Interim Report and Financial Statements for MGTS Ardevora UK Income Fund

Transcription

1 Interim Report and Financial Statements for MGTS Ardevora UK Income Fund For the six months ended 30 June 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 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 Ardevora Asset Management LLP 130 Fleet Street London EC4A 2BH (Authorised and regulated by the Financial Conduct Authority)

3 Contents Investment Adviser s Report 1 Certification of Accounts by Directors of the ACD 3 Authorised Status 3 Significant Purchases and Sales 4 Portfolio Statement 5 Net Asset Value per Share and Comparative Tables 8 Financial Statements Statement of Total Return 11 Statement of Change in Net Assets Attributable to Shareholders 11 Balance Sheet 12 Notes to the Financial Statements 13 Distribution Table 21 General Information 22

4 Investment Adviser s Report For the period ended 30 June 2017 Investment Objective & Policy The Ardevora UK Income Fund's investment objective is to achieve income and long-term capital appreciation with a bias towards income. The Fund will primarily invest in and gain exposure to, a diversified portfolio of UK equity or equity-related securities (such as ordinary and preference shares, global depository receipts and American depository receipts) listed or traded on Regulated Markets. The Investment Manager will, at all times, consider market valuations and the prevailing investment climate. In the event of a perceived negative investment climate the Fund may liquidate Investments and hold the proceeds or may retain amounts in cash or ancillary liquid assets (including money market funds, money market instruments such as commercial paper, certificates of deposit and cash deposits) pending investment or reinvestment. The Fund may invest in Collective Investment Schemes [CIS], transferable securities and money market instruments (such as short dated government backed securities, floating rate notes, commercial paper, certificates of deposit, treasury bills and treasury notes). Investment Review MGTS Ardevora UK Income Inst 1.30% MGTS Ardevora UK Income Retail 1.20% Benchmarks FTSE All Share: 6.20% Source: Morningstar Direct. Performance growth in the period is bid to bid with income reinvested. This period s review comes in two parts: we start with a run though of the Fund s performance, and some of the drivers connected to this. We follow with a discussion of the economic and political factors with a bearing on this period. Fund Review: UK Income The UK stock market is an oblique window on the world. It contains many of the world s largest mining companies and a few of the largest oil producers. There are companies selling booze and cigarettes, cough medicine and treatments for asthma. And in the undergrowth, only marginally influencing the path of the FTSE 100 Index, are businesses buffeted by the UK economy. Stock prices tend to move on shifting hopes or anxieties about the future. Some companies have more control over their future than others; some are more easily buffeted by the behaviour of their peers, by governments or central bankers, or by the whims of traders in currency or commodity markets. The daily news is awash with speculation on so many of these things. As you sit in your office, as a portfolio manager, you attempt to penetrate the noise, deciding which stocks to own, trying to find the ones which might reward you for some insight you think may you have. We frame our views around two focal points. First we judge how the managers who run companies are behaving. We assume most managers tend to view the future too optimistically and are tempted into taking too much risk; either they chase growth too aggressively or they resist evidence of a more difficult environment too stubbornly. We look for those where their views look realistic, conservative and safe. Our hunt for them helps us form a view on the overall stock market, from the bottom, up: where is risk building, where it is receding, where are management relaxed, where are they seemingly in denial? 1

