PHOENIX UNIT TRUST MANAGERS MANAGER S ANNUAL REPORT For the year: 2 May 2015 to 1 May 2016 PUTM UK STOCK MARKET FUND
Contents Investment review* 2-3 Portfolio of investments* 4-7 Top ten purchases and sales 8 Statistical information* 9-11 Statements of total return & change in unitholders funds 12 Balance sheet 13 Notes to the financial statements 14-23 Distribution tables 24 Responsibilities of the manager and the trustee 25 Trustee s report and directors statement 26 Independent auditor s report 27-28 Corporate information* 29-30 * These collectively comprise the Authorised Fund Manager's Report. 1
Investment review Dear Investor Welcome to the PUTM UK Stock Market Fund annual report for 12 months to 1 May 2016. Performance Review Over the review period, the accumulation units in the PUTM UK Stock Market Fund returned -6.9%. Over the same period the FTSE 100 Index returned -7.2%. (Source: Lipper, bid to bid, net income reinvested for 12 months to 01/05/16). In the table below, you can see how the Fund performed against the FTSE 100 Index over the last five discrete one year periods. Standardised Past Performance May 15-16 May 14-15 May 13-14 May 12-13 May 11-12 % growth % growth % growth % growth % growth PUTM UK Stock Market Fund -6.9 6.2 8.6 16.6-1.5 FTSE 100 Index -7.2 6.3 9.4 15.3 0.7 Source: Lipper, bid to bid, net income reinvested to 1 May 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
Investment review Portfolio and Market Review UK equities began the period positively, although uncertainty over the general election capped progress as the vote drew closer. In the end, the result was more decisive than expected but any positive response was largely dampened by the increasingly acrimonious Greek bailout discussions, and whether the country could make its repayments. On the economic front, data generally continued to improve. In the US, growth picked up and, combined with strong retail and housing sales, led to renewed speculation around the timing of US interest rate increases. Closer to home, UK housing price growth and mortgage approvals weakened, albeit from elevated levels, and first quarter GDP growth was stronger than expected at 2.9% annualised versus the previously announced figure of 2.4%. Consumer confidence also reached a 15-year high, partly aided by the removal of election uncertainty, but also ongoing wage growth amid persistently low inflation. Rising real wages appear to be boosting consumers propensity to spend. Bonds and bond-proxy equities were generally weak as investors anticipated positive economic developments would bring forward the time when interest rates finally resume an upward path. As the period progressed there some weakness for UK equities, despite a positive start in July. China s decision to devalue the yuan was particularly detrimental, prompting fears that the economy was much weaker than assumed. The global growth outlook appeared to be instrumental in the Federal Reserve s eventual decision to keep interest rates on hold another area of investor concern. Fears that emerging market weakness may affect the UK prompted speculation that the Bank of England may also delay its own rate increase. However, solid trade data and positive historical GDP revisions continue to suggest that the economy is stronger than believed and that the outlook remains benign. As the period drew to a close, resurgent global growth concerns, further uncertainty around central bank policy and continued commodity price fluctuations ensured it was a volatile period for UK equities. However, while 2016 started very weakly there was a sharp turnaround mid-way through February as a rebound in commodity prices led to a strong rally in associated sectors. Concerns over Chinese economic growth had been the primary driver of commodity price volatility. The Brexit referendum undoubtedly introduced event risk to the UK market and certain sectors, notably real estate and financials, felt the impact of this. Sterling was also weak as a result of the forthcoming referendum and lowering of interest rate expectations. Market Outlook and Fund Strategy Investors are nervous of recessionary risks, and while these risks have generally risen our view is that global growth will continue to remain positive, albeit somewhat dampened and relatively modest compared with longerterm trends. A growth environment will be supportive for UK equities, and we continue to identify attractive stock specific opportunities. Uncertainty and concern around the growth outlook for the Chinese economy, monetary policy in the US, and geo-political tensions, such as Brexit, will act to increase volatility. 3
