MI Charles Stanley Investment Funds. (formally MI PanDYNAMIC Fund)

Transcription

1 MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund) Annual Report 31 March 2017

2 MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund) Contents Page Directory Statement of the Authorised Corporate Directors Responsibilities Certification of Annual Report by the Authorised Corporate Director Statement of the Depositary s responsibilities Independent Auditor s Report to the Shareholders of the Fund MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund (formally MI PanDYNAMIC Fund - PanDEFNSIVE Fund) Investment Objective and Policy Investment Manager's report Portfolio Statement Comparative Tables Statement of Total Return Statement of Change in Net Assets Attributable to Shareholders Balance Sheet Notes to the Financial Statements Distribution Tables MI Charles Stanley Investment Funds - Multi Asset 4 Growth Fund (formally MI PanDYNAMIC Fund - PanBALANCED Fund) Investment Objective and Policy Investment Manager's report Portfolio Statement Comparative Tables Statement of Total Return Statement of Change in Net Assets Attributable to Shareholders Balance Sheet Notes to the Financial Statements Distribution Tables General Information

3 MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund) Directory Authorised Corporate Director (ACD) & Registrar Maitland Institutional Services Ltd Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW Telephone: Fax: Website: (Authorised and regulated by the Financial Conduct Authority) Customer Service Centre Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW Telephone: Fax: (Authorised and regulated by the Financial Conduct Authority) Directors of the Authorised Corporate Director R.A. Ackermann (appointed 30 December 2016) P.J. Foley-Brickley S. Georgala D. Jones R.W. Leedham D.W. Munting (retired 14 October 2016) Investment Manager Charles Stanley & Co Ltd 55 Bishopsgate, London, EC2N 3AS (Authorised and regulated by the Financial Conduct Authority) Depositary Depositary to 30 September 2016: National Westminster Bank Plc Depositary from 01 October 2016: The Northern Trust Global Services Limited 50 Bank Street, Canary Wharf, London E14 5NT (Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority) Independent Auditor KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square, Canary Wharf, London E14 5GL MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund) 1

4 MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund) Statement of the Authorised Corporate Director s Responsibilities The ACD is responsible for preparing the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practices. The Financial Conduct Authority s Collective Investment Schemes sourcebook ( the COLL sourcebook ) requires the ACD to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the net revenue and of the net gains on the property of the Company for that year. In preparing the financial statements the ACD is required to: select suitable accounting policies, as described in the attached financial statements, and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable United Kingdom accounting standards have been followed, including Financial Reporting Standard 102 The financial reporting standard applicable in the United Kingdom and the Republic of Ireland (FRS102) and in accordance with the Statement of Recommended Practice for Financial Statements of UK Authorised Funds issued by the Investment Association (IA) in May 2014, subject to any material departures, which are required to be disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The ACD is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable it to ensure that the financial statements comply with the COLL Sourcebook. The ACD is also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the ACD is aware: there is no relevant audit information of which the Company s auditors are unaware; and the ACD has taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. Certification of the Annual Report by the Authorised Corporate Director In accordance with the requirements of the Regulations and COLL Sourcebook, we hereby certify the Report on behalf of the ACD, Maitland Institutional Services Ltd. R.W. Leedham D. Jones Directors Maitland Institutional Services Ltd 24 May MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund)

5 MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund) Statement of the Depositary s Responsibilities in Respect of the Scheme and Report of the Depositary to the Shareholders of the MI Charles Stanley Investment Funds ( the Company ) for the Year Ended 31st March The Depositary must ensure that the Company is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook, the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228), as amended, the Financial Services and Markets Act 2000, as amended, (together the Regulations ), the Company s Instrument of Incorporation and Prospectus (together the Scheme documents ) as detailed below. The Depositary must in the context of its role act honestly, fairly, professionally, independently and in the interests of the Company and its investors. The Depositary is responsible for the safekeeping of all custodial assets and maintaining a record of all other assets of the Company in accordance with the Regulations. The Depositary must ensure that: the Company s cash flows are properly monitored and that cash of the Company is booked into the cash accounts in accordance with the Regulations; the sale, issue, repurchase, redemption and cancellation of shares are carried out in accordance with the Regulations; the value of shares of the Company are calculated in accordance with the Regulations; any consideration relating to transactions in the Company s assets is remitted to the Company within the usual time limits; the Company s income is applied in accordance with the Regulations; and the instructions of the Authorised Fund Manager ( the AFM ), which is the UCITS Management Company, are carried out (unless they conflict with the Regulations). The Depositary also has a duty to take reasonable care to ensure that Company is managed in accordance with the Regulations and Scheme documents in relation to the investment and borrowing powers applicable to 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 Company, acting through the AFM: (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 income in accordance with the Regulations and the Scheme documents of the Company; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Company. Northern Trust Global Services Limited UK Trustee and Depositary Services 24 May 2017 MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund) 3

