Interim Report and Financial Statements for MGTS Future Money Income Fund

Transcription

1 Interim Report and Financial Statements for MGTS Future Money Income Fund For the six months ended 31 January 2017 (Unaudited) HEAD OFFICE MARGETTS FUND MANAGEMENT LTD DEALING 1 SOVEREIGN COURT PO BOX GRAHAM STREET BIRMINGHAM BIRMINGHAM VAT No. (GB) B2 2HL B1 3JR Registered in England No TELEPHONE: Authorised and Regulated by TELEPHONE: FACSIMILE: the Financial Conduct Authority FACSIMILE:

2 ACD Margetts Fund Management Limited 1 Sovereign Court Graham Street Birmingham B1 3JR Tel: Fax: (Authorised and regulated by the Financial Conduct Authority) Directors of the ACD T J Ricketts T H Ricketts A J M Quy J E J Clay M D Jealous A S Weston G M W Oakley (non-exec) J M Vessey (non-exec) Depositary BNY Mellon Trust & Depositary (UK) Ltd The Bank of New York Mellon Centre 160 Queen Victoria Street London EC4V 4LA (Authorised and regulated by the Financial Conduct Authority) Administrator and Registrar Margetts Fund Management Ltd PO Box Birmingham B2 2HL Tel: Fax: (Authorised and regulated by the Financial Conduct Authority) Auditors Shipleys LLP Chartered Accountants & Statutory Auditors 10 Orange Street Haymarket London WC2H 7DQ Investment Advisers Future Money Ltd 148 Leadenhall Street London EC3V 4QT (Authorised and regulated by the Financial Conduct Authority)

3 Contents ACD s Report 1 Certification of Accounts by Directors of the ACD 4 Significant Purchases and Sales 4 Portfolio Statement 5 Net Asset Value per Share and Comparative Tables 6 Financial Statements Statement of Total Return 9 Statement of Change in Net Assets Attributable to Shareholders 9 Balance Sheet 10 Notes to the Financial Statements 11 Distribution Table 18 General Information 19

4 Investment Adviser s Report For the period ended 31 January 2017 Investment Objective To invest in units / shares in collective investment schemes covering UK and international markets as well as commercial property. The Fund may also invest in equities, fixed interest securities and money market instruments. The bias will be towards dividends and income stream. The Fund is intended to provide long term capital growth at or above the rate of inflation and an increasing income stream through an actively managed diversified portfolio of investments which on aggregate will be appropriate for an investor seeking income and growth. Investment Review MGTS Future Money Income 3.54% MGTS Future Money Income R 3.85% Benchmark Composite Benchmark 2.75% 10% - GBP 3 month LIBOR 35% - FTSE Government Secs All Stocks TR 5% - IPD Property IndexTR 35% - FTSE All Share Index TR 15% - FTSE World Ex UK Source: Morningstar Direct. Performance is NAV to NAV with income reinvested. The MGTS Future Money Income fund has performed well over the six month reporting period, beating its benchmark as equity markets have rallied and government bonds have fallen in value. The international element of the equity allocation benefitted from further weakness in sterling as currency conversion of foreign returns now proves more favourable, similarly larger UK companies also benefitted from sterling s fall as their international earnings gained in value. Despite political surprises, economic confidence improved during the period and inflation expectations also increased. The portfolio is positioned for a continuation of these themes, believing that the fixed returns and high valuations of bonds are unattractive while equity markets, despite reaching new highs, still offer the ability to grow earnings in real terms and this is attractive given the prospect of inflation returning. This reporting period has been one of the most significant since the credit crisis and, potentially, marks a change in long term investment trends. The period began not long after the historic UK referendum result to leave the European Union ( Brexit ) and ended shortly after the inauguration of Donald Trump as the 45th American President. Both of these events were once considered highly improbably with Brexit odds in the middle of 2015 indicating less than a 25% probability whilst in August 2015 the probability of Donald Trump securing victory was around 4%. With Leicester City securing the Premiership title with starting odds of 5,000 to 1, calendar year 2016 certainly felt like the year of the outside chance. Although these events, at least prior to their occurrence, were considered as potentially negative outcomes the reality for most UK investors has been positive returns. A significant element of these returns has come from the fall in sterling after the Brexit vote which increased the value of overseas assets considerably. Nevertheless, global markets have also generally risen in local currency terms (including the FTSE 100) with the exception of fixed interest markets, which although positive after Brexit, fell back on the news of Donald Trump and this could be significant. Periods of change are often quite difficult to spot until sometime after the event however it is hard not to notice that 2016 has witnessed dramatic events which will shape the future to be significantly different than previous expectations. There are potentially strong political and economic forces which can be identified that may combine to present both considerable risks and opportunities for investors. 1