5 Investment Adviser s Report (continued) Second we judge how other investors are behaving. We have to take a lateral approach. Investors are a seething mass. We can only attempt to infer how the mass is behaving. We do this in two ways. First, we look at stock prices in relation to both their history and to attributes of the firm they represent (sales, profit, cash flow). Some patterns imply anxiety or scepticism; others imply a feeling of calm or hope. Second we watch how financial analysts are behaving; we can observe them more directly. They produce forecasts and they write reports. Their views can influence investors, so they give us a partial insight into the views of the seething mass. From analysts we can get a sense of where anxiety or hope is building and, where scepticism may be lingering. For most companies it is getting harder to grow. This can make normal management behaviour risky. In our experience most company managers like trying to grow their companies. They can be tempted into risky behaviour when their plans don t fit reality. A fast growing company can miss growth targets and allow costs to run ahead of new sales. A slow growth company can be too slow to recognise disappointing sales or pricing is not fleeting, but long lasting. They hang on to old plans for too long. We see evidence of both in the UK. Faster growth slowing down is most obvious in healthcare. There are a few global speciality pharmaceutical companies quoted on the UK stock market. They have found it easy to grow for many years. Both Shire and Hikma do a lot of business in North America. Until recently they have been able to grow easily through a combination of new drug launches and higher prices. But it isn t so easy now. Growing by pushing prices up, in particular, has become much more difficult. We have seen some very high profile businesses in North America run into trouble as the tougher environment has evolved and their company s managers have pushed on with old growth plans regardless; Valeant and Endo for example. Usually when economic risk is rising, investors are tempted to buy healthcare stocks because demand for drugs is usually left unscathed. They look safe. We don t think Hikma or Shire are safe now though. Growth disappearing altogether is most obvious in two quite different areas: retail and mining. Most UK based retailers are admitting that growth is harder. However they have mainly been blaming fickle or pressured customers, who they expect to return to their old ways. Food retailers seem to believe austerity minded shoppers will become more relaxed. Clothing retailers seem to believe that political convulsions around Brexit have temporarily neutered spending, or millennials shifting priorities towards eating out will settle down. Both areas of blame look dubious to us, and cover up an unwillingness of company managers to accept that growth is slipping away and not coming back soon. Many of the UK s retailers have been behaving like the UK is in a recession, but many other businesses, which rely on the UK s populations desire to spend money, have not. Aldi and Lidl are prospering. So are ASOS and BooHoo. Carnival Cruise fills its cruise ships. BMW seems to sell all of its Minis. There isn t much evidence of a recession (yet). Instead, what is going on is more competition (not less demand). So when Next or M&S complain about disappointing sales and blame the economy they are, in our view, in denial. People are spending their money differently with businesses which give them what they want better or more cheaply. This isn t going to change quickly. We are not in a recession yet, but if we are heading for one, life is going to get a lot more disappointing for those retailers that are already losing. Miners are also having a tough time. Demand is still there for what they produce, but new demand hasn t been quite up to expectations for five years now. The people who run these businesses have gone through a period of blaming others for missing their targets, blaming their peers for behaving irrationally, until finally accepting conditions are not going to get easier quickly and running their businesses accordingly. Unlike UK retailers, who still look in denial, miners like Anglo American and Rio Tinto look like they have accepted the world has changed, and are now thinking more about risk than opportunity. How company managers are behaving is only one part of the puzzle that drives stock prices. The other is what other investors believe, or how they feel. If investors are anxious and managers are behaving in a risky way stock prices tend to keep going down, in our view. Anxiety, if you like, is not misplaced. If investors are anxious but management is taking action to reduce risk then anxiety is more likely to be misplaced and the stock price can rise, despite apparently bad news. Hence we argue that investors are anxious about UK retailers and speciality pharmaceutical businesses, but not anxious enough given management behaviour. Whereas investors are anxious about miners and sceptical about a recovery, but managers are behaving sensibly, reducing risk, so investors scepticism is more likely to be misplaced. 2

6 Investment Adviser s Report (continued) There was a burst of widespread anxiety a year ago, when the vote for Brexit was passed. Instinctively investors believed that Brexit was bad and a recession would ensue. A year later and we are not in a recession. The housing market has not collapsed. But this does not mean these things will not come to pass. For the first time in a long time the agenda for monetary policy (controlled by the Bank of England) and the agenda for fiscal policy (controlled by the government) are diverging. Inflation is building, the currency is weak. This puts upward pressure on interest rates. But most people are struggling and unhappy and want the Government to spend more (and tax more). This makes for a stressful economy. The impact on the UK stock market is complex. Many large UK based companies are unaffected by the UK economy and are helped by a weaker pound. Their influence on the FTSE 100 Index is greater than those tied to the UK economy. This makes for an unusual situation. Bad news is not necessarily bad for the UK stock market, especially if you avoid risky management behaviour. Ardevora Asset Management LLP Investment Adviser 21 July 2017 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 Date: 22 August 2017 M D Jealous Authorised Status The MGTS Ardevora UK Income Fund is a sub-fund of the the umbrella company, MGTS Ardevora ICVC, which is an open-ended investment company with variable capital incorporated in England and Wales under registration number IC938 and authorised and regulated by the Financial Conduct Authority with effect from 24 February The fund is classed as a UCITS scheme, which complies with the requirements of the FCA FUND and COLL handbooks. Shareholders are not liable for the debts of the fund. 3