Portfolio of investments Investments held at 1 May 2016 Market Percentage of value total net assets Holding Investment % Chemicals (01/05/15 0.38%) 0.34 4,673 Johnson Matthey 134,909 0.34 Forestry & Paper (01/05/15 0.27%) 0.29 8,750 Mondi 115,412 0.29 Mining (01/05/15 7.17%) 5.09 31,181 Anglo American 237,630 0.60 7,112 Antofagasta 33,618 0.09 50,451 BHP Billiton 465,209 1.17 4,093 Fresnillo 44,982 0.11 278,494 Glencore 438,907 1.10 2,198 Randgold Resources 144,189 0.36 28,890 Rio Tinto 662,592 1.66 Automobiles & Parts (01/05/15 0.32%) 0.29 40,836 GKN 114,831 0.29 Beverages (01/05/15 4.48%) 5.37 4,642 Coca Cola 64,802 0.16 60,193 Diageo 1,115,075 2.80 22,847 SABMiller 960,831 2.41 Food Producers (01/05/15 2.46%) 0.64 8,319 Associated British Foods 255,060 0.64 Household Goods (01/05/15 2.94%) 3.80 24,043 Barratt Developments 126,947 0.32 2,996 Berkeley Group Holdings 87,753 0.22 7,385 Persimmon 146,297 0.37 15,026 Reckitt Benckiser 1,008,395 2.53 78,002 Taylor Wimpey 142,821 0.36 Personal Goods (01/05/15 0.43%) 2.54 10,697 Burberry Group 128,150 0.32 28,830 Unilever 881,766 2.22 Tobacco (01/05/15 5.39%) 6.82 44,553 British American Tobacco 1,864,320 4.68 23,021 Imperial Tobacco Group 853,158 2.14 Food & Drug Retailers (01/05/15 1.44%) 1.33 33,628 J Sainsbury 97,387 0.24 51,938 Morrison (Wm) Supermarkets 99,513 0.25 193,983 Tesco 334,620 0.84 General Retailers (01/05/15 1.86%) 1.62 24,094 Dixons Carphone 102,761 0.26 54,422 Kingfisher 199,620 0.50 38,667 Marks & Spencer Group 165,185 0.41 3,450 Next 177,158 0.45 4
Portfolio of investments Investments held at 1 May 2016 Market Percentage of value total net assets Holding Investment % Media (01/05/15 3.70%) 3.97 15,572 Informa 101,607 0.26 89,328 ITV 201,077 0.50 17,460 Merlin Entertainments 74,973 0.19 18,957 Pearson 152,320 0.38 26,715 RELX 322,183 0.81 25,028 Sky 234,137 0.59 30,959 WPP 495,654 1.24 Travel & Leisure (01/05/15 3.32%) 3.93 4,406 Carnival 149,231 0.38 39,358 Compass Group 479,381 1.20 5,998 easyjet 88,830 0.22 5,708 InterContinental Hotels Group 155,829 0.39 43,732 International Consolidated Airlines Group 231,780 0.58 1,966 Paddy Power 177,726 0.45 11,379 TUI 113,050 0.28 4,352 Whitbread 169,989 0.43 Banks (01/05/15 13.15%) 11.04 400,131 Barclays 692,427 1.74 466,471 HSBC Holdings 2,130,373 5.35 1,529,593 Lloyds Banking Group 1,024,521 2.57 78,245 Royal Bank of Scotland Group 185,910 0.47 64,095 Standard Chartered 362,009 0.91 Financial Services (01/05/15 1.31%) 1.61 22,956 3i Group 109,064 0.27 5,360 Hargreaves Lansdown 69,144 0.17 7,534 London Stock Exchange 205,904 0.52 3,551 Provident Financial 103,831 0.26 2,784 Schroders 70,240 0.18 31,892 Worldpay Group 85,152 0.21 Life Insurance (01/05/15 5.68%) 5.14 96,624 Aviva 418,189 1.05 141,793 Legal & General 316,624 0.80 116,630 Old Mutual 218,914 0.55 60,974 Prudential 829,551 2.08 12,514 St James s Place 108,997 0.27 47,226 Standard Life 154,571 0.39 Non Equity Investment Instruments (01/05/15 0.26%) 0.00 Non-Life Insurance (01/05/15 0.41%) 0.80 4,717 Admiral Group 87,453 0.22 32,760 Direct Line Insurance 118,722 0.30 24,196 RSA Insurance Group 111,036 0.28 5
Portfolio of investments Investments held at 1 May 2016 Market Percentage of value total net assets Holding Investment % Real Estate Investment Trusts (01/05/15 1.47%) 1.40 24,431 British Land REIT 176,270 0.44 18,260 Hammerson REIT 106,730 0.27 20,484 Intu Properties 62,783 0.16 18,771 Land Securities REIT 213,614 0.53 Healthcare Equipment & Services (01/05/15 0.55%) 0.84 9,376 Mediclinic International 85,275 0.22 21,402 Smith & Nephew 247,621 0.62 Pharmaceuticals & Biotechnology (01/05/15 8.98%) 8.78 30,159 AstraZeneca 1,197,915 3.01 116,201 GlaxoSmithKline 1,708,155 4.29 14,044 Shire 588,444 1.48 Aerospace & Defence (01/05/15 2.18%) 1.66 75,534 BAE Systems 361,959 0.91 43,897 Rolls Royce Holdings 298,280 0.75 3,116,687 Rolls Royce Holdings C Shares* Construction & Materials (01/05/15 0.83%) 0.96 19,110 CRH 381,818 0.96 General Industrials (01/05/15 0.25%) 0.27 16,859 Rexam 105,622 0.27 Industrial Engineering (01/05/15 0.22%) 0.00 Industrial Transportation (01/05/15 0.15%) 0.26 21,728 Royal Mail 105,272 0.26 Support Services (01/05/15 3.52%) 3.60 12,153 Ashtead Group 109,863 0.28 11,966 Babcock International 113,437 0.28 7,918 Bunzl 161,765 0.41 15,785 Capita 157,061 0.39 2,143 DCC 129,866 0.33 22,915 Experian Group 288,500 0.72 3,881 Intertek Group 126,870 0.32 5,960 Travis Perkins 109,962 0.28 6,092 Wolseley 235,212 0.59 Oil & Gas Producers (01/05/15 14.25%) 12.79 441,798 BP 1,664,695 4.18 100,616 Royal Dutch Shell A 1,811,088 4.55 89,519 Royal Dutch Shell B 1,618,056 4.06 6