5 Investment Adviser s Report (continued) The process of globalisation has been running at pace since the 1980s when the term came into common use and increasingly trade deals relaxed protectionism, including the introduction of the Wold Trade Organisation on 1st January It is generally accepted that if economies concentrate on the areas where they are strongest and trade goods and services with each other the wealth of all economies will increase more quickly. This has been evident in recent decades as production costs have fallen and economic growth has risen, with the outcome that Western economies have tended to focus on skills and intellectual property whist developing economies have provided lower cost labour which has become gradually more skilled. In recent years it has become increasingly clear that whilst the benefits of globalisation can be seen there are also some unwelcome side-effects which have not been addressed. Whilst the wealth of all economies appears to have increased on the basis of averages, the distribution of wealth has not been equal. Research from Credit Suisse suggests that more than 50% of the world s total wealth is now owned by just 1% of individuals suggesting not everyone has benefitted from globalisation because the benefit has not been spread evenly. Events since the credit crisis have also sharpened focus around wealth equality. Following the credit crisis the message from politicians in all developed economies was equally clear and stark. The road ahead was going to be difficult as governments would need to cut costs and look for everyone to work hard but it was possible to all pull through together. Central banks reduced interest rates and used Quantitative Easing to push down interest rates inflating the value of equity and bond markets. Whilst this strategy favoured investors whose portfolios recovered quickly the average working person has seen little wage appreciation for the past 7 years despite an apparent economic recovery. Brexit and Donald Trump became a mechanism for voters who felt unhappy about their situation to address the political classes and express their frustration. Whilst these voters were not generally represented by the mainstream media or the polls, they have registered in sufficient numbers at the ballot boxes to cause two of the biggest political surprises in a generation. This movement has been dubbed as populism and could continue to gather momentum in other economies, particularly Europe where a number of elections will occur in The recent era, beginning in the late 1980s, has seen a prolonged period of fixed interest markets performing strongly and, most importantly, providing down-side protection during risk events. For example fixed interest markets protected investors from the Asian currency crisis in 1997, the tech crash in 2000, the credit crisis in 2008/9 and each successive European credit crisis subsequently. As a consequence of their risk mitigating properties fixed interest markets are generally classed as low risk by the various rating agencies whose creditability remains high despite their well-publicised part in the credit crisis. The yield of a 10 year gilt in the mid-1980s was around 15% which meant that even if it lost 30% in capital terms it would only take 2 years for the yield to fill in the hole. The key reason that fixed interest investments have been as resilient is because the yield claws back the total return after losses. Unfortunately the yield of a 10 year gilt today is under 1.5% and therefore the ability to reduce risk by filling in the hole is far, far lower. What are the factors which have reduced the yield on the example Gilt above so dramatically over 30 years and led to such strong capital performance? The most significant is inflation, as this economic force reduces the value of money and significantly effects the willingness of investors to hold fixed interest securities. Although 15% return may sound attractive today, in the 1980s many were basing their expectations on the experiences of the 1970s where inflation eroded the value of money even more quickly with average inflation in double figures and, at times, in excess of 25%. It has been a very high starting point and the gradual reduction in inflation and interest rates over a prolonged period has led to an exceptional period for fixed interest markets but with yields now so low and, even negative in some markets, the cycle appears fully mature and recent events may provide the catalyst for a new cycle. 2

