Schroder MM Diversity Tactical Fund Final Report and Accounts February 2018
Contents Schroder MM Diversity Tactical Fund Fund Information 1...............................................3 Investment objective and policy......................................3 Alternative Investment Fund Managers Directive (AIFMD)...................3 Financial highlights................................................4 Fund information..................................................4 Ongoing charges figure.............................................5 Review of Investment Activities 1...................................6 Risk Profile 1....................................................7 Risk and reward indicator...........................................7 Specific risks.....................................................7 Statement of the Manager s Responsibilities.........................8 Report of the Trustee.............................................9 Independent Auditors Report to the Unitholders of Schroder MM Diversity Tactical Fund............................11 Comparative Tables 1............................................15 Portfolio Statement 1............................................22 Summary of Portfolio Transactions 1...............................24 Largest purchases...............................................24 Largest sales...................................................24 Statement of Total Return........................................25 Statement of Change in Net Assets Attributable to Unitholders........25 Balance Sheet.................................................26 Notes to the Accounts...........................................27 1 Accounting policies...........................................27 2 Net capital (losses)/gains.......................................29 3 Revenue....................................................29 4 Expenses...................................................30 5 Taxation....................................................30 6 Distributions.................................................31 7 Fair value hierarchy............................................31 8 Debtors....................................................32 9 Other creditors...............................................32 10 Contingent liabilities...........................................33 11 Related party transactions......................................33 12 Unit classes.................................................33 13 Derivative and other financial instruments...........................34 14 Direct transaction costs........................................37 15 Units in issue reconciliation......................................38 Remuneration..................................................39 Distribution Table...............................................41 Interim distribution for the six months ended 31 August 2017...............41 Final distribution for the six months ended 28 February 2018...............42 Corporate unitholders (unaudited)....................................42 Equalisation....................................................42 General Information 1............................................43 Authorisation....................................................43 Other information................................................43 1 Collectively these comprise the Manager s report.
Fund Information Investment objective and policy The Schroder MM Diversity Tactical Fund (the fund ) seeks to provide capital growth through exposure to a diverse range of asset types including equities, bonds, fixed interest, cash and any other permitted assets deemed appropriate to meet the investment objective. The fund will follow a tactical asset allocation strategy through which it will seek to increase returns and reduce downside risk by making tactical adjustments to the fund s holdings based on market conditions. The fund will invest in global markets through a diversified portfolio of collective investment schemes and exchange traded funds that invest in equities and fixed income. Additional investment diversification will be obtained through collective investment schemes that invest in alternative asset classes including private equity, property and commodities. Investment may also be made in approved money market funds. Although the investment policy of the fund is to invest mainly in collective investment schemes, the fund may also invest in closed ended funds, individual transferable securities, money market instruments, deposits and cash and near cash. The fund may utilise derivatives and forward transactions for the purpose of efficient portfolio management. Alternative Investment Fund Managers Directive (AIFMD) The AIFMD, as implemented in the UK by the Alternative Investment Fund Managers (AIFMs) Regulations 2013, establishes an EU wide harmonised framework for monitoring and supervising risks posed by AIFMs and the alternative investment funds (AIFs) they manage. The fund is an AIF and Schroder Unit Trusts Limited (the Manager) was authorised by the Financial Conduct Authority (FCA) to act as an AIFM on 2 July 2014. The AIFMD requires certain information to be disclosed to unitholders. It is intended that any such information will in future be provided in the report and accounts, unless such information is required to be disclosed without delay, in which case it will be made via the Schroders website at: www.schroders.com/en/uk/private-investor/fund-centre/changes-to-funds/ 3
