Absolute Return Fund Company

Transcription

1 Schroder Absolute Return Fund Company Final Report and Accounts September 2015

2 Contents Schroder Absolute Return Fund Company Schroder Absolute Return Fund Company Company Information General information Principle activities Liabilities of the company Significant events Statement of the Authorised Corporate Director s Responsibilities Report of the Depositary Independent Auditors Report to the Shareholders of Schroder Absolute Return Fund Company Aggregated Statement of Total Return Aggregated Statement of Change in Net Assets Attributable to Shareholders Aggregated Balance Sheet Notes to the Aggregated Accounts Accounting policies Net capital gains/(losses) Revenue Expenses Taxation Finance costs Debtors Cash and bank balances Creditors Bank overdrafts Contingent liabilities Related party transactions Post balance sheet events Schroder Absolute UK Dynamic Fund Fund Information Investment objective and policy Financial highlights Fund information Ongoing charges figure Review of Investment Activities Risk Profile Risk and reward indicator Specific risks Net Asset Value and Comparative Tables Share price range Net revenue Net asset value Non-statutory Portfolio Statement (unaudited) Portfolio Statement Summary of Portfolio Transactions Largest purchases Largest sales Statement of Total Return

3 Contents (continued) Schroder Absolute Return Fund Company Statement of Change in Net Assets Attributable to Shareholders Balance Sheet Notes to the Accounts Accounting policies Net capital gains/(losses) Revenue Expenses Taxation Finance costs Debtors Cash and bank balances Creditors Contingent liabilities Related party transactions Performance fee Share classes Derivative and other financial instruments Portfolio transaction costs Counterparty Exposure Schroder European Absolute Target Fund Fund Information Investment objective and policy Financial highlights Fund information Ongoing charges figure Review of Investment Activities Risk Profile Risk and reward indicator Specific risks Net Asset Value and Comparative Tables Share price range Net revenue Net asset value Non-statutory Portfolio Statement (unaudited) Portfolio Statement Summary of Portfolio Transactions Largest purchases Largest sales Statement of Total Return Statement of Change in Net Assets Attributable to Shareholders Balance Sheet Notes to the Accounts Accounting policies Net capital gains/(losses) Revenue Expenses Taxation Finance costs

4 Contents (continued) Schroder Absolute Return Fund Company 7 Debtors Cash and bank balances Creditors Bank overdrafts Contingent liabilities Related party transactions Performance fee Share classes Derivative and other financial instruments Portfolio transaction costs Counterparty Exposure General Information Authorisation Other information European Union Savings Directive Collectively these comprise the Authorised Corporate Director s report.

5 Schroder Absolute Return Fund Company Schroder Absolute Return Fund Company Company Information General information Principle activities Liabilities of the company Significant events Schroder Absolute Return Fund Company (SARFCo or the company) is an umbrella company comprising two sub funds which have their own investment objectives and policies. At 30 September 2015 SARFCo had the following sub funds: Schroder Absolute UK Dynamic Fund Schroder European Absolute Target Fund The document has been designed to show the aggregated results of the sub funds followed by their individual financial statements and other information. The company s principle activity is to carry on business as an Open Ended Investment Company (OEIC). The company is structured as an umbrella company and different sub funds may be established by the Authorised Corporate Director (ACD) from time to time with the agreement of the Depositary and approval from the Financial Conduct Authority (FCA). The sub funds are operated separately and the assets of each sub fund are managed in accordance with the investment objective and policy applicable to that sub fund. The sub funds are segregated portfolios of assets and, accordingly, the assets of each sub fund belong exclusively to that sub fund and shall not be used to discharge directly or indirectly the liabilities of, or claims against, any other person or body, including the company, or any other sub fund, and shall not be available for any such purpose. Subject to the above, each sub fund will be charged with the liabilities, expenses, costs and charges attributable to that sub fund and within each sub fund charges will be allocated as far as possible according to the net asset value of that particular share class. Any assets, liabilities, expenses, costs or charges not attributable to a particular sub fund may be allocated by the ACD in a manner which it believes is fair to the shareholders generally. This will normally be pro rata to the net asset value of the relevant sub funds. Shareholders are not liable for the debts of the company. Shareholders are not liable to make any further payments to the company after they have paid the purchase price of the share. With effect from 1 April 2015, Schroder UK Absolute Target Fund, a sub fund of Schroder Absolute Return Fund Company, changed its name to Schroder European Absolute Target Fund. The fund s Investment objective and policy also was also changed, this is disclosed under Investment objective and policy. As a result of the change to the Investment objective and policy the share class hedging strategy and share class names also changed (e.g. P1 Accumulation shares for Schroder European Absolute Target were renamed as P1 GBP Hedged Accumulation shares). For further information on how the share classes were named please see the schedule in the investors letter to shareholders. There was also a change to the Performance fee, this is disclosed under Performance fee in the Notes to the Accounts. 5