Portfolio of investments Investments held at 1 May 2016 Market Percentage of value total net assets Holding Investment % Software & Computer Services (01/05/15 0.28%) 0.39 26,005 Sage Group 154,990 0.39 Technology Hardware & Equipment (01/05/15 0.88%) 0.81 33,702 ARM Holdings 321,686 0.81 Fixed Line Telecommunications (01/05/15 2.11%) 2.22 199,961 BT Group 883,828 2.22 Mobile Telecommunications (01/05/15 3.35%) 3.77 10,667 Inmarsat 98,990 0.25 634,937 Vodafone Group 1,400,988 3.52 Electricity (01/05/15 0.85%) 0.90 23,841 SSE 359,999 0.90 Gas, Water & Multiutilities (01/05/15 3.18%) 3.62 120,611 Centrica 285,968 0.72 90,136 National Grid 877,294 2.20 5,605 Severn Trent 124,095 0.31 16,462 United Utilities Group 153,920 0.39 Futures (01/05/15 0.00%) 0.00 6 ICF FTSE 100 June 2016 (1,140) 0.00 Portfolio of investments^ 38,581,048 96.89 Net other assets 1,238,815 3.11 Net assets 39,819,863 100.00 All investments are listed on recognised stock exchanges and are approved securities within the meaning of the FCA rules unless otherwise stated. ^Includes investment liabilities. *Due to a change in accounting treatment the value of the shares is recognised as income at xd date rather than pay date. The value of the shares is therefore reflected within the income of the Fund rather than within the Fund portfolio. The counterparty for the Futures contracts is State Street. 7
Top ten purchases and sales For the year ended 1 May 2016 Purchases Cost Royal Dutch Shell A 202,930 Lloyds Banking Group 182,717 Paddy Power 176,300 DCC 119,499 Provident Financial 116,797 Informa 107,320 Inmarsat 106,928 Berkeley Group Holdings 105,839 Morrison (Wm) Supermarkets 104,956 Standard Chartered 103,179 Sales Proceeds Royal Dutch Shell B 533,862 HSBC Holdings 206,856 Royal Dutch Shell A 183,289 BP 140,144 British American Tobacco 111,418 Smiths Group 110,309 GlaxoSmithKline 106,143 Reckitt Benckiser 93,749 Vodafone Group 92,429 Aggreko 89,454 Total purchases 2,013,511 Total sales 4,132,997 8
Statistical information Comparative table Accumulation 01/05/16 01/05/15 01/05/14 pence pence pence Change in net assets per unit Opening net asset value per unit 292.56 275.30 253.39 Return before operating charges* (18.50) 17.39 22.03 Operating charges (0.20) (0.13) (0.12) Return after operating charges* (18.70) 17.26 21.91 Closing net asset value per unit 273.86 292.56 275.30 Retained distributions on accumulation units 10.60 10.06 9.73 *after direct transaction costs of: 0.07 0.05 0.21 Performance Return after charges (6.39%) 6.27% 8.65% Other information Closing net asset value ( 000) 39,820 46,309 47,211 Closing number of units 14,540,314 15,829,122 17,148,805 Operating charges 0.08% 0.04% 0.05% Direct transaction costs 0.03% 0.02% 0.08% Prices Highest unit price (pence) 297.51 297.40 275.40 Lowest unit price (pence) 239.21 252.10 238.90 9
Statistical information Investment objective The objective of the Fund is to provide long term total return derived from the capital and income returns of UK Equities. Investment policy The Fund will usually be invested in a diversified portfolio of UK Equities. This will be achieved by investment in equities to achieve a return in line with a representative index, FTSE 100 index. The Manager may choose to invest in equities of other Geographical areas or invest in other securities issued by Governments, Public Authorities, Supranationals and Corporate entities if such investment in the opinion of the Manager is considered appropriate for achieving the objective of the Fund. The Fund may also invest in deposits and money market instruments and use derivative contracts. 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 1 November and a final distribution as at 1 May. 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. 10
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 1 2 3 4 5 6 7 This Fund is ranked at 5 because funds of this type have experienced high rises and falls in value in the past. Although this is a high risk ranking it is not the highest. 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 risks of investing in this Fund: The small differences in the returns between the index tracking Fund and the Index (and tracking error) are due to levels of cash, expenses and portfolio turnover. Counterparty Risk: the insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss. 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 www.phoenixunittrust.co.uk. 11
Annual financial statements For the year ended 1 May 2016 Statement of total return 01/05/16 01/05/15 Notes Income Net capital (losses)/gains 4 (4,622,725) 1,115,129 Revenue 5 1,638,874 1,684,462 Expenses 6 (27,765) (19,324) Interest payable and similar charges (1) Net revenue before taxation 1,611,109 1,665,137 Taxation 7 (812) (7,975) Net revenue after taxation 1,610,297 1,657,162 Total (deficit)/return before distributions (3,012,428) 2,772,291 Distributions 8 (1,610,303) (1,657,309) Change in unitholders funds from investment activities (4,622,731) 1,114,982 Statement of change in unitholders funds 01/05/16 01/05/15 Opening net assets 46,309,457 47,211,363 Amounts receivable on issue of units 207,063 115,434 Amounts payable on cancellation of units (3,649,504) (3,757,828) (3,442,441) (3,642,394) Change in unitholders funds from investment activities (4,622,731) 1,114,982 Retained distributions on accumulation units 1,575,578 1,625,506 Closing net assets 39,819,863 46,309,457 12
