MM Diversity Income Fund

Transcription

1 Schroder MM Diversity Income Fund Final Report and Accounts February 2016

2 Contents Schroder MM Diversity Income Fund Fund Information Investment objective and policy Alternative Investment Fund Managers Directive (AIFMD) Financial highlights Fund information Ongoing charges figure Review of Investment Activities Risk Profile Risk and reward indicator Specific risks Statement of the Manager s Responsibilities Report of the Trustee Independent Auditors Report to the Unitholders of Schroder MM Diversity Income Fund Comparative Tables Portfolio Statement Summary of Portfolio Transactions Largest purchases Largest sales Statement of Total Return Statement of Change in Net Assets Attributable to Unitholders Balance Sheet Notes to the Accounts Accounting policies Net capital (losses)/gains Revenue Expenses Taxation Distributions Fair value hierarchy Debtors Other creditors Contingent liabilities Related party transactions Unit classes Derivative and other financial instruments Direct transaction costs Units in issue reconciliation Remuneration Distribution Table Quarterly distribution for the three months ended 31 May Corporate unitholders (unaudited) Interim distribution for the three months ended 31 August Corporate unitholders (unaudited) Quarterly distribution for the three months ended 30 November Corporate unitholders (unaudited) Final distribution for the three months ended 28 February Corporate unitholders (unaudited) Equalisation General Information Authorisation Other information European Union Savings Directive Collectively these comprise the Authorised Fund Manager s report.

3 Fund Information Investment objective and policy The fund seeks to deliver a capital return over a rolling five year period that is in line with, or above, the consumer price index while also aiming to provide an income distribution of 4 per cent per annum. There is no guarantee that this objective will be met. There is a risk to an investor s capital. Investors may not get back the amount originally invested. The fund will invest across a broad range of asset classes which are intended to provide consistent rates of return with lower risk than more traditional approaches to portfolio management which tend to be largely dependent on the performance of equities. The fund will invest in global markets through a diversified portfolio of collective investment schemes and exchange traded funds. 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 or near cash. The fund may utilise derivatives and forward transactions for the purposes 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 the Manager was authorised by the Financial Conduct Authority (FCA) to act as an AIFM on 2 July The AIFMD requires certain information to be disclosed to unitholders. It is intended that any such information will in future be provided in the report and accounts, unless such information is required to be disclosed without delay, in which case it will be made via the Schroders website at: 3

4 Fund Information (continued) Financial highlights For the period For the period/year to Date to Date A/I/X Dealing Income price (Gross) units % % change 0.00% 3 A/I/X A Income Accumulation units (Gross) units p 0.00% p % (4.46) 3 A Accumulation units p p (1.44) 1 S The Income Total units expense ratio is annualised 48.88pbased on the 50.91p fees suffered during (3.99) the S accounting Accumulation period. units 49.43p Z Income units p p (4.04) 2 The Manager s periodic charge for X Accumulation (Gross) units is invoiced Z Accumulation units p p (1.12) directly to unitholders and is therefore not included in the Total expense ratio for that unit class to to Final The distribution Total expense per ratio includes VAT recoverable on registrar s fees. Z Income unit p p Fund information Launch date 15 December 2010 Launch price p per A Income unit p per A Accumulation unit p per Z Income unit p per Z Accumulation unit Launch date 1 November 2013 Launch price 50.00p per S Income unit Launch date 6 March 2015 Launch price 50.00p per S Accumulation unit Quarterly Interim Quarterly Final Accounting dates 31 May 31 August 30 November 28 February Revenue allocation dates 31 July 31 October 31 January 30 April 4

5 Fund Information (continued) [Insert text.] Ongoing charges figure For the period For the year from For the year to to to A Income units 1.78% 1.80% % A Accumulation units 1.78% 1.80% % S Income units 1.08% 1.10% % S Accumulation units 1.08% Z Income units 1.28% 1.30% % Z Accumulation units 1.28% 1.30% % 1 The Ongoing charges figure is annualised based on the fees incurred during the accounting period. 2 With effect from 1 April 2014, an Administration charge of 0.15% per annum was applied to the fund, resulting in an Ongoing charges figure as detailed above. 5