Fund Information (continued) Financial highlights For the period For the period/year to Date to Date A/I/X Dealing Income price(gross) units 28.2.18 0.00% 28.2.17 1 % change 0.00% 3 A/I/X A Income Accumulation units (Gross) units 2 118.40p 0.00% 118.60p 1 0.00% (0.17) 3 A Accumulation units 121.50p 121.50p 0.00 1 Q The Accumulation Total expense units ratio is annualised 57.82pbased on the 57.48p fees suffered during 0.59 the S accounting Income unitsperiod. 61.81p 61.81p 0.00 S Accumulation units 62.59p 62.17p 0.68 2 The Manager s periodic charge for X Accumulation (Gross) units is invoiced Z Income units 120.70p 120.70p 0.00 directly to unitholders and is therefore not included in the Total expense ratio Z for Accumulation that unit class. units 122.60p 122.00p 0.49 30.4.18 30.4.17 3 The Total expense ratio includes VAT recoverable on registrar s fees. Final distribution per Z Income unit 0.0327p 0.1314p Fund information Launch date 22 May 2002 Launch price 50.00p per A Income unit 50.00p per A Accumulation unit Launch date 1 April 2010 Launch price 71.69p per Z Income unit Launch date 19 April 2012 Launch price 77.04p per Z Accumulation unit Launch date 1 November 2013 Launch price 50.00p per S Income unit Launch date 24 October 2014 Launch price 50.00p per S Accumulation unit Launch date 2 March 2015 Launch price 50.00p per Q Accumulation unit Interim Final Accounting dates 31 August 28 February Revenue allocation dates 31 October 30 April 4
Fund Information (continued) Ongoing charges figure For the year For the year to 28.2.18 to 28.2.17 A Income units 1.83% 1.85% A Accumulation units 1.83% 1.85% Q Accumulation units 1.23% 1.25% S Income units 1.13% 1.15% S Accumulation units 1.13% 1.15% Z Income units 1.33% 1.35% Z Accumulation units 1.33% 1.35% 5
Review of Investment Activities From 28 February 2017 to 28 February 2018, the price of Z Accumulation units on dealing price to dealing price basis rose 0.49%. In comparison, The Investment Association (IA) Flexible Sector Average generated a total return of 6.67% 1. 1 Source: Lipper for Investment Management. Equity markets continued to rise against a stable economic backdrop which saw continued synchronised growth between developed and emerging markets. A rally in oil prices and a weaker US dollar were also supportive, but particularly helped emerging markets and Asia enjoy a strong year of performance. In fixed income, key government bond yields rose over the year, reflecting rising expectations of monetary stimulus withdrawal and policy normalisation. It was a frustrating year for fund performance. We expected that modest rises in global growth and inflation would see a shift in market leadership. Otherwise (if not in addition) we suspected a significant rise in volatility, something that could prove detrimental to short term returns in certain markets and sectors. To our chagrin, neither materialised to the extent we would have expected. We suspect central banks around the world will become less accommodative through 2018 and growth and inflation to continue to rise. This should impact investor positioning both in equity and fixed income markets. On a relative basis, we suspect this means a continued outperformance of non-us equities and are positioned accordingly. Holdings in Europe and Japan remain prominent tempered with the knowledge that these are higher beta markets should re-positioning lead to a market wobble. Our preference for selective, low duration credit within fixed income persists. Please remember that past performance is not a guide to future performance and it might not be repeated. The value of investments and the revenue from them may go down as well as up and investors may not get back the amount originally invested. Because of this, you are not certain to make a profit on your investments and you may lose money. Co-Fund Manager: Marcus Brookes Joined Schroders in July 2013 following the acquisition of Cazenove Capital Previous to the acquisition he was the Head of Multi Manager at Cazenove Capital, which he joined in January 2008 Prior to this Marcus was the Deputy Head of Multi Manager at Gartmore, a position he held from November 2004 Up to this time he spent 3.5 years from May 2001 as the Co-Manager of Multi Manager, at Rothschild Asset Management Marcus began his career on 28 September 1994 when he joined Friends, Ivory & Sime, where he became the Multi Manager Fund Manager Marcus qualified from University of Stirling with MSc. Investment Analysis Co-Fund Manager: Robin McDonald Joined Schroders in July 2013 following the acquisition of Cazenove Capital Previous to the acquisition he was a Fund Manager at Cazenove Capital, which he joined in October 2007, responsible for co-managing the multi manager fund range as well as a few segregated mandates Prior to this Robin was a Multi Manager Analyst at Gartmore, a position he held from September 2003 Up to this time he worked as a Multi Manager Analyst for Insight Investment Management, following its acquisition of Rothschild Asset Management in 2003, whom he joined in 2001 Robin began his career in September 1999 when he joined Bank of New York (Europe) Limited as a Client Relationship Executive Robin is a CFA charterholder 6
