportunity Plus Fund C Distribution GBP Hedged 93,150 ishares Physical Gold ETC USD 34,194 ETFS Physical Gold USD 33,931 Man GLG Japan CoreAlpha Equity Fund I H Accumulation 28,989 Schroder Special Situations Fund SICAV Sterling Liquidity Plus I Accumulation 1 26,099 BlackRock Gold and General Fund A Accumulation 13,038 Investec UK Special Situations Fund A Income 9,157 Invesco Perpetual European Equity Fund Accumulation 5,852 Treligga Ardevora UK Income Fund C Distribution 535 GAM Global Diversified Fund Institutional Accumulation 432 For the year ended 28 February 2017 Proceeds 000 s JPMorgan Income Opportunity Plus Fund C Distribution GBP Hedged 127,732 Schroder Special Situations Fund SICAV Sterling Liquidity Plus I Accumulation 1 83,135 Man GLG Japan CoreAlpha Fund Professional D Income 42,713 Invesco Perpetual European Equity Fund Accumulation 40,913 ETFS Physical Gold USD 34,078 JOHCM Global Opportunities Fund X Income 29,841 GAM Global Diversified Fund Institutional Accumulation 27,998 TM Sanditon European Fund F Accumulation 25,380 Majedie Tortoise Fund G Accumulation 24,538 Morgan Stanley Diversified Alpha Plus Fund ZH Accumulation 21,780 1 A related party to the fund (Note 11). 26

27 Statement of Total Return For the year ended 28 February 2017 Income Notes 000 s 000 s 000 s 000 s Net capital gains/(losses) 2 80,508 (37,327) Revenue 3 13,786 14,763 Expenses 4 (8,400) (12,015) Net revenue before taxation 5,386 2,748 Taxation Net revenue after taxation 5,386 2,748 Total return before distributions 85,894 (34,579) Distributions 6 (5,455) (3,870) Change in net assets attributable to unitholders from investment activities 80,439 (38,449) Statement of Change in Net Assets Attributable to Unitholders For the year ended 28 February s 000 s 000 s 000 s Opening net assets attributable to unitholders 1,200,925 1,440,819 Amounts receivable on issue of units 12,463 94,340 Amounts payable on cancellation of units (384,655) (299,173) (372,192) (204,833) Dilution adjustment 27 1 Change in net assets attributable to unitholders from investment activities 80,439 (38,449) Retained distribution on Accumulation units 4,247 3,387 Closing net assets attributable to unitholders 913,446 1,200,925 27

28 Balance Sheet As at 28 February Notes 000 s 000 s Assets Investments 691, ,479 Current assets Debtors 8 4,381 23,991 Cash and bank balances 7,309 37,005 Cash equivalents 214, ,793 Total assets 917,636 1,205,268 Liabilities Creditors Distributions payable (484) (311) Other creditors 9 (3,706) (4,032) Total liabilities (4,190) (4,343) Net assets attributable to unitholders 913,446 1,200,925 28

29 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 Distributions receivable from authorised unit trusts and other collective investment schemes are recognised net of attributable tax credits and are credited to revenue when they are first quoted ex-dividend. Interest receivable from bank balances is accounted for on an accruals basis. The Annual management charge and Administration charge in respect of the Schroder funds in which the fund invests are rebated to the fund so that no double charging occurs. The rebates received from other investment managers are also receipted to the fund. All rebates are treated as revenue or capital based on the underlying fund s treatment. Special dividends Special dividends are treated as revenue or capital depending on the facts of each particular case. Equalisation Equalisation on distributions received by the fund is deducted from the cost of investments. As such the equalisation on distributions received by the fund does not form part of the fund s distributions. Expenses Expenses of the fund are charged against revenue except for costs associated with the purchase and sale of investments which are allocated to the capital of the fund. 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. 29

30 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. This revenue is distributed annually on 30 April to Income unitholders. An interim distribution based on available revenue at the half year, is distributed on 31 October 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. Valuation Listed investments of the fund have been valued at market value, dual priced authorised unit trusts have been valued at cancellation price, single priced authorised unit trusts have been valued at the dealing price and open ended investment companies have been valued at the latest available bid price 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. Cash equivalents In accordance with the AIFMD requirements, the fund has treated some investments in the Portfolio Statement as Cash equivalents for the purposes of the Balance Sheet disclosure. Investments are regarded as Cash equivalents if they meet all of the following criteria: highly liquid investments held in sterling that are readily convertible to a known amount of cash; are subject to an insignificant risk of change in value; and provide a return no greater than the rate of a three month high quality government bond. 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 are reflected under Net capital gains/(losses) in the Notes to the Accounts. 30