6 Review of Investment Activities From 27 February 2015 to 26 February 2016, the price of Z Accumulation units on dealing price to dealing price basis fell 1.12%. In comparison, the Consumer Price Index increased by 0.28% 1. 1 Source: Thomson Reuters Datastream. Over the period the mood in equity and bond markets shifted from a benign outlook on the expected rise in US interest rates to acute concern over a slowdown in the Chinese economy and the corresponding impact on world economic growth. The fund maintained over the period an underweight exposure to fixed income, a large cash position and, within equities, a bias towards Europe. Early in the period our aversion to fixed income was a drag on performance as bond yields continued to fall. Meanwhile, our alternatives holdings also disappointed. During the heightened market volatility seen in the third quarter of 2015 and at the beginning of 2016 our defensive positioning helped cushion fund performance. Portfolio changes during the period were modest, although mainly centred on increasing exposure to our favoured equity markets namely, Europe. Our current strategy is to balance relatively depressed and out of favour assets (such as value style equities and higher beta assets) with sufficient cash such that we participate more when prices rally than we do when they fall. This is the very essence of what we try and deliver over time, and will hopefully prove a fruitful strategy in what we expect to be a volatile 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. 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 and 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

7 Risk Profile Risk and reward indicator Lower risk Potentially lower reward Higher risk Potentially higher reward 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 is index unconstrained and has the potential to 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 derivatives and in alternative investments (including commodities, hedge funds, real estate funds and private equity) which involves a higher degree of risk and can be more volatile. They should only be considered as a long term investment. As a result of the Annual management charge being charged wholly to capital, the distributable revenue of the fund may be higher, but the capital value of the fund may be eroded which may affect future performance. For these reasons, the purchase of units should not normally be regarded as a short term investment. 7

8 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 2016 were signed on 21 April 2016 on behalf of the Manager by: J.A. Walker-Hazell Directors P.C. Wallace 8

9 Report of the Trustee Statement of the Trustee s responsibilities in relation to the accounts of the Scheme The Trustee is responsible for the safekeeping of all of the property of the Scheme (other than tangible moveable property) which is entrusted to it and for the collection of revenue that arises from that property. It is the duty of the Trustee to take reasonable care to ensure that the Scheme is managed by the Authorised Fund Manager in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook (COLL) and the Scheme s Trust Deed and Prospectus, as appropriate, in relation to the pricing of, and dealings in, units in the Scheme; the application of revenue of the Scheme; and the investment and borrowing powers of the Scheme. Report of the Trustee for the accounting period from 1 March 2015 to 28 February 2016 Schroder MM Diversity Income Fund ( the Scheme ) Having carried out such procedures as we consider necessary to discharge our responsibilities as Trustee of the Scheme, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Authorised Fund Manager: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Scheme s units and the application of the Scheme s revenue in accordance with the COLL as appropriate, and, where applicable, the Scheme s Trust Deed and Prospectus; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Scheme. J.P. Morgan Europe Limited Trustee Bournemouth 21 March

10 Independent Auditors Report to the Unitholders of Schroder MM Diversity Income Fund Report on the financial statements Our opinion In our opinion, Schroder MM Diversity Income Fund s financial statements, (the financial statements ): give a true and fair view of the financial position of the fund at 28 February 2016 and of the net revenue and the net capital losses of its scheme property for the year then ended; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, the Statement of Recommended Practice for UK Authorised Funds, the Collective Investment Schemes sourcebook and the Trust Deed. What we have audited The financial statements of the Schroder MM Diversity Income Fund (the fund ), which are prepared by Schroder Unit Trusts Limited (the Authorised Fund Manager ), comprise: the balance sheet of the fund as at 28 February 2016; the statement of total return of the fund for the year then ended; the statement of change in net assets attributable to unitholders of the fund for the year then ended; the notes to the fund s financial statements, which include a summary of significant accounting policies and other explanatory information; and the distribution table. The financial reporting framework that has been applied in the preparation of the financial statements is United Kingdom Accounting Standards, comprising FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, and applicable law (United Kingdom Generally Accepted Accounting Practice), the Statement of Recommended Practice Financial Statements of UK Authorised Funds issued by the Investment Management Association (the Statement of Recommended Practice for Authorised Funds ), the Collective Investment Schemes sourcebook and the Trust Deed. In applying the financial reporting framework, the Authorised Fund Manager has made judgements where appropriate, for example in respect of substantive accounting estimates. In preparing such estimates, they have considered future events and related assumptions. 10

