MM International Fund

Transcription

1 Schroder MM International Fund Final Report and Accounts February 2017

2 Contents Schroder MM International 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 International 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 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 seeks to provide capital growth through investment in many geographic areas of the world and across various economic sectors. The fund will invest in a diversified portfolio of collective investment schemes and exchange traded funds which invest mainly in the shares of companies that have their registered office, or derive a significant proportion of their revenue, or are predominantly operating from, outside the UK. 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 or near cash. The fund may utilise derivatives and forward transactions for the purpose 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: Financial highlights Dealing price % change A Income units p p A Accumulation units p p S Income units 74.61p 56.89p Z Income units p p Z Accumulation units p p Final distribution per S Income unit p p 3

4 Fund Information (continued) Fund information Launch date 28 July 2007 Launch price 50.00p per A Income unit 50.00p per A Accumulation unit Launch date 2 April 2012 Launch price 78.37p per Z Income unit 78.50p per Z Accumulation unit Launch date 1 November 2013 Launch price 50.00p per S Income unit Interim Final Accounting dates 31 August 28 February Revenue allocation dates 31 October 30 April Ongoing charges figure For the year For the year to to A Income units 1.92% 1.95% A Accumulation units 1.92% 1.95% S Income units 1.22% 1.25% Z Income units 1.42% 1.45% Z Accumulation units 1.42% 1.45% 4

5 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 31.76%. In comparison, the FTSE 1 All World ex UK Index generated a total return of 37.02% 2 in sterling terms. Risk assets ended 2016 on a high note with equities rallying, particularly cyclical markets, where the election of Donald Trump lifted reflation hopes. The fund s best performing holdings over the period were JPMorgan Natural Resources Fund, Man GLG Japan CoreAlpha Equity Fund, Findlay Park Latin American Fund and Artemis Global Emerging Markets Fund. The worst performer was CF Odey Opus Fund. 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. 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. Our short term liquidity/cash holding offers a counterbalance to this more cyclical risk. 1 FTSE International Limited ( FTSE ) FTSE. FTSE is a trade mark of London Stock Exchange plc and The Financial Times Limited and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE s express written consent. 2 Source: Thomson Reuters Datastream. 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: 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 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 Co-Fund Manager: Joe Le Jéhan Joined Schroders in July 2013 following the acquisition of Cazenove Capital Previous to the acquisition he was a Fund Manager in the Multi Manager team at Cazenove Capital from January 2013, a firm he joined in March 2008 as an Analyst Prior to this, Joe was a Fund Analyst at Brewin Dolphin, a position he held from January 2005 Joe began his career in September 2000, as an Associate on Retail Funds in the Assurance and Business Advisory Division at PriceWaterhouseCoopers Joe is a CFA charterholder 5

6 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 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 invests 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 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 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. For these reasons, the purchase of units should not normally be regarded as a short term investment. 6

7 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 7

8 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 International 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

9 Independent Auditors Report to the Unitholders of Schroder MM International Fund Report on the financial statements Our opinion In our opinion, Schroder MM International 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. 9

10 Independent Auditors Report to the Unitholders of Schroder MM International Fund (continued) Opinions on matters prescribed by the Collective Investment Schemes sourcebook 10 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 7, 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 Independent Auditors Report to the Unitholders of Schroder MM International 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. 11

12 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 Operating charges (2.52) (2.26) (2.07) Return after operating charges* Distributions 1 Nil Nil Nil Closing net asset value *after direct transaction costs of (0.01) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 70, , ,197 Closing number of units 46,383, ,174, ,767,180 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p) The unit class has made no distribution to date. 12

13 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 Operating charges (2.58) (2.27) (2.07) Return after operating charges* Distributions 1 Nil Nil Nil Retained distributions 1 Nil Nil Nil Closing net asset value *after direct transaction costs of (0.01) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 42,838 57,043 68,521 Closing number of units 27,951,975 48,596,031 58,384,818 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p) The unit class has made no distribution to date. 13

14 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 Operating charges (0.83) (0.69) (0.50) Return after operating charges* Distributions 1 (0.38) (0.28) Nil 2 Closing net asset value *after direct transaction costs of Performance Return after charges (%) Other information Closing net asset value ( 000 s) 253,443 2,025 2 Closing number of units 340,114,172 3,555,238 3,000 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p) There was no distribution as the total amount distributable was below de minimis. 14