7 Significant purchases and sales For the period ended 30 June 2017 Total purchases for the period 53,405,657 Purchases Cost ( ) BP PLC 6,454,418 NATIONAL GRID PLC 5,227,301 ROYAL DUTCH SHELL PLC 4,109,938 SEVERN TRENT PLC 3,905,112 IMPERIAL BRANDS PLC 3,042,305 BHP BILLITON PLC 2,896,988 ROTORK PLC 2,569,432 TESCO PLC 2,300,120 VICTREX PLC 2,124,394 SPECTRIS PLC 1,956,265 ELECTROCOMPONENTS PLC 1,832,423 UNILEVER 1,799,053 GLAXOSMITHKLINE PLC 1,733,202 G4S PLC 1,714,498 SAGE GROUP PLC 1,607,996 NATIONAL GRID PLC 1,454,537 RELX PLC 1,414,796 CARNIVAL PLC 1,355,407 Total sales for the period 50,928,327 Sales Proceeds ( ) NATIONAL GRID PLC 3,958,876 DIAGEO PLC 3,310,036 BRITISH AMERICAN TOBACCO PLC 3,264,159 ROYAL MAIL PLC 3,215,102 SKY PLC 2,874,896 DIXONS CARPHONE PLC 2,524,699 ELECTROCOMPONENTS PLC 2,505,476 QINETIQ GROUP PLC 2,201,505 GREENE KING PLC 2,093,191 AMEC PLC 2,066,644 BP PLC 2,061,902 ROYAL DUTCH SHELL PLC 1,987,222 TESCO PLC 1,966,633 SEVERN TRENT PLC 1,835,863 BERENDSEN PLC 1,340,032 DCC PLC 1,272,007 IMPERIAL BRANDS PLC 1,105,046 RATHBONE BROTHERS PLC 1,037,611 4

8 Portfolio statement As at 30 June 2017 Total Net Assets Holding Portfolio of Investments Value ( ) % % Aerospace & Defence Total Beverages 89,867 Diageo PLC 2,038, ,868 Greene King PLC 174, Beverages Total 2,212, Energy 902,160 BP PLC 3,994, ,049 Royal Dutch Shell 4,084, Energy Total 8,079, Financial Services 28,210 London Stock Exchange 1,028, ,726 Rathbone Brothers 246, Financial Services Total 1,274, Food Producers 298,737 Dairy Crest Group 1,789, Food Producers Total 1,789, General Retailers 108,222 Dixons Carphone 306, ,871 ASOS 1,027, General Retailers Total 1,334, Household Goods 42,156 Unilever 1,751, Household Goods Total 1,751, Industrial 319,703 BAE Systems PLC 2,025, ,500 CRH 2,009, ,864 Electrocomponents 2,012, ,816 Glencore 2,018, ,075 Rio Tinto 2,044, ,864 Rotork PLC 2,021, ,062 Serco Group 938, ,172 Victrex PLC 2,066, ,100 Weir Group PLC 2,044, Industrial Total 17,182, Media 268,340 Auto Trader Group PLC 1,019, ,294 RELX PLC 1,382, Media Total 2,402,

