Phoenix unit trust managers. manager s annual report. Putm Cautious unit trust. For the year: 1 August 2016 to 31 July 2017

Transcription

1 Phoenix unit trust managers manager s annual report For the year: 1 August 2016 to 31 July 2017 Putm Cautious unit trust

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3 Contents investment review* 2-3 Portfolio of investments* 4-11 top ten purchases and sales 12 statistical information* statements of total return & change in unitholders funds 16 Balance sheet 17 notes to the financial statements Distribution tables 30 responsibilities of the manager and trustee 31 trustee s report and directors statement 32 independent auditor s report Corporate information* *these collectively comprise the authorised Fund manager s report. 1

4 investment review Dear Investor Welcome to the Putm Cautious unit trust annual report for the 12 months to 31 July Performance Review over the review period, the Putm Cautious unit trust returned 4.8% compared with its sector average, which returned 3.5%. (source: Lipper, bid to bid, net income reinvested for 12 months to 31/07/17). in the table below, you can see how the Fund performed against its sector average over the last five discrete oneyear periods. Standardised Past Performance Jul Jul Jul Jul Jul % growth % growth % growth % growth % growth PUTM Cautious Unit Trust Sector Average source: Lipper, bid to bid, net income reinvested to end July for each year. Past performance is not a guide to future performance. the value of units and the income from them can go down as well as up and is not guaranteed. You may not get back the full amount invested. Please note that all past performance figures are calculated without taking the initial charge into account. 2

5 investment review Portfolio and Market Review Domestic-facing and consumer-sensitive uk equities benefited from the unexpected strength of the uk economy in the wake of the country s vote to leave the eu. meanwhile, those companies that derive most of their earnings from overseas operations were given impetus by the weakness in sterling. Donald trump s surprise us election win was also a significant driver of markets as the period progressed. after initial caution, global markets rallied strongly as investors focused on mr trump s business-friendly, fiscally expansive agenda. this was positive for global stock markets and corporate bonds, while the yields on government bonds rose as investors anticipated higher inflation to flow from this fiscal boost. Further signs of global economic recovery and meaningful corporate earnings growth propelled several equity indices to record levels during the first quarter of importantly, the recovery started to broaden out to include europe. as the period progressed, fears for the future of the european union were allayed by the election in may of a pro-european French president, providing a fillip to equity markets. subsequently, the prospect of reduced support from global central banks led to a general decline in equity and government bond markets in June. our holding in airline conglomerate iag added to returns after reporting better-than-expected results and announcing a share buyback. the stock also benefited from the resilience of the uk economy in the wake of the country s eu referendum. We chose to reduce the holding in iag following its strong performance. another strong performer was nmc, the uae-based health care provider. the company has been a beneficiary of regulatory changes in the healthcare sector in the uae. housebuilder Bellway also made good progress thanks to better-than-anticipated results driving forecast upgrades. thomas Cook was another beneficiary of the improvement in consumer sentiment that followed the difficult post-referendum trading period. its shares had been priced for a significant slowdown akin to that felt in 2008/09, not a scenario we thought was likely. however, returns were impacted by our position in Bt, which issued a profit warning. the telecommunications giant was troubled by a scandal in its italian accounting operations and a slowdown in public sector spending. our position in Capita, the support service provider, was also disappointing. issues with contract delays, cost overruns and lower growth prospects led to a profit warning. Market Outlook and Fund Strategy We remain positive on uk equities. the dividend yield remains attractive relative to other markets and asset classes. in addition, earnings forecasts are being upgraded and this year the uk market should see earnings growth well into double digits. We remain constructive on corporate bond markets. We base this view on the lack of negative catalysts, the positive economic backdrop with low inflation, muted volatility and supportive central bank policy. together, these factors create a goldilocks scenario for corporate bond markets in the short term. however, as this scenario gets increasingly priced in, there is less potential for further outperformance. 3

6 Portfolio of investments Investments held at 31 July 2017 market Percentage of value total net assets holding investment % Fixed Interest (31/07/ %) Government Bonds (31/07/ %) ,864,570 uk treasury 1% 07/09/2017 1,866, ,440 uk treasury 1.25% 22/07/ , ,000 uk treasury 1.5% 22/01/ , ,000 uk treasury 1.5% 22/07/ , ,276 uk treasury 1.5% 22/07/ , ,922 uk treasury 1.75% 22/07/ , ,000 uk treasury 1.75% 07/09/ , ,000 uk treasury 1.75% 07/09/ , ,870 uk treasury 1.75% 22/07/ , ,149,200 uk treasury 2% 22/07/2020 1,207, ,000 uk treasury 2% 07/09/ , ,800 uk treasury 2.25% 07/09/ , ,731 uk treasury 2.5% 22/07/ , ,000 uk treasury 2.75% 07/09/ , ,871 uk treasury 3.25% 22/01/ , ,800 uk treasury 3.5% 22/01/ , ,923 uk treasury 3.5% 22/07/ , ,969 uk treasury 3.75% 07/09/ , ,000 uk treasury 3.75% 07/09/ , ,457 uk treasury 3.75% 22/07/ , ,000 uk treasury 4% 07/03/ , ,217 uk treasury 4% 22/01/ , ,890 uk treasury 4.25% 07/12/ , ,543 uk treasury 4.25% 07/06/ , ,075 uk treasury 4.25% 07/03/ , ,264 uk treasury 4.25% 07/09/ , ,000 uk treasury 4.25% 07/12/ , ,782 uk treasury 4.25% 07/12/ , ,451 uk treasury 4.25% 07/12/ , ,534 uk treasury 4.25% 07/12/ , ,000 uk treasury 4.5% 07/09/ , ,407 uk treasury 4.5% 07/12/ , ,318 uk treasury 4.75% 07/03/ , ,958 uk treasury 4.75% 07/12/ , ,000 uk treasury 4.75% 07/12/ , ,000 uk treasury 5% 07/03/ , ,781 uk treasury 6% 07/12/ , Public Authorities (31/07/ %) ,000 alberta Canada 1% 15/11/ , Government Index-Linked Bonds (31/07/ %)