Risk Profile Risk and reward indicator The risk category was calculated using historical performance data and may not be a reliable indicator of the fund s future risk profile. The fund is in this category because it can take higher risks in search of higher rewards and its price may rise and fall accordingly. The fund s risk category is not guaranteed to remain fixed and may change over time. A fund in the lowest category does not mean a risk free investment. Specific risks The fund is authorised as a non-ucits retail scheme. The investment and borrowing powers of these types of scheme are wider than those for UCITS funds whilst still aiming to provide a prudent spread of risk. The fund invests in assets which are exposed to currencies other than sterling. Exchange rates may cause the value of overseas investments and the revenue from them to rise or fall. The fund invests in emerging markets and the Far East. This involves a high degree of risk and should be seen as long term in nature. The fund is index unconstrained and has the potential for greater volatility. The fund may invest in unregulated collective investment schemes, which involves a higher degree of risk as they are not regulated by the FCA. The funds may not be readily realisable and priced less frequently than listed shares or authorised unit trusts, and therefore price swings may be more volatile. More than 35% of the property of the fund may be invested in Government securities. The fund may invest in higher yielding bonds (non-investment grade). The risk of default is higher with non-investment grade bonds than with investment grade bonds. Higher yielding bonds may also have an increased potential to erode your capital sum than lower yielding bonds. The fund may invest in a wide range of derivatives in order to meet its investment objectives. For these reasons, the purchase of units should not normally be regarded as a short term investment. 7
Statement of the Manager s Responsibilities The FCA s Collective Investment Schemes sourcebook (COLL) requires the Manager to prepare accounts for each annual and half yearly accounting period, in accordance with United Kingdom Generally Accepted Accounting Practice, which give a true and fair view of the financial position of the fund and of its net revenue and the net capital losses on the property of the fund for the year. In preparing the accounts the Manager is required to: select suitable accounting policies and then apply them consistently; comply with the disclosure requirements of the Statement of Recommended Practice (SORP) for UK Authorised Funds issued by the Investment Management Association (IMA (now the Investment Association (IA))) in May 2014; follow generally accepted accounting principles and applicable accounting standards; prepare the accounts on the basis that the fund will continue in operation unless it is inappropriate to do so; keep proper accounting records which enable it to demonstrate that the accounts as prepared comply with the above requirements; make judgements and estimates that are prudent and reasonable. The Manager is responsible for the management of the fund in accordance with its Trust Deed, the Prospectus and the COLL, and for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law or regulations. The Manager s report and accounts for the year ended 28 February 2018 were signed on 11 May 2018 on behalf of the Manager by: J.A. Walker-Hazell Directors P. Chislett 8
Report of the Trustee Statement of the Trustee s responsibilities in respect of the Scheme and report of the Trustee to the unitholders of the Schroder MM Diversity Tactical Fund ( the fund ) for the year ended 28 February 2018 The Trustee of the Schroder MM Diversity Tactical Fund must ensure that the fund is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook, and the Investment Funds Sourcebook, the Financial Services and Markets Act 2000, as amended, (together the regulations ), the Trust Deed and Prospectus (together the Scheme documents ) as detailed below. The Trustee must in the context of its role act honestly, fairly, professionally, independently and in the interests of the fund and its investors. The Trustee is responsible for the safekeeping of all custodial assets and maintaining a record of all other assets of the fund in accordance with the regulations. The Trustee must ensure that: the fund s cash flows are properly monitored and that cash of the fund is booked in cash accounts in accordance with the regulations; the sale, issue, repurchase, redemption and cancellation of units are carried out in accordance with the regulations; the value of units of the fund are calculated in accordance with the regulations; any consideration relating to transactions in the fund s assets is remitted to the fund within the usual time limits; the fund s income is applied in accordance with the regulations; and the instructions of the Alternative Investment Fund Manager ( the Manager ) are carried out (unless they conflict with the regulations). The Trustee also has a duty to take reasonable care to ensure that the fund is managed in accordance with the regulations and the Scheme documents of the fund in relation to the investment and borrowing powers applicable to the fund. 9
Report of the Trustee (continued) Having carried out such procedures as we consider necessary to discharge our responsibilities as Trustee of the fund, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the fund, acting through the Manager: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the fund s units and the application of the fund s income in accordance with the regulations and the Scheme documents of the fund; and (ii) has observed the investment and borrowing powers and restrictions applicable to the fund in accordance with the regulations and the Scheme documents of the fund. J.P. Morgan Europe Limited Trustee Bournemouth 21 March 2018 10