6 Investment Adviser s Report (continued) If globalisation has been a driver for lower inflation then the policies of Donald Trump in reducing free trade could revive inflationary pressures. Additionally, what are the long term effects of the many billions of printed money throughout the various global quantitative easing programs which remain underway in Europe, UK and Japan? Finally, how will the anticipated move away from austerity to increased government spending impact on these two factors and could it act as a further stimulus? The answers to these questions are not clear but they do suggest strongly that future inflation expectations could be different to the past and the investment risk map may need some updating. Surveys referred to as Purchasing Managers Indices showed a remarkable rise in most global economies at the end of 2016, especially unexpected was the measure in Europe which reached the highest point since These surveys are an indication of economic confidence and suggest that economic growth is continuing to rise. Inflation measures have also recently begun to rise although the significance is being played down by central banks that are reluctant to increase interest rates for fear of damaging consumer confidence. Taking all of these factors together there is strong likelihood that inflation will increase higher than current median expectations and interest rates will remain relatively low. Fixed interest assets with long maturities will be particularly sensitive to this change and valuations may fall significantly whilst short dated inflation linked securities will benefit together with companies whose business models can pass on price increases to their customers. If bond markets do decline further the effect may be stimulatory as money which has been released through quantitative easing, but trapped in the icebergs of the frozen bond market, will begin to melt and the presence will begin to be felt within the real economy as a stimulus. We expect that history will mark out 2016 as a year of change and we believe that investors who understand the changes which are occurring are able to increase their returns and avoid some losses as a consequence. Whilst the idea of returning to double digit inflation is out of the question, the very low inflation and interest environment could have bottomed leading to different future outcomes where traditionally higher risk investments which offer a natural protection against inflation behave with lower risk characteristics and vice-versa. Future Money Investment Adviser 03 March

7 Certification of Accounts by Directors of the ACD This report is signed in accordance with the requirements of the Collective Investment Schemes Sourcebook (COLL) as issued and amended by the Financial Conduct Authority. T J Ricketts Margetts Fund Management Ltd 24 March 2017 M D Jealous Authorised Status The MGTS Future Money Income Fund is a sub-fund of the MGTS Future Money ICVC with investment powers equivalent to those of a UCITS Scheme. The umbrella company is MGTS Future Money ICVC which is an open-ended investment company with variable capital incorporated in England and Wales under regulation number IC706 and authorised by the Financial Conduct Authority with effect from 23 September It is a Non-UCITS Retail Fund (NURS) as classified under the FCA s Collective Investment Schemes Sourcebook. Shareholders are not liable for the debts of the fund. Significant purchases and sales For the period ended 31 January 2017 Total purchases for the period 1,034,000 Purchases Cost ( ) M&G UK INFLATION LINKED CORPORATE BOND I ACC 375,000 AXA STERLING CREDIT SHORT DURATION BND Z GROSS ACC 190,000 SMITH & WILLIAMSON SHORT-DATED CORP BOND Z 190,000 AVIVA UK EQUITY INCOME SC 2 93,000 M&G GLOBAL DIVIDEND I ACC 93,000 MGTS ARDEVORA UK INCOME A INST ACC 93,000 Total sales for the period 1,887,000 Sales Proceeds ( ) M&G GLOBAL DIVIDEND I ACC 508,000 STANDARD LIFE EUROPEAN EQ INC INST ACC 265,000 SCHRODER ASIAN INCOME L ACC 265,000 MAJEDIE ASSET UK INCOME X ACC 262,000 AVIVA UK EQUITY INCOME SC 2 190,000 THREADNEEDLE UK EQUITY INCOME ZNA 132,000 RATHBONE INCOME INSTITUTIONAL ACC 95,000 MGTS ARDEVORA UK INCOME A INST ACC 95,000 ROYAL LONDON UK EQUITY INCOME M ACC 75,000 4

8 Portfolio Statement As at 31 January 2017 Total Net Assets Holding Portfolio of Investments Value ( ) % % UK 1,627,013 Aviva UK Equity Income SC 2 2,359, ,297,651 Majedie Asset UK Income X 2,347, ,307,106 MGTS Ardevora UK Income A Inst 2,479, ,926 Rathbone Income Institutional 2,424, ,403,217 Royal London UK Equity Income M 2,464, ,448,192 Threadneedle UK Equity Income ZNA 2,367, Total UK 14,442, Bonds 2,345,068 AXA Sterling Credit Short Duration Bond Z 2,800, ,776,660 Baillie Gifford Corporate Bond Income B 2,371, ,425,483 Blackrock Corporate Bond X 1,637, ,887,413 Henderson Strategic Bond I 2,536, ,369,214 M&G UK Inflation Linked Corporate Bond I 2,858, ,910,819 Smith & Williamson Short-Dated Corp Bond Z 2,775, Total Bonds 14,980, Europe (excl. UK) 1,199,416 Standard Life European Equity Income I 1,478, Total Europe (excl. UK) 1,478, Global 785,046 M&G Global Dividend I 2,206, Total Global 2,206, Asia Pacific 4,002,519 Schroder Asian Income L 2,929, Total Asia Pacific 2,929, Portfolio of Investments 36,038, Net Current Assets 1,826, Net Assets 37,864, The investments have been valued in accordance with note 1(b) and are authorised Collective Investment Schemes. 5