6 Schroder Absolute Return Fund Company Statement of the Authorised Corporate Director s Responsibilities The FCA s Collective Investment Schemes sourcebook (COLL) requires the ACD 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 company and of its net expenses and the net capital gains on the property of the company for the year. In preparing the accounts the ACD 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 Authorised Funds issued by the Investment Management Association (IMA (now the Investment Association (IA))) in October 2010; follow generally accepted accounting principles and applicable accounting standards; prepare the accounts on the basis that the company 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. The ACD is responsible for the management of the company in accordance with the Open Ended Investment Company (OEIC) Regulations 2001, 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 ACD s report and accounts for the year ended 30 September 2015 were signed on 25 November 2015 on behalf of the ACD by: J.A. Walker-Hazell Directors J.M. Cardew 6

7 Schroder Absolute Return Fund Company Report of the Depositary Statement of the Depositary s responsibilities in relation to the accounts of the Company The Depositary is responsible for the safekeeping of all of the property of the Company (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 Depositary to take reasonable care to ensure that the Company is managed by the ACD in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook (COLL) and the OEIC Regulations 2001, the Company s Instrument of Incorporation and Prospectus, as appropriate, in relation to the pricing of, and dealings in, shares in the Company; the application of revenue of the Company; and the investment and borrowing powers of the Company. Report of the Depositary for the accounting period from 1 October 2014 to 30 September 2015 Schroder Absolute Return Fund Company ( the Company ) Having carried out such procedures as we consider necessary to discharge our responsibilities as Depositary of the Company, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the ACD: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the company s shares and the application of the company s revenue in accordance with the COLL as appropriate, and, where applicable, the OEIC Regulations and the Company s Instrument of Incorporation and Prospectus; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Company. See note 13. J.P. Morgan Europe Limited Depositary Bournemouth 23 November

8 Schroder Absolute Return Fund Company Independent Auditors Report to the Shareholders of Schroder Absolute Return Fund Company Report on the financial statements Our opinion In our opinion the financial statements, defined below: give a true and fair view of the financial position of the company and each of the sub-funds as at 30 September 2015 and of the net expenses and the net capital gains of the scheme property of the company and each of the sub-funds 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 Authorised Funds, the Collective Investment Schemes sourcebook and the Instrument of Incorporation. This opinion is to be read in the context of what we say in the remainder of this report. 8 What we have audited The financial statements of the Schroder Absolute Return Fund Company (the company ), which are prepared by Schroder Unit Trusts Limited (the Authorised Corporate Director (ACD) ), comprise: the aggregated balance sheet of the company as at 30 September 2015; the aggregated statement of total return of the company for the year then ended; the aggregated statement of change in net assets attributable to shareholders of the company for the year then ended; the balance sheets as at 30 September 2015 together with the statements of total return and statements of changes in net assets attributable to shareholders of each of the company s sub-funds; the notes to the company s financial statements and each of the company s sub-funds, 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 their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), the Statement of Recommended Practice Financial Statements of Authorised Funds issued by the Investment Management Association (the Statement of Recommended Practice for Authorised Funds ), the Collective Investment Schemes sourcebook and the Instrument of Incorporation. In applying the financial reporting framework, the ACD 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.

9 Schroder Absolute Return Fund Company Independent Auditors Report to the Shareholders of Schroder Absolute Return Fund Company (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 company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the ACD; and the overall presentation of the financial statements. 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. 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 ACD 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. 9

10 Schroder Absolute Return Fund Company Independent Auditors Report to the Shareholders of Schroder Absolute Return Fund Company (continued) Responsibilities for the financial statements and the audit Our responsibilities and those of the ACD As explained more fully in the ACD s Responsibilities Statement set out on page 6, the ACD 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 company s 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. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 25 November 2015 (a) The maintenance and integrity of the Schroder website is the responsibility of the ACD; 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. 10