7 Portfolio of investments Investments held at 31 July 2017 market Percentage of value total net assets holding investment % Sovereign/Supranational Bonds (31/07/ %) ,000 european investment Bank 1.5% 01/02/ , ,200,000 european investment Bank 4.5% 07/03/2044 1,776, ,274,000 european investment Bank 5% 15/04/2039 4,948, ,000,000 european investment Bank 5.375% 07/06/2021 1,176, ,000 european investment Bank 5.5% 15/04/ , ,863,000 european investment Bank 5.625% 07/06/2032 4,263, Corporate Bonds (31/07/ %) ,000 aa Bond 2.875% 31/01/ , ,000 abbey national treasury services 1.875% 17/02/ , ,000 affinity Water Programme Finance 3.278% 22/08/ , ,000 america movil sab De CV 4.948% 22/07/ , ,078,000 anglian Water services 5.5% Vrn 10/10/2040 1,086, ,000 anheuser Busch inbev 2.25% 24/05/ , ,000 anheuser Busch inbev 9.75% 30/07/ , ,000 annington Funding 3.184% 12/07/ , ,000 annington Funding 3.685% 12/07/ , ,000 arion Bank hf 2.5% 26/04/ , ,000 arqiva Financing 4.882% 31/12/ , ,000 aspire Defence Finance 4.674% 31/03/ , ,000 at&t 3.55% 14/09/ , ,000 at&t 4.375% 14/09/ , ,000 aviva 6.125% 14/11/2036 1,011, ,000 aviva 6.625% Vrn 03/06/ , ,000 axa 6.772% Vrn Perpetual 441, ,000 Babcock international group 1.875% 05/10/ , ,000 Bank of america 2.3% 25/07/ , ,000 Bank of nova scotia 1.25% 08/06/ , ,000 Barclays Bank 3.125% 17/01/ , ,000 Barclays Bank 10% 21/05/ , ,000 Bat international Finance 1.75% 05/07/ , ,000 Bat international Finance 2.25% 09/09/ , ,000 BP Capital markets 2.03% 14/02/ , ,000 Bupa Finance 3.375% 17/06/ , ,000 Canary Wharf 5.952% 22/01/ , ,000 Citigroup 6.8% 25/06/ , ,000 Channel Link enterprises Finance 3.043% Vrn 30/06/ , ,000 Comcast Corporation 5.5% 23/11/ , ,000 Connect m % 31/03/ , ,000 Co-operative Bank 4.75% 11/11/ , ,000 Crh Finance uk 4.125% 02/12/ , ,000 CYBg 3.125% Vrn 22/06/ ,

8 Portfolio of investments Investments held at 31 July 2017 market Percentage of value total net assets holding investment % Corporate Bonds (continued) 300,000 Daimler 1.5% 13/01/ , ,000 Daimler 2.375% 16/12/ , ,000 Deutsche Bank 1.875% 28/02/ , ,000 Digital stout holding 3.3% 19/07/ , ,000 Direct Line insurance 9.25% Vrn 27/04/ , ,000 e.on international Finance 6% 30/10/ , ,000 e.on international Finance 6.375% 07/06/ , ,000 electricite de France 6% Vrn Perpetual 423, ,500,000 electricite de France 6.125% 02/06/2034 2,055, ,000 enel 6.25% 20/06/ , ,000 enel Finance 5.75% 14/09/ , ,000 eversholt Funding 6.359% 02/12/ , ,000 FCe Bank 2.727% 03/06/ , ,000 First group 8.75% 08/04/ , ,000 ge Capital uk 5.875% 18/01/ , ,000 glaxosmithkline Capital 3.375% 20/12/ , ,000 glaxosmithkline Capital 4.25% 18/12/ , ,000 glencore Finance europe 5.5% 03/04/ , ,000 go ahead group 2.5% 06/07/ , ,000 greene King Finance Frn 15/12/ , ,000 gwynt y mor ofto 2.778% 17/02/ , ,000 heathrow Funding 2.75% 09/08/ , ,000 heathrow Funding 5.225% Vrn 15/02/ , ,000 heathrow Funding 6.75% 03/12/ , ,000 heathrow Funding 7.125% 14/02/2024 1,031, ,000 highbury Finance 7.017% 20/03/ , $500,000 hsbc holdings 2.625% 16/08/ , ,000 hsbc holdings 5.375% 04/11/ , ,000 hsbc holdings 6% 29/03/ , ,000 hsbc holdings 6.5% 20/05/ , $460,000 hsbc holdings 6% Vrn Perpetual 366, ,000 hsbc holdings 6.875% Vrn Perpetual 257, ,110,000 imperial Brands Finance 6.25% 04/12/2018 1,184, ,000 innogy Finance 6.125% 06/07/ , ,000 integrated accomodation service 6.48% 31/03/ , ,000 intesa sanpaolo 6.25% Vrn Perpetual 233, ,000 intu metrocentre Finance 4.125% 06/12/ , $237,000 Kinder morgan 5.3% 01/12/ , ,000 Land securities Capital markets 2.399% 08/02/ , ,000 Legal & general 5.375% Vrn 27/10/ , ,000 Legal & general 5.875% Vrn Perpetual 212, ,000 Lloyds Banking group 6% 08/02/ , ,000 Lloyds Banking group 6.5% 17/09/ , ,000 Lloyds Banking group 7.625% 22/04/2025 1,023,

