Annual Report and Financial Statements for MGTS St Johns High Income Property Fund

Transcription

1 Annual Report and Financial Statements for MGTS St Johns High Income Property Fund For the year ended 29 February 2016 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 St Johns Asset Management Ltd AFH House Buntsford Drive Stoke Heath Bromsgrove Worcestershire B60 4JE (Authorised and regulated by the Financial Conduct Authority)

3 Contents Investment Adviser s Report 1 Certification of Accounts by Directors of the ACD 2 Portfolio Statement 3 Property Portfolio 4 Statement of ACD s Responsibilities 6 Statement of Depositary s Responsibilities 7 Report of the Depositary 7 Independent Auditors Report to the Shareholders of the MGTS St Johns High Income Property Fund 8 Net Asset Value per Share and Comparative Table 10 Financial Statements Statement of Total Return 12 Statement of Change in Net Assets Attributable to Shareholders 12 Balance Sheet 13 Cash Flow 14 Notes to the Financial Statements 15 Distribution Table 24 General Information 25

4 Investment Adviser s Report For the year ended 29 February 2016 Investment Objective The aim of the Fund is to carry on a property investment business and manage cash raised from investors for investment in the property investment business with the aim of providing high income and long term capital appreciation with a bias towards income. Investment Review For the 12 month period ending , the fund return +6.57%, calculated using an unswung NAV. Over the corresponding period the IA Property Sector returned 1.52%. Source: FE Analytics. Calculated on a total return basis. Investment Summary During the period to , the MGTS St Johns High Income Property Fund only contracted one purchase in April 2015, partly on account of extended due diligence investigations into what was then the largest planned purchase to date and partly on account of several intended acquisitions falling foul of our robust due diligence process. The purchase of the virtual freehold interest in Carnac House, Fareham was yield enhancing at Fund level, the 10 year lease providing a net initial yield of c7.95% based on an initial purchase price of c 2.2m before costs. Importantly, this acquisition provided geographic diversification to the Fund, being the most southerly purchase to date. By , the Net Asset Value of the fund stood at very slightly under 33.18m. Generating Attractive Levels of Income The investment mandate requires the fund to focus on the generation of above average and attractive levels of income. It is possible the fund will generate long term capital appreciation; however capital growth is not the primary investment objective of the fund. The Fund can reasonably claim to be among the highest yielding UK bricks & mortar funds within the IA Property sector. As at , the annualised gross income paid to investors equated to a yield of 5.91%. Investment Considerations During The Year Since May 2015, the fund had been actively seeking to acquire a smart modern office facility in the Humberside region. The investment metrics were attractive and we felt our patience in trying to conclude this deal was, at the time, vindicated. In the summer of 2015, we also received several speculative approaches in respect of one of our flagship West Midland properties which, whilst outwardly attractive, brought a more salient issue into sharper relief. In considering disposing of a property with a passing rental yield of the order of c7.9%, we would have been doing so into an investment landscape where property yields were then rapidly compressing. The risk associated with trying to replace this income on a like for like basis was one of the main detractions in securing the capital profits that were then available. Summary Outlook Going into 2016, there was a reasonable body of evidence to suggest that investment in the regions was beginning to outstrip investment in the London & South East market. We believe this bodes moderately well for the value of our existing portfolio of properties in the medium term, none of which are based in the London & South East region. It should be noted however that this pick up in regional interest has led to higher values being achieved at sale and hence some reduction in the level of yields available. 1

5 Investment Adviser s Report (continued) From a fundamental perspective, we believe the outlook for the regional Commercial Property sector remains moderately attractive while interest rates remain at historically low levels, and the difference (spread) between the yield available from Commercial Property and the 10 Year UK Government Bond remains attractive, by historical standards. For the fund itself, we believe any prospect for capital growth will be linked to the prospect for rental growth which, in our experience, is fundamentally linked to the broader health of the UK economy. With a referendum vote in respect of Britain s ongoing membership of the EU announced in February 2016, this places an unknown variable into the mix in terms in terms of expressing any near term conviction as to the immediate health of either the UK Economy or the immediate prospects for UK investment assets. St Johns Asset Management Ltd Investment Adviser 15th June 2016 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 16 June 2016 M D Jealous Authorised Status The MGTS St Johns High Income Property Fund is an open-ended investment company with variable capital incorporated in England and Wales under regulation number IC954 and authorised by the Financial Conduct Authority with effect from 14 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. Investor Notice The ACD hereby notifies shareholders that the investment fund manager was changed during the year to St. Johns Asset Management Ltd. The personnel and offices remained the same with the change only affecting internal accounting practices. This event is not considered to prejudice or adversely affect the rights of shareholders. 2