11 Schroder Absolute Return Fund Company Aggregated Statement of Total Return For the year ended 30 September 2015 Income Notes 000 s 000 s 000 s 000 s Net capital gains/(losses) 2 28,375 (33,665) Revenue 3 3,923 4,263 Expenses 4 (10,926) (10,309) Finance costs: Interest 6 (2,042) (1,140) Net expense before taxation (9,045) (7,186) Taxation Net expense after taxation (9,045) (7,186) Total return before distributions 19,330 (40,851) Finance costs: Distributions 6 (3) 4 Change in net assets attributable to shareholders from investment activities 19,327 (40,847) Aggregated Statement of Change in Net Assets Attributable to Shareholders For the year ended 30 September s 000 s 000 s 000 s Opening net assets attributable to shareholders 664, ,934 Amounts receivable on creation of shares 35, ,364 Amounts payable on cancellation of shares (249,977) (329,261) (214,396) (24,897) Stamp duty reserve tax 0 (225) Change in net assets attributable to shareholders from investment activities 19,327 (40,847) Closing net assets attributable to shareholders 469, ,965 11

12 Schroder Absolute Return Fund Company Aggregated Balance Sheet As at 30 September Notes 000 s 000 s 000 s 000 s Assets Investment assets 457, ,316 Debtors 7 4,610 1,091 Cash and bank balances 8 41,402 49,962 Total other assets 46,012 51,053 Total assets 503, ,369 Liabilities Investment liabilities (21,745) (7,306) Creditors 9 (8,440) (14,091) Bank overdrafts 10 (3,768) (7) Total other liabilities (12,208) (14,098) Total liabilities (33,953) (21,404) Net assets attributable to shareholders 469, ,965 12

13 Schroder Absolute Return Fund Company Notes to the Aggregated Accounts 1 Accounting policies Basis of accounting The accounts have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with the SORP for Authorised Funds issued by the IMA in October Revenue Dividends and property income distributions receivable from equity investments and 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 and futures clearing houses and brokers are accounted for on an accrual basis. Interest receivable from debt securities is accounted for on an effective yield basis. Underwriting commissions are included in revenue when received except where the company is required to take up shares. In these cases commission is deducted from the capital cost of those shares on a proportional basis. The net dividend equivalent values on contracts for difference (CFD) paid on short positions and received on long positions are recognized when the underlying securities are quoted ex-dividend. These are included in Revenue as Net revenue return from derivative contracts. The administration charge in respect of the Schroder funds in which the company invests is rebated to the company so that no double charging occurs. The rebates received from other investment managers are also receipted to the company. 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 the distributions received by the company is deducted from the cost of investments. Interest on debt securities bought or sold Interest on debt securities bought or sold is excluded from the capital cost of securities, and is dealt with as part of the revenue of the company. Expenses Expenses of the company 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 company. All other expenses are charged to revenue. The costs of establishing and maintaining the hedging programme for the hedged unit classes, the liabilities, expenses and charges directly attributable to a hedged unit class will be allocated to the capital of that specific hedged unit class. 13

14 Schroder Absolute Return Fund Company Notes to the Aggregated Accounts (continued) Interest on CFD s is recognised on an earned basis and is included in Finance costs as Finance costs: Interest payable. 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. Distributions The revenue available for distribution is the total revenue earned by the company, less deductible expenses and taxation charged to revenue. This revenue is distributed annually on 30 November to shareholders. An interim distribution, based on available revenue at the half year, is distributed on 31 May to shareholders. Valuation Listed investments of the company 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. Forward currency contracts Open forward currency contracts are shown in the Portfolio Statement at market value and the net losses are reflected under Net capital gains/(losses) in the Notes to the Accounts and relate to the hedged share classes only. Contracts for difference Open CFD s are shown in the Portfolio Statement and are priced at fair value using valuation models and data sourced from market data providers. The upfront fees received on a mark to market basis are split between capital and revenue as appropriate. The capital element is reflected within Derivative contracts under Net capital gains/(losses) in the Notes to the Accounts and the revenue element is reflected within Net revenue return from derivative contracts under Revenue in the Notes to the Accounts. Net gains/(losses) are reflected within Derivative contracts under Net capital gains/(losses) in the Notes to the Accounts. 14