Annual financial statements As at 1 May 2016 Balance sheet 01/05/16 01/05/15 Notes Assets: Fixed assets: Investments 38,582,188 45,394,902 Current assets: Debtors 9 243,828 266,687 Cash and bank balances 10 1,004,389 754,664 Total current assets 1,248,217 1,021,351 Total assets 39,830,405 46,416,253 Liabilities: Investment liabilities (1,140) Creditors: Other creditors 11 (9,402) (106,796) Total creditors (9,402) (106,796) Total liabilities (10,542) (106,796) Net assets 39,819,863 46,309,457 Unitholders funds 39,819,863 46,309,457 13
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 revalution of investments and in compliance with 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 2014. This is the first set of final financial statements to be prepared for the Fund under the 2014 SORP. Unless otherwise stated all accounting policies are consistent with those of the prior year. Presentational amendments to the Statement of total return, Statement of change in unitholders funds and the Balance sheet have been made. Additionally, further disclosures have been made, including the Reconciliation of units note and the Fair value of assets and liabilities note. These presentational amendments have no impact on the current or previous year Net Asset Value. Valuation of investments The listed investments of the Fund have been valued at bid dealing prices as at 12 noon, 29 April 2016. in accordance with the Trust Deed. Unquoted securities are valued by the Manager and are subject to constant review. Derivatives are valued as at 12 noon on the last working day of the accounting period. Exchange traded derivatives are priced at fair value, which is deemed to be the bid price. 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, 29 April 2016. 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. 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 dividends 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 and an element of safe custody fees relating to Key Investor Information, which are charged to capital. 14
Notes to the financial statements Note 1 (h) Note 2 (a) (b) (c) (d) Note 3 (a) (b) Accounting policies (continued) 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 distributed/accumulated to unitholders. The Fund is not more than 60% invested in qualifying investments (as defined by SI 2006/964, Reg 20) and will pay a dividend 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. Expenses In determining the net revenue available for distribution, charges in relation to the safe custody of investments are ultimately borne by capital. 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, 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 majority of the Fund s financial assets are equity shares and other investments which neither pay interest nor have a maturity date. Interest receivable on bank deposits or payable on bank overdraft positions will be affected by fluctuations in interest rates. 15
Notes to the financial statements Note 3 (c) (d) (e) (f) Risk management policies (continued) Foreign currency risk The Fund has no significant exposure to foreign currency risk. 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. 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. 16
Notes to the financial statements Note 4 Net capital (losses)/gains The net capital (losses)/gains during the year comprise: 01/05/16 01/05/15 (Losses)/gains on non-derivative securities (4,693,229) 1,070,425 Gains on derivative contracts 46,864 45,916 Currency losses (63) (46) Handling charges (1,818) (1,166) Capital special dividend 25,521 Net capital (losses)/gains (4,622,725) 1,115,129 Note 5 Revenue 01/05/16 01/05/15 UK dividends 1,456,512 1,301,628 UK REIT property income distributions 14,424 6,883 Overseas dividends 165,764 155,942 Stock dividends 217,740 Bank interest 2,174 2,269 Total revenue 1,638,874 1,684,462 Note 6 Expenses 01/05/16 01/05/15 (a) Payable to the Manager or associates of the Manager and agents of either of them: Manager s periodic charge* 7,122 4,620 (b) (c) Payable to the Trustee or associates of the Trustee and agents of either of them: Trustee s fees 11,642 5,525 Other expenses: Audit fee 7,980 7,980 Safe custody charges 752 874 FCA fee 269 325 9,001 9,179 Total expenses 27,765 19,324 *Managers fees have increased from 2 November 2015. Details of the changes are shown in the Prospectus and the current rate is 0.025%. 17