15 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 Operating charges (1.95) (1.71) (1.55) Return after operating charges* Distributions 1 (0.46) (0.29) Nil Closing net asset value *after direct transaction costs of (0.01) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 40,989 34,948 34,083 Closing number of units 26,392,108 29,439,251 28,788,085 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

16 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 Operating charges (1.97) (1.72) (1.57) Return after operating charges* Distributions 1 (0.47) (0.30) (0.01) Retained distributions Closing net asset value *after direct transaction costs of (0.01) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 103,414 80,800 66,816 Closing number of units 65,832,137 67,498,478 56,105,335 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 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. 16

17 Portfolio Statement Asia Pacific ex Japan Equity Funds 6.32% ( %) Holding at Market Value % of net s assets BlackRock Global Asian Dragon Fund A4RF Income 1 188,000 5, Hermes Asia Ex-Japan Equity Fund F Accumulation 1 12,100,000 27, , Cash Funds 7.48% ( %) Schroder International Selection Fund SICAV US Dollar Liquidity I Accumulation USD ,000 38, , Emerging Markets Equity Funds 3.12% ( %) Artemis Global Emerging Markets Fund I Accumulation 1 9,300,000 11, Findlay Park Latin American Fund Income USD 415,000 4, , European Equity Funds 14.66% ( %) Invesco Perpetual European Equity Fund Accumulation 1 21,850,000 41, TM Sanditon European Fund F Accumulation 1 27,000,000 33, , Global Equity Funds 30.82% ( %) BlackRock Gold and General Fund A Accumulation 1 1,050,000 10, CF Odey Opus Fund R Income 1 117,300 4, GAM Global Diversified Fund Institutional Accumulation 1 4,450,000 87, JOHCM Global Opportunities Fund X Income 1 29,450,000 46, JPMorgan Natural Resources Fund A Accumulation 1 1,300,000 7, ,

18 Portfolio Statement (continued) Japanese Equity Funds 12.85% ( %) Holding at Market Value % of net s assets Man GLG Japan CoreAlpha Equity Fund I H Accumulation USD 135,000 20, Man GLG Japan CoreAlpha Fund D Income 1 18,000,000 45, , US Equity Funds 22.28% ( %) Fidelity Index US Fund P Income 1 19,667,394 32, Findlay Park American Fund USD 1,095,600 81, , US Dollar Denominated Derivatives 0.00% ( %) Portfolio of investments 498, Net other assets 12, Net assets attributable to unitholders 511, Unless otherwise stated the above securities are ordinary shares or common stock and admitted to official stock exchange listings or collective investment schemes permitted under the FCA s COLL. 1 Collective investment scheme permitted under FCA s COLL, not listed on any exchange. 2 A related party to the fund (Note 11). 18

19 Summary of Portfolio Transactions Largest purchases Largest sales For the year ended 28 February 2017 Cost 000 s Man GLG Japan CoreAlpha Equity Fund I H Accumulation USD 12,982 BlackRock Gold and General Fund A Accumulation 9,435 Artemis Global Emerging Markets Fund I Accumulation 6,284 Schroder International Selection Fund SICAV US Dollar Liquidity I Accumulation USD 1 5,852 JOHCM Global Opportunities Fund X Income 5,262 GAM Global Diversified Fund Institutional Accumulation 4,053 Findlay Park Latin American Fund Income USD 2,955 BlackRock Global Asian Dragon Fund A4RF Income 2,191 JPMorgan Natural Resources Fund A Accumulation 1,119 Hermes Asia Ex-Japan Equity Fund F Accumulation 876 For the year ended 28 February 2017 Proceeds 000 s Invesco Perpetual European Equity Fund Accumulation 20,307 Man GLG Japan CoreAlpha Fund D Income 11,722 BlackRock Gold and General Fund A Accumulation 7,260 Findlay Park American Fund USD 5,372 JOHCM Global Opportunities Fund X Income 3,810 CF Odey Opus Fund R Income 3,066 JPMorgan Natural Resources Fund A Accumulation 2,693 TM Sanditon European Fund F Accumulation 1,472 Fidelity Index US Fund P Income A related party to the fund (Note 11). 19

20 Statement of Total Return For the year ended 28 February 2017 Income Notes 000 s 000 s 000 s 000 s Net capital gains 2 121,246 1,114 Revenue 3 4,562 3,452 Expenses 4 (3,419) (3,834) Net revenue/(expense) before taxation 1,143 (382) Taxation Net revenue/(expense) after taxation 1,143 (382) Total return before distributions 122, Distributions 6 (1,697) (291) Change in net assets attributable to unitholders from investment activities 120, 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 396, ,619 Amounts receivable on issue of units 36,805 55,562 Amounts payable on cancellation of units (42,514) (24,542) (5,709) 31,020 Dilution adjustment 0 1 Change in net assets attributable to unitholders from investment activities 120, Retained distribution on Accumulation units Closing net assets attributable to unitholders 511, ,280 20