15 Schroder Absolute Return Fund Company Notes to the Aggregated Accounts (continued) Options contracts Open option contracts are shown in the Portfolio Statement and are priced at fair value using valuation models and data sourced from market data providers. Net gains/(losses) are reflected within Derivative contracts under Net capital gains/(losses) 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 gains are reflected under Net capital gains/(losses) in the Notes to the Accounts. Euro and GBP hedged share classes Hedged share classes allow the ACD to use currency hedging transactions to seek to minimise the effect of exchange rate fluctuations between the base currency and the portfolio currency of the company. Currency hedging transactions include entering into over the counter currency forward contracts and foreign exchange agreements. Where undertaken, the effect of hedging will be reflected in the net asset value and therefore, in the performance of the relevant hedged share class. Any benefits or losses of the hedging transactions will accrue to shareholders in that hedged share class only. The ACD will aim to hedge the currency exposure of the net asset value attributable to a hedged share class, however, the hedge may not always be at 100%. This is to avoid the transaction costs of making small and frequent adjusting transactions. The ACD will review the relevant hedging positions daily and, if appropriate, adjust the hedge to reflect any change in currency exposure and the flow of shareholder creation and cancellation of share. 2 Net capital gains/(losses) The net capital gains/(losses) during the year comprise: s 000 s Non-derivative securities 23,840 (16,314) Derivative contracts 13,900 (204) Forward currency contracts (14,031) (17,633) Currency gains 4, Transaction charges (9) (6) Net capital gains/(losses) 28,375 (33,665) 15

16 Schroder Absolute Return Fund Company Notes to the Aggregated Accounts (continued) 3 Revenue s 000 s UK dividends 2,442 3,058 Overseas dividends Property income distributions 0 2 Interest distributions Interest on debt securities 1,254 1,052 Bank interest Underwriting commission 0 59 Net revenue return from derivative contracts (168) (1,151) Administration charge rebates 7 0 Total revenue 3,923 4,263 4 Expenses s 000 s Payable to the ACD, associates of the ACD and agents of either of them: ACD fee 5,519 8,760 Administration fees Fund accounting fees (15) 1 42 Performance fee 4,984 0 Transfer agency fees (149) ,031 9,907 Payable to the Depositary, associates of the Depositary and agents of either of them: Depositary s fees Safe custody fees Other expenses: Audit fee Professional fee (179) (153) 294 Total expenses 10,926 10,309 1 These expenses reflect prior period adjustments. 16

17 Schroder Absolute Return Fund Company Notes to the Aggregated Accounts (continued) 5 Taxation Corporation tax has not been provided for as expenses 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 an open ended investment company of 20% ( %) is applied to the net expenses before taxation. The differences are explained below s 000 s Net expense before taxation (9,045) (7,186) Net expense for the year before taxation multiplied by the standard rate of corporation tax (1,809) (1,437) Effects of: Revenue not subject to corporation tax (499) (665) Movement in excess management expenses 2,308 2,102 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 12,481,214 ( ,172,831) in respect of unutilised management expenses. It is unlikely the company will generate sufficient taxable profits in the future to utilise this amount and therefore no deferred tax asset has been recognised in the year or prior year. 6 Finance costs Distributions and interest payable The distributions take account of revenue received on the creation of shares and revenue deducted on the cancellation of shares, and comprise: s 000 s Revenue deducted on cancellation of shares 3 0 Revenue received on creation of shares 0 (4) Finance costs: Distributions 3 (4) Finance costs: Interest 2,042 1,140 Total finance costs 2,045 1,136 Net expense after taxation (9,045) (7,186) Deficit taken to capital 9,048 7,182 Finance costs: Distributions 3 (4) 17

18 Schroder Absolute Return Fund Company Notes to the Aggregated Accounts (continued) 7 Debtors s 000 s Amounts receivable for creation of shares Sales awaiting settlement 1, Accrued UK dividends Accrued bank interest 4 4 Revenue receivable from derivative contracts 3,223 0 Total debtors 4,610 1,091 8 Cash and bank balances s 000 s Cash and bank balances 39,036 49,092 Amounts held at futures clearing houses and brokers 2, Total cash and bank balances 41,402 49,962 9 Creditors s 000 s 000 s 000 s Amounts payable for cancellation of shares ,484 Purchases awaiting settlement 2,103 0 Amounts payable on derivative contracts 139 1,187 Accrued expenses ACD and Agents ACD fee Administration fees Performance fee 4, , Depositary and Agents Depositary s fees 8 30 Safe custody fees 0 4 Transaction charges 2 2 Interest payable Other accrued expenses Total creditors 8,440 14, Bank overdrafts s 000 s Amounts overdrawn at futures clearing houses and brokers 3,768 7 Total bank overdrafts 3,