9 Portfolio statement (continued) Total Net Assets Holding Portfolio of Investments Value ( ) % % Mining 195,619 Anglo America PLC 2,003, ,789 BHP Billiton 2,008, Mining Total 4,011, Pharmaceuticals 49,951 Abcam PLC 486, ,906 Dechra Pharmaceuticals 1,018, ,614 GlaxoSmithKline 6,045, ,865 Indivior 1,003, Pharmaceuticals Total 8,553, Software & Computer Services 88,729 Micro Focus International 2,015, ,971 Sage Group PLC 1,568, Software & Computer Services Total 3,583, Support Services 321,379 Ascential 1,039, ,726 Diploma 1,035, ,516 G4S PLC 1,682, ,183 Rentokil Initial 2,039, ,487 Smith & Nephew 2,007, Support Services Total 7,804, Tobacco 37,899 British American Tobacco 1,983, ,158 Imperial Brands 4,005, Tobacco Total 5,989, Technology 78,927 Spectris PLC 1,991, Technology Total 1,991, Telecoms Total Travel & Leisure 26,146 Carnival PLC 1,328, ,094 Merlin Entertainments 1,019, Travel & Leisure Total 2,347, Utilities 404,088 National Grid 3,846, ,261 Severn Trent 3,998, Utilities Total 7,844,

10 Portfolio statement (continued) Total Net Assets Holding Portfolio of Investments Value ( ) % % Portfolio of Investments 78,153, Net Current Assets 1,331, Net Assets 79,485, The investments have been valued in accordance with note 1(b). 7

11 Net Asset Value per Share and Comparative Tables Institutional accumulation share class Change in net assets per share 30/06/ /12/ /12/ /12/2014 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 0.58% 4.11% 16.82% 1.59% Other Information Closing net asset value ( ) 62,773,149 63,697,227 57,068,197 45,634,420 Closing number of shares 33,363,370 34,050,731 31,761,039 29,669,413 OCF 0.95% 0.95% 0.95% 0.94% Direct transaction costs 0.37% 1.07% 1.72% 0.64% Prices Highest share price (pence) Lowest share price (pence) Institutional income share class Change in net assets per share 30/06/ /12/ /12/ /12/2014 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 0.58% 3.97% 16.71% 1.57% Other Information Closing net asset value ( ) 16,010,205 13,434,342 7,954,577 5,380,297 Closing number of shares 10,507,997 8,687,140 5,137,019 3,881,733 OCF 0.95% 0.95% 0.95% 0.94% Direct transaction costs 0.37% 1.07% 1.94% 0.85% Prices Highest share price (pence) Lowest share price (pence)

12 Net Asset Value per Share and Comparative Tables (continued) Retail accumulation share class Change in net assets per share 30/06/ /12/ /12/ /12/2014 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 0.46% 3.78% 16.53% 1.35% Other Information Closing net asset value ( ) 276, ,242 5,442,663 3,534,594 Closing number of shares 149, ,420 3,065,924 2,320,173 OCF 1.20% 1.20% 1.20% 1.19% Direct transaction costs 0.37% 1.08% 1.80% 0.81% Prices Highest share price (pence) Lowest share price (pence) Retail income share class Change in net assets per share 30/06/ /12/ /12/ /12/2014 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 0.45% 3.70% 16.43% 1.36% Other Information Closing net asset value ( ) 425, , , ,923 Closing number of shares 281, ,912 69,575 79,523 OCF 1.20% 1.20% 1.20% 1.19% Direct transaction costs 0.37% 1.07% 1.62% 0.34% Prices Highest share price (pence) Lowest share price (pence)

13 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. Fund Performance The performance of the fund is shown in the Investment Adviser s Report. Synthetic Risk and Reward Indicator Typically Lower Returns Typically Higher Returns Lower Risk Higher Risk The risk and reward score is based on past performance and calculated in accordance with European legislation. It may not be a reliable indication of the future risk profile. 10