6 MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund) Independent Auditors Report to the Shareholders of MI Charles Stanley Investment Funds We have audited the financial statements of the Company for the year ended 31 March 2017 which comprise the Statements of Total Return, the Statements of Changes in Net Assets Attributable to Shareholders, the Balance Sheets, the Related Notes and Distribution Tables. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. This report is made solely to the Company s shareholders, as a body, in accordance with Rule of the Collective Investment Schemes Sourcebook ('the COLL Rules') issued by the Financial Conduct Authority under the Open-Ended Investment Companies Regulations Our audit work has been undertaken so that we might state to the Company s shareholders those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of the Authorised Corporate Director ('the ACD') Maitland Institutional Services Ltd and the Auditor As explained more fully in the Statement of ACD's Responsibilities set out on page 2 the ACD is responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit, and express opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at Opinion on financial statements In our opinion the financial statements: give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the financial position of the Company as at 31 March 2017 and of the net revenue and the net capital gains on the property of the Company for the year then ended; and have been properly prepared in accordance with the Instrument of Incorporation, the Statement of Recommended Practice relating to Authorised Funds and the COLL Rules. 4 MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund)

7 MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund) Independent Auditors Report to the Shareholders of MI Charles Stanley Investment Funds Opinion on other matters prescribed by the COLL Rules In our opinion the information given in the Authorised Corporate Director's Report is consistent with the financial statements. We have received all the information and explanations which we consider necessary for the purpose of our audit. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where under the COLL Rules we are required to report to you if, in our opinion: proper accounting records for the Company have not been kept; or the financial statements are not in agreement with the accounting records. Ravi Lamba for and on behalf of KPMG, Statutory Auditor Chartered Accountants 15 Canada Square, Canary Wharf, London E14 5GL 24 May 2017 MI Charles Stanley Investment Funds (formally MI PanDYNAMIC Fund) 5

8 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Investment Objective and Policy Investment objective The Sub-fund will aim to achieve a combination of capital growth and income by investing in a range of bond and equity investments. The exposure to risk assets like equities versus defensive assets like bonds will be adjusted according to the market conditions and diversified by taking a global approach. Investment policy The Sub-fund will combine a range of asset classes, predominantly those regarded as lower risk, with the aim of offering a defensive and cautious investment approach. The Sub-fund will invest in a mixture of index-tracking instruments and other collective investment schemes and direct holdings in government and corporate bonds. The Investment Manager has developed a dynamic asset allocation process which enables investment across a broad range of asset classes and sub-classes in the EU and worldwide. Cash and equivalent investments will be used from time to time to protect the value of the Sub-fund, especially in times of market uncertainty. The Subfund may invest in overseas securities and currency exposure may be hedged from time to time. The Sub-fund may also invest at the Investment Manager s discretion in other transferable securities, money market instruments, depositary receipts, derivative instruments and forward transactions. The Sub-fund may invest in derivatives for the purposes of hedging with the aim of reducing the risk profile of the Sub-fund in accordance with the principles of Efficient Portfolio Management. Derivatives can expose the Scheme Property to a higher degree of risk. Although the Company permits the use of derivatives for investment purposes by the Sub-fund, this policy is not currently applied and may not be applied without giving the required 60 day notice to Shareholders. If derivatives are used for the purpose of meeting the investment objective of the Subfund this can affect the risk profile of the Sub-fund. 6 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund

