Schroder. Prime UK Equity Fund. Final Report and Accounts September 2017

Transcription

1 Schroder Prime UK Equity Fund Final Report and Accounts September 2017

2 Contents Schroder Prime UK Equity Fund Fund Information Investment objective and policy Financial highlights Fund information Ongoing charges figure Review of Investment Activities Risk Profile Risk and reward indicator Specific risks Statement of the Manager s Responsibilities Report of the Trustee Independent Auditors Report to the Unitholders of Schroder Prime UK Equity 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 Final distribution for the year ended 15 September Corporate unitholders (unaudited) Equalisation General Information Authorisation Collectively these comprise the Manager s report.

3 Fund Information Investment objective and policy The Schroder Prime UK Equity Fund s (the Fund ) investment objective is to achieve capital growth primarily through investment in UK equities. The fund may also invest in a wide range of investments including transferable securities, derivatives, cash, deposits, collective investment schemes, warrants and money market instruments. Financial highlights Dealing price % change I Income units p p 9.42 I Accumulation units p p S Income units 49.96p X Accumulation units p 89.18p Final distribution per I Income unit p p Fund information Launch date 6 May 1997 Launch price p per I Income unit p per I Accumulation unit Launch date 26 February 2010 Launch price 50.00p per X Accumulation unit Launch date 7 April 2017 Launch price 50.00p per S Income unit Interim Final Accounting dates 15 March 15 September Revenue allocation date 15 November 3

4 Fund Information (continued) Ongoing charges figure For the period For the period/year to Date to Date A/I/X Income (Gross) units For the period For 0.00% the 1 year For the 0.00% year 3 A/I/X Accumulation (Gross) units from % to to % 3 I Income units 0.51% % 0.51% I Accumulation units 0.51% 1 The Total expense ratio is annualised % 0.51% based on the fees suffered during the S accounting Income unitsperiod. 0.54% % 2 X Accumulation units % % 0.01% 2 The Manager s periodic charge for X Accumulation (Gross) units is invoiced directly to unitholders and is therefore not included in the Total expense ratio 1 The Ongoing charges figure is a projected figure based on the latest for that unit class. expenses of the unit class. 3 The Total expense ratio includes VAT recoverable on registrar s fees. 2 The Ongoing charges figure is annualised based on the fees incurred during the accounting period. 3 The Annual management charge for X Accumulation units is invoiced directly to unitholders and is therefore not included in the Ongoing charges figure for that unit class. 4

5 Review of Investment Activities From 15 September 2016 to 15 September 2017, the price of I Accumulation units on a dealing price to dealing price basis rose 12.60%. In comparison, the FTSE 1 All Share Index generated a total return of 11.91% 2. The fund outperformed the index over the period. Positive contributions came from a broad range of companies displaying the attributes we look for. We are attracted to companies that have the scope for self help by management, are supported by a strong balance sheet, and enjoy pricing power and a robust business model, particularly where these factors do not appear fully priced into shares. Strong performance came from our holdings in the industrials sector (Rentokil Initial, Melrose Industries and Spirax-Sarco Engineering) and life insurance (Prudential, Legal & General Group and Aviva). Within consumer goods Burberry Group surged after GBL, the investment vehicle of a billionaire Belgium financier, disclosed a stake in the company and Unilever outperformed following an approach from Kraft Heinz. On the negative side, our underweight in mining detracted from performance. BT Group was a significant detractor after the share price fell following a number of issues, including an accounting scandal at their Italian business. Meanwhile, our holdings in the media sector detracted from performance, including Pearson amid concerns over US higher education profits, and ITV and Daily Mail & General Trust given ongoing fears over advertising revenues. The global economy has broadly continued along its path of improvement in recent months, with Europe being a particular area of positive surprise in the developed markets. This, along with central banks very cautious draining of liquidity from the global financial system, continues to support both equity markets and the prospects for corporate profitability in From January 2017, Jessica Ground is no longer a Co-Fund Manager. 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: Andy Simpson UK Equity fund manager with 27 years investment experience at Schroders Chairman of Schroders UK Corporate Governance Committee Chartered Accountant Degree in Mathematics, Durham University Co-Fund Manager: Sue Noffke UK Equity fund manager with 27 years investment experience at Schroders Associate with the Institute of Investment Management Research (IIMR) Degree in Business Administration and Biochemistry, Aston University 5