19 Schroder Absolute Return Fund Company Notes to the Aggregated Accounts (continued) 11 Contingent liabilities There were no contingent liabilities at the balance sheet date (2014 Nil). 12 Related party transactions The ACD actively co-operates to exercise control over the company and is therefore a related party by virtue of is controlling influence. Amounts paid during the year or due to the ACD at the balance sheet date are disclosed under Expenses and Creditors in the Notes to the Accounts. The ACD acts as principal on all transactions of shares in the company. The aggregate monies received through the creation and cancellation of shares are disclosed in the Statement of Change in Net Assets Attributable to Shareholders. Details of the shares held or managed by the ACD or associates of the ACD are given for each sub fund in Note 11 and Note 12 on pages 50 and 90 respectively. 13 Post balance sheet events Subsequent to the year end, a pricing error was discovered which may be material to shareholders in one or more share classes of the company. This is being investigated and remediated and compensation will be paid to the affected shareholders if required. This has no material impact on the financial statements. 19

20 Schroder Absolute UK Dynamic Fund Schroder Absolute UK Dynamic Fund Fund Information Investment objective and policy The objective of the fund is to achieve absolute returns through targeted investment strategies independent of UK market conditions or indices. The fund will aim typically to deliver absolute (more than zero) returns over a rolling three year period, although an absolute return performance is not guaranteed over this or longer periods of time and it may not achieve this objective. There is a risk to an investor s capital. Investors may not get back the amount originally invested. The ACD will seek to achieve its investment objective by investing in a concentrated portfolio of companies (usually between 30 to 60 companies both on the long side and the short side of the portfolio) predominantly incorporated in the UK or in companies which derive a significant proportion of their revenues or profits from this country or which are primarily operating in this jurisdiction. Investments will be made primarily in companies and other securities which are constituents of the FTSE All Share Index with a bias towards medium sized and smaller companies. The fund may also invest in securities listed on the Alternative Investment Market and in equity related transferable securities, such as preferred shares, debentures, warrants (warrants may not exceed more than 5 per cent of the total assets of the fund) and convertible securities or in derivatives thereof. As the fund has an absolute return objective it will not be managed against any index. Whilst the fund will mainly invest in equities, it may also invest in debt securities (such as bonds and notes of any maturity which are transferable securities), where this is deemed appropriate in the market conditions prevailing at that time. Any such securities will be rated investment grade by Moody s or S&P, or if not rated, deemed by the Investment Manager to have at least an equivalent rating and will be issued by the UK government or companies incorporated in the UK or in companies which derive a predominant proportion of their revenues or profits from this country or which are principally operating in that jurisdiction. The fund may also invest in short term securities which are rated investment grade (such as certificates of deposit, bankers acceptances and commercial paper) for temporary defensive purposes. The fund will seek to achieve its investment objective and policy through the use of various investment strategies including the use of derivatives to obtain long and synthetic short positions principally through contracts for difference. The fund may also use forward foreign exchange transactions, interest rate and government bond futures, and other exchange traded and off exchange traded derivative contracts for the purposes of efficient portfolio management and/or meeting the investment objectives of the fund. Such derivative contracts have the potential to significantly increase the fund s risk profile. The ACD employs a risk management process that seeks to control the volatility of fund returns. The fund may at any time have substantial holdings in ancillary liquid assets. 20

21 Schroder Absolute UK Dynamic Fund Fund Information (continued) Financial highlights Dealing price % change P1 Accumulation shares p p 9.81 P2 Accumulation shares p p P1 Euro Hedged Accumulation shares P2 Euro Hedged Accumulation shares Distribution per P1 Accumulation shares Nil Nil 1 The fund prices quoted relate to the accounting date on , these are not dealing prices as the fund deals weekly each Thursday. The performance of a hedged share classes may differ from other share classes of the fund because the return on unhedged share classes is based on both the performance of the fund s investments and the performance of the portfolio currencies relative to sterling whereas the return on a hedged share classes is based only on the performance of the fund s investments. Fund information Launch date 7 September 2009 Launch price p per P1 Accumulation share p per P2 Accumulation share Launch date 7 June 2011 Launch price per P1 Euro Hedged Accumulation share Launch date 6 April 2011 Launch price per P2 EUR Hedged Accumulation share Interim Final Accounting dates 31 March 30 September Revenue allocation date 30 November With effect from 23 April 2015, the fund changed from daily to weekly dealing, with each Thursday being the dealing day. 21