Independent Auditors Report to the Unitholders of Schroder MM Diversity Tactical Fund Report on the audit of the financial statements Opinion In our opinion, Schroder MM Diversity Tactical Fund s financial statements: give a true and fair view of the financial position of the fund as at 28 February 2018 and of the net revenue and the net capital losses on its scheme property for the year then ended; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, and applicable law), the Statement of Recommended Practice for UK Authorised Funds, the Collective Investment Schemes sourcebook and the Trust Deed. We have audited the financial statements, included within the Final Report and Accounts (the Annual Report ), which comprise: the balance sheet as at 28 February 2018; the statement of total return and the statement of change in net assets attributable to unitholders for the year then ended; the notes to the financial statements, which include a description of the significant accounting policies, and the distribution tables. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ( ISAs (UK) ) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the fund in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the Financial Reporting Council s (FRC) Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. 11
Independent Auditors Report to the Unitholders of Schroder MM Diversity Tactical Fund (continued) Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: the Manager s use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the Manager has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the fund s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the fund s ability to continue as a going concern. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our Auditors Report thereon. The Manager is responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. Manager s Report In our opinion, the information given in the Manager s Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 12
Independent Auditors Report to the Unitholders of Schroder MM Diversity Tactical Fund (continued) Responsibilities for the financial statements and the audit Responsibilities of the Manager for the financial statements As explained more fully in the Statement of the Manager s Responsibilities set out on page 8, the Manager is responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Manager is also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Manager is responsible for assessing the fund s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intend to wind up or terminate the fund, or have no realistic alternative but to do so. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditors Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditors Report. Use of this report This report, including the opinions, has been prepared for and only for the fund s unitholders as a body in accordance with paragraph 4.5.12 of the Collective Investment Schemes sourcebook and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 13
Independent Auditors Report to the Unitholders of Schroder MM Diversity Tactical Fund (continued) Other required reporting Opinion on matter required by the Collective Investment Schemes sourcebook In our opinion, we have obtained all the information and explanations we consider necessary for the purposes of the audit. Collective Investment Schemes sourcebook exception reporting Under the Collective Investment Schemes sourcebook we are also required to report to you if, in our opinion: proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 11 May 2018 14
Comparative Tables A Income units 2018 2017 2016 Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value 118.85 101.68 104.38 Return before operating charges 1.79 19.21 (0.77) Operating charges (2.19) (2.04) (1.92) Return after operating charges* (0.40) 17.17 (2.69) Distributions 1 (0.18) Nil (0.01) Closing net asset value 118.27 118.85 101.68 *after direct transaction costs of 0.00 0.00 0.00 Performance Return after charges (%) (0.34) 16.89 (2.58) Other information Closing net asset value ( 000 s) 1,152 9,115 9,313 Closing number of units 974,372 7,669,356 9,159,010 Operating charges (%) 1.83 1.85 1.80 Prices Highest dealing price (p) 122.30 120.00 109.00 Lowest dealing price (p) 116.60 101.20 96.64 15
Comparative Tables (continued) A Accumulation units 2018 2017 2016 Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value 121.73 104.14 106.90 Return before operating charges 1.83 19.68 (0.79) Operating charges (2.24) (2.09) (1.97) Return after operating charges* (0.41) 17.59 (2.76) Distributions 1 (0.19) Nil (0.01) Retained distributions 1 0.19 Nil 0.01 Closing net asset value 121.32 121.73 104.14 *after direct transaction costs of 0.00 0.00 0.00 Performance Return after charges (%) (0.34) 16.89 (2.58) Other information Closing net asset value ( 000 s) 17,857 34,224 37,280 Closing number of units 14,718,210 28,115,267 35,797,223 Operating charges (%) 1.83 1.85 1.80 Prices Highest dealing price (p) 125.50 122.90 111.60 Lowest dealing price (p) 119.40 103.70 98.98 16
Comparative Tables (continued) Q Accumulation units 2018 2017 2016 Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value 57.59 48.97 50.00 Return before operating charges 0.87 9.29 (0.42) Operating charges (0.72) (0.67) (0.61) Return after operating charges* 0.15 8.62 (1.03) Distributions 1 (0.32) (0.20) (0.27) Retained distributions 1 0.32 0.20 0.27 Closing net asset value 57.74 57.59 48.97 *after direct transaction costs of 0.00 0.00 0.00 Performance Return after charges (%) 0.26 17.60 (2.06) Other information Closing net asset value ( 000 s) 19,356 15,487 6,629 Closing number of units 33,519,773 26,892,107 13,537,757 Operating charges (%) 1.23 1.25 1.20 Prices Highest dealing price (p) 59.68 58.09 52.22 Lowest dealing price (p) 56.52 48.78 46.53 The unit class was launched on 2 March 2015. 17
Comparative Tables (continued) S Income units 2018 2017 2016 Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value 61.82 52.96 54.00 Return before operating charges 0.94 10.03 (0.43) Operating charges (0.70) (0.67) (0.61) Return after operating charges* 0.24 9.36 (1.04) Distributions 1 (0.43) (0.50) Nil 2 Closing net asset value 61.63 61.82 52.96 *after direct transaction costs of 0.00 0.00 0.00 Performance Return after charges (%) 0.39 17.67 (1.93) Other information Closing net asset value ( 000 s) 7,259 337 31 Closing number of units 11,777,832 545,126 59,591 Operating charges (%) 1.13 1.15 1.10 Prices Highest dealing price (p) 63.79 62.46 56.45 Lowest dealing price (p) 60.69 52.77 50.33 2 There was no distribution as the total amount distributable was below de minimis. 18