6 Risk Profile Risk and reward indicator The risk and reward indicator changed from 6 to 5 with effect from 1 June The risk category was calculated using historical performance data and may not be a reliable indicator of the fund s future risk profile. The fund is in this category because it can take higher risks in search of higher rewards and its price may rise and fall accordingly. The fund s risk category is not guaranteed to remain fixed and may change over time. A fund in the lowest category does not mean a risk free investment. Specific risks The fund invests solely in the securities of a particular country. There may be a greater risk than investing in funds that hold securities in a range of countries. The fund may invest in a wide range of derivatives 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 use derivatives for specific investment purposes. This involves a higher degree of risk and may lead to a higher volatility in the unit prices of the fund. 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 Financial Conduct Authority s (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 15 September 2017 were signed on 14 November 2017 on behalf of the Manager by: J.A. Walker-Hazell 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 16 September 2016 to 15 September 2017 Schroder Prime UK Equity 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 6 October

9 Independent Auditors Report to the Unitholders of Schroder Prime UK Equity Fund Report on the audit of the financial statements Opinion In our opinion, Schroder Prime UK Equity Fund s financial statements (the financial statements ): give a true and fair view of the financial position of the fund as at 15 September 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 (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 for UK Authorised Funds, the Collective Investment Schemes sourcebook and the Trust Deed. We have audited the financial statements, included within the Final Report and Accounts (the Annual Report ), which comprise: balance sheet as at 15 September 2017; the statement of total return and the statement of change in net assets attributable to unitholders for the year then ended; the notes to the financial statements, which include a description of the significant accounting policies; and the distribution tables. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ( ISAs (UK) ) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the fund in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the Financial Reporting Council s (FRC) Ethical Standard and we have fulfilled our other ethical responsibilities in accordance with these requirements. 9

10 Independent Auditors Report to the Unitholders of Schroder Prime UK Equity Fund (continued) Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: the Manager s use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the Manager has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the fund s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the fund s ability to continue as a going concern. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our Auditors Report thereon. The Manager is responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. Manager s Report In our opinion, the information given in the Manager s Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 10

11 Independent Auditors Report to the Unitholders of Schroder Prime UK Equity Fund (continued) Responsibilities for the financial statements and the audit Responsibilities of the Manager for the financial statements As explained more fully in the Statement of the Manager s Responsibilities set out on page 7, the Manager is responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Manager is also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Manager is responsible for assessing the fund s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intend to liquidate the fund or to cease operations, or have no realistic alternative but to do so. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditors Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC s website at: This description forms part of our Auditors Report. Use of this report This report, including the opinions, has been prepared for and only for the fund s unitholders as a body in accordance with paragraph of the Collective Investment Schemes sourcebook and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 11

12 Independent Auditors Report to the Unitholders of Schroder Prime UK Equity Fund (continued) Other required reporting Opinion on matter required by the Collective Investment Schemes sourcebook In our opinion, we have obtained all the information and explanations we consider necessary for the purposes of the audit. Collective Investment Schemes sourcebook exception reporting 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. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 14 November

13 Comparative Tables I Income units Financial year to 15 September p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges (6.02) Operating charges (1.04) (0.89) (0.95) Return after operating charges* (6.97) Distributions 1 (6.12) (5.25) (5.21) Closing net asset value *after direct transaction costs of (0.08) (0.07) (0.17) Performance Return after charges (%) (3.82) Other information Closing net asset value ( 000 s) 281, , ,153 Closing number of units 141,025, ,536, ,613,856 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

14 Comparative Tables (continued) I Accumulation units Financial year to 15 September p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges (9.55) Operating charges (1.74) (1.45) (1.51) Return after operating charges* (11.06) Distributions 1 (10.30) (8.59) (8.27) Retained distributions Closing net asset value *after direct transaction costs of (0.14) (0.11) (0.27) Performance Return after charges (%) (3.82) Other information Closing net asset value ( 000 s) 109, ,843 60,171 Closing number of units 31,658,938 35,650,746 21,590,737 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

15 Comparative Tables (continued) S Income units 2017 Financial year to 15 September p per unit Change in net asset value Opening net asset value Return before operating charges 0.03 Operating charges (0.08) Return after operating charges* (0.05) Distributions Nil 2 Closing net asset value *after direct transaction costs of (0.02) Performance Return after charges (%) (0.10) Other information Closing net asset value ( 000 s) 1 Closing number of units 2,000 Operating charges (%) 0.17 Direct transaction costs (%)** 0.04 Prices Highest dealing price (p) Lowest dealing price (p) The unit class was launched on 7 April There will not be a distribution as the total amount distributable was below de minimis. 15