6 Portfolio Statement As at 29 February 2016 Total Net Assets Holding Portfolio of Investments Value ( ) % % Retail Warehouse Birmingham 3,345, Blackpool 1,165, Redditch 3,380, Total Retail Warehouse 7,890, Retail Burnley 4,765, Newark 1,030, Total Retail 5,795, Car Showroom Nottingham 3,900, Total Car Showroom 3,900, Office Fareham 2,200, Solihull 4,400, Warrington 1,536, Total Office 8,136, Leisure Pembroke 2,600, Total Leisure 2,600, Money Markets Goldman Sachs GBP Inst Liquidity Fund 1,500, Fidelity ILF - GBP F Flex Inc 1,500, Total Money Markets 3,000, Portfolio of Investments 31,321, Net Current Assets 1,854, Net Assets 33,175, The investments have been valued in accordance with note 1(b). 3

7 Property portfolio Between 1 million and 2.5 million in Value Principal Tenant Rental Income per annum Next Rent Review Blackpool Freehold steel portal framed unit of brick elevations and pitched roofs constructed in the 1990s, totalling 15,366 sq ft. 33 on-site car park spaces. Howden Joinery Properties Ltd 80,000 18/04/2018 Newark Freehold public house over 3 floors with basement totalling 12,202 sq ft. J D Wetherspoon Ltd 77,500 28/09/2018 Warrington Freehold detached modern two storey office building of steel frame construction with dedicated parking spaces. The property (excl. car park) totals 8,556 sq ft Parasol Ltd 117,000 01/01/2019 Fareham Virtually freehold, detached two storey office constructed in 2001, totalling 10,391 sq ft. The Injury Care Clinics Ltd 185,000 14/08/2018 Between 2.5 million and 5 million in Value Principal Tenant Rental Income per annum Next Rent Review Pembroke Freehold two storey 51 bedroom detached hotel, totalling 18,730 sq ft. The site has a car park with 42 spaces. Travelodge 184,781 30/11/2020 Redditch Freehold single storey retail warehouse constructed in the 1980s, totalling 11,734 sq ft. The site extends to approx 0.91 acres. Halfords 236,019 31/10/2017 Birmingham A virtually freehold industrial warehouse unit constructed in 2009, totalling 47,530 sq ft. The unit has a secured external yard and separated car park. TW Metals Ltd 238,900 07/02/2017 Nottingham Freehold car showroom with two storey office accommodation and workshop. Display and car park spaces. Total area 32,568 sq ft. Volkswagen 285,000 30/08/2016 4

8 Property portfolio (continued) Between 2.5 million and 5 million in Value Principal Tenant Rental Income per annum Next Rent Review Solihull Freehold modern purpose built office building, constructed in The property size is 14,669 sq ft and has 53 car park spaces. Goodman Logistics Developments Ltd 325,270 24/06/2018 Burnley Freehold retail warehouse with enclosed garden centre and car park. Total area 28,932 sq ft. The Range 337,500 11/05/2019 5