21 Balance Sheet As at 28 February Notes 000 s 000 s Assets Investments 498, ,706 Current assets Debtors 8 3,297 1,023 Cash and bank balances 12,871 14,290 Total assets 515, ,019 Liabilities Creditors Distributions payable (961) (75) Other creditors 9 (2,602) (664) Total liabilities (3,563) (739) Net assets attributable to unitholders 511, ,280 21

22 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 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 distribution. 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. 22

23 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 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, net of any accrued interest which is included in the balance sheet as a revenue related item. Market value is defined by the SORP as fair value which generally is the bid value of each security. Forward foreign exchange contracts Net gains are reflected 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. 23

24 Notes to the Accounts (continued) 2 Net capital gains The net capital gains during the year comprise: s 000 s Non-derivative securities 121,120 (1,006) Forward foreign exchange contracts 56 2,324 Foreign currency gains/(losses) 15 (257) Transaction costs (3) (2) Annual management charge rebates Net capital gains 121,246 1,114 The non-derivatives securities, forward foreign exchange contracts and foreign currency gains/(losses) above includes: s 000 s Realised gains 8,784 9,216 Unrealised gains/(losses) 112,407 (8,155) Total gains 121,191 1,061 Total realised gains for the year were 8,783,604 (2016 9,216,354) and the movement in unrealised gains/(losses) was 112,406,450 (2016 8,154,986). Included in realised gains for the year were unrealised gains recognised in previous years. 3 Revenue s 000 s Franked distributions 3,827 3,074 Unfranked distributions Interest distributions Bank interest Annual management charge rebates Administration charge rebates 6 6 Total revenue 4,562 3,452 24

25 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 2,665 3,215 Administration charge Payable to the Trustee, associates of the Trustee and agents of either of them: 3,349 3,777 Trustee s fees Safe custody fees 6 4 Other expenses: Audit fee Total expenses 3,419 3,834 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/(expense) before taxation. The differences are explained below s 000 s Net revenue/(expense) before taxation 1,143 (382) Net revenue/(expense) for the year before taxation multiplied by the standard rate of corporation tax 229 (76) Effects of: Revenue not subject to corporation tax (766) (656) Movement in excess management expenses Tax on capital items Current tax charge for the year 0 0 (b) Factors that may affect future tax charges At the balance sheet date, there is a potential deferred tax asset of 3,525,304 (2016 3,000,391) 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. 25

26 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 Interim Dividend distribution Final Dividend distribution 1, , Add: Revenue deducted on cancellation of units 7 3 Deduct: Revenue received on issue of units (11) (5) Distributions 1, Net revenue/(expense) after taxation 1,143 (382) Tax on capital items Deficit taken to capital Equalisation on conversions 0 4 Distributions 1, Details of the distributions per unit are set out in the Distribution Table on pages 34 and Fair value hierarchy Assets Assets Valuation technique 000 s 000 s Valuation techniques using observable market data 498, ,706 Total 498, ,706 8 Debtors s 000 s Amounts receivable for issue of units Sales awaiting settlement 2,693 0 Accrued franked distributions Accrued bank interest 1 2 Accrued Annual management charge rebates Accrued Administration charge rebates 0 1 Income tax recoverable 8 4 Total debtors 3,297 1,023 26

27 Notes to the Accounts (continued) 9 Other creditors s 000 s 000 s 000 s Amounts payable for cancellation of units Purchases awaiting settlement 1,976 0 Accrued expenses Manager and Agents Annual management charge Administration charge Trustee and Agents Trustee s fees 9 7 Safe custody fees Other accrued expenses Total other creditors 2, 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. Administration charge rebates received or receivable from the Manager of 6,405 (2016 5,954) are disclosed under Revenue in the Notes to the Accounts. Amounts due from the Manager at the balance sheet date of 580 ( ) 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 75.00% ( %). 27

28 Notes to the Accounts (continued) 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 110,471 ( ,993) is included under Revenue in the Notes to the Accounts. 12 Unit classes The fund currently has five unit classes: A Income units, A Accumulation units, S 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 1.00% A Accumulation units 1.00% S Income units 0.30% Z Income units 0.50% Z Accumulation units 0.50% 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 12 to 16. The distributions per unit class are given in the Distribution Table on pages 34 and 35. 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, 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. 28