16 Comparative Tables (continued) X Accumulation units Financial year to 15 September p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges (2.77) Operating charges (0.01) (0.01) (0.01) Return after operating charges* (2.78) Distributions 1 (3.49) (2.90) (2.81) Retained distributions Closing net asset value *after direct transaction costs of (0.04) (0.03) (0.08) Performance Return after charges (%) (3.34) Other information Closing net asset value ( 000 s) 80,647 72,167 19,073 Closing number of units 79,931,378 80,693,324 23,696,191 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p) These figures have been rounded to 2 decimal places. ** Direct transaction costs have been stated after deducting the proportion of the amounts collected from dilution adjustments. For Accumulation unit classes, prior years figures have been updated in line with the Investment Association circular, issued on 6 October The Operating charges are calculated on an ex-post basis and as such may differ from the Ongoing charges figure where the Ongoing charges figure has been annualised for a unit class that has not been in existence for a full year. Please remember that past performance is not a guide to future performance and it might not be repeated. The value of investments and the revenue from them may go down as well as up and investors may not get back the amount originally invested. Because of this, you are not certain to make a profit on your investments and you may lose money. 16

17 Portfolio Statement Holding at Market Value % of net s assets Oil & Gas 12.86% ( %) BP 3,598,457 16, John Wood Group 432,888 2, Royal Dutch Shell A 131,831 2, Royal Dutch Shell B 1,823,431 39, , Basic Materials 5.45% ( %) BHP Billiton 378,466 5, Rio Tinto 598,002 20, , Industrials 11.18% ( %) BAE Systems 1,400,849 8, Melrose Industries 3,211,743 6, QinetiQ Group 2,322,786 5, Rentokil Initial 4,072,889 12, Rolls-Royce Holdings 937,697 8, Spirax-Sarco Engineering 133,053 7, Weir Group 287,269 5, , Consumer Goods 13.08% ( %) Bovis Homes Group 336,286 3, British American Tobacco 532,114 25, Burberry Group 368,573 6, Diageo 97,600 2, Imperial Brands 144,314 4, Redrow 521,742 2, Unilever 377,991 16, , Health Care 8.49% ( %) AstraZeneca 261,976 12, BTG 879,056 5,

18 Portfolio Statement (continued) Holding at Market Value % of net s assets Health Care (continued) GlaxoSmithKline 1,312,625 19, Shire 70,217 2, , Consumer Services 12.57% ( %) Daily Mail & General Trust A Non-Voting 850,198 5, Firstgroup 2,285,489 2, Halfords Group 712,712 2, InterContinental Hotels Group 209,947 7, ITV 6,012,333 9, Pearson 506,702 2, Pets at Home Group 2,281,810 4, RELX 889,754 14, Tesco 5,571,924 10, , Telecommunications 6.13% ( %) BT Group 3,662,055 10, Vodafone Group 8,962,581 18, , Utilities 1.41% ( %) Centrica 3,542,660 6, , Financials 24.01% ( %) Aviva 2,598,439 13, HarbourVest Global Private Equity 133,351 1, HSBC Holdings 3,312,657 23, Intermediate Capital Group 457,003 3, John Laing Group 1,770,308 5, Legal & General Group 2,936,721 7, Lloyds Banking Group 26,803,965 17, NEX Group 1,355,123 8, Prudential 889,499 15,

19 Portfolio Statement (continued) Holding at Market Value % of net s assets Financials (continued) Standard Chartered 1,579,343 11, TP ICAP 1,107,387 5, , UK Equity Funds 2.44% ( %) Schroder Institutional UK Smaller Companies Fund I Income 1 2 1,257,599 11, , Technology 0.00% ( %) Portfolio of investments 460, Net other assets 11, Net assets attributable to unitholders 471, Unless otherwise stated the above securities are ordinary shares or common stock and admitted to official stock exchange listings. 1 Collective investment scheme permitted under the FCA s COLL, not listed on any exchange. 2 A related party to the fund (Note 11). 19

20 Summary of Portfolio Transactions Largest purchases Largest sales Cost For the year ended 15 September s BAE Systems 7,702 Lloyds Banking Group 4,957 British American Tobacco 4,100 BTG 3,843 Greencore Group 2,564 Standard Chartered 2,456 Diageo 2,422 Royal Dutch Shell A 1,504 Pets at Home Group 1,332 BT Group 1,272 Proceeds For the year ended 15 September s Carnival 11,240 Imperial Brands 8,945 Greencore Group 6,213 Sage Group 5,459 Legal & General Group 4,851 AstraZeneca 4,821 Shire 4,647 Prudential 4,148 John Wood Group 3,831 Rolls-Royce Holdings 3,172 20