11 Independent Auditors Report to the Unitholders of Schroder MM Diversity Income Fund (continued) Opinions on matters prescribed 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; and the information given in the Authorised Fund Manager s Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Other matters on which we are required to report by exception Propriety of accounting records and information and explanations received Under the Collective Investment Schemes sourcebook we are required to report to you if, in our opinion: proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Responsibilities for the financial statements and the audit Our responsibilities and those of the Authorised Fund Manager As explained more fully in the Authorised Fund Manager s Responsibilities Statement set out on page 8, the Authorised Fund Manager is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the fund s unitholders as a body in accordance with paragraph of the Collective Investment Schemes sourcebook and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 11

12 Independent Auditors Report to the Unitholders of Schroder MM Diversity Income Fund (continued) What an audit of financial statements involves We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (ISAs (UK & Ireland)). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the fund s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Authorised Fund Manager; and the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the Authorised Fund Manager s judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Final Report and Accounts (the Annual Report ) to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 21 April 2016 (a) The maintenance and integrity of the Schroders website is the responsibility of the Authorised Fund Manager; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 12

13 Comparative Tables A Income units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (2.01) (2.06) (1.89) Return after operating charges* (1.22) Distributions 1 (3.75) (3.41) (3.53) Closing net asset value *after direct transaction costs of Performance Return after charges (%) (1.05) Other information Closing net asset value ( 000 s) 28,993 43,066 36,292 Closing number of units 26,139,903 37,162,574 31,216,145 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

14 Comparative Tables (continued) A Accumulation units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (2.31) (2.29) (2.05) Return after operating charges* (1.36) Closing net asset value Retained distributions *after direct transaction costs of Performance Return after charges (%) (1.03) Other information Closing net asset value ( 000 s) 22,730 44,378 22,588 Closing number of units 17,435,805 33,690,824 17,606,046 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

15 Comparative Tables (continued) S Income units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (0.52) (0.54) (0.30) Return after operating charges* (0.25) Distributions 1 (1.64) (1.40) (0.37) Closing net asset value *after direct transaction costs of Performance Return after charges (%) (0.49) Other information Closing net asset value ( 000 s) 1, Closing number of units 2,968, ,478 3,000 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p) The unit class was launched on 1 November

16 Comparative Tables (continued) S Accumulation units 2016 Financial year to 28 February p per unit Change in net asset value Opening net asset value Return before operating charges 0.15 Operating charges (0.52) Return after operating charges* (0.37) Closing net asset value Retained distributions *after direct transaction costs of 0.00 Performance Return after charges (%) (0.74) Other information Closing net asset value ( 000 s) 143 Closing number of units 287,952 Operating charges (%) 1.08 Direct transaction costs (%)** 0.00 Prices Highest dealing price (p) Lowest dealing price (p) The unit class was launched on 6 March

17 Comparative Tables (continued) Z Income units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (1.47) (1.51) (1.33) Return after operating charges* (0.78) Distributions 1 (3.82) (3.42) (3.57) Closing net asset value *after direct transaction costs of Performance Return after charges (%) (0.66) Other information Closing net asset value ( 000 s) 54,556 52,411 24,587 Closing number of units 48,120,780 44,425,572 20,856,847 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p)

18 Comparative Tables (continued) Z Accumulation units Financial year to 28 February p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (1.69) (1.69) (1.43) Return after operating charges* (0.85) Closing net asset value Retained distributions *after direct transaction costs of Performance Return after charges (%) (0.64) Other information Closing net asset value ( 000 s) 72,846 73,644 24,303 Closing number of units 54,780,809 55,027,356 18,710,801 Operating charges (%) Direct transaction costs (%)** Prices Highest dealing price (p) Lowest dealing price (p) These figures have been rounded to 2 decimal places. ** Direct transaction costs have been stated after deducting the proportion of the amounts collected from dilution adjustments. 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. 18

19 Portfolio Statement Absolute Return Funds 5.79% ( %) Holding at Market Value % of net s assets Morgan Stanley Diversified Alpha Plus Fund ZH Accumulation 1 229,478 6, TM Sanditon European Select Fund F Accumulation 1 4,134,283 3, , Cash Funds 16.75% ( %) Schroder International Selection Fund US Dollar Liquidity I Accumulation USD ,300 1, Schroder Special Situations Fund Sterling Liquidity Plus I Accumulation ,000 28, , European Equity Funds 5.19% ( %) Schroder European Alpha Income Fund Z Income 1 2 6,000,000 9, , Global Equity Funds 17.90% ( %) BlackRock Gold and General Fund A Accumulation 1 400,000 3, RWC Global Enhanced Dividend Fund B Income 1 300,643 29, , Hedge Funds 5.30% ( %) Majedie Tortoise Fund G Accumulation 5,574,313 9, , Japanese Equity Funds 2.13% ( %) Man GLG Japan CoreAlpha Fund Professional D Income 1 2,300,000 3, ,