9 Net Asset Value per Share and Comparative Tables Accumulation share class Change in net assets per share 31/01/ /07/ /07/ /07/2014 Opening net asset value per share Return before operating charges * Operating charges Return after operating charges Distribution on income shares Closing NAV per share Retained distribution on acc shares * After direct transaction costs of Performance Return after charges 3.59% 4.54% 4.44% 5.53% Other Information Closing net asset value ( ) 8,032,042 8,103,858 8,900,819 11,420,883 Closing number of shares 4,516,450 4,720,268 5,419,675 7,263,148 OCF 2.36% 2.35% 2.36% 2.35% Direct transaction costs 0.00% 0.00% 0.00% 0.00% Prices Highest share price (pence) Lowest share price (pence) Income share class Change in net assets per share 31/01/ /07/ /07/ /07/2014 Opening net asset value per share Return before operating charges * Operating charges Return after operating charges Distribution on income shares Closing NAV per share * After direct transaction costs of Performance Return after charges 3.59% 2.70% 4.37% 5.58% Other Information Closing net asset value ( ) 593, ,236 8,620,698 16,449,420 Closing number of shares 451, ,599 6,739,107 12,989,911 OCF 2.36% 2.35% 2.36% 2.35% Direct transaction costs 0.00% 0.00% 0.00% 0.00% Prices Highest share price (pence) Lowest share price (pence)

10 Net Asset Value per Share and Comparative Tables (continued) R Accumulation share class Change in net assets per share 31/01/ /07/ /07/ /07/2014 Opening net asset value per share Return before operating charges * Operating charges Return after operating charges Distribution on income shares Closing NAV per share Retained distribution on acc shares * After direct transaction costs of Performance Return after charges 3.90% 5.17% 5.08% 6.25% Other Information Closing net asset value ( ) 14,918,397 14,195,899 10,326,867 3,496,788 Closing number of shares 8,176,189 8,083,727 6,184,567 2,200,687 OCF 1.61% 1.60% 1.61% 1.60% Direct transaction costs 0.00% 0.00% 0.00% 0.00% Prices Highest share price (pence) Lowest share price (pence) R Income share class Change in net assets per share 31/01/ /07/ /07/ /07/2014 Opening net asset value per share Return before operating charges * Operating charges Return after operating charges Distribution on income shares Closing NAV per share * After direct transaction costs of Performance Return after charges 3.90% 3.42% 5.05% 6.19% Other Information Closing net asset value ( ) 14,320,453 14,269,462 8,374,249 3,283,853 Closing number of shares 10,527,425 10,738,921 6,411,668 2,560,479 OCF 1.61% 1.60% 1.61% 1.60% Direct transaction costs 0.00% 0.00% 0.00% 0.00% Prices Highest share price (pence) Lowest share price (pence)

11 Net Asset Value per Share and Comparative Tables (continued) Risk Warning An investment in an open-ended investment company (OEIC) should be regarded as a medium to long term investment. Investors should be aware that the price of shares and the income from them can fall as well as rise and investors may not receive back the full amount invested. Past performance is not a guide to future performance. Investments denominated in currencies other than the base currency are subject to fluctuations in exchange rates, which can be favourable or unfavourable. Fund Performance The performance of the fund is shown in the Investment Adviser s Report. 8

12 Financial statements Statement of total return For the period ended 31 January 2017 Notes Income Net capital gains/(losses) 4 1,016,950 (1,745,033) Revenue 6 606, ,700 Expenses 7 (209,797) (231,861) Net revenue before taxation 396, ,839 Taxation 8 (2,275) (3,141) Net revenue after taxation 394, ,698 Total return before distributions 1,410,976 (1,339,335) Finance costs: Distribution 9 (569,533) (601,437) Change in net assets attributable to shareholders from investment activities 841,443 (1,940,772) Statement of change in net assets attributable to shareholders For the period ended 31 January 2017 Opening net assets attributable to shareholders Amounts receivable on issue of shares Amounts payable on cancellation of shares Change in net assets attributable to shareholders from investment activities Retained distribution on accumulation shares Closing net assets attributable to shareholders 37,188,455 36,222, ,908 4,437,016 (1,415,507) (3,518,978) (508,599) 918, ,443 (1,940,772) 343, ,799 37,864,792 35,553,698 9