9 Portfolio of investments Investments held at 31 July 2017 market Percentage of value total net assets holding investment % Corporate Bonds (continued) 240,000 Lloyds Banking group Vrn Perpetual 253, ,000 London and Quadrant 2.625% 05/05/ , ,000 London and Quadrant housing trust 3.75% 27/10/ , ,010,000 Longstone Finance 4.896% 19/04/2031 1,136, ,000 marstons % Vrn 15/10/ , ,000 marstons 5.641% Vrn 15/07/ , ,000 merrill Lynch 8.125% 02/06/ , ,000 morgan stanley 2.625% 09/03/ , ,000 motability operations group 3.625% 10/03/ , ,000 national grid gas Finance 2.125% 22/09/ , ,000 national grid north america 1.875% 06/08/ , ,000 national Westminster Bank 6.5% 07/09/ , ,000 nationwide Building society 2.25% 29/04/ , ,000 nationwide Building society 3.25% 20/01/ , ,000 new York Life global Funding 1% 15/12/ , ,000 ngg Finance 5.625% Vrn 18/06/ , ,000 orange 5.625% 23/01/ , ,000 Paragon treasury 3.625% 21/01/ , ,000 Penarian housing Finance 3.212% 07/06/ , ,000 Pennon group 6.75% Vrn Perpetual 462, ,000 Premiertel 6.175% 08/05/ , ,000 Provident Financial 8% 23/10/ , ,000 Prudential 5% Vrn 20/07/ , ,000 relx 2.75% 01/08/ , ,000 royal Bank of scotland 5.125% 13/01/ , ,000 royal Bank of scotland 6.625% 17/09/ , ,000 royal KPn nv 5% 18/11/ , ,000 rwe ag 7% Vrn Perpetual 213, ,000 santander 3.625% 14/01/ , ,000 santander 3.875% 15/10/ , ,000 santander 5.75% 02/03/ , ,000 severn trent 1.125% 07/09/ , ,000 severn trent 2.75% 05/12/ , ,000 severn trent 6.25% 07/06/ , ,007 shaftesbury Carnaby 2.487% 30/09/ , ,000 south eastern Power networks 5.5% 05/06/ , ,000 spirit issuer Frn 28/12/ , ,000 sse 3.875% Vrn Perpetual 237, ,000 sse 5.875% 22/09/ , ,000 stagecoach group 4% 29/09/ , ,000 standard Chartered Bank 4.375% 18/01/ , ,000 telefonica emisiones 5.597% 12/03/ ,

10 Portfolio of investments Investments held at 31 July 2017 market Percentage of value total net assets holding investment % Corporate Bonds (continued) 180,000 telefonica emisiones sau 5.375% 02/02/ , ,000,000 telereal securitisation % 10/12/2031 1,134, ,000 tesco Property 5.744% sink 13/04/ , ,000 thames Water utilities Cayman Finance 2.375% 03/05/ , ,000 thames Water utilities Cayman Finance 3.5% 25/02/ , $410,000 ubs group Funding 4.125% 15/04/ , ,000 Vattenfall 6.875% 15/04/ , ,000 Vodafone 3% 12/08/ , ,000 Volkswagen Finance 1.5% 12/04/ , ,000 Volkswagen Finance 1.75% 17/04/ , ,000 Volkswagen Finance 1.75% 12/09/ , ,000 Wachovia Bank 5.25% 01/08/ , ,000 Wal-mart stores 4.875% 19/01/ , ,000 Wells Fargo & Company 2% 28/07/ , ,000 Wells Fargo & Company 2.125% 22/04/ , ,000 Western Power Distribution 5.75% 16/04/ , ,000 Wheatley group Capital 4.375% 28/11/ , ,000 Yorkshire Building society 4.125% Vrn 20/11/ , ,000 Yorkshire Power 7.25% 04/08/ , ,000 Yorkshire Water 6.375% 19/08/ , Warrants (31/07/ %) Kenmare resources warrants* 0.00 UK Equities (31/07/ %) Oil & Gas Producers 237,206 BP 1,059, ,779 royal Dutch shell B 1,440, ,793 tullow oil 163, Oil Equipment & Services 7,127 Petrofac 32, Mining 45,910 anglo american 576, ,598 glencore 879, ,682 rio tinto 771, ,782 Vedanta resources 52, Construction & Materials 5,588 Keller 49, Kier group 4, ,780 Polypipe group 200, Aerospace & Defence 46,219 Bae systems 278, ,628 senior 134,

11 Portfolio of investments Investments held at 31 July 2017 market Percentage of value total net assets holding investment % General Industrials 61,335 smith (Ds) 296, ,599 rpc group 193, Support Services 22,550 aggreko 191, ,062 Babcock international 616, ,285 essentra 66, ,709 Ferguson 123, ,211 grafton group 76, ,786 howden Joinery group 93, Software & Computer Services 48,345 sage 328, Automobiles & Parts 85,842 gkn 276, Beverages 12,195 Diageo 298, Household Goods 10,277 Bellway 325, ,736 Bovis homes group 188, ,555 Countryside Properties 199, ,772 Crest nicholson holdings 199, ,010 reckitt Benckiser 519, Personal Goods 4,990 unilever 216, Tobacco 20,609 British american tobacco 976, ,586 imperial Brands 426, Healthcare Equipment & Services 17,149 nmc health 393, ,070 smith & nephew 159, Pharmaceuticals & Biotechnology 9,158 astrazeneca 416, ,941 Btg 223, ,828 glaxosmithkline 667, ,025 shire 815, General Retailers 60,595 Dixons Carphone 162, ,036 inchcape 360, Media 128,365 entertainment one 306, ,389 informa 106, ,939 relx 163, ,629 rightmove group 155, ,670 WPP 302,