20 Portfolio Statement (continued) UK Equity Funds 27.53% ( %) Holding at Market Value % of net s assets Ardevora UK Income Fund C Income 1 1,466,111 2, Majedie UK Income Fund X Income 1 4,750,000 6, RWC Enhanced Income Fund B Income 1 441,160 37, Schroder Income Maximiser Z Income 1 2 7,432,416 3, , Global Fixed Income Funds 9.80% ( %) Invesco Perpetual Monthly Income Plus Fund Z Income 1 4,525,544 9, Kames High Yield Global Bond Fund B Income USD 650,000 4, Schroder Strategic Credit Fund L Income 1 2 3,855,567 3, , UK Fixed Income Funds 5.03% ( %) M&G Optimal Income Fund I Income 1 3,321,363 4, Pimco UK Income Bond Fund Institutional Income 1 428,410 4, , Portfolio of investments 4 172, Net other assets 8, Net assets attributable to unitholders 180, Unless otherwise stated the above securities are admitted to official stock exchange listings or traded on a regulated market, or are collective investment schemes permitted under the FCA s COLL. 1 Collective investment scheme permitted under FCA s COLL, not listed on any exchange. 2 A related party to the fund (Note 11). 3 Cash equivalents. 4 Including cash equivalents. 20

21 Summary of Portfolio Transactions Largest purchases Largest sales Cost For the year ended 28 February s Schroder Special Situations Fund Sterling Liquidity Plus I Accumulation 1 50,856 Invesco Perpetual Monthly Income Plus Fund Z Income 10,276 Schroder European Alpha Income Fund Z Income 1 5,025 Man GLG Japan CoreAlpha Fund Professional D Income 3,478 BlackRock Gold and General Fund A Accumulation 1,328 Majedie UK Income Fund X Income 1,158 Schroder International Selection Fund US Dollar Liquidity I Accumulation USD 1 10 Pimco UK Income Bond Fund Institutional Income 6 Proceeds For the year ended 28 February s Schroder Special Situations Fund Sterling Liquidity Plus I Accumulation 1 59,387 Invesco Perpetual Monthly Income Plus Fund Income 10,678 Schroder International Selection Fund US Dollar Liquidity I Accumulation USD 1 9,307 RWC Enhanced Income Fund B Income 6,205 Schroder European Alpha Income Fund Z Income 1 4,004 RWC Global Enhanced Dividend Fund B Income 2,190 Kames High Yield Global Bond Fund B Income USD 1,575 Majedie Tortoise Fund G Accumulation 730 Morgan Stanley Diversified Alpha Plus Fund ZH Accumulation 547 Majedie UK Income Fund X Income A related party to the fund (Note 11). 21

22 Statement of Total Return 22 For the year ended 28 February 2016 Income 1 Refer to the Notes to the Accounts on page Notes 000 s 000 s 000 s 000 s Net capital (losses)/gains 2 (7,209) 3,107 Revenue 3 7,102 5,104 Expenses 4 (1,711) (1,450) Net revenue before taxation 5,391 3,654 Taxation 5 (102) (41) Net revenue after taxation 5,289 3,613 Total return before distributions (1,920) 6,720 Distributions 6 (6,468) (4,603) Change in net assets attributable to unitholders from investment activities (8,388) 2,117 Statement of Change in Net Assets Attributable to Unitholders For the year ended 28 February 2016 Restated s 000 s 000 s 000 s Opening net assets attributable to unitholders 213, ,771 Amounts transferred from other funds 0 46,638 Amounts receivable on issue of units 18,966 76,463 Amounts payable on cancellation of units (46,977) (21,933) (28,011) 54,530 Dilution adjustment 10 1 Stamp duty reserve tax 0 (21) Change in net assets attributable to unitholders from investment activities (8,388) 2,117 Retained distribution on Accumulation units 3,381 2,681 Unclaimed distributions 2 0 Closing net assets attributable to unitholders 180, ,717

23 Balance Sheet As at 28 February Notes 000 s 000 s Assets Investments 144, ,266 Current assets Debtors 8 1,031 1,301 Cash and bank balances 8,441 9,036 Cash equivalents 28,390 36,685 Total assets 181, ,288 Liabilities Creditors Distributions payable (790) (671) Other creditors 9 (403) (900) Total liabilities (1,193) (1,571) Net assets attributable to unitholders 180, ,717 23