9 Statement of AIFM s Responsibilities The Alternative Investment Fund Manager (AIFM) is responsible for preparing the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice. The Financial Conduct Authority s Collective Investment Schemes Sourcebook ( COLL ) and FUND sourcebook requires the AIFM to ensure that the financial statements for each accounting period give a true and fair view of the financial affairs of the Scheme and of the net income / expenses and of the net gains / losses on the property of the Scheme for that year. In preparing the financial statements the AIFM is required to: select suitable accounting policies, as described in the attached financial statements, and apply them consistently; make judgments and estimates that are reasonable and prudent; comply with the Prospectus, generally accepted accounting principles and applicable accounting standards subject to any material departures which are required to be disclosed and explained in the financial statements; comply with the disclosure requirements of the Statement of Recommended Practice for Financial Statements and Authorised Funds; keep proper accounting records which enable it to demonstrate that the accounts as prepared comply with the above requirements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Scheme will continue in operation; and manage the Fund (Alternative Investment Fund [AIF]) and undertake risk management for the Fund in accordance with the AIFM directive, the Alternative Investment Fund Managers Regulations 2013, and the FCA rules. The AIFM is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Scheme and to enable them to ensure that the financial statements comply with the COLL and FUND Sourcebooks. The AIFM is also responsible for safeguarding the assets of the Scheme and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. This function is performed by the ACD, and references to the ACD include the AIFM as applicable. In so far as the AIFM is aware: There is no relevant audit information of which the Scheme s auditors are unaware; and The AIFM 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. 6

10 Statement of the Depositary's Responsibilities for the year ended 29 February 2016 The Depositary is responsible for the safekeeping of all custodial assets of the Company, for verifying ownership and maintaining a record of all other assets of the Company and for the collection of income that arises from those assets. It is the duty of the Depositary to take reasonable care to ensure that the Company is managed in accordance with the Financial Conduct Authority s Collective Investment Company s Sourcebook ( COLL ), from the 22nd July 2014 the Financial Conduct Authority s Investment Funds Sourcebook ( FUND ), the Open-Ended Investment Companies Regulations 2001("OEIC Regulations") and the Company s Instrument of Incorporation and Prospectus, 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 and restrictions of the Company. The Depositary must ensure that: the Company s cash flows are properly monitored and that cash of the Company is booked in cash accounts in accordance with the Sourcebooks; the issue, sale, redemption and cancellation of shares are carried in accordance with the Regulations; the value of shares of the Company are calculated in accordance with the Regulations; the instructions of the Alternative Investment Fund Manager (AIFM) are carried out (unless they conflict with the Regulations); any consideration relating to transactions in the Company s assets is remitted within the usual time limits; and that the Company s income is applied in accordance with the Regulations. Report of the Depositary to the Shareholders of the MGTS St Johns High Income Property fund for the year ended 29 February 2016 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 AIFM: (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 COLL and, where applicable, the FUND Sourcebook the OEIC Regulations, the Instrument of Incorporation and Prospectus of the Company; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Company. For and on behalf of BNY Mellon Trust & Depositary (UK) Limited 160 Queen Victoria Street London EC4V 4LA Manager Date 27 June

11 Independent auditors report to the shareholders of MGTS St Johns High Income Property fund We have audited the financial statements of MGTS St Johns High Income Property Fund for the period ended 29 February 2016, which comprise the statement of total return, the balance sheet, the statement of change in net assets attributable to shareholders, together with the related notes and the distribution table. The financial reporting framework that has been applied in their preparations is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Fund s shareholders as a body, in accordance with Rule of the Collective Investment Scheme Sourcebook as required by paragraph 67(2) of the Open-Ended Investment Companies Regulations Our audit work has been undertaken so that we might state to the Fund 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 Fund and the Fund s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the ACD and auditors 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 International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the fund's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in 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. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the Fund's affairs as at 29 February 2016 and of the net income and the net capital gains on the property of the Fund for the year then ended; have been properly prepared in accordance with the Prospectus, the Statement of Recommended Practice relating to Authorised Funds; the rules of the Collective Investment Schemes Sourcebook issued by the Financial Conduct Authority and United Kingdom Generally Accepted Accounting Practice; Opinion on other matters prescribed by the collective investment scheme sourcebook The information given in the ACD's report for the financial period for which the financial statements are prepared is consistent with the financial statements; we have received all the information and explanations we require for our audit. 8

12 Independent auditors report to the shareholders of MGTS St Johns High Income Property fund (continued) Matters on which we are required to report by exception We have nothing to report in respect of the following matters, where we are required to report, if in our opinion: adequate accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns. Robert Wood Senior Statutory Auditor For and on behalf of Shipleys LLP Chartered Accountants and Statutory Auditors 28 June