21 Statement of Total Return For the year ended 15 September 2017 Income Notes 000 s 000 s 000 s 000 s Net capital gains 2 38,292 27,932 Revenue 3 19,117 17,957 Expenses 4 (2,085) (2,056) Net revenue before taxation 17,032 15,901 Taxation 5 (2) (5) Net revenue after taxation 17,030 15,896 Total return before distributions 55,322 43,828 Distributions 6 (14,869) (13,769) Change in net assets attributable to unitholders from investment activities 40,453 30,059 Statement of Change in Net Assets Attributable to Unitholders For the year ended 15 September s 000 s 000 s 000 s Opening net assets attributable to unitholders 461, ,397 Amounts receivable on issue of units 23, ,146 Amounts payable on cancellation of units (60,367) (77,398) (36,522) 58,748 Dilution adjustment Change in net assets attributable to unitholders from investment activities 40,453 30,059 Retained distribution on Accumulation units 6,054 5,400 Closing net assets attributable to unitholders 471, ,237 21

22 Balance Sheet As at 15 September Notes 000 s 000 s Assets Investments 460, ,741 Current assets Debtors 8 3,158 27,226 Cash and bank balances 17,506 6,303 Total assets 480, ,270 Liabilities Creditors Distributions payable (8,631) (8,008) Other creditors 9 (812) (19,025) Total liabilities (9,443) (27,033) Net assets attributable to unitholders 471, ,237 22

23 Notes to the Accounts 1 Accounting policies Basis of preparation The accounts have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with the SORP for UK Authorised Funds issued by the IMA in May 2014 and in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 102 (The Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102)). Revenue Dividends receivable from equity investments and distributions receivable from authorised unit trusts are recognised net of attributable tax credits and are credited to revenue when they are first quoted ex-dividend. The ordinary element of stocks received in lieu of cash dividends is recognised as revenue of the fund. Any enhancement above the cash dividend is treated as capital. Interest receivable from bank balances is accounted for on an accruals basis. The Annual management charge in respect of the Schroder funds in which the fund invests is rebated to the fund so that no double charging occurs. 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. For I Income units, I Accumulation units and S Income units the Annual management charge is charged against revenue and is accrued within the unit price. This charge is invoiced directly to X Accumulation unitholders. Taxation Corporation tax is provided for on the revenue liable to corporation tax less deductible expenses. 23

24 Notes to the Accounts (continued) 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. 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 15 November 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. The ordinary element of scrip dividends is treated as revenue but does not form part of the distribution. The distribution is in accordance with the COLL. 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 and single priced authorised unit trusts have been valued at the dealing 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. 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 in the Notes to the Accounts. 2 Net capital gains The net capital gains during the year comprise: s 000 s Non-derivative securities 38,294 27,931 Foreign currency gains 0 4 Transaction costs (2) (3) Net capital gains 38,292 27,932 24

25 Notes to the Accounts (continued) 3 Revenue s 000 s UK dividends 16,644 15,511 Overseas dividends Franked distributions Scrip dividends 2,161 2,127 Bank interest 4 24 Underwriting commission 0 32 Annual management charge rebates Total revenue 19,117 17,957 4 Expenses s 000 s Payable to the Manager, associates of the Manager and agents of either of them: Annual management charge 2,018 2,001 2,018 2,001 Payable to the Trustee, associates of the Trustee and agents of either of them: Trustee s fees Safe custody fees 2 2 Interest payable Other expenses: Audit fee Total expenses 2,085 2,056 5 Taxation (a) Analysis of the tax charge for the year s 000 s Overseas withholding tax 2 5 Total current tax (Note 5(b)) 2 5 Corporation tax has not been provided for as expenses exceed the revenue liable to corporation tax. 25