12 Portfolio of investments Investments held at 31 July 2017 market Percentage of value total net assets holding investment % Travel & Leisure 3,865 Carnival 197, ,920 gvc holdings 282, ,181 international Consolidated airlines group 339, ,046 Ladbrokes Coral group 124, ,312 mitchells & Butlers 141, ,656 thomas Cook group 300, ,591 tui 305, Fixed Line Telecommunications 33,004 Bt group 103, mobile telecommunications 456,395 Vodafone group 1,012, Gas, Water & Multiutilities 51,759 Centrica 103, ,039 national grid 508, ,683 severn trent 126, Banks 183,462 Barclays 372, ,200 hsbc holdings 1,871, ,826 Lloyds Banking group 252, ,544 standard Chartered 451, Non-Life Insurance 53,103 Direct Line insurance 198, ,742 esure group 91, Life Insurance 130,401 aviva 699, ,671 Just group 113, ,443 Legal & general 225, ,501 Prudential 1,142, Real Estate Investment Services 18,275 savills 166, Financial Services 26,224 Close Brothers 399, ,754 Virgin money holdings 130, ,286 Worldpay 109, Electricity 23,267 Drax group 74, Industrial Engineering 17,387 Bodycote 158, Chemicals 14,438 Johnson matthey 401,

13 Portfolio of investments Investments held at 31 July 2017 market Percentage of value total net assets holding investment % Futures (31/07/ %) 0.00 (9) CBt us 10 Year note september 2017 (551) 0.00 (3) CBt us 10 Year ultra t note september 2017 (351) CBt us 5 Year note september (6) CBt us 2 Year note september 2017 (571) sfe australian 3 Year Bond september 2017 (415) sfe australian 10 Year Bond september 2017 (2,343) eux euro Bund september 2017 (3,500) 0.00 (14) eux euro Bobl september (1) eux euro Buxl 30 Year september , icf ice Long gilt september 2017 (510) 0.00 Forward Foreign Exchange Contracts (31/07/ %) 0.01 gbp 556,759 gbp Forward Currency Contract 17/10/ , (eur 629,344) eur Forward Currency Contract 17/10/2017 (563,451) (0.44) gbp 1,513,625 gbp Forward Currency Contract 17/10/2017 1,513, (usd 1,959,075) usd Forward Currency Contract 17/10/2017 (1,488,869) (1.16) usd 238,091 usd Forward Currency Contract 17/10/ , (gbp 184,646) gbp Forward Currency Contract 17/10/2017 (184,646) (0.14) usd 206,548 usd Forward Currency Contract 17/10/ , (gbp 157,065) gbp Forward Currency Contract 17/10/2017 (157,065) (0.12) Portfolio of investments^ 120,231, Net other assets 7,730, Net assets 127,961, all investments with the exception of the Forward Foreign exchange Contracts are listed on recognised stock exchanges and are approved securities within the meaning of the FCa rules unless otherwise stated. the counterparty for the Futures Contracts is morgan stanley. the counterparties for the Forward Foreign exchange Contracts are BnP, Citibank and hsbc. *the Kenmare resources warrants are not listed and have an exercise price of 29.09p. ^includes investment liabilities Credit Ratings % investment grade 89,114, non investment grade 2,838, unrated bonds 2,371, Total investment in bonds 94,324, `

14 top ten purchases and sales For the year ended 31 July 2017 Purchases Cost european investment Bank 4.5% 07/03/2044 1,792,137 european investment Bank 5.375% 07/06/2021 1,191,600 British american tobacco 617,819 uk treasury 5% 07/03/ ,081 Barclays 3.125% 17/01/ ,776 european investment Bank 1.5% 01/02/ ,950 uk treasury 1.5% 22/07/ ,488 hsbc holdings 2.625% 16/08/ ,248 uk treasury 4.75% 07/12/ ,058 aa Bond 2.875% 31/01/ ,000 Sales Proceeds CPuK Finance 7.239% 28/02/2024 1,380,566 ge Capital 5.5% Vrn 15/09/2066 1,320,000 uk treasury 1% 07/09/2017 1,120,432 Yorkshire Power 7.25% 04/08/ ,128 Barclays Bank 10% 21/05/ ,551 society Lloyds 7.421% Vrn Perpetual 800,000 BhP Billiton Finance 4.3% 25/09/ ,573 at&t 5.875% 28/04/ ,038 enterprise inns 6.875% 09/05/ ,013 Dignity Finance % 31/12/ ,501 Total purchases 25,304,161 Total sales 36,183,325 12

15 statistical information Comparative tables Accumulation 31/07/17 31/07/16 31/07/15 pence pence pence Change in net assets per unit opening net asset value per unit return before operating charges* operating charges (0.42) (0.38) (0.28) return after operating charges* Distributions on accumulation units (6.84) (6.83) (6.55) retained distributions on accumulation units Closing net asset value per unit *after direct transaction costs of: Performance return after charges 5.39% 8.53% 6.91% Other information Closing net asset value ( 000) 127, , ,047 Closing number of units 58,679,028 66,281,324 72,407,223 operating charges 0.20% 0.20% 0.18% Direct transaction costs 0.03% 0.03% 0.05% Prices + highest unit price (pence) Lowest unit price (pence) high and low price disclosures are based on quoted unit prices. therefore the opening and closing nav prices may fall outside the high/low price threshold. 13