13 Net Asset Value per Share and Comparative Tables Accumulation share class Change in net assets per share 29/02/ /02/ /02/2014 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 6.52% 5.45% 0.81% Other Information Closing net asset value ( ) 259, , ,084 Closing number of shares 229, , ,269 Operating charges 1.28% 1.30% 1.49% Direct transaction costs 0.00% 0.00% 0.00% Prices Highest share price (pence) Lowest share price (pence) Income share class Change in net assets per share 29/02/ /02/ /02/2014 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 6.42% 5.37% 0.78% Other Information Closing net asset value ( ) 32,915,910 27,264,355 17,048,043 Closing number of shares 33,746,147 28,362,973 17,710,937 Operating charges 1.28% 1.30% 1.49% Direct transaction costs 0.00% 0.00% 0.00% Prices Highest share price (pence) Lowest share price (pence)

14 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. Ongoing charges figure % % ACD's Annual Management Charge Other expenses Total Expense Ratio Synthetic TER Complete OCF

15 Financial statements Statement of total return For the year ended 29 February 2016 Notes Income Net capital gains/(losses) 4 602,830 (271,079) Revenue 6 2,041,750 1,671,268 Expenses 7 (437,610) (321,644) Finance costs: Interest Net revenue before taxation 1,604,140 1,349,624 Taxation 8 (394,492) (325,798) Net revenue after taxation 1,209,648 1,023,826 Total return before distributions 1,812, ,747 Finance costs: Distribution 9 (1,582,722) (1,303,200) Change in net assets attributable to shareholders from investment activities 229,756 (550,453) Statement of change in net assets attributable to shareholders For the year ended 29 February 2016 Opening net assets attributable to shareholders Amounts receivable on issue of shares Amounts payable on cancellation of shares 27,506,894 17,274,127 7,003,237 10,880,587 (1,823,394) (641,684) Dilution levy 247, ,953 5,426,857 10,770,856 Stamp duty reserve tax 1(f) - (364) Change in net assets attributable to shareholders from investment activities 229,756 (550,453) Retained distribution on accumulation shares 12,267 12,728 Closing net assets attributable to shareholders 33,175,774 27,506,894 12

16 Balance sheet As at 29 February 2016 Notes Fixed assets Tangible assets Land and buildings 17 28,321,000 25,344,806 Investments 3,000,000 - Current Assets Debtors , ,028 Bank balances 3,071,868 2,987,550 Total other assets 3,206,987 3,349,578 Total assets 34,527,987 28,694,384 Liabilities Creditors , ,594 Distribution payable on income shares 800, ,896 Total other liabilities 1,352,213 1,187,490 Net assets attributable to shareholders 33,175,774 27,506,894 13

17 Cash flow statement For the year ended 29 February Net cash flow from operating activities 1,837,083 1,238,182 Servicing of finance Distributions paid (1,518,926) (1,005,248) Taxation Taxation paid (374,672) (278,159) Financial investments Purchases of investments (5,373,364) (8,701,958) Financing Amounts received on issue of units 7,328,981 11,281,196 Amounts paid on cancellation of units (1,814,784) (641,684) Net cash at the start of the period 2,987,550 1,095,221 Increase/(decrease) in cash in the period 84,318 1,892,329 Net cash at the end of the period 3,071,868 2,987,550 Net cash flow from operating activities Net revenue before tax 1,604,140 1,349,624 Decrease/(increase) in debtors 148,179 (220,956) Increase in creditors 84, ,514 Net cash generated from operations 1,837,083 1,238,182 14