Comparative Tables (continued) S Accumulation units 2018 2017 2016 Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value 62.28 52.91 53.93 Return before operating charges 0.95 10.04 (0.40) Operating charges (0.71) (0.67) (0.62) Return after operating charges* 0.24 9.37 (1.02) Distributions 1 (0.46) (0.28) (0.33) Retained distributions 1 0.46 0.28 0.33 Closing net asset value 62.52 62.28 52.91 *after direct transaction costs of 0.00 0.00 0.00 Performance Return after charges (%) 0.39 17.71 (1.89) Other information Closing net asset value ( 000 s) 18,535 1,406 698 Closing number of units 29,649,003 2,257,897 1,318,669 Operating charges (%) 1.13 1.15 1.10 Prices Highest dealing price (p) 64.61 62.82 56.37 Lowest dealing price (p) 61.14 52.71 50.28 19
Comparative Tables (continued) Z Income units 2018 2017 2016 Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value 120.82 103.07 105.61 Return before operating charges 1.84 19.52 (0.79) Operating charges (1.62) (1.51) (1.42) Return after operating charges* 0.22 18.01 (2.21) Distributions 1 (0.54) (0.26) (0.33) Closing net asset value 120.50 120.82 103.07 *after direct transaction costs of 0.00 0.00 0.00 Performance Return after charges (%) 0.18 17.47 (2.09) Other information Closing net asset value ( 000 s) 12,522 12,805 12,809 Closing number of units 10,392,287 10,598,728 12,427,671 Operating charges (%) 1.33 1.35 1.30 Prices Highest dealing price (p) 124.60 122.00 110.40 Lowest dealing price (p) 118.60 102.70 97.99 20
Comparative Tables (continued) Z Accumulation units 2018 2017 2016 Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value 122.26 104.07 106.29 Return before operating charges 1.84 19.72 (0.79) Operating charges (1.64) (1.53) (1.43) Return after operating charges* 0.20 18.19 (2.22) Distributions 1 (0.55) (0.28) (0.35) Retained distributions 1 0.55 0.28 0.35 Closing net asset value 122.46 122.26 104.07 *after direct transaction costs of 0.00 0.00 0.00 Performance Return after charges (%) 0.16 17.48 (2.09) Other information Closing net asset value ( 000 s) 138,533 141,354 121,005 Closing number of units 113,120,936 115,619,495 116,274,784 Operating charges (%) 1.33 1.35 1.30 Prices Highest dealing price (p) 126.60 123.30 111.10 Lowest dealing price (p) 120.00 103.70 98.89 1 These figures have been rounded to 2 decimal places. The Operating charges are calculated on an ex-post basis and as such may differ from the Ongoing charges figure where the Ongoing charges figure has been annualised for a unit class that has not been in existence for a full year. Please remember that past performance is not a guide to future performance and it might not be repeated. The value of investments and the revenue from them may go down as well as up and investors may not get back the amount originally invested. Because of this, you are not certain to make a profit on your investments and you may lose money. 21
Portfolio Statement Collective Investment Schemes 98.98% (97.49%) Absolute Return Funds 4.16% (0.00%) Holding at Market Value % of net 28.02.18 000 s assets Morgan Stanley Global Multi-Asset Opportunities Fund ZH Accumulation ^ 370,000 8,954 4.16 8,954 4.16 Asia Pacific ex Japan Equity Funds 1.51% (1.27%) Hermes Asia Ex-Japan Equity Fund F Accumulation ^ 1,220,000 3,246 1.51 3,246 1.51 Cash Funds 23.08% (25.26%) Schroder Sterling Liquidity Plus Fund I Accumulation GBP 1 415,000 49,680 23.08 49,680 23.08 Commodity Funds 2.23% (2.37%) ishares Physical Gold ETC USD 255,000 4,791 2.23 4,791 2.23 Emerging Markets Equity Funds 3.04% (1.55%) Artemis Global Emerging Markets Fund I Accumulation ^ 4,550,000 6,554 3.04 6,554 3.04 European Equity Funds 13.52% (12.61%) Invesco Perpetual European Equity Fund Accumulation ^ 6,250,000 13,203 6.14 TM Sanditon European Fund F Accumulation ^ 12,100,000 15,887 7.38 29,090 13.52 Global Equity Funds 12.12% (15.38%) BlackRock Gold and General Fund A Accumulation GBP ^ 625,000 5,088 2.36 GAM Global Eclectic Equity Fund Institutional Accumulation ^ 1,679,320 16,793 7.80 JOHCM Global Opportunities Fund X Income ^ 2,760,000 4,198 1.96 26,079 12.12 22
Portfolio Statement (continued) Global Fixed Income Funds 0.50% (0.39%) Holding at Market Value % of net 28.02.18 000 s assets Invesco Perpetual Tactical Bond Fund Income ^ 880,000 1,072 0.50 1,072 0.50 Hedge Funds 15.60% (16.27%) Majedie Tortoise Fund G Accumulation ^ 12,400,000 21,692 10.07 Man GLG UK Absolute Value Fund Professional CX Accumulation ^ 5,100,000 5,626 2.61 Odey European Income Fund B Accumulation GBP Hedged ^ 25,322 2,004 0.94 TM Sanditon European Select Fund F Accumulation ^ 5,250,000 4,259 1.98 33,581 15.60 Japanese Equity Funds 16.71% (15.95%) Man GLG Japan CoreAlpha Equity Fund I Accumulation GBP Hedged ^ 31,625 6,457 2.99 Man GLG Japan CoreAlpha Fund Professional D Income ^ 11,500,000 29,498 13.72 35,955 16.71 UK Equity Funds 6.51% (6.44%) Majedie UK Focus Fund X Income ^ 8,000,000 14,007 6.51 14,007 6.51 Collective Investment Schemes total 213,009 98.98 Portfolio of investments 213,009 98.98 Net other assets 2,205 1.02 Net assets attributable to unitholders 215,214 100.00 The comparative percentage figures in brackets are as at 28 February 2017. Unless otherwise stated, all securities are admitted to official stock exchange listings or are permitted collective investments schemes. ^ Unlisted, suspended or delisted security. A related party to the fund (Note 11). 1 Cash equivalents. 23