24 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, which supersedes the SORP issued by the IMA in October 2010 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)). Both of which became effective for the accounting periods commencing 1 January There have been no changes to the financial position or financial performance of the fund as a result of the above. 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 are rebated to the fund so that no double charging occurs. The rebates received from other investment managers are also receipted to the fund. All rebates are treated as revenue or capital based on the underlying fund s treatment. Special dividends Special dividends are treated as revenue or capital depending on the facts of each particular case. Equalisation Equalisation on distributions received by the fund is deducted from the cost of investments. As such the equalisation on distributions received by the fund does not form part of the fund s distribution. Expenses Expenses of the fund are charged against revenue except for Stamp duty reserve tax and costs associated with the purchase and sale of investments which are allocated to the capital of the fund. The Annual management charge is initially charged to revenue but ultimately borne by 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. 24

25 Notes to the Accounts (continued) Deferred taxation is provided for on all timing differences that have originated but not reversed by the balance sheet date, other than those differences regarded as permanent. Any liability to deferred taxation is provided for at the average rate of taxation expected to apply. Deferred tax assets and liabilities are not discounted to reflect the time value of money. Distributions The revenue available for distribution is the total revenue earned by the fund, less deductible expenses and taxation charged to revenue. This revenue is distributed annually on 30 April to Income unitholders. An interim distribution and two quarterly distributions, based on available revenue are distributed on 31 October, 31 January and 31 July respectively 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. For the year ended 2016 and 2015 the dilution adjustment of 10,165 and 1,073, respectively, have been shown separately in the Statement of Change in Net Assets Attributable to Unitholders, previously it was included within Amounts receivable on issue of units and Amounts payable on cancellation of units in the Statement of Change in Net Assets Attributable to Unitholders. This is a change in presentation, there have been no changes to the financial position or financial performance of the fund as a result of the above. Valuation Listed investments of the fund have been valued at market value, 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. 25

26 Notes to the Accounts (continued) Forward foreign exchange contracts Net gains are reflected under Net capital (losses)/gains in the Notes to the Accounts. Foreign currencies Transactions in foreign currencies are translated into sterling at the exchange rate prevailing on the date of the transaction. Assets and liabilities valued in foreign currencies have been translated into sterling at the exchange rates prevailing at the balance sheet date and the net losses are reflected under Net capital (losses)/gains in the Notes to the Accounts. 2 Net capital (losses)/gains The net capital (losses)/gains during the year comprise: s 000 s Non-derivative securities (7,527) 2,834 Forward foreign exchange contracts 39 7 Foreign currency gains 9 86 Transaction costs (4) (5) Annual management charge rebates Administration charge rebates Net capital (losses)/gains (7,209) 3,107 The non-derivatives securities, forward foreign exchange contracts and foreign currency gains above includes: s 000 s Realised gains 1,437 2,164 Unrealised (losses)/gains (8,916) 763 Total (losses)/gains (7,479) 2,927 Total realised gains for the year were 1,436,622 (2015 2,164,631) and the movement in unrealised (losses)/gains was 8,915,523 ( ,746). Included in realised gains for the year were unrealised gains recognised in previous years. 26

27 Notes to the Accounts (continued) 3 Revenue s 000 s Franked distributions 5,155 3,636 Unfranked distributions Interest distributions Bank interest Annual management charge rebates Administration charge rebates 9 8 Total revenue 7,102 5,104 4 Expenses s 000 s Payable to the Manager, associates of the Manager and agents of either of them: Annual management charge 1,344 1,157 Administration charge Transfer agency fees ,637 1,400 Payable to the Trustee, associates of the Trustee and agents of either of them: Trustee s fees Safe custody fees Interest payable Other expenses: Audit fee Professional fee 0 1 Other expenses Total expenses 1,711 1,450 1 These expenses reflect prior period adjustments. 27

28 Notes to the Accounts (continued) 5 Taxation (a) Analysis of the tax charge for the year s 000 s Corporation tax Total current tax (Note 5(b)) Corporation tax has been provided for at a rate of 20% ( %). (b) Factors affecting the current tax charge for the year The tax assessed for the year is different from that calculated when the standard rate of corporation tax for authorised unit trusts of 20% ( %) is applied to the net revenue before taxation. The differences are explained below s 000 s Net revenue before taxation 5,391 3,653 Net revenue for the year before taxation multiplied by the standard rate of corporation tax 1, Effects of: Revenue not subject to corporation tax (1,031) (727) Tax on capital items Current tax charge for the year (Note 5(a))