18 Notes to the financial statements As at 29 February 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 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. Property that is held for long-term rental income or for capital appreciation or both, and that is not occupied by the Trust, is classified as investment property. Investment property is measured initially at cost, including related transaction costs, on the date of acquisition or the date of unconditional exchange, if earlier. After initial recognition, investment property is carried at open market value, after the deduction of unamortised lease incentives. Revaluation gains and losses are recognised in the Statement of Total Return. Valuations are performed by Lambert Smith Hampton Group Limited. Open market value is based on active market information, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, alternative valuation methods are used, such as recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices, or discounted cash flow projections. The principal assumptions underlying the estimation of open market value are those related to the receipt of contractual rentals, expected future market rentals, void periods, lease incentives, maintenance requirements and appropriate yields/discount rates. The expected future market rentals are determined on the basis of the current market rentals for similar properties in the same location and condition. Disposal of investment property are recognised on the legal completion. 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 Dividends, interest and other revenue receivable include any withholding taxes but exclude any other taxes such as attributable tax credits. Rental income consists principally of rentals receivable from tenants in the period. Rental income received in advance is deferred and recognised in the period to which it relates. In accordance with the FRS102, rental income from properties which have been subject to a rent free period or inducement, is accounted for on a straight line basis over the lease term. The valuation of investment properties is reduced by all unamortised lease incentives. Dividends are recognised when the security is quoted ex-dividend. Equalisation on distributions received is treated as a repayment of capital and deducted from the cost of the investment. Interest on bank and short-term deposits is recognised on an earned basis. 15

19 Notes to the financial statements (continued) e) Expenses The ACD s periodic charge and all other expenses are deducted from Capital, with the exception of costs directly associated with the properties, which are taken from Income. f) Taxation (i) 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. (ii) The holding of land to generate rental income is tax-exempt and therefore the net rental income is not chargeable to corporation tax. (iii) The net income from the residual business is subject to the corporation tax rate of 20%. (iv) Stamp duty reserve tax suffered on surrender of shares is deducted from capital. 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. The fund will make, up to, three different types of distribution per accounting date according to the source of the income: Property income distributions will be paid out net of 20% income tax, however as the rental income is corporation tax exempt, clients are able to opt to have the distributions paid gross as long as they meet the necessary requirements of HMRC. PAIF interest distributions will be paid out net of 20% income tax, however clients are able to opt to have the distributions paid gross as long as they meet the necessary requirements of HMRC. PAIF dividend distributions will be paid out net of 10% tax credit, and cannot be paid gross. 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. 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. 16

20 Notes to the financial statements (continued) iv. 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. Freehold properties may not be readily saleable. Property is slow to transact in normal market conditions and hence illiquid. In poor market conditions it will take even longer to find a buyer to pay an acceptable price. 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. 17

21 4 Net capital gains Proceeds from sales on investments during the year 1,818 - Original cost of investments sold during the year (1,793) - Gains realised on investments sold during the year 25 - Net depreciation thereon already recognised in prior periods - - Net realised appreciation for the year 25 - Net unrealised appreciation for the year 590,348 (298,206) Rental amortisation 12,457 23,480 Service charge credit on purchase - 3,647 Net gains on non-derivative securities 602,830 (271,079) Net gains on derivatives - - Net capital gains on investments 602,830 (271,079) 5 Purchases, sales and transaction costs Physical Property Purchases excluding transaction costs 2,387,664 8,289,110 Purchase costs 5.41% [5.31%] 129, ,975 Purchases including transaction costs 2,516,913 8,729,085 Sales excluding transaction costs 1,818 - Sales including transaction costs 1,818 - Money Market Purchases excluding transaction costs 3,000,000 - Purchases including transaction costs 3,000,000-6 Revenue Property rental 2,035,009 1,671,268 Gross bond interest 6,741 - Total revenue 2,041,750 1,671,268 7 Expenses Payable to the ACD, associates of the ACD and agents of either: ACD's periodic charge 326, ,312 Payable to the Depositary associates of the Depositary and agents of either: Depositary's fee 16,266 13,507 Safe custody 2,843 2,473 19,109 15,980 Other expenses: FCA fee Audit fee 4,669 7,260 Registration fees Sundry charges 1,225 10,000 Aborted purchase costs 24,050 - Printing costs 54 - Legal 282 2,500 Transfer agency fee 16,738 7,910 Independent valuation fees 25,982 23,276 Property management fee 12,974 9,001 Distribution costs 6,017 6,001 Total expenses 437, ,644 18