26 Notes to the Accounts (continued) (b) Factors affecting the current tax charge for the year The tax assessed for the year is different from that calculated when the standard rate of corporation tax for authorised unit trusts of 20% ( %) is applied to the net revenue before taxation. The differences are explained below s 000 s Net revenue before taxation 17,032 15,901 Net revenue for the year before taxation multiplied by the standard rate of corporation tax 3,406 3,180 Effects of: Revenue not subject to corporation tax (3,812) (3,571) Movement in excess management expenses Irrecoverable overseas withholding tax 2 5 Current tax charge for the year (Note 5(a)) 2 5 (c) Factors that may affect future tax charges At the balance sheet date, there is a potential deferred tax asset of 4,842,652 (2016 4,436,910) 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 distribution takes account of revenue received on the issue of units and revenue deducted on the cancellation of units, and comprises: s 000 s Final Dividend distribution 14,685 13,408 Add: Revenue deducted on cancellation of units 520 1,311 Deduct: Revenue received on issue of units (336) (950) Distributions 14,869 13,769 Net revenue after taxation 17,030 15,896 Scrip dividends not distributed (2,161) (2,127) Distributions 14,869 13,769 Details of the distribution per unit are set out in the Distribution Table on page

27 Notes to the Accounts (continued) 7 Fair value hierarchy Assets Assets Valuation technique 000 s 000 s Quoted prices for identical instruments in active markets 448, ,858 Valuation techniques using observable market data 11,481 9,883 Total 460, ,741 8 Debtors s 000 s Sales awaiting settlement 8 24,158 Accrued UK dividends 3,051 3,001 1 Accrued overseas dividends Accrued bank interest 0 1 Accrued Annual management charge rebates 7 6 Overseas withholding tax recoverable 9 1 Total debtors 3,158 27,226 1 These debtors amounts include a reallocation adjustment of 58,846 between Accrued Overseas dividends and Accrued UK Dividends. 9 Other creditors s 000 s 000 s 000 s Amounts payable for cancellation of units ,837 Purchases awaiting settlement 411 1,912 Accrued expenses Annual management charge Trustee and Agents Trustee s fees 11 7 Safe custody fees Other accrued expenses Total other creditors , Contingent liabilities There were no contingent liabilities at the balance sheet date (2016 Nil). 27

28 Notes to the Accounts (continued) 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. Annual management charge rebates received or receivable from the Manager of 52,580 ( ,909) are disclosed under Net capital gains and Revenue in the Notes to the Accounts. Amounts due from the Manager at the balance sheet date of 7,309 (2016 6,154) 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 to the Manager in respect of unit transactions at the balance sheet date are disclosed under 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 80.10% ( %). Related party holdings are disclosed in the Portfolio Statement. The revenue earned from these investments of 145,295 ( ,289) is included under Revenue in the Notes to the Accounts. 12 Unit classes The fund currently has four unit classes: I Income units, I Accumulation units, S Income units and X 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: I Income units 0.50% I Accumulation units 0.50% S Income units 0.375% The expense is invoiced directly to X Accumulation unitholders, resulting in a 0% charge to the fund. The closing net asset value of each unit class, the closing net asset value per unit and the closing number of units in issue are given in the Comparative Tables on pages 13 to 16. The distributions per unit class is given in the Distribution Table on page 35. All classes have the same rights on winding up. 28

29 Notes to the Accounts (continued) 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. Cash and near cash may only be held in order to assist in the redemption of units, the efficient management of the fund or purposes regarded as ancillary to the fund. The fund has little exposure to credit risk. The main risks arising from the fund s financial instruments are market price, foreign currency, liquidity and interest rate risks. The Manager s policies for managing these risks are summarised below and have been applied throughout the year and the prior year. Market price risk The fund s investment portfolio is exposed to market price fluctuations which are monitored by the Manager in pursuance of the investment objective and policy. Adherence to investment guidelines and to investment and borrowing powers set out in the Trust Deed, the Prospectus and in the COLL mitigates the risk of excessive exposure to any particular type of security or issuer. Foreign currency risk 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 Australian dollar Euro Sterling , , , , , ,203 29

30 Notes to the Accounts (continued) Liquidity risk The primary source of this risk to the fund is the liability to unitholders for any cancellation of units. This risk is minimised by holding cash, readily realisable securities and access to overdraft facilities up to the amount prescribed by the COLL. Interest rate risk Interest receivable on bank balances will be affected by fluctuations in interest rates. Interest rate risk profile of financial assets and financial liabilities The interest rate risk profile of financial assets and liabilities at the balance sheet date was as follows: Financial assets Floating rate not carrying financial assets interest Total Currency 000 s 000 s 000 s Australian dollar Euro Sterling , , , , , ,236 Financial liabilities not carrying interest Total Currency 000 s 000 s Sterling ,443 9, ,033 27,033 There are no material amounts of non-interest bearing financial assets, other than equities and 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. 30 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.