Summary of Portfolio Transactions Largest purchases Largest sales Cost For the year ended 28 February 2018 000 s GAM Global Eclectic Equity Fund Institutional Accumulation 16,793 Morgan Stanley Global Multi-Asset Opportunities Fund ZH Accumulation 10,545 Man GLG Japan CoreAlpha Fund Professional D Income 7,117 Schroder Sterling Liquidity Plus Fund I Accumulation GBP 1 7,016 Man GLG UK Absolute Value Fund Professional CX Accumulation 5,601 Majedie Tortoise Fund G Accumulation 3,618 Morgan Stanley Diversified Alpha Plus Fund ZH Accumulation 3,334 Artemis Global Emerging Markets Fund I Accumulation 3,310 TM Sanditon European Fund F Accumulation 1,910 BlackRock Gold and General Fund A Accumulation GBP 1,481 Proceeds For the year ended 28 February 2018 000 s GAM Global Diversified Fund Institutional Accumulation 21,011 Schroder Sterling Liquidity Plus Fund I Accumulation GBP 1 11,363 Morgan Stanley Diversified Alpha Plus Fund ZH Accumulation 10,545 Man GLG Japan CoreAlpha Equity Fund I Accumulation GBP Hedged 7,327 JPMorgan Natural Resources Fund A Accumulation 2,854 Invesco Perpetual European Equity Fund Accumulation 1,904 Morgan Stanley Global Multi-Asset Opportunities Fund ZH Accumulation 1,364 JPMorgan Income Opportunity Plus Fund C Distribution GBP Hedged 802 Man GLG Japan CoreAlpha Fund Professional D Income 737 Findlay Park Latin American Fund Income USD 722 1 A related party to the fund (Note 11). 24
Statement of Total Return For the year ended 28 February 2018 Income 2018 2017 Notes 000 s 000 s 000 s 000 s Net capital (losses)/gains 2 (565) 32,398 Revenue 3 2,437 1,876 Expenses 4 (1,607) (1,593) Net revenue before taxation 830 283 Taxation 5 0 0 Net revenue after taxation 830 283 Total return before distributions 265 32,681 Distributions 6 (921) (416) Change in net assets attributable to unitholders from investment activities (656) 32,265 Statement of Change in Net Assets Attributable to Unitholders For the year ended 28 February 2018 2018 2017 000 s 000 s 000 s 000 s Opening net assets attributable to unitholders 214,728 187,765 Amounts receivable on issue of units 23,946 21,955 Amounts payable on cancellation of units (23,647) (27,640) 299 (5,685) Change in net assets attributable to unitholders from investment activities (656) 32,265 Retained distribution on Accumulation units 843 383 Closing net assets attributable to unitholders 215,214 214,728 25
Balance Sheet As at 28 February 2018 2018 2017 Notes 000 s 000 s Assets Investments 163,329 155,097 Current assets Debtors 8 17,106 1,803 Cash and bank balances 2,689 3,956 Cash equivalents 49,680 54,242 Total assets 232,804 215,098 Liabilities Creditors Distributions payable (15) (15) Other creditors 9 (17,575) (355) Total liabilities (17,590) (370) Net assets attributable to unitholders 215,214 214,728 26
Notes to the Accounts 1 Accounting policies Basis of preparation The accounts have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with the SORP for UK Authorised Funds issued by the IMA in May 2014 and in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 102 (The Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102)). Revenue Distributions receivable from authorised unit trusts and other collective investment schemes are recognised net of attributable tax credits and are credited to revenue when they are first quoted ex-dividend. Interest receivable from bank balances is accounted for on an accruals basis. The Annual management charge and Administration charge in respect of the Schroder funds in which the fund invests is rebated to the fund so that no double charging occurs. The rebates received from other investment managers are also receipted to the fund. All rebates are treated as revenue or capital based on the underlying fund s treatment. Special dividends Special dividends are treated as revenue or capital depending on the facts of each particular case. Equalisation Equalisation on distributions received by the fund is deducted from the cost of investments. As such the equalisation on distributions received by the fund does not form part of the fund s distributions. Expenses Expenses of the fund are charged against revenue except for costs associated with the purchase and sale of investments which are allocated to the capital of the fund. Taxation Corporation tax is provided for on the revenue liable to corporation tax less deductible expenses. The tax effect of different items of revenue or expenses is allocated between revenue and capital using the marginal basis. Deferred taxation is provided for on all timing differences that have originated but not reversed by the balance sheet date, other than those differences regarded as permanent. Any liability to deferred taxation is provided for at the average rate of taxation expected to apply. Deferred tax assets and liabilities are not discounted to reflect the time value of money. 27