13 Balance sheet As at 31 January 2017 Notes Assets Investment assets 36,038,062 35,488,039 Debtors , ,028 Bank balances 3,967,948 3,668,695 Total other assets 4,311,380 3,813,723 Total assets 40,349,442 39,301,762 Liabilities Creditors 11 50, ,961 Distribution payable on income shares 222, ,804 Bank overdrafts 2,211,542 1,733,542 Total other liabilities 2,484,650 2,113,307 Net assets attributable to shareholders 37,864,792 37,188,455 10

14 Notes to the financial statements As at 31 January Accounting policies a) Basis of accounting The financial statements have been prepared under the historical cost basis, in accordance with Financial Reporting Standard (FRS 102), as modified by the revaluation of investments, and in accordance with the revised Statement of Recommended Practice (SORP) for Authorised Funds issued by the Investment Management Association in May No changes to the Net Asset Value of the fund have arisen from the adoption of the SORP. b) Basis of valuation of investments The investments are valued at quoted bid prices for dual priced funds and at quoted prices for single priced funds, on the last business day of the accounting period. c) Foreign exchange rates Transactions in foreign currencies are recorded in sterling at the rate ruling at the date of the transactions. Assets and liabilities expressed in foreign currencies at the end of the accounting period are translated into sterling at the closing middle exchange rates ruling on that date. d) Revenue All income allocations and distributions declared by the managers of the underlying funds up to the accounting date are included in Income, net of attributable tax credits. The net allocations which are retained in Income are included in the fund s own income allocation. Bank and other interest receivable is accrued up to the accounting date. Equalisation on distributions received is deducted from the cost of the investment and not included in the fund s income available for distribution. e) Expenses The ACD s periodic charge is deducted from Capital. All of the other expenses are charged against Income except for costs associated with the purchase and sale of investments which are charged against Capital. f) Taxation (i) (ii) (iii) The fund is treated as a corporate shareholder with respect to its underlying holdings and its income is subject to streaming into franked and unfranked. Corporation tax is provided at 20% on income, other than the franked portion of distributions from collective investment schemes, after deduction of expenses. The charge for deferred tax is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is provided using the liability method on all timing differences, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset. 2 Distribution policy Income arising from investments accumulates during each accounting period. Surplus income is allocated to shareholders in accordance with the COLL regulations. In order to conduct a controlled dividend flow to shareholders, interim distributions will be made at the ACD s discretion, up to a maximum of the distributable income available for the period. All remaining income is distributed in accordance with the COLL regulations. 11