22 Schroder Absolute UK Dynamic Fund Fund Information (continued) Ongoing charges figure For the period For the year For the year from to to P1 Accumulation shares 1.67% % 1.69% P2 Accumulation shares 1.17% % 1.19% P1 Euro Hedged Accumulation shares 1.67% % 1.70% P2 Euro Hedged Accumulation shares 1.17% % 1.20% 1 The Ongoing charges figure is a projected figure based on the latest expenses of the share class. 2 The Ongoing charges figures is annualised based on the fees incurred during the accounting period. 22

23 Schroder Absolute UK Dynamic Fund Review of Investment Activities From 30 September 2014 to 30 September 2015, the price of P1 Accumulation shares rose 9.81%. The period began and ended with pronounced volatility with monetary tightening by the US Federal Reserve dominating sentiment, and reflected in global growth fears and a sharp decline in commodity prices. The more domestically orientated small and mid caps bucked a weak wider market, as the outlook for the British consumer improved, while the resource heavy large caps lagged. The fund generated a positive return as its long positions performed strongly, more than offsetting losses from the short book. In the former, beverage challengers Fevertree Drinks and Nichols performed well as their results underlined strong growth in their respective markets of mixers and soft drinks, where overseas revenue prospects are particularly strong. Textile services specialist Johnson Service Group performed well following robust results, and a well received acquisition. The market also responded well to Clinigen Group s purchase of its chief competitor in the supply and clinical trials management area, and against the backdrop of increased merger and acquisition activity in the mid cap pharma space. On the negative side, Stock Spirits Group corrected sharply after warning of a likely earnings miss due to Polish vodka tax increases, despite having reassured on this issue only shortly before. The overall shape of the market was painful for our short book, where our largest position was in the FTSE 1 250, which has relatively much less oil and gas exposure than the FTSE And, while we did not have any major single disappointments, too many of our preferred individual stock exposures proved to be good places to hide as the wider market fell. On the positive, our FTSE put options protected the fund well in the sharp market sell off of August. Co-Fund Manager: Paul Marriage Paul is Head of the UK Dynamic Team Paul joined Schroders on the acquisition of Cazenove Capital. Prior to this Paul was Head of UK Small Cap investments at Insight Investment and an analyst at GH Asset Management Paul graduated from University College, Oxford with a degree in Modern History He is a member of ASIP and has eighteen years investment experience 1 FTSE International Limited ( FTSE ) FTSE. FTSE is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent. 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: John Warren John is a member of UK Dynamic Team John joined Schroders on the acquisition of Cazenove Capital. He has over fifteen years investment experience, having previously been at UBS and Investec Bank. John graduated from Loughborough University with a degree in Economics and Accountancy. He holds the ACA and SFA 23

24 Schroder Absolute UK Dynamic Fund Risk Profile Risk and reward indicator Lower risk Potentially lower reward Higher risk Potentially higher reward The risk and reward indicator changed from 6 to 7 with effect from 8 October The risk category is based upon the fund s risk target and there is no guarantee that the fund will achieve it. The fund is in this category because it can take higher risks in search of higher rewards and its price may rise and fall accordingly. The fund s risk category is not guaranteed to remain fixed and may change over time. A fund in the lowest category does not mean a risk free investment. Specific risks The fund invests 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. For non-hedged share classes exchange rates may cause the value of overseas investments and the revenue from them to rise or fall. There is no guarantee that the hedging strategy applied in hedged share classes will entirely eliminate the adverse effects of changes in exchange rates between the base currency and the portfolio currencies. In addition, it should be noted that hedging transactions will be entered into whether or not the currency of a hedged share class is declining or increasing in value in relation to the base currency or portfolio currencies. Hedged share classes aim to provide investors with a return correlated to the portfolio currencies performance of the fund by reducing the effect of exchange rate fluctuations between the base currency and the portfolio currencies. As it is not possible to legally segregate share classes liabilities from those of other share classes in the fund, there is a risk that, in certain limited circumstances, the hedging transactions undertaken in relation to a hedged share class could result in liabilities which might affect the net asset value of the other share classes in the fund. The fund is index unconstrained and has the potential for greater volatility. The fund invests in smaller companies which may be less liquid than larger companies and price swings may therefore be greater than in larger company funds. 24