Notes to the Accounts (continued) Distributions The revenue available for distribution is the total revenue earned by the fund, less deductible expenses and taxation charged to revenue. This revenue is distributed annually on 30 April to Income unitholders. An interim distribution, based on available revenue at the half year, is distributed on 31 October to Income unitholders. For Accumulation units this revenue is not distributed but automatically reinvested in the fund and is reflected in the value of these units. Dilution adjustment In certain circumstances the Manager may apply a dilution adjustment on subscriptions and redemptions of units. If applied, the dilution adjustment is paid to the fund. See Prospectus for further details. Valuation Listed investments of the fund have been valued at market value, dual priced authorised unit trusts have been valued at cancellation price, single priced authorised unit trusts have been valued at the dealing price and open ended investment companies have been valued at the latest available bid price at 18:00 on the balance sheet date. Market value is defined by the SORP as fair value which generally is the bid value of each security. Cash equivalents In accordance with the AIFMD requirements, the fund has treated some investments in the Portfolio Statement as Cash equivalents for the purposes of the Balance Sheet disclosure. Investments are regarded as Cash equivalents if they meet all of the following criteria: highly liquid investments held in sterling that are readily convertible to a known amount of cash; are subject to an insignificant risk of change in value; and provide a return no greater than the rate of a three month high quality government bond. Foreign currencies Transactions in foreign currencies are translated into sterling at the exchange rate prevailing on the date of the transaction. Assets and liabilities valued in foreign currencies have been translated into sterling at the exchange rates prevailing at the balance sheet date and the net (losses)/gains are reflected under Net capital (losses)/gains in the Notes to the Accounts. 28
Notes to the Accounts (continued) 2 Net capital (losses)/gains The net capital (losses)/gains during the year comprise: 2018 2017 000 s 000 s Non-derivative securities (579) 32,357 Foreign currency (losses)/gains (8) 21 Transaction costs (3) (3) Annual management charge rebates 25 23 Net capital (losses)/gains (565) 32,398 The non-derivatives securities and foreign currency (losses)/gains above includes: 2018 2017 000 s 000 s Realised gains 8,378 6,380 Unrealised (losses)/gains (8,965) 25,998 Total (losses)/gains (587) 32,378 Total realised gains for the year were 8,377,727 (2017 6,380,008) and the movement in unrealised (losses)/gains was (8,965,865) (2017 25,998,050). Included in realised gains for the year were unrealised gains recognised in previous years. 3 Revenue 2018 2017 000 s 000 s Franked distributions 1,782 1,309 Unfranked distributions 3 0 Interest distributions 330 249 Bank interest 4 10 Annual management charge rebates 307 297 Administration charge rebates 11 11 Total revenue 2,437 1,876 29
Notes to the Accounts (continued) 4 Expenses Payable to the Manager, associates of the Manager and agents of either of them: 2018 2017 000 s 000 s Annual management charge 1,235 1,241 Administration charge 328 308 Payable to the Trustee, associates of the Trustee and agents of either of them: 1,563 1,549 Trustee s fees 24 22 Safe custody fees 6 7 Other expenses: 30 29 Audit fee 14 15 14 15 Total expenses 1,607 1,593 5 Taxation Corporation tax has not been provided for as expenses payable by the fund exceed the revenue liable to corporation tax. (a) Factors affecting the current tax charge for the year The tax assessed for the year is different from that calculated when the standard rate of corporation tax for authorised unit trusts of 20% (2017 20%) is applied to the net revenue before taxation. The differences are explained below. 2018 2017 000 s 000 s Net revenue before taxation 830 283 Net revenue for the year before taxation multiplied by the standard rate of corporation tax 166 57 Effects of: Revenue not subject to corporation tax (356) (263) Movement in excess management expenses 185 201 Tax on capital items 5 5 Current tax charge for the year 0 0 (b) Factors that may affect future tax charges At the balance sheet date, there is a potential deferred tax asset of 974,856 (2017 1,032,200) in respect of unutilised management expenses. It is unlikely the fund will generate sufficient taxable profits in the future to utilise this amount and therefore no deferred tax asset has been recognised in the year or prior year. 30
Notes to the Accounts (continued) 6 Distributions Distributions The distributions take account of revenue received on the issue of units and revenue deducted on the cancellation of units, and comprise: 2018 2017 000 s 000 s Interim Dividend distribution 822 189 Final Dividend distribution 107 226 929 415 Add: Revenue deducted on cancellation of units 7 4 Deduct: Revenue received on issue of units (15) (3) Distributions 921 416 Net revenue after taxation 830 283 Tax on capital items 5 5 Deficit taken to capital 86 128 Distributions 921 416 Details of the distributions per unit are set out in the Distribution Table on pages 41 and 42. 7 Fair value hierarchy Instruments held at the year end are presented in line with amendments to FRS 102 the Financial Reporting Standard applicable in the UK and Republic of Ireland Fair value hierarchy disclosures. 2018 2017 Assets Assets Basis of valuation 000 s 000 s Level 1: Quoted prices 4,792 5,082 Level 2: Observable market data 208,217 204,257 Level 3: Unobservable data 0 0 Total 213,009 209,339 Level 1: Unadjusted quoted price in an active market for an identical instrument. Level 2: Valuation techniques using observable inputs other than quoted prices within level 1. Level 3: Valuation techniques using unobservable inputs. 31