Notes to the financial statements Note 7 Taxation 01/05/16 01/05/15 (a) Analysis of tax charge for the year Overseas withholding tax 812 7,492 Exchange losses on tax reclaims 483 Total current taxation (Note 7(b)) 812 7,975 (b) Factors affecting the current 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 1,611,109 1,665,137 Corporation tax at 20% (01/05/15: 20%) 322,222 333,027 Effects of: Revenue not subject to taxation (324,452) (335,062) Overseas withholding tax 812 7,492 REIT s taxable in different periods (360) Exchange losses on tax reclaims* 483 Excess management expenses unutilised 2,230 2,395 Tax charge for the year (Note 7(a)) 812 7,975 Authorised Unit Trusts are exempt from tax on capital gains in the UK. Therefore, any capital return is not included in the above reconciliation. (c) Note 8 Provision for deferred taxation At 1 May 2016 the Fund had a potential deferred tax asset of 9,613 (01/05/15: 7,383) in relation to surplus management expenses of 48,064 (01/05/15: 36,915). It is unlikely that the Fund will generate sufficient taxable profits in the future to utilise these expenses and therefore, no deferred tax asset has been recognised in the year or the prior year. Distributions The distributions take account of amounts added on the issue of units and amounts deducted on the cancellation of units, and comprise: 01/05/16 01/05/15 Interim 789,528 790,235 Final 786,050 835,271 1,575,578 1,625,506 Amounts deducted on cancellation of units 36,049 33,369 Amounts added on issue of units (1,324) (1,566) Net distribution for the year 1,610,303 1,657,309 Net revenue after taxation 1,610,297 1,657,162 Expenses taken to capital 156 Movement of undistributed income 6 (9) Net distribution for the year 1,610,303 1,657,309 Details of the distributions per unit are set out in the tables on page 24. 18
Notes to the financial statements Note 9 Debtors 01/05/16 01/05/15 Accrued income 242,613 263,469 Overseas tax recoverable 1,215 3,218 Total debtors 243,828 266,687 Note 10 Cash and bank balances 01/05/16 01/05/15 000 000 Cash and bank balances 983,839 732,407 Amounts held at futures clearing houses 20,550 22,257 Total cash and bank balances 1,004,389 754,664 Note 11 Creditors 01/05/16 01/05/15 Cancellations awaiting settlement 98,000 Management fee payable 842 360 Safe custody charges payable 56 129 Audit fee payable 7,980 7,980 FCA fee payable 23 24 Handling charges payable 403 303 Trustee s fees payable 98 Total creditors 9,402 106,796 Note 12 Reconciliation of units Class B Accumulation Opening units issued at 02/05/15 15,829,122 Unit movements in period: Units issued 74,618 Units cancelled (1,363,425) Closing units at 01/05/16 14,540,315 Note 13 Contingencies and commitments As at 1 May 2016, the Fund had no outstanding calls on partly paid shares, no potential underwriting commitments, or any other contingent liabilities (01/05/15: nil). 19
Notes to the financial statements Note 14 Related party transactions The Manager is a related party to the Fund by virtue of their 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 100% of the units at the year end (01/05/15: 100%). Manager s periodic charge paid to the Manager, Scottish Mutual Investment Managers Limited (to 2 November 2015) and Phoenix Unit Trust Managers Limited thereafter; or its associates are 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 1 May 2016 in respect of these transactions are shown in Notes 9 and 11. Note 15 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 The economic exposure of future derivative contracts is equal to the market value. The value of exposure and the related counterparty are disclosed in the Portfolio of investments. Interest profile At the year end date, 2.52% (01/05/15: 1.63%) of the Fund s net assets by value were interest bearing. 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 As the majority of the Fund s financial assets are non-interest bearing, the Fund is only subject to limited exposure to fair value interest rate risk due to fluctuations in levels of market interest rates. 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 per cent increase in the value of the Fund s portfolio would have the effect of increasing the return and net assets by 1,991,296 (01/05/15: 2,315,469). A five per cent decrease would have an equal and opposite effect. 20
Notes to the financial statements Note 16 Fair value of financial assets and liabilities 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 2016. Although not required to be applied until accounting periods beginning on or after 1 January 2017, the Manager has decided to apply this early. 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 01/05/16 Level 1 2 3 Total Investment assets Equities 38,582,188 38,582,188 38,582,188 38,582,188 Investment liabilities Derivatives (1,140) (1,140) (1,140) (1,140) For the year ended 01/05/15 Level 1 2 3 Total Investment assets Equities 45,394,902 45,394,902 45,394,902 45,394,902 21