29 Notes to the Accounts (continued) 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. 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 at the balance sheet date was as follows: Monetary Non-monetary exposure exposure Total Currency 000 s 000 s 000 s Sterling , , , , , ,681 US dollar , , , ,007 96,592 97,599 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. 29

30 Notes to the Accounts (continued) 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 Sterling , , , , , ,253 US dollar , , , , , ,634 Financial liabilities not carrying interest Total Currency 000 s 000 s Sterling ,563 3, ,572 10,572 US dollar ,035 10,035 There are no material amounts of non-interest bearing financial assets, other than collective investment schemes, which do not have a maturity date. 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. Leverage Information on the limit usage and level of leverage The fund uses a risk management process that allows the Manager to monitor the risk to ensure they are being managed in line with their investment policy and risk profile. 30

31 Notes to the Accounts (continued) Leverage ratios are important risk metrics to represent the current risk profile of the fund and are monitored on a daily basis. Leverage is a way for the fund to increase its exposure through the use of financial derivative instruments and/or borrowing of cash or securities where applicable it is expressed as a ratio between the exposure of the fund and its Net Asset Value. The leverage ratio is calculated in accordance with two methodologies for calculating the exposure of the fund, the Gross method and the Commitment method. There were no new arrangements for managing the liquidity and no changes to the maximum ratio level of leverage occurred during the year. In accordance with AIFM rules, the leverage details as at the balance sheet date where as follows: Leverage Commitment Commitment Commitment As at 28 February ratio limit ratio level utilised % % Gross ratio Gross ratio Gross As at 28 February limit level utilised % % 1 As at 29 February 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 Funds 52, , Sales Funds 56, , Total cost of the fund s average net asset value (%)

32 Notes to the Accounts (continued) Commissions Taxes Principal Commissions Taxes Total cost % of % of s 000 s 000 s 000 s principal principal Purchases Funds 150, , Sales Funds 120, , Total cost of the fund s average net asset value (%) Average portfolio dealing spread As at the balance sheet date the average portfolio dealing spread was 0.01% ( %). 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. 15 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 189,174,148 1,724,369 (5,882,763) (138,632,722) 46,383,032 A Accumulation units 48,596,031 1,725,604 (8,420,467) (13,949,193) 27,951,975 S Income units 3,555,238 27,996,774 (7,269,376) 315,831, ,114,172 Z Income units 29,439,251 2,524,861 (3,769,129) (1,802,875) 26,392,108 Z Accumulation units 67,498,478 7,303,502 (9,536,229) 566,386 65,832,137 32

33 Remuneration Alternative Investment Fund Managers (AIFM) Remuneration Disclosures for Schroder Unit Trusts Limited (SUTL) as at 31 December 2015 The following disclosures are required under the Alternative Investment Fund Managers Directive (AIFMD). These disclosures should be read in conjunction with the Schroders Remuneration Report on pages 68 to 86 of the 2015 Annual Report & Accounts (available on the Group s website which provides more information on the activities of our Remuneration Committee and our remuneration principles and policies. Details of the AIFM Remuneration Code can be found at in the Senior Management Arrangements, Systems and Controls Sourcebook (SYSC 19B). The Remuneration Committee of Schroders plc has established an AIFM Remuneration Policy to ensure the requirements of the AIFM Remuneration Code are met proportionately for all AIFM Remuneration Code Staff. Details of the latest remuneration policy can be downloaded from The total amount of remuneration paid by SUTL to its staff is nil as SUTL has no employees. AIFM Remuneration Code Staff of SUTL are employed and paid by other Schroders group companies. Employees who serve as Directors of SUTL receive no additional fees in respect of their role on the Board of SUTL. SUTL manages a total of 42,989 million assets under management, 16,753 million of which are in Alternative Investment Funds (AIFs). SUTL s Code Staff are individuals in roles which can materially affect the risk of SUTL or any AIF it manages. These individuals are employed by and provide services to other companies in, and clients of, the Schroders Group. As a result, only a portion of remuneration for those individuals is included in the aggregate remuneration figures that follow, based on an objective apportionment to reflect the balance of each role. The aggregate total remuneration paid to the 140 AIFM Remuneration Code Staff of SUTL is 11,548,623, of which 3,891,982 is paid to Senior Management and 7,656,641 is paid to other AIFM Remuneration Code Staff. 33