22 8 Taxation a) Analysis of the tax charge for the year: Income tax withheld 394, ,798 Current tax charge (note 8b) 394, ,798 Deferred tax (note 8c) - - Total tax charge 394, ,798 b) Factors affecting the tax charge for the year: Net income before taxation 1,604,140 1,349,624 Tax calculated at statutory rate of 20% 320, ,925 Expenses not allowable 73,664 55,873 Total tax payable 394, ,798 Current tax charge for the year (note 8a) 394, ,798 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 816, ,783 Final 806, ,382 1,623,458 1,405,165 Amounts deducted on cancellation of shares 22,894 8,659 Amounts received on issue of shares (63,630) (110,624) Finance costs: Distributions 1,582,722 1,303,200 Total finance costs 1,582,722 1,303,200 Represented by: Net revenue after taxation 1,209,648 1,023,826 Expenses charged to capital ACD's periodic charge 326, ,312 Other capital expenses 47,058 40,055 Balance of revenue brought forward 9 16 Balance of revenue carried forward (31) (9) Finance costs: Distributions 1,582,722 1,303,200 19

23 10 Debtors Amounts receivable for issue of shares 52, ,980 Accrued income: Property rental revenue 47, ,111 Gross bond interest 1,145-49, ,111 Prepayments 25, Amounts recharged to tenants 7,879 19,801 Total debtors 135, , Creditors Amounts payable for cancellation of shares 8,610 - Accrued expenses: Amounts payable to the ACD, associates and agents: ACD's periodic charge 26,885 20,698 Amounts payable to the Depositary, associates and agents: Depositary's fees 1,192 1,109 Safe custody fee ,557 1,584 Other expenses 46,811 61,651 Taxation payable: Deferred rental income 169,462 87,546 Income tax 202, ,976 VAT payable 95,667 84,139 Total creditors 551, , 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

24 14 Shareholders' funds Acc Inc Opening number of shares 228,168 28,362,974 Shares issued 1,840 8,834,397 Shares converted (488) (3,451,223) Shares redeemed - - Closing number of shares 229,520 33,746, 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 - 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): 3,071,868 2,987,550 Assets on which interest is not paid (pounds sterling): 31,456,119 25,706,834 Liabilities on which interest is not paid (pounds sterling): (1,352,213) (1,187,490) Net Assets 33,175,774 27,506,894 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 investment properties, which do not have maturity dates. 17 Tangible Assets Investment Properties Starting value 25,344,806 Additions 2,387,664 Disposals - Revaluations 588,530 Ending value 28,321,000 21

25 18 Fair Value Techniques Assets Quoted prices for identical instruments in active markets 3,000,000 - Prices of recent transactions for identical instruments - - Valuation techniques using observable data - - Valuation techniques using non-observable data 28,321,000 25,344,806 31,321,000 25,344,806 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 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 1:0.94 and using the gross method was 1:0.94. 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:

26 20 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 2015 is: Fixed Remuneration 1,132,404 Variable Remuneration 1,756,307 Total Remuneration 2,888,711 Full Time Equivalent number of staff 29 Analysis of senior management Senior management 2,180,362 Staff whose actions may have a material impact on the funds - Other - 2,180,362 23

27 Distribution Table For the year ended 28 February 2016 in pence per share Interim Group 1 shares purchased prior to 01 March 2015 Group 2 shares purchased on or after 01 March 2015 Income shares Shares Gross Revenue Tax Credit Net Revenue Equalisation Paid Paid Group Group Accumulation shares Shares Gross Revenue Tax Credit Net Revenue Equalisation Allocated Allocated Group Group Final Group 1 shares purchased prior to 01 September 2015 Group 2 shares purchased on or after 01 September 2015 Income shares Shares Gross Revenue Tax Credit Net Revenue Equalisation Payable Paid Group Group Accumulation shares Shares Gross Revenue Tax Credit Net Revenue Equalisation Allocating Allocated 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. 24

28 General Information Valuation Point The Valuation Point of the fund is at 12 noon 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 1,000. 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. 25