Notes to the financial statements Note 17 Portfolio transaction costs For the year ended 01/05/16 Value Commission Taxes Analysis of total purchases costs % % Equity transactions 1,634,994 2,342 0.14 7,508 0.46 Corporate actions 368,667 0.00 0.00 Total 2,003,661 2,342 7,508 Value Commission Taxes Analysis of total sales costs % % Equity transactions 3,818,013 (1,054) (0.03) (29) 0.00 Corporate actions 316,067 0.00 0.00 Total 4,134,080 (1,054) (29) Commissions and taxes as % of average net assets: Commission 0.01% Taxes 0.02% For the year ended 01/05/15 Value Commission Taxes Analysis of total purchases costs % % Equity transactions 1,606,204 560 0.03 6,132 0.38 Total 1,606,204 560 6,132 Value Commission Taxes Analysis of total sales costs % % Equity transactions 3,347,007 (997) (0.03) (90) 0.00 Total 3,347,007 (997) (90) Commissions and taxes as % of average net assets: Commission 0.01% Taxes 0.01% Portfolio transaction costs are incurred by the Fund when buying and selling underlying investments. These costs vary depending on the class of investment, country of exchange and method of execution. These costs can be classified as either direct or indirect transaction costs: Direct transaction costs: Broker comissions, fees and taxes. Indirect transaction costs: Dealing spread the difference between buying and selling prices of the underlying investments. At the Balance sheet date the portfolio dealing spread was 0.05% (01/05/15: 0.07%) being the difference between the respective bid and offer prices for the Funds investments. 22
Notes to the financial statements Note 18 Post Balance sheet events As indicated in the accounting policies in Note 1(b), the investments have been valued at 12 noon on 1 May 2016. Since that date the Fund's quoted bid prices have increased from 273.86p to 291.80p for Accumulation units at 3 August 2016 (the latest applicable date before completion of the accounts), an increase of 6.55%. Note 19 Significant events during the period Please note the Manager of the Fund has changed from Scottish Mutual Investment Managers Limited to Phoenix Unit Trust Managers Limited (PUTM) with effect from 2 November 2015. As a result the Fund was re-named PUTM UK Stock Market Fund. 23
Distribution tables For the year ended 1 May 2016 Interim distribution in pence per unit Group 1: units purchased prior to 2 May 2015 Group 2: units purchased 2 May 2015 to 1 November 2015 2016 2015 pence pence Tax per unit per unit Gross credit Net paid paid income at 10% income Equalisation 1 Jan 1 Jan Accumulation Group 1 5.7658 0.5766 5.1892 5.1892 4.7820 Group 2 5.7639 0.5764 5.1875 0.0017 5.1892 4.7820 Final distribution in pence per unit Group 1: units purchased prior to 2 November 2015 Group 2: units purchased 2 November 2015 to 1 May 2016 2016 2015 pence pence per unit per unit Net payable paid income* Equalisation 1 Jul 1 Jul Accumulation Group 1 5.4060 5.4060 5.2768 Group 2 3.0861 2.3199 5.4060 5.2768 *with effect from 6 April 2016 the tax credit on UK dividend income has been abolished. Equalisation This applies only to units purchased during the distribution period (Group 2 units). It is the average amount of revenue included in the purchase price of all 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 the units for capital gains tax purposes. 24
Responsibilities of the manager and the trustee a) The Manager of the Fund is required by the Financial Conduct Authority s Collective Investment Schemes Sourcebook ( the Sourcebook ) to prepare financial statements for each annual accounting period which give a true and fair view of the financial position of the Fund at the end of that period and the net revenue or expense and the net gains or losses on the property of the Fund for the year then ended. In preparing these financial statements, the Manager is required to: select suitable accounting policies and then apply them consistently make judgements and estimates that are prudent and reasonable state whether applicable accounting standards have been followed subject to any material departure disclosed and explained in the financial statements prepare the financial statements on the basis that the Fund will continue in operation unless it is inappropriate to presume this. The Manager is also required to manage the Fund in accordance with the Trust Deed, the Prospectus and the Sourcebook, maintain proper financial records to enable them to ensure that the financial statements comply with the Statement of Recommended Practice for Authorised Funds as issued by the IA (formerly the IMA) in May 2014 and the Sourcebook and take reasonable steps for the prevention and detection of fraud and other irregularities. b) The Trustee is under a duty to take into custody and to hold the property of the Scheme in trust for the holders of units. Under the Sourcebook relating to Reports, it is the duty of the Trustee to enquire into the conduct of the Manager in the management of the Fund in each annual accounting period and report thereon to unitholders in a report which shall contain the matters prescribed by the Sourcebook. 25