9 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Investment Manager s Report for the year ended 31 March 2017 The six months to September 2016 was a good period for UK investors, with strong returns from both bonds and equities. Gilts produced total returns of 9.01%, with UK equities producing returns of 11.7%, although developed market equities were up 17% helped by currency gains due to the fall in the pound following the Brexit vote. The background environment was one of low interest rates in all the main countries, with governments and central banks in the US, UK, Japan and the Euro area wanting to promote more growth. The gilt market was given extra support by the bold action taken by the Bank of England at its policy meeting on the 4th August; cutting the bank base rate by 25 basis points (bps), plus announcing a Funding Scheme and a corporate bond-buying programme. However, in the following six months to March 2017 the biggest surprise for the markets was the election of Donald Trump as US President in November. Markets went from expecting a continuation of both government and Federal Reserve (Fed) policy to expectations of a shift in US policy mix, implying increased fiscal spending, reduced regulation, increased protectionism and a possible change of Fed leadership. Investors believed that Trump s victory was fundamentally bearish for fixed income from a pure economics perspective; given that the fiscal stimulus will occur as the US economy is close to full employment and would then have a faster spill-over onto monetary policy. As a result government bond markets witnessed a bout of volatility towards the end of 2016, especially after the US Fed pulled the trigger on a widely anticipated 25 bps interest rate hike; though the committee gave little hint on how policymakers will respond to a potential shift toward expansionary fiscal policy following Donald Trump s victory in the Presidential election. However, as witnessed in the first quarter of this year, bond yields have as yet to make a really concerted move higher as the Trump Reflation Trade has been losing some momentum, which in a way helps the Fed. That s because if yields rise too high too quickly, it actually becomes deflationary as opposed to reflationary. So far, the Trump victory has been supportive of risk assets and in particular corporate debt which has outperformed over the last few months especially in the high-yield arena, although a pick-up in volatility in the oil price has weighed on the sector in the US somewhat recently. Given all this, there is a chance of a greater divergence of monetary policy between the Eurozone and the US. In Europe, it is likely that political uncertainty, a monetary policy that is geared towards supporting the periphery and an unsustainable public debt burden in key countries, will continue to weigh on economic performance. In the UK, focus will continue to be on the volatility in sterling, the uncertainty surrounding the Brexit negotiations and the general election in June. As a result, it is unlikely that the Bank of England will be called into action in the short term, especially given some weaker macro data recently. The markets still have a period of uncertainty to navigate before the path for the US economy is totally clear, but it is generally expected that US rates will grind higher through 2017, with the Fed likely to maintain a restrained pace of interest rate increases, with another two hikes this year. As a result, for the year to March 2017, global equities delivered robust gains with the S&P producing total returns of 15% and the FTSE 100 producing returns of 19% amid further evidence of a recovery in the global economy. In the bond markets, high-yield corporate bonds performed well with the global high-yield index producing total returns of 15.5% (local currency), whilst government bonds were more mixed. MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund 7

10 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Investment Manager s Report Over the last six month period, we shortened the overall bond duration of the fund by selling the longerdated direct government and corporate bond holdings. These sales were used to finance the purchase of the ishares Corporate Bond 0-5 yr UCITS ETF, the ishares Ultrashort Bond UCITS ETF, the Treasury 2% and the US Treasury 0.125% Index Linked We had already reduced the exposure to UK equities, by selling the Vanguard FTSE 250 UCITS ETF and the ishares FTSE UK Dividend Plus ETF and added to US equities by purchasing the db x-trackers S&P 500 UCITS ETF in the first six months. Against this background the Sub-fund returned 5.51% (Based on Class B bid to bid accounts price). The positioning of the Sub-fund towards shorter duration bond holdings meant that we ensured that we protected the Sub-fund against steepening yield curves, whilst capturing any remaining outperformance in the government bond markets. 8 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund

11 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Portfolio Statement as at 31 March 2017 Market % of total value net assets Holding Security 2017 Sterling denominated corporate bonds 67.43% (74.61%) 150,000 AT&T 5.875% , ,000 Aviva 6.625% Variable , ,000 Bank of America 6.125% , ,000 Barclays Bank 6.75% , ,000 BAT International Finance 6% , ,000 BAT International Finance 7.25% , ,000 BNP Paribas 5.75% , ,000 BP Capitals Markets 4.325% , ,000 Burford Capital 6.5% , ,000 Citigroup 5.125% , ,000 CLS Holdings 5.5% , ,000 Coventry Building Society 6% , ,000 CPUK Finance 7.239% , ,000 Credit Agricole 7.375% , ,000 Daimler International Finance 3.5% , ,000 Danske Bank 5.375% , ,000 DNB Bank 4.25% , ,000 E.ON International Finance 6% , ,000 EE Finance 4.375% , ,000 EIB 4.75% , ,000 EIB 5.375% , ,000 Electricite de France 6.875% , ,000 ENI Finance International 5% , ,000 European Investment Bank 4.125% , ,000 GE Capital UK Funding 4.125% , ,000 General Electric Capital 5.5% , ,000 General Electric Capital 6.44% , ,000 Go Ahead 5.375% , ,000 Goldman Sachs 5.5% , ,000 Heathrow Funding 6.25% , ,000 Helical Bar Jersey 4% CULS , ,000 HSBC Bank 5% Variable , ,000 Imperial Tobacco Finance 7.75% , ,000 ING Bank 6.875% , ,000 ING Bank 5.375% , ,000 Intermediate Capital Growth 6.25% , ,000 Investec Finance 9.625% , ,000 John Lewis 8.375% , MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund 9