15 3 Risk management policies In pursuing the investment objective, a number of financial instruments are held which may comprise securities and other investments, cash balances and debtors and creditors, that arise directly from operations. Derivatives, such as futures or forward foreign exchange contracts, may be utilised for efficient portfolio management purposes. Political and economic events in the major economies of the world, such as the United States, Japan and the European Union, will influence stock and securities markets worldwide. The main risks from the fund s holding of financial instruments with the ACD s policy for managing these risks are set out below: i. Credit Risk The fund may find that collective investment schemes in which it invests fail to settle their debts or deliver the investments purchased on a timely basis. ii. iii. iv. Interest Rate Risk Debt securities may be held by the underlying investments of the fund. The Interest Rate Risk of these securities is managed by the relevant manager. Foreign Currency Risk Although the net assets of the fund are denominated in sterling, a proportion of the fund s investments in collective investment schemes have currency exposure with the effect that the balance sheet and total return can be affected by currency movements. Liquidity Risk The main liability of the fund is the cancellation of any shares that investors want to sell. Securities may have to be sold to fund such cancellations should insufficient cash be held at the bank to meet this obligation. Smaller companies by their nature, tend to have relatively modest traded share capital, and the market in such shares can, at times, prove illiquid. Shifts in investor sentiment, or the announcement of new price-sensitive information, can provoke significant movement in share prices, and make dealing in any quantity difficult. The equity markets of emerging countries tend to be more volatile than the more developed markets of the world. Standards of disclosure and accounting regimes may not always fully comply with international criteria, and can make it difficult to establish accurate estimates of fundamental value. The dearth of accurate and meaningful information and insufficiencies in its distribution, can leave emerging markets prone to sudden and unpredictable changes in sentiment. The resultant investment flows can trigger significant volatility in these relatively small and illiquid markets. At the same time, this lack of liquidity, together with the low dealing volumes, can restrict the ACD s ability to execute substantial deals. v. Market Price Risk Market Price Risk is the risk that the value of the fund s financial instruments will fluctuate as a result of changes in market prices caused by factors other than interest rates or foreign currency movement. The Market Price Risk arises primarily from uncertainty about the future prices of financial instruments that the fund holds. Market Price Risk represents the potential loss the fund may suffer through holding market positions in the face of price movements. This risk is generally regarded as consisting of two elements Stock Specific Risk and Market Risk. The fund s exposure to Stock Specific Risk is reduced for equities and bonds through the holding of a diversified portfolio in accordance with the investment and borrowing powers set out in the Instrument of Incorporation. vi. vii. Counterparty Risk Transactions in securities entered into by the fund give rise to exposure to the risk that the counterparties may not be able to fulfil their responsibility by completing their side of the transaction. Fair Value of Financial Assets and Financial Liabilities There is no material difference between the value of the financial assets and liabilities, as shown in the balance sheet, and their fair value. 12

16 4 Net capital gains/(losses) Proceeds from sales on investments during the period 1,887,000 90,000 Original cost of investments sold during the period (1,618,610) (77,649) Gains realised on investments sold during the period 268,390 12,351 Net appreciation thereon already recognised in prior periods (192,326) (10,752) Net realised appreciation for the period 76,064 1,599 Net unrealised appreciation/(depreciation) for the period 940,886 (1,746,632) Net gains/(losses) on non-derivative securities 1,016,950 (1,745,033) Net capital gains/(losses) on investments 1,016,950 (1,745,033) 5 Purchases, sales and transaction costs Collective Investment Schemes Purchases excluding transaction costs 1,034,000 1,206,000 Trustee transaction charges: 0.01% [0.01%] Purchases including transaction costs 1,034,060 1,206,140 Sales excluding transaction costs 1,887,000 90,000 Trustee transaction charges: 0.01% [0.01%] (200) (10) Sales including transaction costs 1,886,800 89,990 Trustee transaction charges have been deducted in determining net capital Transaction charges are displayed as percentage of purchase/sale Total trustee transaction charges : 0.00% [0.00%] Total charges displayed as percentage of average net asset value Average portfolio dealing spread : 0.13% [0.11%] 6 Revenue UK franked dividends 384, ,135 UK unfranked dividends Bond interest 152, ,845 Gross bond interest 20,401 19,035 Overseas gross unfranked income 43,182 49,685 Rebate of annual management charges / renewal commission 4,491 5,832 Total revenue 606, ,700 7 Expenses Payable to the ACD, associates of the ACD and agents of either: ACD's periodic charge 175, ,735 Payable to the Depositary associates of the Depositary and agents of either: Depositary's fee 11,409 10,892 Safe custody 3,665 3,652 15,074 14,544 Other expenses: FCA fee Audit fee 3,835 3,660 Registration fees 3,138 3,122 Sundry charges 2,592 - Printing costs Transfer agency fee 6,954 12,589 Distribution costs 2,210 2,085 Total expenses 209, ,861 13

17 8 Taxation a) Analysis of the tax charge for the period: UK Corporation tax 2,275 3,141 Irrecoverable income tax - - Current tax charge (note 8b) 2,275 3,141 Total tax charge 2,275 3,141 b) Factors affecting the tax charge for the period: Net income before taxation 396, ,839 Corporation tax at 20% 79,261 81,768 Effects of: UK dividends (76,986) (78,627) Corporation tax charge 2,275 3,141 Irrecoverable income tax - - Current tax charge for the Period (note 8a) 2,275 3,141 c) Provision for deferred taxation No provision for deferred taxation has been made in the current or prior accounting year. 9 Finance costs Distributions Interim 566, , , ,533 Amounts deducted on cancellation of shares 7,634 19,338 Amounts received on issue of shares (4,579) (23,434) Finance costs: Distributions 569, ,437 Total finance costs 569, ,437 Represented by: Net revenue after taxation 394, ,698 Expenses charged to capital ACD's periodic charge 175, ,735 Balance of revenue brought forward 9 19 Balance of revenue carried forward (14) (15) Finance costs: Distributions 569, ,437 14