Notes to the Accounts (continued) Unobservable data Unobservable data has been used only where relevant observable market data is not available. Where there was no reputable price source for an investment, the Manager has assessed information available from internal and external sources in order to arrive at an estimated fair value. The fair value is established by using measures of value such as the price of recent transactions, earnings multiple and net assets. The Manager of the fund also makes judgements and estimates based on their knowledge of recent investment performance, historical experience and other assumptions that are considered reasonable under the circumstances. The estimates and the assumptions used are under continuous review by the Manager with particular attention paid to the carrying value of the investments. 8 Debtors 2018 2017 000 s 000 s Amounts receivable for issue of units 136 323 Sales awaiting settlement 16,793 1,436 Accrued overseas dividends 129 0 Accrued franked distributions 0 6 Accrued Annual management charge rebates 47 37 Accrued administration charge rebates 1 1 Total debtors 17,106 1,803 9 Other creditors 2018 2017 000 s 000 s 000 s 000 s Amounts payable for cancellation of units 653 214 Purchases awaiting settlement 16,793 0 Accrued expenses Manager and Agents Annual management charge 84 98 Administration charge 25 25 109 123 Trustee and Agents Trustee s fees 4 4 Safe custody fees 1 1 Transaction costs 1 0 6 5 Other accrued expenses 14 13 Total other creditors 17,575 355 32
Notes to the Accounts (continued) 10 Contingent liabilities There were no contingent liabilities at the balance sheet date (2017 Nil). 11 Related party transactions The Manager exercises control over the fund and is therefore a related party by virtue of its controlling influence. Amounts paid during the year or due to the Manager at the balance sheet date are disclosed under Expenses and Other creditors in the Notes to the Accounts. Administration charge rebates received or receivable from the Manager of 11,255 (2017 11,333) are disclosed under Net capital (losses)/gains and Revenue in the Notes to the Accounts. Amounts due from the Manager at the balance sheet date of 896 (2017 819) are disclosed under Debtors in the Notes to the Accounts. The Manager acts as principal on all transactions of units in the fund. The aggregate monies received through the issue and cancellation of units are disclosed in the Statement of Change in Net Assets Attributable to Unitholders and Distributions in the Notes to the Accounts. Amounts due from or to the Manager in respect of unit transactions at the balance sheet date are disclosed under Debtors and Other creditors in the Notes to the Accounts. Units held or managed by the Manager or associates of the Manager as a percentage of the fund s net asset value at the balance sheet date were 13.88% (2017 15.30%). Related party holdings are disclosed in the Portfolio Statement, with any significant purchases and sales disclosed in Summary of Portfolio Transactions. The revenue earned from these investments of 524,914 (2017 216,383) is included under Revenue in the Notes to the Accounts. 12 Unit classes The fund currently has seven unit classes: A Income units, A Accumulation units, Q Accumulation units, S Income units, S Accumulation units, Z Income units and Z Accumulation units. The Annual management charge is based on the average value of the fund, calculated on a daily basis, and covers the remuneration of the Manager, the Investment Adviser and their overhead expenses and for each unit class is as follows: A Income units 1.00% A Accumulation units 1.00% Q Accumulation units 0.40% S Income units 0.30% S Accumulation units 0.30% Z Income units 0.50% Z Accumulation units 0.50% 33
Notes to the Accounts (continued) The fund may invest up to 100% of its net asset value in shares of collective investment schemes. The maximum level of Management fee that maybe charged to the fund for these underlying funds is 3% of its net asset value. The closing net asset value of each unit, the closing net asset value per unit and the closing number of units in issue are given in the Comparative Tables on pages 15 to 21. The distributions per unit class are given in the Distribution Table on pages 41 and 42. All classes have the same rights on winding up. 13 Derivative and other financial instruments In accordance with the investment objective, the fund may hold certain financial instruments. These comprise: securities held in accordance with the investment objective and policy; cash and short term debtors and creditors arising directly from operations. Under normal circumstances, the Manager would expect substantially all of the assets of the fund to be invested in securities appropriate to the fund s investment objective. The fund may invest in deposits, only with an approved bank and which are repayable on demand or has the right to withdraw and maturing in no more than twelve months. Cash and near cash may only be held in order to enable the pursuit of the fund s investment objective or to assist in the redemption of units, the efficient management of the fund or purposes regarded as ancillary to the fund. The main risks arising from the fund s financial instruments are market price, foreign currency, liquidity, credit and interest rate risks. The Manager s policies for managing these risks are summarised below and have been applied throughout the year and the prior year. Market price risk The fund s investment portfolio is exposed to market price fluctuations which are monitored by the Manager in pursuance of the investment objective and policy. Adherence to investment guidelines and to investment and borrowing powers set out in the Trust Deed, the Prospectus and in the COLL mitigates the risk of excessive exposure to any particular type of security or issuer. Foreign currency risk Collective investment schemes valued in foreign currencies and underlying funds investing in overseas securities may cause the balance sheet to be significantly affected by movements in foreign exchange rates. The fund has not hedged the sterling value of investments that are priced in other currencies. Revenue received in other currencies is translated to sterling on or near the date of receipt. The fund does not hedge or otherwise seek to avoid currency movement risk on accrued revenue. 34