12 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Portfolio Statement Market % of total value net assets Holding Security 2017 Sterling denominated corporate bonds () 100,000 Legal & General 5.875% Variable Perpetual 105, ,000 Lloyds Bank 7.625% , ,000 London Stock Exchange 4.75% , ,000 London Stock Exchange 9.125% , ,000 LV Friendly Society 6.5% , ,000 Marks & Spencer 6.125% , ,000 National Australia Bank 7.125% , ,000 National Grid Gas 6% , ,000 Nationwide 5.625% , ,000 Nestle Finance International 2.25% , ,000 Orange 5.875% Variable Perpetual 162, ,000 PostNL 7.5% , ,000 Provident Financial 7% , ,000 Provident Financial 8% , ,000 Prudential 1.75% , ,000 Prudential % , ,000 Royal Bank of Canada Floating , ,000 Scottish Widows 5.5% , ,000 Segro 5.5% , ,000 Societe Generale 5.4% , ,000 Southern Water Greensand 8.5% , ,000 Standard Chartered Bank 7.75% , ,000 St Modwen Properties 6.25% , ,000 Svenska Handelsbanken 4% , ,000 Tate & Lyle International Finance 6.75% , ,000 Telefonica Emisiones 5.375% , ,000 Thames Water UTC 5.375% Variable , ,000 Toronto-Dominion Bank Floating , ,000 Total Capital 3.875% , ,000 Unite 6.125% , ,000 Vodafone 5.375% , ,000 Vodafone 8.125% , ,000 Wells Fargo Bank 5.25% , ,000 WPP 6% , ,000 Yorkshire Building Society 4.75% , ,000 Yorkshire Water 6% Floating , ,000 Zurich Finance 6.625% Variable Perpetual 232, ,829, MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund

13 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Portfolio Statement Market % of total value net assets Holding Security 2017 Corporate bonds indirect 4.09% (2.06%) 4,000 ishares Corporate Bond 0-5 yr UCITS ETF 425, ,500 ishares Ultrashort Bond UCITS ETF 351, , Global equities indirect 6.27% (4.75%) 18,221 ishares Edge MSCI World Minimum Volility UCITS ETF 571, ,177 ishares MSCI World GBP Hedged UCITS ETF 621, ,193, UK Equities Indirect 1.92% (6.01%) 26,400 ishares UK Dividend UCITS ETF 245, ,652 Vanguard FTSE 100 UCITS ETF 119, , UK Government bonds direct 9.19% (8.26%) 124,000 Treasury 1% , ,000 Treasury 1.50% , ,000 Treasury 1.875% Index Linked , ,000 Treasury 2% , ,000 Treasury 4% , ,000 Treasury 1.25% , ,000 Treasury 4.75% , ,746, US Equities Indirect 2.51% (0.00%) 12,000 db x-trackers S&P 500 UCITS ETF 478, US Government bonds direct 2.61% (0.00%) $600,000 US Treasury 0.125% Index Linked , Forward Currency Contracts^ 0.08% (0.00%) Sold USD585,000 Bought 479,823 ( ) 14, Investment assets 17,901, Net other assets 1,122, Net assets 19,023, MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund 11

14 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Portfolio Statement All investments are ordinary shares or stock units on a regulated securities market unless otherwise stated. The percentages in brackets show the equivalent % holdings as at ^ At the balance sheet date, all forward currency contracts were executed with one counterparty, Northern Trust Corporation for the purpose of EPM. Collateral obligations on losses or gains for each transaction would be met using cash held by the custodian. Analysis of direct bonds by credit rating AAA credit rated bonds 1,695, AA credit rated bonds 2,011, AA- credit rated bonds 724, A+ credit rated bonds 265, A credit rated bonds 1,361, A- credit rated bonds 1,030, BBB+ credit rated bonds 2,879, BBB credit rated bonds 2,878, BBB- credit rated bonds 1,299, BB- credit rated bonds 113, Unrated bonds 813, ,073, MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund

15 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Comparative Tables Change in net assets per share B Accumulation p p p Opening net asset value per share Return before operating charges^ Operating charges Return after operating charges^ Distributions Retained distributions on accumulation shares Closing net asset value per share ^After direct transaction costs of Performance Return after charges 5.51% -0.55% 3.86% Other Information Closing net asset value 2,127,871 2,513,819 3,212,448 Closing number of shares 1,918,711 2,391,720 3,039,395 Operating charges 0.64% 0.65% 0.64% Direct transaction costs 0.00% 0.00% -0.24% Prices Highest share price Lowest share price C Income p p p Opening net asset value per share Return before operating charges^ Operating charges Return after operating charges^ Distributions Closing net asset value per share ^After direct transaction costs of Performance Return after charges 5.47% -0.63% 3.80% Other Information Closing net asset value 126, , ,429 Closing number of shares 117, , ,908 Operating charges 0.64% 0.65% 0.64% Direct transaction costs 0.00% 0.00% -0.24% Prices Highest share price Lowest share price MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund 13

16 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Comparative Tables Z Income p p p Opening net asset value per share Return before operating charges^ Operating charges Return after operating charges^ Distributions Closing net asset value per share ^After direct transaction costs of Performance Return after charges 5.83% -0.30% 3.57% Other Information Closing net asset value 16,769,443 18,237,341 18,674,297 Closing number of shares 16,254,833 18,363,949 18,338,899 Operating charges 0.24% 0.25% 0.24% Direct transaction costs 0.00% 0.00% -0.24% Prices Highest share price Lowest share price From launch date 06 May 2014 Operating charges include indirect costs incurred in the maintenance and running of the Sub-fund, as disclosed (but not limited to) the detailed expenses within the Statement of Total Return. The figures used within this table have been calculated against the average Net Asset Value for the accounting year. The Sub-fund invests in Collective Investment Schemes, the expenses incurred by these schemes in relation to the Sub-fund (synthetic ongoing charge) are included within the operating charges. The return after charges is calculated as the closing net asset value per share plus the distributions on income shares minus the open net asset value per share as a % of the opening net asset value per share. Direct transaction costs include fees, commissions, transfer taxes and duties in the purchasing and selling of investments, which are offset (where applicable) against any dilution levies charged within the accounting year. The figures used within the table have been calculated against the average Net Asset Value for the accounting year. 14 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund

17 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Comparative Tables Risk and reward profile The risk and reward indicator table demonstrates where the Sub-fund ranks in terms of its potential risk and reward. The higher the rank the greater the potential reward but the greater the risk of losing money. It is based on past data, may change over time and may not be a reliable indication of the future risk profile of the Sub-fund. The shaded area in the table below shows the Sub-fund s ranking on the risk and reward indicator. Typically lower rewards, lower risk Typically higher rewards, higher risk The Sub-fund is ranked 3 because funds of this type have experienced low to medium rises and falls in value in the past. Please note that even the lowest risk class can lose you money and that extreme market circumstances can mean you suffer severe losses in all cases. The indicator does not take into account the following risks of investing in this Sub-fund: The Sub-fund may invest in cash and cash equivalent securities to try to protect its value in times of market uncertainty but this may not always be successful. Changes in exchange rates may cause the value of investments to decrease or increase. Investing in other funds may expose you to increased risk due to restrictions on withdrawals, less strict regulations and use of derivatives. Investing in fixed income securities offers you income generation and sometimes a gain on your capital. Nevertheless, there is a risk that the organisation which issued the security will fail, which would result in a loss of income to the Sub-fund, along with its initial investment. Fixed income values are likely to fall if interest rates rise. Investment grade securities, as determined by international ratings agencies, potentially produce a lower level of income than noninvestment grade securities, but they are also considered to be of lower risk. Emerging markets or less developed countries may face more political, economic or structural challenges than developed countries. Coupled with less developed regulation, this means your money is at greater risk. The Sub-fund title is not related to the risk rating that appears on the 1-7 scale above, which is based solely on past data. For further risk information please see the prospectus. Risk warning An investment in an Open Ended Investment Company should be regarded as a medium to long-term investment. Investors should be aware that the price of shares and the revenue 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 fluctuation in exchange rates, which can be favourable or unfavourable. MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund 15