Trustee s report and directors statement Trustee s report The Trustee is responsible for the safekeeping of all the property of the Scheme (other than tangible moveable property) which is entrusted to it and for the collection of income that arises from that property. It is the duty of the Trustee to take reasonable care to ensure that the Scheme is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook, the Financial Services and Markets Act 2000, as amended, (together the Regulations ), the Scheme s Trust Deed and Prospectus, in relation to the pricing of, and dealings in, units in the Scheme; the application of income of the Scheme; and the investment and borrowing powers of the Scheme. Having carried out such procedures as we considered 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 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 income in accordance with the Regulations, the Trust Deed and Prospectus, and (ii) has observed the investment and borrowing powers and restrictions applicable to the Scheme. Edinburgh 11 August 2016 National Westminster Bank Directors statement In accordance with the requirements of the Collective Investment Schemes Sourcebook as issued and amended by the Financial Conduct Authority, we hereby certify the report on behalf of the Directors of Phoenix Unit Trust Managers Limited. Birmingham Craig Baker, Director 11 August 2016 Shamira Mohammed, Director 26
Independent auditor s report to the unitholders of PUTM UK Stock Market Fund We have audited the financial statements of the PUTM UK Stock Market Fund ( the Fund ) for the year ended 1 May 2016 which comprise the Statement of Total Return, the Statement of Change in Unitholders Funds, the Balance Sheet, the related notes 1 to 19 and the Distribution Tables. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS102 The Financial Reporting Standard applicable to the UK and the Republic of Ireland. This report is made solely to the unitholders of the Fund, as a body, pursuant to Paragraph 4.5.12 of the rules of the Collective Investment Schemes Sourcebook of the Financial Conduct Authority. Our audit work has been undertaken so that we might state to the unitholders those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Fund and the unitholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Manager and Auditor As explained more fully in the Manager s responsibilities statement set out on page 25, the 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). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements 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 Manager; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Manager s 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. 27
Independent auditor s report to the unitholders of PUTM UK Stock Market Fund Opinion on financial statements In our opinion the financial statements: give a true and fair view of the financial position of the Fund as at 1 May 2016 and of the net revenue and the net capital losses on the scheme property of the Fund for the year then ended; and have been properly prepared in accordance with the United Kingdom Generally Accepted Accounting Practice. Opinion on matters prescribed by the rules of the Collective Investment Schemes Sourcebook of the Financial Conduct Authority In our opinion: the financial statements have been properly prepared in accordance with the Statement of Recommended Practice relating to Authorised Funds, the rules of the Collective Investment Schemes Sourcebook of the Financial Conduct Authority and the Trust Deed; 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; there is nothing to indicate that proper accounting records have not been kept or that the financial statements are not in agreement with those records; and we have received all the information and explanations which, to the best of our knowledge and belief, are necessary for the purposes of our audit. Ernst & Young LLP Statutory Auditor Edinburgh 11 August 2016 28