16 statistical information Investment objective the objective of the Fund is to provide over the medium term a superior return to that available from a higher rate deposit account. the Fund is a lower risk managed fund designed to provide cautious investors with exposure to securities in a manner designed to minimise the volatile situations which can arise in financial markets. a considerable part of the Fund may be invested in uk government securities or other high quality uk fixed interest stocks. however the Fund may also have some limited exposure to ordinary shares and high quality fixed interest securities overseas. Investment policy the Fund will invest in mainly united Kingdom government securities and other high quality united Kingdom fixed interest stocks. the Fund may also hold cash or near cash where reasonably necessary to fund redemption of units, for the efficient management of the scheme, or for purposes ancillary to the objectives of the Fund. it may also borrow, providing such borrowing is on a temporary basis, and does not exceed the limits applicable to the Fund. Revenue distribution and pricing units of the Fund are available as accumulation units (where revenue is reinvested to enhance the unit price). there will be two potential distributions in each accounting year: an interim distribution as at 31 January and a final distribution as at 31 July. at each distribution the net revenue after deduction of expenses, arising in the preceding six months from the investments of the Fund is apportioned amongst the unitholders. unitholders receive a tax voucher giving details of the distribution and the manager s report no later than two months after these dates. 14

17 statistical information Risk and reward profile the risk and reward indicator table demonstrates where the Fund ranks in terms of its potential risk and reward. the higher the rank the greater the potential reward but the greater the risk of losing money. it is based on past data, may change over time and may not be a reliable indication of the future risk profile of the Fund. the shaded area in the table below shows the Fund s ranking on the risk and reward indicator. fi Typically lower rewards, Typically higher rewards, lower risk higher risk fi this Fund is ranked at 3 because funds of this type have experienced low to medium rises and falls in value in the past. the above figure applies to the following unit class: accumulation Please note that even the lowest risk class can lose you money and that extreme market circumstances can mean you suffer severe losses in all cases. Please note the Fund s risk category may change in the future. the indicator does not take into account the following risk of investing in this Fund: Bonds are affected by changes in interest rates, inflation and any decline in the creditworthiness of the bond issuer. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. the Fund may use derivatives to reduce risk or cost or to generate additional capital or income at low risk, or to meet its investment objective. For more information on the risk and reward profiles of our Funds, please refer to the most up to date relevant fund and unit Class Key investor information Documents (KiiDs). these are available online at 15

18 annual financial statements For the year ended 31 July 2017 Statement of total return 31/07/17 31/07/16 notes income net capital gains 4 2,646,635 6,114,576 revenue 5 4,556,880 5,006,424 expenses 6 (261,119) (262,545) interest payable and similar charges (1) (1) net revenue before taxation 4,295,760 4,743,878 taxation 7 (7,688) (5,446) net revenue after taxation 4,288,072 4,738,432 total return before distributions 6,934,707 10,853,008 Distributions 8 (4,288,087) (4,738,421) Change in unitholders funds from investment activities 2,646,620 6,114,587 Statement of change in unitholders funds 31/07/17 31/07/16 opening net assets 137,146, ,046,908 amounts receivable on issue of units 795, ,885 amounts payable on cancellation of units (16,792,500) (11,942,717) (15,996,513) (11,643,832) Change in unitholders funds from investment activities 2,646,620 6,114,587 retained distributions on accumulation units 4,165,369 4,628,450 Closing net assets 127,961, ,146,113 16

19 annual financial statements as at 31 July 2017 Balance sheet 31/07/17 31/07/16 notes Assets: Fixed assets: investments 120,249, ,196,335 Current assets: Debtors 9 1,720,738 1,571,041 Cash and bank balances 10 6,067,849 8,110,603 total current assets 7,788,587 9,681,644 total assets 128,038, ,877,979 Liabilities: investment liabilities (18,726) (19,846) Creditors: Bank overdraft 11 (11,431) (122,834) other creditors 12 (46,710) (1,589,186) total creditors (58,141) (1,712,020) total liabilities (76,867) (1,731,866) net assets 127,961, ,146,113 unitholders funds 127,961, ,146,113 17

20 notes to the financial statements Note 1 (a) (b) (c) (d) (e) (f) (g) Accounting policies Basis of preparation the financial statements have been prepared under the historical cost basis, as modified by the revaluation of investments and in compliance with Financial reporting standard (Frs102) and in accordance with the statement of recommended Practice (2014 sorp) for financial statements of authorised Funds issued by the investment association in may the financial statements have been prepared on a going concern basis. unless otherwise stated all accounting policies are consistent with those of the prior year. Valuation of investments the quoted investments of the Fund have been valued at bid dealing prices as at 12 noon, 31 July 2017 in accordance with the trust Deed. Derivatives are valued as at 12 noon on the last working day of the accounting year. exchange traded derivatives are priced at fair value, which is deemed to be the bid price. over-the-counter derivatives are priced at fair value using valuation models or data sourced from market data providers. Foreign exchange transactions in foreign currencies during the year are translated into sterling at the rates of exchange ruling on the transaction date. amounts held in foreign currencies have been translated at the rate of exchange ruling at 12 noon, 31 July Revenue Dividends receivable from equity investments are credited to revenue when they are first quoted ex-dividend. interest receivable on bank deposits is accounted for on an accruals basis. interest receivable on future deposits is accounted for on a monthly basis. interest receivable from debt securities is accounted for on an effective interest rate basis. accrued interest purchased or sold is excluded from the cost of the security and is dealt with as revenue. Special dividends special dividends are treated either as revenue or repayments of capital depending on the facts of each particular case. it is likely that where the receipt of a special dividend results in a significant reduction in the capital value of the holding, then the special dividend should be treated as capital in nature so as to ensure the matching principle is applied to gains and losses. otherwise, the special dividend should be treated as revenue. Stock dividends the ordinary element of stocks received in lieu of cash is recognised as revenue. any excess in value of shares received over the amount of cash forgone would be treated as capital. Expenses expenses are accounted for on an accruals basis. expenses of the Fund are charged against revenue, except for costs associated with the purchase and sale of investments, which are charged to capital. 18