14 Financial statements Statement of total return For the period ended 30 June 2017 Notes Income Net capital losses 4 (810,722) (1,272,966) Revenue 6 1,623,501 1,590,630 Expenses 7 (378,600) (319,720) Finance costs: Interest 9 (2) - Net revenue before taxation 1,244,899 1,270,910 Net revenue after taxation 1,244,899 1,270,910 Total return before distributions 434,177 (2,056) Finance costs: Distribution 9 (1,623,499) (1,590,626) Change in net assets attributable to shareholders from investment activities (1,189,322) (1,592,682) Statement of change in net assets attributable to shareholders For the period ended 30 June 2017 Opening net assets attributable to shareholders Amounts receivable on issue of shares Amounts payable on cancellation of shares 77,773,144 70,572,618 8,314,854 10,565,029 (6,709,523) (11,381,490) Dilution levy 5,943 41,341 1,611,274 (775,120) Change in net assets attributable to shareholders from investment activities (1,189,322) (1,592,682) Retained distribution on accumulation shares Closing net assets attributable to shareholders 1,290,053 1,308,299 79,485,149 69,513,115 11

15 Balance sheet As at 30 June 2017 Notes Assets Investment assets 78,153,756 76,480,569 Debtors 10 6,712, ,640 Bank balances 1,297, ,231 Total other assets 8,010,538 1,657,871 Total assets 86,164,294 78,138,440 Liabilities Creditors 11 6,290, ,278 Distribution payable on income shares 343, ,018 Bank overdrafts 45,018 - Total other liabilities 6,679, ,296 Net assets attributable to shareholders 79,485,149 77,773,144 12

16 Notes to the financial statements As at 30 June Accounting policies a) Basis of accounting The financial statements have been prepared under the historical cost basis in accordance with Financial Reporting Standard (FRS) 1O2, 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 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 All of the expenses, including the ACD s periodic charge, 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. 13

17 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. 14

18 4 Net capital losses Proceeds from sales on investments during the period 50,928,327 70,807,393 Original cost of investments sold during the period (48,826,419) (72,468,724) Gains/(losses) realised on investments sold during the period 2,101,908 (1,661,331) Net appreciation thereon already recognised in prior periods (1,871,951) (4,203,830) Net realised appreciation/(depreciation) for the period 229,957 (5,865,161) Net unrealised (depreciation)/appreciation for the period (1,040,679) 4,592,195 Net losses on non-derivative securities (810,722) (1,272,966) Net capital losses on investments (810,722) (1,272,966) 5 Purchases, sales and transaction costs Equities Purchases excluding transaction costs 53,139,953 71,725,688 Commissions: 0.04% [0.06%] 22,712 42,380 Stamp duty and other charges: 0.46% [0.47%] 242, ,908 Trustee transaction charges: 0.01% [0.01%] 2,710 4,810 Purchases including transaction costs 53,408,367 72,111,786 Sales excluding transaction costs 50,951,670 70,847,039 Commissions: 0.05% [0.06%] (23,007) (39,202) Stamp duty and other charges: 0.00% [0.00%] (336) (444) Trustee transaction charges: 0.01% [0.01%] (3,870) (3,870) Sales including transaction costs 50,924,457 70,803,523 Trustee transaction charges have been deducted in determining net capital Transaction charges are displayed as percentage of purchase/sale Total commission: 0.06% [0.12%] 45,719 81,528 Total stamp duty and other charges : 0.30% [0.50%] 243, ,352 Total trustee transaction charges : 0.01% [0.01%] 6,580 8,680 Total charges displayed as percentage of average net asset value Average portfolio dealing spread : 0.06% [0.09%] 6 Revenue UK franked dividends 1,613,507 1,582,769 Overseas unfranked income 9,994 7,861 Total revenue 1,623,501 1,590,630 15