25 Schroder Absolute UK Dynamic Fund Risk Profile (continued) 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 and alternative investments (including commodities, hedge funds, property funds and private equity) in order to meet its investment objectives. One of the aims of the ACD is to achieve volatility targets for the portfolio and in order to do this leverage will be used. The use of leverage can increase gains as well as losses and expose the fund to increased risk. Whilst it is intended that the additional risk that leverage exposes the fund to is controlled by value at risk methodology, there can be no guarantee that this risk control may be achieved especially under extreme or changing market conditions. For these reasons, the purchase of shares should not normally be regarded as a short term investment. 25

26 Schroder Absolute UK Dynamic Fund Net Asset Value and Comparative Tables Share price range P1 Accumulation P2 Accumulation Year to 31 December shares shares Highest Lowest Highest Lowest dealing dealing dealing dealing p p p p to 30 September P1 Euro Hedged P2 Euro Hedged Year to 31 December Accumulation shares Accumulation shares Highest Lowest Highest Lowest dealing dealing dealing dealing to 30 September Net revenue P1 Accumulation shares P2 Accumulation shares Year to 31 December pence per share pence per share Nil Nil 2012 Nil Nil 2013 Nil Nil 2014 Nil Nil 2015 to 30 September Nil Nil These figures have been rounded down to 4 decimal places. The P1 Euro Hedged Accumulation shares and P2 Euro Hedged Accumulation shares have made no distributions to date. 26

27 Schroder Absolute UK Dynamic Fund Net Asset Value and Comparative Tables (continued) Net asset value Net asset Net asset value value per share Number of As at 30 September 000 s p shares in issue 2013 P1 Accumulation shares 149, ,717,241 P2 Accumulation shares 92, ,312,619 P1 Euro Hedged Accumulation shares 4, ,058,456 P2 Euro Hedged Accumulation shares 121, ,396, P1 Accumulation shares 128, ,760,990 P2 Accumulation shares 101, ,488,862 P1 Euro Hedged Accumulation shares 2, ,065,043 P2 Euro Hedged Accumulation shares 58, ,605, P1 Accumulation shares 121, ,288,186 P2 Accumulation shares 86, ,888,998 P1 Euro Hedged Accumulation shares 2, ,634,209 P2 Euro Hedged Accumulation shares 22, ,928,695 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. 27

28 Schroder Absolute UK Dynamic Fund Non-statutory Portfolio Statement (unaudited) The following portfolio structure has been provided to show the investment exposure of the portfolio, by investment. It differs from the statutory portfolio statement in that only the investment exposure is shown. Holding at Market Value % of net s assets Long Positions Aerospace & Defense Ultra Electronics 146,500 2, , Beverages Fevertree Drinks 1 1,559,538 6, Nichols 48, Nichols 1 341,247 4, SABMiller 65,391 2, Stock Spirits Group 1 1,736,615 3, , Chemicals Scapa Group 1,678,467 3, Victrex 188,692 3, , Construction & Materials Low & Bonar 1,944,637 1, Low & Bonar 1 2,319,132 1, Michelmersh Brick Holdings 1 2,720,400 2, Polypipe Group 997,400 3, , Electronic & Electrical Equipment Gooch & Housego 4, Gooch & Housego 1 714,206 5, Xaar 4, Xaar 1 1,121,928 6, ,

29 Schroder Absolute UK Dynamic Fund Non-statutory Portfolio Statement (unaudited) (continued) Holding at Market Value % of net s assets Financial Services Arrow Global Group 1,218,203 3, Arrow Global Group 1 1,553,548 4, , Food & Drug Retailers Booker Group 3,461,234 6, , Food Producers Premier Foods 1 1,647, General Industrials British Polythene Industries 130, British Polythene Industries 1 1,021,272 7, , General Retailers Just Eat 892,416 3, Mothercare 1 1,021,286 2, Poundland Group 870,696 2, , Health Care Equipment & Services Cambian Group 1 1,315,606 3, Kromek Group 1 9,567,991 2, Smith & Nephew 211,900 2, Spire Healthcare Group 1 1,102,600 3, , Household Goods & Home Construction Telford Homes 1 877,394 3, Walker Greenbank 1 1,898,672 3, , Industrial Engineering Melrose Industries 903,308 2, Renold 1 8,380,342 5, ,