21 notes to the financial statements Note 1 (h) (i) Note 2 (a) (b) (c) (d) Accounting policies (continued) Taxation the charge for taxation is based on taxable income for the year less allowable expenses. uk dividends are disclosed net of any related tax credit. overseas dividends are disclosed gross of any tax suffered, the tax element being separately disclosed in the taxation note. the Fund satisfied the rules of si 2006/964, reg 19 throughout the period. all distributions made are therefore made as interest distributions. the Fund has no corporate tax liability as interest distributions are tax deductible. Deferred taxation Deferred tax is provided at current rates of corporation tax on all timing differences which have originated but not reversed by the Balance sheet date. Deferred tax is not recognised on permanent differences. Deferred tax assets are recognised only to the extent that the manager considers it is more likely than not that there will be taxable profits from which underlying timing differences can be deducted. Distribution policies Basis of distribution revenue produced by the Fund s investments accumulates during each accounting period. if, at the end of each accounting period, revenue exceeds expenses, the net revenue of the Fund is available to be accumulated to unitholders. the Fund is more than 60% invested in qualifying investments (as defined by si 2006/964, reg 20) and will pay an interest distribution. Unclaimed distributions Distributions remaining unclaimed after six years are paid into the Fund as part of the capital property. Stock dividends it is the policy of the Fund, where applicable, to distribute the revenue element of stock dividends. Interest from debt securities Future cash flows on all assets are considered when calculating revenue on an effective interest rate basis and where, in the manager s view there is doubt as to the final maturity value, an estimate of the final redemption proceeds will be made in determining those cash flows. the impact of this will be to reduce the revenue from debt securities, and therefore the revenue distributed, whilst preserving capital within the Fund. 19

22 notes to the financial statements Note 3 (a) (b) (c) (d) Risk management policies the main risks arising from the Fund s financial instruments are market price risk, interest rate risk, foreign currency risk, liquidity risk, credit risk and counterparty risk. the manager s policies for managing these risks are summarised below and have been applied throughout the year. Market price risk market price risk arises mainly from uncertainty about future prices of financial instruments held. it represents the potential loss the Fund might suffer through holding market positions in the face of price movements. the Fund s investment portfolio is exposed to market fluctuations which are monitored by the manager in pursuit of the investment objectives and policies. adherence to investment guidelines and to investment and borrowing powers set out in the trust Deed, the Prospectus and in the Collective investment schemes sourcebook ( the sourcebook ) mitigates the risk of excessive exposure to any particular type of security or issuer. Interest rate risk the Fund s assets are comprised of mainly fixed interest rate securities. there is therefore a risk that the capital value of investments will vary as a result of the market s sentiment regarding future interest rates. expectations of future rates may result in an increase or decrease in the value of investments held. in general, if interest rates rise the revenue potential of the Fund also rises but the value of fixed interest rate securities will decline. a decline in interest rates will in general have the opposite effect. any transactions in fixed interest securities must be used in accordance with the investment objective of the Fund and must be deemed by the investment manager to be economically appropriate. regular production of portfolio risk reports highlight concentrations of risk, including interest rate risk, for this Fund. interest receivable on bank deposits or payable on bank overdraft positions will be affected by fluctuations in interest rates. Foreign currency risk a proportion of the Fund s investment portfolio is invested in overseas securities and the Balance sheet can be affected by movements in foreign exchange rates. the Fund may be subject to short term exposure to exchange rate movements between placing the purchase or sale of securities and agreeing a related currency transaction albeit usually the two transactions are agreed at the same time. any such currency transactions must be used in accordance with the investment objective of the Fund and must be deemed by the investment manager to be economically appropriate. regular production of portfolio risk reports highlight concentrations of risk, including currency risk, for the Fund. Liquidity risk the Fund s assets are comprised of mainly readily realisable securities. if insufficient cash is available to finance unitholder redemptions then securities held by the Fund may need to be sold. the risk of low market liquidity, through reduced trading volumes, may affect the ability of the Fund to trade financial instruments at values previously indicated by financial brokers. From time to time, liquidity may also be affected by stock specific or economic events. to manage these risks the manager performs market research in order to achieve the best price for any transactions entered into on behalf of the Fund. all stocks are valued daily but those stocks identified as being less liquid are reviewed on a regular basis for pricing accuracy. 20