18 10 Debtors Amounts receivable for issue of shares 199,845 30,480 Accrued income: Bond interest 23,121 24,159 Overseas gross unfranked income 21,831 20,409 44,952 44,568 Prepayments 22,448 22,370 Other receivables 2,687 4,728 Taxation recoverable 73,500 42,882 Total debtors 343, , Creditors Amounts payable for cancellation of shares 3,407 76,047 Accrued expenses: Amounts payable to the ACD, associates and agents: ACD's periodic charge 27,906 29,065 Amounts payable to the Depositary, associates and agents: Depositary's fees 1,817 1,885 Transaction charges Safe custody fee 2,041 1,438 3,948 3,473 Other expenses 9,160 19,947 Taxation payable: Corporation tax 5,702 3,429 Total creditors 50, , Contingent liabilities and commitments There were no contingent liabilities or outstanding commitments at the balance sheet date [ : Nil]. 13 Related party transactions Margetts Fund Management Ltd as ACD, is a related party, and acts as principal in respect of all transactions of shares in the Company. The aggregate monies received through issues, and paid on cancellations are disclosed in the statement of change in net assets attributable to shareholders and note 9. Amounts paid to Margetts Fund Management Ltd in respect of management services are disclosed in note 7 and amounts due at the end of the year in note Shareholders' funds Acc Inc R Acc R Inc Opening number of shares 4,720, ,600 8,083,727 10,738,921 Closing number of shares 677 7, , ,450 Shares converted (2,775) - 2,707 - Shares redeemed (201,720) (35,770) (370,771) (462,946) Closing number of shares 4,516, ,022 8,176,189 10,527,425 15

19 15 Post balance sheet events There were no material post balance sheet events which have a bearing on the understanding of the financial statements. 16 Risk disclosures interest risk Interest risk - Debt securities may be held by the underlying investments of the fund. The Interest Rate Risk of these securities is managed by the relevant manager. The table below shows the Interest Rate Risk profile at the balance sheet date: Floating rate assets (pounds sterling): 3,967,948 3,668,695 Floating rate liabilities (pounds sterling): (2,211,542) - Assets on which interest is not paid (pounds sterling): 36,381,494 35,633,067 Liabilities on which interest is not paid (pounds sterling): (273,108) - Net Assets 37,864,792 39,301,762 The floating rate financial assets and liabilities comprise bank balances, which earn or pay interest at rates linked to the UK base rate. There are no material amounts of non-interest bearing financial assets and liabilities, other than collective investment schemes, which do not have maturity dates. 17 Fair Value Techniques Assets Quoted prices for identical instruments in active markets 36,038,062 35,488,039 Prices of recent transactions for identical instruments - - Valuation techniques using observable data - - Valuation techniques using non-observable data ,038,062 35,488,039 Liabilities Quoted prices for identical instruments in active markets - - Prices of recent transactions for identical instruments - - Valuation techniques using observable data - - Valuation techniques using non-observable data