18 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Statement of Total Return for the year ended 31 March Note Income Net capital gains/(losses) 2 772,907 (561,979) Revenue 3 505, ,329 Expenses 4 (48,200) (56,785) Interest payable and similar charges 4 (483) Net revenue before taxation 457, ,061 Taxation 5 (83,900) (111,901) Net revenue after taxation 373, ,160 Total return before distributions 1,146,525 (89,819) Distributions 6 (373,627) (472,154) Change in net assets attributable to Shareholders from investment activities 772,898 (561,973) Statement of Change in Net Assets Attributable to Shareholders for the year ended 31 March Opening net assets attributable to Shareholders 20,991,477 22,256,508 Amounts receivable on issue of shares 4,231,242 5,493,497 Less: Amounts payable on cancellation of shares (7,010,132) (6,248,791) (2,778,890) (755,294) Change in net assets attributable to Shareholders from investment activities (see Statement of Total Return above) 772,898 (561,973) Retained distribution on accumulation shares 38,439 52,236 Closing net assets attributable to Shareholders 19,023,924 20,991,477 The notes on pages 18 to 33 form an integral part of these Financial Statements. 16 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund

19 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Balance Sheet as at 31 March Note ASSETS Fixed Assets Investments 17,901,289 20,085,829 Current Assets Debtors 7 707, ,310 Cash and bank balances 9 607, ,296 Total current assets 1,314,409 1,270,606 Total assets 19,215,698 21,356,435 LIABILITIES Investment liabilities Creditors Distribution payable (53,939) (113,683) Other creditors 8 (137,835) (251,275) Total creditors (191,774) (364,958) Total liabilities (191,774) (364,958) Net assets attributable to Shareholders 19,023,924 20,991,477 The notes on pages 18 to 33 form an integral part of these Financial Statements. MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund 17

20 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Notes to the Financial Statements for the year ended 31 March Accounting Policies (a) Basis of accounting The financial statements have been prepared under the historical cost basis, as modified by the revaluation of investments and in accordance with FRS 102 and the Statement of Recommended Practice ( SORP ) for Financial Statements of UK Authorised Funds issued by the Investment Association (IA) in May The financial statements have been prepared on the going concern basis. The authorised Status and head office of the Sub-fund can be found within the general information starting on page 58. The Certification of the Annual Report by the Authorised Corporate Director can be found on page 2. (b) Recognition of revenue Revenue is included in the Statement of Total Return on the following basis: Dividends on quoted equities and preference shares are recognised when the securities are quoted ex-dividend. Distributions from collective investment schemes are recognised when the schemes are quoted ex-distribution. Equalisation returned with the distribution is deducted from the cost of the investment and does not form part of the distributable revenue. Any reported revenue from an offshore reporting fund is recognised as revenue no later than the date on which the reporting fund makes the information available. Interest on debt securities and bank and short-term deposits is recognised on an accrual basis. In the case of debt securities any difference between acquisition cost and maturity value is recognised as revenue over the life of the security using the effective yield basis of calculating amortisation. All revenue includes withholding taxes but excludes irrecoverable tax credits. (c) Treatment of stock and special dividends The ordinary element of stocks received in lieu of cash dividends is credited to capital in the first instance followed by a transfer to revenue of the cash equivalent being offered and this forms part of the distributable revenue. Special dividends are reviewed on a case by case basis in determining whether the dividend is to be treated as revenue or capital. Amounts recognised as revenue will form part of the distributable revenue. The tax accounting treatment follows the treatment of the principal amount. (d) Treatment of expenses All expenses, except for those relating to the purchase and sale of investments and stamp duty reserve tax, are charged against revenue for the year on an accruals basis. 18 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund

21 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Notes to the Financial Statements (e) Allocation of revenue and expenses to multiple share classes and Sub-funds Any revenue or expense not directly attributable to a particular Sub-fund will normally be allocated pro-rata to the net assets of the relevant share classes and Sub-funds on the day that the revenue or expense is recognised. With the exception of the Investment Manager s fee which is directly attributable to individual share classes, all revenue and expenses are apportioned to the Sub-fund's share classes pro-rata to the value of the net assets of the relevant share class on the day that the revenue or expense is recognised. (f) Taxation Corporation tax is provided at 20% on revenue, after deduction of expenses. Deferred tax is provided using the liability method on all timing differences arising on the treatment of certain items for taxation and accounting purposes, 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. Stamp duty reserve tax suffered on surrender of shares is deducted from capital. (g) Distribution policy The net revenue after taxation as disclosed in the financial statements, after adjustment for items of a capital nature, is distributable to Shareholders as dividend distributions. Any revenue deficit is funded from capital. At the year end, there were no items of a capital nature. Interim distributions may be made at the Investment Manager s discretion and the balance of revenue is distributed in accordance with the regulations. In the case of debt securities any difference between acquisition cost and maturity value is recognised as revenue over the life of the security using the effective yield basis of calculating amortisation. This may constrain the capital growth of the Sub-fund. Distributions not claimed within a six year period will be forfeited and added back to the capital of the Sub-fund. (h) Basis of valuation of investments Listed investments are valued at close of business bid prices on the last business day of the accounting year excluding any accrued interest in the case of fixed and floating rate interest securities. Collective investment schemes are valued at quoted bid price for dual priced funds and at quoted price for single priced funds, on the last business day of the accounting period. Unlisted or suspended investments are valued by the Investment Manager taking into account where appropriate, latest dealing prices, valuations from reliable sources, financial performance and other relevant factors. MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund 19

22 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Notes to the Financial Statements (h) Basis of valuation of investments () The fair value of open forward foreign currency contracts is calculated with reference to the changes in the spot rate, changes in interest rate differential and the reduced term left to maturity. Market value is defined by the SORP as fair value, which generally is the bid value of each security. Amendments to FRS Fair value hierarchy disclosures, amends paragraphs and of FRS 102, revising the disclosure requirements for financial instruments held at fair value and aligning the disclosures with those required by EU-adopted IFRS. The Sub-fund has chosen to adopt early these amendments to FRS 102. There are no accounting policy or disclosure changes as a result of this adoption. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows: Level 1 The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date. Level 2 Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly. Level 3 Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability. (i) 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 exchange rates ruling on that date. (j) Dilution levy The Authorised Corporate Director may require a dilution levy on the sale and redemption of shares if, in its opinion, the existing shareholders (for redemptions) might otherwise be adversely affected. In particular, the dilution levy may be charged in the following circumstances: where the scheme property is in continual decline; on a Sub-fund experiencing large levels of net sales relative to its size; on large deals (large deals will be considered to be a purchase or redemption of shares to size equal to 5%); in any case where the Authorised Corporate Director is of the opinion that the interests of remaining shareholders require the imposition of a dilution levy. 20 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund

23 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Notes to the Financial Statements 2. Net Capital Gains/(Losses) Non-derivative securities 768,453 (524,539) Currency gains/(losses) 4,725 (8,869) Forward foreign exchange contracts gains/(losses) 1,711 (26,796) Transaction charges (1,982) (1,775) Net capital gains/(losses) 772,907 (561,979) 3. Revenue Distributions from Regulated Collective Investment Schemes: Overseas franked investment income 23,995 23,496 Interest distributions 4,852 12,524 Interest on debt securities 476, ,309 HMRC interest 58 Total revenue 505, ,329 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund 21

24 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Notes to the Financial Statements 4. Expenses Payable to the Authorised Corporate Director (ACD), associates of the ACD, and agents of either of them: ACD's fee 41,913 42,086 Registration fee 47,598 59,381 89, ,467 Payable to the Investment Manager, associates of the Investment Manager and agents of either of them: Investment Manager s fee 10,374 12,922 Payable to the Depositary, associates of the Depositary, and agents of either of them: Depositary's fee (including VAT) 12,208 13,144 Safe custody and other bank charges 5,508 5,735 17,716 18,879 Other expenses: Audit fee (including VAT) 7,380 7,020 Audit fee (including VAT): taxation services 1,500 1,308 FCA fee Legal fees 5,276 3,002 Printing costs 2,759 2,569 17,115 14,244 Total ongoing charge (OGC) rebates accrued against expenses^ (86,516) (90,727) Expenses 48,200 56,785 Interest payable and similar charges 483 Total 48,200 57,268 ^ The Investment Manager currently rebates the Sub-funds operating charges, excluding the Investment Manager's fee and synthetic ongoing charge, in order for them not to exceed 0.20% of the Net Asset Values (NAV) of the Sub-fund. 22 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund

25 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Notes to the Financial Statements 5. Taxation (a) Analysis of charge in the year Corporation tax at 20% 83, ,207 Adjustments in respect of prior periods (306) Total tax charge (note 5b) 83, ,901 (b) Factors affecting current tax charge for the year Net revenue before taxation 457, ,061 Corporation tax at 20% 91, ,812 Effects of: Adjustments in respect of prior periods (2,805) (306) Expenses not deductible for tax purposes 94 Overseas franked investment income (4,799) (4,699) Total tax charge (note 5a) 83, ,901 (c) Deferred tax There was no liability to deferred tax at the balance sheet date. (2016: nil). MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund 23

26 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Notes to the Financial Statements 6. Distributions The distributions take account of revenue received on the issue of shares and revenue deducted on the cancellation of shares, and comprise: First interim distribution ,406 99,083 Second interim distribution , ,383 Third interim distribution ,603 99,843 Final distribution , , , ,614 Revenue deducted on cancellation of Shares 18,715 20,947 Revenue received on issue of Shares (12,381) (16,407) Distributions 373, ,154 Reconciliation of net revenue after taxation to net distributions: Net revenue after taxation per Statement of Total Return 373, ,160 Undistributed revenue brought forward 14 8 Undistributed revenue carried forward (5) (14) Distributions 373, , Debtors Amounts receivable on issues 59,565 45,710 Sales awaiting settlement 253,368 Accrued income: Interest on debt securities 304, ,347 Dividends receivable 2,938 3,869 Total Ongoing Charge (OGC) rebate 86,516 90,727 Prepaid expenses: Legal fee Total debtors 707, , MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund

27 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Notes to the Financial Statements 8. Other creditors Amounts payable on cancellations 26, ,112 Accrued expenses: Amounts payable to the Authorised Corporate Director (ACD), associates of the ACD and agents of either of them: ACD's fee 3,567 3,557 Registration fee 3,891 5,085 7,458 8,642 Amounts payable to the Investment Manager, associates of the Investment Manager and agents of either of them: Investment Manager's fee Amounts payable to the Depositary, associates of the Depositary and agents of either of them: Depositary s fee (including VAT) 2,956 1,077 Safe custody and other bank charges 2,187 2,075 5,143 3,152 Other expenses: Audit fee (including VAT) 7,200 7,020 Audit fee (including VAT): taxation services 3,000 3,000 Printing costs 1,000 1,500 11,200 11,520 Taxation payable: Corporation tax 86, ,901 Total other creditors 137, , Cash and Bank Balances Cash and bank balances 607, ,296 Cash and bank balances 607, ,296 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund 25

28 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund Notes to the Financial Statements 10. Related party transactions Authorised Corporate Director and other fees payable to Maitland Institutional Services Ltd (the ACD) are disclosed in note 4 and amounts due at the year end are shown in note 8. Fees payable to Charles Stanley & Co Ltd (the Investment Manager) are disclosed in note 4 and amounts due at the year end are shown in note 8. Depositary and other fees payable to Northern Trust Global Services Ltd are disclosed in note 4 and amounts due at the year end are shown in note 8. At the year end the Sub-fund did not hold any shares in any of the other Sub-funds within the MI Charles Stanley Investment Funds. 11. Contingent Liabilities and Outstanding Commitments There were no contingent liabilities or outstanding commitments at the balance sheet date (2016: none). 12. Risk Management Policies and Disclosures In pursuing its investment objectives, the Sub-fund may hold a number of financial instruments. These financial instruments comprise securities and other investments, cash balances, debtors and creditors that arise directly from the Sub-fund's operations, for example, in respect of sales and purchases awaiting settlement, amounts receivable for creations and payable for redemptions and debtors for accrued revenue. In doing so, the ACD accepts market price risk, interest rate risk and currency risk in relation to the investment portfolio and foreign cash positions. The Sub-fund may also enter into a range of derivative transactions whose purpose is efficient portfolio management. In addition the Sub-fund only executes derivative contracts where both the derivative instrument and the counterparty have been approved by the ACD. The risks arising from financial instruments and the ACD s policies for the monitoring and managing of these risks are stated below in accordance with the Risk Management Policy of the ACD. These policies have been consistent for both years through which these financial statements relate. 26 MI Charles Stanley Investment Funds - Multi Asset 1 Defensive Fund