23 notes to the financial statements Note 3 (e) (f) (g) Risk management policies (continued) Credit risk at the Balance sheet date some 48.97% of the Fund s assets were held in corporate bonds and 14.55% in government bonds (31/07/16: 51.61% and 15.78% respectively). Corporate and government bonds involve the risk that the bond issuer will be unable to meet its liability to pay interest or redeem the bond. the Fund manager selects bonds taking into account the credit rating, bearing in mind the Fund s objective. Counterparty risk Certain transactions in securities that the Fund enters into expose it to the risk that the counterparty will not deliver the investment (purchase) or cash (sale) after the Fund has fulfilled its responsibilities. the Fund only buys and sells investments through brokers which have been approved by the manager as an acceptable counterparty. this list is reviewed annually. Derivatives Derivative transactions may be used by the Fund for the purposes of meeting its investment objectives and also for hedging. in doing so the manager may make use of a variety of derivative instruments in accordance with the sourcebook. the use of derivatives for investment purposes means that the net asset value Fund may at times have high volatility, although derivatives will not be used with the intention of raising the risk profile of the Fund. Where derivatives are used for hedging this will not compromise the risk profile of the Fund. use of derivatives will not knowingly contravene any relevant investment objective or limits. the manager has used exchange traded futures to hedge the value of the investment portfolio against market and stock specific risk. as at 31 July 2017 there are open futures positions as shown in the Portfolio of investments. the Fund has used forward foreign currency contracts to hedge the currencies which are physically owned during the year. the purpose of undertaking these contracts is to protect the portfolio as far as possible from a movement in the value of exchange rates. the derivative counterparties are shown at the bottom of the Portfolio of investments on page 11. Note 4 Net capital gains the net capital gains during the year comprise: 31/07/17 31/07/16 gains on non-derivative securities 2,680,979 6,321,737 Losses on derivative contracts (101,534) (268,667) handling charges (3,299) (3,159) Capital special dividend 57,726 5,220 Currency gains 12,763 59,445 net capital gains 2,646,635 6,114,576 21

24 notes to the financial statements Note 5 Revenue 31/07/17 31/07/16 uk dividends 955, ,909 overseas dividends 58,601 48,509 interest on debt securities 3,543,293 4,039,135 Bank interest ,275 Deposit interest (685) (404) total revenue 4,556,880 5,006,424 Note 6 Expenses 31/07/17 31/07/16 (a) Payable to the manager or associates of the manager and agents of either of them: manager s periodic charge 219, ,367 registration fees , ,792 (b) (c) Payable to the trustee or associates of the trustee and agents of either of them: trustee s fees 25,930 32,241 other expenses: audit fee 7,980 8,087 safe custody charges 4,907 5,727 FCa fee Printing & stationery 2, Professional fees ,622 14,512 total expenses 261, ,545 22

25 notes to the financial statements Note 7 Taxation 31/07/17 31/07/16 (a) analysis of tax charge for the year overseas withholding tax 7,688 5,446 total taxation (note 7(b)) 7,688 5,446 (b) (c) Factors affecting the tax charge for the year the tax assessed for the year is lower than that calculated when the standard rate of corporation tax for authorised unit trusts is applied to total revenue return. the differences are explained below: net revenue before taxation 4,295,760 4,743,878 Corporation tax at 20% (31/07/16: 20%) 859, ,776 effects of: revenue not subject to taxation (202,753) (190,684) overseas withholding tax 7,688 5,446 interest distributions deductible (656,399) (758,092) total tax charge for the year (note 7(a)) 7,688 5,446 authorised unit trusts are exempt from tax on capital gains in the uk. Provision for deferred taxation no deferred tax asset has been recognised in the year or the prior year. Note 8 Distributions the distributions take account of amounts added on the issue of units and amounts deducted on the cancellation of units, and comprise: 31/07/17 31/07/16 interim 2,133,608 2,294,684 Final 2,031,761 2,333,766 4,165,369 4,628,450 amounts deducted on cancellation of units 128, ,340 amounts added on issue of units (5,940) (2,369) net distribution for the year 4,288,087 4,738,421 net revenue after taxation 4,288,072 4,738,432 movement of undistributed revenue 15 (11) net distribution for the year 4,288,087 4,738,421 Details of the distribution per unit are set out in the tables on page

26 notes to the financial statements Note 9 Debtors 31/07/17 31/07/16 sales awaiting settlement 371,964 9,975 accrued income 1,347,604 1,560,085 overseas tax recoverable 1, total debtors 1,720,738 1,571,041 Note 10 Cash and bank balances 31/07/17 31/07/16 Cash and bank balances 6,013,387 8,110,603 amounts held at futures clearing houses 54,462 total cash and bank balances 6,067,849 8,110,603 Note 11 Bank overdraft 31/07/17 31/07/16 amounts due to futures clearing houses 11, ,834 Note 12 Other creditors 31/07/17 31/07/16 Cancellations awaiting settlements 15,962 Purchases awaiting settlement 1,559,943 manager s periodic charge payable 17,885 19,042 trustee s fees payable 3, safe custody charges payable 440 1,326 audit fee payable 7,980 7,980 FCa fee payable handling charges payable total other creditors 46,710 1,589,186 Note 13 Reconciliation of units accumulation opening units issued at 01/08/16 66,281,324 unit movements in year: units issued 372,908 units cancelled (7,975,204) Closing units at 31/07/17 58,679,028 24