20 18 Periodic disclosure As required by FUND 3.2.5R the ACD is required to disclose certain information periodically in relation to the Fund which is shown below. At the end of the reporting period the percentage of the Fund s assets subject to special arrangements arising from their illiquid nature was 0% (2015: 0%) of the NAV. There have been no new arrangements introduced for managing the liquidity of the Fund.The risk characteristics of the Fund are explained in the Prospectus. In order to assess the sensitivity of the Fund s portfolio to the risks to which the Fund is or could be exposed, Margetts Fund Management Ltd monitors relative value at risk, commitment, gross leverage and the results of stress tests. The ACD has set limits considered appropriate to the risk profile of the fund. Any breaches of these limits are investigated by the Margetts risk committee and appropriate action taken if necessary. During the reporting period there have been no changes to the maximum level of leverage that the Fund can employ or any right of reuse of collateral or any guarantee granted under leveraging arrangements. At the end of the reporting period the total amount of leverage, expressed as a ratio, calculated using the commitment approach was 1:0.95 and using the gross method was 1:0.95. Leverage is limited to overdraft use and the gross exposure from EPM techniques. Although the ACD may use derivatives for EPM, no collateral arrangements are currently in place and no asset re-use arrangements are in place. The maximum leverage expressed as the ratio of the exposure to net asset value using the commitment method is 1.1:1.0 and using the gross method 3.3:1.0. Please note that the maximum leverage under the gross method is theoretical and would only occur if market risk and currency risk were hedged across the entire Fund whilst it was using the maximum borrowing facility of 10%. It is not anticipated that both market risk and currency risk would be simultaneously hedged and therefore the likely maximum leverage which would be used in normal circumstances using the commitment method is 1.1:1.0 and using the gross method 2.2:1.0. The fund does not engage in securities financing transactions or loan securities or commodities to third parties. 19 Remuneration In accordance with the requirements of FUND 3.3.5(5) the total amount of remuneration paid by the ACD to its staff for the financial year ended 30 September 2016 is: 2016 Fixed Remuneration 1,351,756 Variable Remuneration 1,573,101 Total Remuneration 2,924,857 Full Time Equivalent number of staff 38 Analysis of senior management Senior management 1,813,059 Staff whose actions may have a material impact on the funds - Other - 1,813,059 17

21 Remuneration (continued) The remuneration for senior management has been calculated in accordance with the remuneration policy and is reviewed annually. The remuneration policy and, where required by the FCA, how benefits are calculated together with details of the remuneration committee can be found on the website: A paper copy of this is available free of charge upon request by writing to the compliance officer at 1 Sovereign Court, Graham Street, Birmingham B1 3JR. No material changes were made to the policy or irregularities reported at the last review. Distribution Table For the period ended 31 January in pence per share Interim Group 1 shares purchased prior to 01 August 2016 Group 2 shares purchased on or after 01 August 2016 Accumulation shares Units Net Income Equalisation Allocating Allocated Group Group Income shares Units Net Income Equalisation Payable Paid Group Group R Accumulation shares Units Net Income Equalisation Allocating Allocated Group Group R Income shares Units Net Income Equalisation Payable Paid Group Group Equalisation only applies to shares purchased during the distribution period (group 2 shares). It represents the accrued income included in the purchase price of the shares. After averaging it is returned with the distribution as a capital repayment. It is not liable to income tax but must be deducted from the cost of the shares for capital gains tax purposes. 18

22 General Information Valuation Point The Valuation Point of the fund is at 8.30am each business day. Valuations may be made at other times with the Depositary s approval. Buying and Selling of Shares The ACD will accept orders to buy or sell shares on normal business days between 9.00am and 5.00pm and transactions will be effected at prices determined by the following valuation. Instructions to buy or sell shares may be made either in writing to: Margetts Fund Management Ltd, PO Box 17067, Birmingham B2 2HL or by telephone on A contract note will be issued by close of business on the next business day after the dealing date to confirm the transaction. Prices The most recent mid prices of shares are published on the Margetts website at Other Information The Instrument of Incorporation, Prospectus, Key Investor Information Document, Supplementary Information Document and the latest annual and interim reports may be inspected at the offices of the ACD, with a copy available, free of charge, on written request. The register of shareholders can be inspected by shareholders during normal business hours at the offices of the Administrator. The Head Office of the Company is at 1 Sovereign Court, Graham Street, Birmingham B1 3JR and is also the address of the place in the United Kingdom for service on the Company of notices or other documents required or authorised to be served on it. The base currency of the Company is pounds ( ) sterling. The maximum share capital of the Company is currently 10,000,000,000 and the minimum is Shares in the Company have no par value and therefore the share capital of the Company at all times equals the Company s current net asset value. Shareholders who have any complaints about the operation of the fund should contact the ACD or the Depositary in the first instance. In the event that a shareholder finds the response unsatisfactory, they may make their complaint direct to the Financial Ombudsman Service at South Quay Plaza, 183 Marsh Wall, London E14 9SR. Data Protection Act Shareholders names will be added to a mailing list which may be used by the ACD, its associates or third parties, to inform investors of other products by sending details of such products. Shareholders who do not want to receive such details should write to the ACD, requesting their removal from any such mailing list. 19