31 Notes to the Accounts (continued) Global risk exposure Commitment approach When using derivatives, the Manager uses a risk management process that enables it to monitor the risk of a fund s derivative positions. The global risk exposure of a fund is calculated daily either by means of the commitment approach or the Value-at-Risk (VaR) approach. Under the commitment approach, the global risk exposure is defined as the underlying market value of derivatives, after netting and hedging as permitted by the regulation, not exceeding the Net Asset Value of a fund. This is typically used on funds where derivative usage is low or funds which limit their derivatives commitment to 100% or less of their Net Asset Value. The global risk exposure of the fund is calculated using the commitment approach. During the year ended 15 September 2017 the global risk exposure of the fund did not exceed 100% of its Net Asset Value. The lowest, highest, average and actual level of leverage for the fund as at the balance sheet date was as follows: Leverage as at Lowest Highest Average 15 September 0.00% 0.44% 0.01% 0.00% 0.00% 64.57% 0.37% 0.00% 14 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. 31

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 Purchases 1 : Equities 34, , Corporate actions purchases: Equities 1, , , ,880 Sales Equities 67,634 (48) 0 67,586 (0.07) 0.00 Funds ,580 (48) 0 68,532 Total cost of the fund s average net asset value (%) Excluding corporate actions. Commissions Taxes Principal Commissions Taxes Total cost % of % of s 000 s 000 s 000 s principal principal Purchases Purchases 1 : Equities 131, , Funds 3, , Corporate actions purchases: Equities 4, , , ,275 Sales Equities 83,967 (35) 0 83,932 (0.04) 0.00 Funds 1, , ,480 (35) 0 85,445 Total cost of the fund s average net asset value (%) Excluding corporate actions. Average portfolio dealing spread As at the balance sheet date the average portfolio dealing spread was 0.08% ( %). 32

33 Notes to the Accounts (continued) 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 I Income units 152,536,588 4,400,877 (25,222,055) 9,309, ,025,372 I Accumulation units 35,650,746 4,471,999 (2,933,137) (5,530,670) 31,658,938 S Income units 0 2, ,000 X Accumulation units 80,693,324 0 (761,946) 0 79,931,378 33

34 Remuneration Quantitative Remuneration Disclosures Quantitative remuneration disclosures required under the UCITS Directive will be available from Q1 2018, following the conclusion of this performance period, as prior to that date the information available will not provide materially relevant and clear information to investors about how the remuneration policy of Schroder Unit Trusts Limited (the Manager) operates in line with the requirements of the UCITS Directive. 34

35 Distribution Table Final distribution for the year ended 15 September 2017 Group 1 Units purchased prior to 16 September 2016 Group 2 Units purchased on or after 16 September 2016 Net Distribution Distribution revenue Equalisation payable paid p per unit p per unit p per unit p per unit I Income units Group Group I Accumulation units Group Group X Accumulation units Group Group There was no distribution for S Income units, as the total amount distributable was below de minimis. Corporate unitholders (unaudited) Equalisation Corporate unitholders receive the dividend distribution payments as detailed below: % of the total distribution is received as franked investment income. Equalisation applies to units purchased during the distribution period (Group 2 units). It is the average amount of revenue included in the purchase price of Group 2 units and is refunded to the holders of these units as a return of capital. Being capital it is not liable to income tax but must be deducted from the cost of units for capital gains tax purposes. 35

36 General Information Manager Schroder Unit Trusts Limited 31 Gresham Street London EC2V 7QA Authorised and regulated by the Financial Conduct Authority Registrar Schroder Unit Trusts Limited 31 Gresham Street London EC2V 7QA Authorised and regulated by the Financial Conduct Authority Investment Adviser Schroder Investment Management Limited 31 Gresham Street London EC2V 7QA Authorised and regulated by the Financial Conduct Authority Trustee J.P. Morgan Europe Limited Chaseside Bournemouth BH7 7DA Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority Administration Details Schroders FREEPOST RLTZ-CHSY-HBUT PO Box 1102 Chelmsford Essex CM99 2XX Investor Services Dealing Fax Independent Auditors PricewaterhouseCoopers LLP Atria One 144 Morrison Street Edinburgh EH3 8EX Authorisation The fund is an authorised unit trust and is constituted pursuant to the COLL and is structured as a trust. The fund is a UCITS scheme for the purpose of the categorisation of the COLL. 36

37 For further literature please contact Schroder Investor Services on or at or visit our website at Issued in November 2017 by Schroder Unit Trusts Limited, 31 Gresham Street, London EC2V 7QA. Registered No: England. Authorised and regulated by the Financial Conduct Authority. w34377