27 notes to the financial statements Note 14 Contingencies and commitments at 31 July 2017 the Fund had no outstanding calls on partly paid shares, no potential underwriting commitments or any other contingent liabilities (31/07/16: nil). Following the ruling on Denkavit s case with the european Court of Justice regarding taxation withheld on overseas dividends, the manager has taken steps to make claims with certain european tax authorities for repayment of taxation suffered by the Fund on dividend income. Due to the uncertainty regarding the likely success of the claims, it is not possible to estimate the potential amount of overseas tax that may be received by the Fund, if any. therefore, the financial statements presented for the year ended 31 July 2017 have not been adjusted to include any potential receivable amounts. Note 15 Related party transactions the manager is a related party to the Fund by virtue of its controlling influence. the manager is part of the Phoenix group. Phoenix Life Limited which is also part of the Phoenix group, is a material unitholder in the Fund and therefore a related party, holding 99.25% of the units at the year end (31/07/16: 99.40%). manager s periodic charge paid to the manager and Phoenix unit trust managers or its associates, is shown in note 6(a) and details of the units issued and cancelled by the manager are shown in the statement of change in unitholders funds and note 8. any balances due to/from the manager or its associates at 31 July 2017 in respect of these transactions are shown in notes 9 and 12. Note 16 Financial instruments in accordance with the investment objective, the Fund holds certain financial instruments. these comprise: securities held in accordance with the investment objective and policies; derivative transactions which the Fund may also enter into, the purpose of which is to manage the currency and market risks arising from the Fund s investment activities; and cash and short term debtors and creditors arising directly from operations. Counterparty exposure at 31 July 2017, the Fund had the following counterparty exposures on open Forward Foreign exchange contracts: BnP Paribas 24,756 the economic exposure of future derivative contracts is equal to the market value. the value of exposure and the related counterparties are disclosed in the Portfolio of investments. 25

28 notes to the financial statements Note 16 Financial instruments (continued) Currency exposure an analysis of the monetary assets and liabilities at the year end is shown below: net currency assets net currency assets 31/07/17 31/07/16 Currency monetary non- total monetary non- total exposure monetary exposure exposure monetary exposure exposure exposure sterling 7,673, ,531, ,204,529 7,669, ,250, ,919,201 euro 44, , ,876 26,191 1,283,270 1,309,461 us Dollar 20,686 1,140,271 1,160, ,322 2,629,815 2,904,137 australian Dollar (8,015) (2,758) (10,773) (20) 13,334 13,314 7,730, ,231, ,961,589 7,969, ,176, ,146,113 income received in other currencies is converted to sterling on or near the date of receipt. the Fund does not hedge or otherwise seek to avoid, movement risk on accrued income. Interest profile the interest rate risk profile of financial assets and liabilities at 31 July 2017 was: Currency Fixed rate Floating rate Financial assets total financial assets financial assets not carrying interest euro 334, ,119 52, ,840 us Dollar 516, , ,802 1,162,430 sterling 82,988,993 15,847,662 27,418, ,255,542 83,839,964 16,551,457 27,646, ,037,812 Currency Floating rate Financial liabilities total financial liabilities not carrying interest australian Dollar (8,015) (2,758) (10,773) euro (2,772) (10,192) (12,964) us Dollar (1,473) (1,473) sterling (51,013) (51,013) (10,787) (65,436) (76,223) 26

29 notes to the financial statements Note 16 Financial instruments (continued) Interest profile (continued) the interest rate risk profile of financial assets and liabilities at 31 July 2016 was: Currency Fixed rate Floating rate Financial assets total financial assets financial assets not carrying interest australian Dollar 13,334 13,334 euro 622, ,221 48,333 1,320,430 us Dollar 1,955, ,958 73,870 2,912,594 sterling 85,131,119 21,136,069 28,364, ,631,621 87,709,761 22,668,248 28,499, ,877,979 Currency Floating rate Financial liabilities total financial liabilities not carrying interest australian Dollar (20) (20) euro (9) (10,958) (10,967) us Dollar (8,458) (8,458) sterling (122,805) (1,589,616) (1,712,421) (122,834) (1,609,032) (1,731,866) the interest rate risk profile of fixed interest rate financial assets was: 31/07/17 31/07/16 Weighted average of fixed interest rates: % % sterling euro us Dollar Weighted average period to maturity for financial assets with fixed interest rates: years years sterling euro us Dollar interest rates earned/paid on deposits are earned/paid at a rate linked to LiBor (London interbank offered rate) or international equivalent. Sensitivity analysis Interest rate risk sensitivity Changes in interest rates or changes in expectation of future interest rates may result in an increase or decrease in the market value of the investments held. a one percent increase in interest rates (based on current parameters used by the manager s investment risk department) would have the effect of decreasing the return and net assets by ( 10,211,335) (31/07/16: ( 9,169,589)). a one percent decrease would have an equal and opposite effect. 27

30 notes to the financial statements Note 16 Financial instruments (continued) Foreign currency risk sensitivity as the majority of the Fund s financial assets are in the base currency of the Fund (sterling), the Fund is only subject to limited exposure to fluctuations in foreign currency. Price risk sensitivity a five percent increase in the value of the Fund s portfolio would have the effect of increasing the return and net assets by 6,398,079 (31/07/16: 6,857,306). a five percent decrease would have an equal and opposite effect. Note 17 Fair value of investments the fair value of the Fund s investments has been determined using the hierarchy below. this complies with the amendments to Frs102 Fair value hierarchy disclosures issued by the Financial reporting Council in march Level 1 the unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability. For the year ended 31/07/17 Level Total Investment assets equities 25,894,377 25,894,377 Bonds 31,655,824 62,668,391 94,324,215 Derivatives 6,521 24,756 31,277 57,556,722 62,693, ,249,869 Investment liabilities Derivatives (8,241) (10,485) (18,726) (8,241) (10,485) (18,726) For the year ended 31/07/16 Level Total Investment assets equities 26,571,489 26,571,489 Bonds 21,632,288 80,635, ,267,406 Derivatives 287,387 70, ,440 48,491,164 80,705, ,196,335 Investment liabilities Derivatives (18,492) (1,354) (19,846) (18,492) (1,354) (19,846) 28