Corporate information The information in this report is designed to enable unitholders to make an informed judgement on the activities of the Fund during the period it covers and the results of those activities at the end of the period. Phoenix Unit Trust Mangers Limited is part of the Phoenix Group. Ignis Investment Services Limited are part of the Standard Life Investments group (Standard Life Investments (Holdings) Limited) and its subsidiaries. Unit prices appear daily on our website www.phoenixunittrust.co.uk Remuneration The Manager has adopted a remuneration policy, up-to-date details of which can be found on www.phoenixunittrust.co.uk. These details describe how remuneration and benefits are calculated and identify the committee which oversees and controls the policy. A paper copy of these details can be requested free of charge from the Manager. Following the implementation of UCITS V in the UK on 18 March 2016, all authorised UCITS Managers are required to comply with the UCITS V Remuneration Code from the start of their next accounting year. Under the UCITS V Directive, the Manager is required to disclose information relating to the remuneration paid to its staff for the financial year, split into fixed and variable remuneration. The Manager s Financial Year end is 31 December, it is therefore anticipated that the Manager's Remuneration Policy and associated financial disclosures will be made within the Annual Reports starting from 31 December 2017, following its first full performance period. Prior to this date, and in line with the FCA s guidance on the UCITS V remuneration disclosures, the Manager would be part way through its first performance period and the information available would not be relevant or provide a proper basis for comparison. Risk The price of units and the income from them can go down as well as up and investors may not get back the amount they invested, particularly in the case of early withdrawal. Tax levels and reliefs are those currently applicable and may change. The value of any tax relief depends on personal circumstances. Depending on the fund, the value of your investment may change with currency movements. 29
Corporate information Manager (resigned 2 November 2015) Scottish Mutual Investments Managers Limited 50 Bothwell Street Glasgow G2 6HR Tel: 0141 222 8000 Registered in Scotland No.SC088674 Member of The Investment Association Authorised and regulated by the Financial Conduct Authority Manager (appointed 2 November 2015) Phoenix Unit Trust Managers Limited (PUTM) 1 Wythall Green Way, Wythall, Birmingham, B47 6WG Tel: 0330 1233 703 Registered in England No.03588031 Authorised and regulated by the Financial Conduct Authority Directors *Appointed with effect 2 November 2015 Andrew Moss* PUTM Director, Chief Executive Phoenix Life; Shamira Mohammed* PUTM Director, Finance Director Phoenix Life; Craig Baker* PUTM Director, Head of Investment Management Phoenix Life; Mike Urmston* Non Executive Director of PUTM. Resigned with effect 2 November 2015 C Walklin C Clark J Aird Registrar and correspondence address Phoenix Unit Trust Managers Limited PO Box 12997, Chelmsford CM99 2EN Authorised and regulated by the Financial Conduct Authority Investment Adviser Ignis Investment Services Limited 50 Bothwell Street Glasgow G2 6HR Registered in Scotland No.SC101825 Authorised and regulated by the Financial Conduct Authority Trustee National Westminster Bank Younger Building, 1st Floor 3 Redheughs Avenue Edinburgh EH12 9RH Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority Independent Auditor to the Fund Ernst & Young LLP Ten George Street Edinburgh EH2 2DZ Authorised status This Fund is an Authorised Unit Trust Scheme under section 243 of the Financial Services & Markets Act 2000 and is categorised under the Collective Investment Schemes Sourcebook as a UCITS fund. 30
Notes 31
32 Notes
Contact: Client Services Call: 0330 1233 703 Correspondence Address: PO Box 12997 Chelmsford CM99 2EN Visit: phoenixunittrust.co.uk Telephone calls may be monitored and/or recorded for the purposes of security, internal training, accurate account operation, internal customer monitoring and to improve the quality of service. Please note the Key Investor Information Document (KIID), the supplementary Information Document (SID) and the full prospectus are available free of charge. These are available by contacting Client Services on 0330 1233 703. Phoenix Unit Trust Managers Limited does not accept liability for any claims or losses of any nature arising directly or indirectly from use of the data or material in this report. The information supplied is not intended to constitute investment, tax, legal or other advice. Phoenix Unit Trust Managers Limited* is a Phoenix Group Company. Registered in England No 3588031. Registered office: 1 Wythall Green Way, Wythall, Birmingham B47 6WG. Authorised and regulated by the Financial Conduct Authority. B663.05.16