29 Notes to the Accounts (continued) 6 Distributions Distributions The distributions take account of revenue received on the issue of units and revenue deducted on the cancellation of units, and comprise: s 000 s Quarterly Dividend distribution 1, Interim Dividend distribution 1,786 1,383 Quarterly Dividend distribution 1,566 1,479 Final Dividend distribution 1,671 1,491 6,327 5,163 Add: Revenue deducted on cancellation of units Deduct: Revenue received on issue of units (94) (676) Distributions 6,468 4,603 Net revenue after taxation 5,289 3,612 Expenses taken to capital 1,397 1,192 Tax on capital items (216) (200) Equalisation on conversions (2) (1) Distributions 6,468 4,603 Details of the distributions per unit are set out in the Distribution Table on pages 37 to Fair value hierarchy Assets Assets Valuation technique 000 s 000 s Valuation techniques using observable market data 172, ,951 Total 172, ,951 8 Debtors s 000 s Amounts receivable for issue of units Accrued franked distributions Accrued interest distributions Accrued bank interest 1 0 Amounts to be transferred from other funds Accrued Annual management charge rebates Accrued Administration charge rebates 5 8 Income tax recoverable Total debtors 1,031 1,301 29

30 Notes to the Accounts (continued) 9 Other creditors s 000 s 000 s 000 s Amounts payable for cancellation of units Accrued expenses Manager and Agents Annual management charge Administration charge Trustee and Agents Trustee s fees 3 4 Safe custody fees 4 8 Transaction costs Other accrued expenses Total other creditors Contingent liabilities There were no contingent liabilities at the balance sheet date (2015 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. Annual management charge rebates received or receivable from the Manager of 124,652 ( ,704) 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 19,654 (2015 7,601) are disclosed under Debtors in the Notes to the Accounts. Administration charge rebates received or receivable from the Manager of 33,249 ( ,053) 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 5,064 (2015 7,753) are disclosed under Debtors in the Notes to the Accounts. 30

31 Notes to the Accounts (continued) 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 29.95% ( %). 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 815,139 (2015 1,015,347) is included under Revenue in the Notes to the Accounts. Amounts receivable at the balance sheet date of 251,353 ( ,640) are included under in Debtors in the Notes to the Accounts. 12 Unit classes The fund currently has six unit classes: A Income units, A 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% S Income units 0.30% S Accumulation units 0.30% Z Income units 0.50% Z Accumulation units 0.50% The closing net asset value of each unit class, the closing net asset value per unit and the closing number of units in issue are given in the Comparative Tables on pages 13 to 18. The distributions per unit class are given in the Distribution Tables on pages 37 to 40. All classes have the same rights on winding up. 31

32 Notes to the Accounts (continued) 13 Derivative and other financial instruments In accordance with the investment objective, the fund may hold certain financial instruments. These comprise: securities held in accordance with the investment objective and policy; cash and short term debtors and creditors arising directly from operations. Under normal circumstances, the Manager would expect substantially all of the assets of the fund to be invested in securities appropriate to the fund s investment objective. 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 fund may hold a large cash position to provide a suitable level of collateral for derivative positions held. 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. 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. 32

33 Notes to the Accounts (continued) Currency risk profile The currency risk profile of the fund s net assets at the balance sheet date was as follows: Monetary Non-monetary exposure exposure Total Currency 000 s 000 s 000 s Sterling , , , , , ,071 US dollar ,720 7, ,958 17,646 Liquidity risk The primary source of this risk to the fund is the liability to unitholders for any cancellation of units. This risk is minimised by holding cash, readily realisable securities and access to overdraft facilities up to the amount prescribed by the COLL. Credit risk Some underlying funds invest in debt securities. The debt securities are exposed to credit risk which reflects the ability of the issuer to meet its obligations. Interest rate risk Some underlying funds invest in debt securities. The revenue of the fund may be affected by changes to interest rates relevant to particular securities or as a result of the Manager being unable to secure similar returns on the expiry of contracts or sale of securities. The value of debt securities may be affected by interest rate movements or the expectation of such movements in the future. Interest receivable on bank balances will be affected by fluctuations in interest rates. Interest rate risk profile of financial assets and financial liabilities The interest rate risk profile of financial assets and liabilities at the balance sheet date was as follows: Financial assets Floating rate not carrying financial assets interest Total Currency 000 s 000 s 000 s Sterling , , , , , ,642 33