31 Notes to the Accounts (continued) 2 Net capital gains/(losses) The net capital gains/(losses) during the year comprise: s 000 s Non-derivative securities 80,223 (37,987) Foreign currency gains Transaction costs (6) (5) Annual management charge rebates Administration charge rebates 0 (4) Net capital gains/(losses) 80,508 (37,327) The non-derivatives securities and foreign currency gains above includes: s 000 s Realised gains 35,577 54,143 Unrealised gains/(losses) 44,817 (91,712) Total gains/(losses) 80,394 (37,569) Total realised gains for the year were 35,577,041 ( ,142,717) and the movement in unrealised gains/(losses) was 44,817,124 (2016 (91,711,799)). Included in realised gains for the year were unrealised gains recognised in previous years. 3 Revenue s 000 s Franked distributions 5,254 7,477 Unfranked distributions 0 5,491 Interest distributions 6, Bank interest Annual management charge rebates 2,148 1,302 Administration charge rebates Total revenue 13,786 14,763 31

32 Notes to the Accounts (continued) 4 Expenses s 000 s Payable to the Manager, associates of the Manager and agents of either of them: Annual management charge 6,597 9,793 Administration charge 1,611 1,966 Transfer agency fees 0 (2)¹ 8,208 11,757 Payable to the Trustee, associates of the Trustee and agents of either of them: Trustee s fees Safe custody fees Other expenses: Audit fee Interest payable Total expenses 8,400 12,015 1 These expenses reflect adjustments in respect of the prior year. 5 Taxation Corporation tax has not been provided for as expenses payable by the fund exceed the revenue liable to corporation tax. (a) 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 5,386 2,748 Net revenue for the year before taxation multiplied by the standard rate of corporation tax 1, Effects of: Revenue not subject to corporation tax (1,051) (1,495) Movement in excess management expenses (50) 896 Tax on capital items Current tax charge for the year

33 Notes to the Accounts (continued) (b) Factors that may affect future tax charges At the balance sheet date, there is a potential deferred tax asset of 3,401,911 (2016 3,452,280) in respect of unutilised management expenses. It is unlikely 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 year or prior year. 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 Interim Dividend distribution 34 1,115 Final Dividend distribution 4,704 2,705 4,738 3,820 Add: Revenue deducted on cancellation of units Deduct: Revenue received on issue of units (24) (79) Distributions 5,455 3,870 Net revenue after taxation 5,386 2,748 Tax on capital items Deficit taken to capital Movement in undistributed revenue (1) 0 Equalisation on conversions Distributions 5,455 3,870 Details of the distributions per unit are set out in the Distribution Table on pages 42 and Fair value hierarchy Assets Assets Valuation technique 000 s 000 s Quoted prices for identical instruments in active markets 34,180 13,472 Valuation techniques using observable market data 871,766 1,130,800 Total 905,946 1,144,272 33

34 Notes to the Accounts (continued) 8 Debtors s 000 s Amounts receivable for issue of units Sales awaiting settlement 3,557 21,480 Accrued franked distributions 491 1,407 Accrued bank interest 0 6 Accrued Annual management charge rebates Accrued Administration charge rebates 5 9 Income tax recoverable 0 47 Total debtors 4,381 23,991 9 Other creditors s 000 s 000 s 000 s Amounts payable for cancellation of units 3,123 3,291 Accrued expenses Manager and Agents Annual management charge Administration charge Trustee and Agents Trustee s fees Safe custody fees Transaction costs Other accrued expenses Total other creditors 3,706 4, Contingent liabilities There were no contingent liabilities at the balance sheet date (2016 Nil). 11 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. 34

35 Notes to the Accounts (continued) Annual management charge rebates received or receivable from the Manager of 168,174 ( ,040) are disclosed under Net capital gains/(losses) and Revenue in the Notes to the Accounts. Amounts due from the Manager at the balance sheet date of 11,291 ( ,971) are disclosed under Debtors in the Notes to the Accounts. Administration charge rebates received or receivable from the Manager of 83,530 ( ,754) are disclosed under Net capital gains/(losses) and Revenue in the Notes to the Accounts. Amounts due from the Manager at the balance sheet date of 4,821 (2016 8,874) are disclosed under Debtors 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. 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 5.65% ( %). Related party holdings are disclosed in the Portfolio Statement, with any significant purchases and sales disclosed in Summary of Portfolio Transactions. The revenue earned from these investments of 1,663,011 (2016 2,155,246) is included under Revenue in the Notes to the Accounts. 12 Unit classes The fund currently has nine unit classes: A Income units, A Accumulation units, N Income units, N Accumulation units, Q Accumulation units, S Income units, T Accumulation 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 1.00% A Accumulation units 1.00% N Income units 1.25% N Accumulation units 1.25% Q Accumulation units 0.30% S Income units 0.30% T Accumulation units 0.40% Z Income units 0.50% Z Accumulation units 0.50% 35

36 Notes to the Accounts (continued) 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 14 to 22. The distributions per unit class are given in the Distribution Table on pages 42 to 43. All classes have the same rights on winding up. 13 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, 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 enable the pursuit of the fund s investment objective or to assist in the redemption of units, the efficient management of the fund or purposes regarded as ancillary to the fund. The main risks arising from the fund s financial instruments are market price, foreign currency, liquidity, credit 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 Collective investment schemes valued in foreign currencies and underlying funds investing in overseas securities may cause the balance sheet to be significantly affected by movements in foreign exchange rates. 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. 36