19 7 Expenses Payable to the ACD, associates of the ACD and agents of either: ACD's periodic charge 301, ,362 Payable to the Depositary associates of the Depositary and agents of either: Depositary's fee 22,198 19,266 Safe custody 5,893 5,482 28,091 24,748 Other expenses: FCA fee Audit fee 4,330 3,440 Registration fees Sundry charges 4,023 - Printing costs Transfer agency fee 37,973 32,130 Distribution costs 2,108 1,995 Total expenses 378, ,720 8 Taxation a) Analysis of the tax charge for the period: UK Corporation tax - - Current tax charge (note 8b) - - Total tax charge - - b) Factors affecting the tax charge for the period: Net income before taxation 1,244,899 1,270,910 Corporation tax at 20% 248, ,182 Effects of: UK dividends (322,701) (316,554) Movement in income accruals - (572) Utilisation of excess management expenses 73,721 62,944 Corporation tax charge - - Current tax charge for the period (note 8a) - - c) Provision for deferred taxation No provision for deferred taxation has been made in the current or prior accounting year. d) Factors that may affect future tax changes The fund has unutilised management expenses of 2,435,829 (prior year 2,067,224). The fund does not expect to be able to utilise this in the forseeable future. 16

20 9 Finance costs Distributions Interim 1,633,354 1,540,021 1,633,354 1,540,021 Amounts deducted on cancellation of shares 59, ,768 Amounts received on issue of shares (69,277) (74,163) Finance costs: Distributions 1,623,499 1,590,626 Finance costs: Interest 2 - Total finance costs 1,623,501 1,590,626 Represented by: Net revenue after taxation 1,244,899 1,270,910 Expenses charged to capital ACD's periodic charge 301, ,362 Other capital expenses 77,357 63,357 Balance of revenue brought forward Balance of revenue carried forward (28) (28) Finance costs: Distributions 1,623,499 1,590, Debtors Amounts receivable for issue of shares 220, ,162 Amounts receivable for investment securities sold 6,320,548 - Accrued income: UK franked dividends 166, , , ,613 Prepayments Taxation recoverable 5,767 3,768 Total debtors 6,712, , Creditors Amounts payable for cancellation of shares 26,973 32,127 Amounts payable for investment securities purchased 6,193,618 - Accrued expenses: Amounts payable to the ACD, associates and agents: ACD's periodic charge 50,932 48,152 Amounts payable to the Depositary, associates and agents: Depositary's fees 3,748 3,585 Transaction charges 1,440 1,120 Safe custody fee 948 2,107 6,136 6,812 Other expenses 13,167 16,187 Taxation payable: Total creditors 6,290, ,278 17

21 12 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 Inst Acc Inst Inc Retail Acc Retail Inc Opening number of shares 34,050,732 8,687, , ,912 Shares issued 5,217,605 2,788,571 27, ,854 Shares converted Shares redeemed (5,904,967) (967,714) (21,190) (100,208) Closing number of shares 33,363,370 10,507, , , 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): 1,297, ,231 Floating rate liabilities (pounds sterling): (45,018) - Assets on which interest is not paid (pounds sterling): 84,866,394 77,258,209 Liabilities on which interest is not paid (pounds sterling): (6,634,127) (365,296) Net Assets 79,485,149 77,773,144 The floating rate financial assets and liabilities comprise bank balances, which earn or pay interest at rates linked to the UK base rate. The fund has no interest bearing securities with maturity dates, other than collective investment schemes, which do not have maturity dates. 18

22 17 Fair Value Techniques Assets Quoted prices for identical instruments in active markets 78,153,756 76,480,569 Prices of recent transactions for identical instruments - - Valuation techniques using observable data - - Valuation techniques using non-observable data ,153,756 76,480, Periodic Disclosure As required by COLL 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% (2017: 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 1:0.98 and using the gross method was 1:0.98. 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 Sub-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:

23 19 Remuneration In accordance with the requirements of COLL the total amount of remuneration paid by the ACD to its staff for the financial year ended 30 September 2016 is: 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 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. 20 Securities Financing Transactions (SFT) and Total Return Swaps (TRS) As at the Balance Sheet date, the amount of securities and commodities on loan as a proportion of total lendable assets is 0.00%. 20

24 Distribution Table For the six months ended 30 June 2017 in pence per share Interim Group 1 shares purchased prior to 01 January 2017 Group 2 shares purchased on or after 01 January 2017 Institutional Accumulation Shares Units Net Income Equalisation Allocating Allocated Group Group Institutional Income Shares Units Net Income Equalisation Payable Paid Group Group Retail Accumulation Shares Units Net Income Equalisation Allocating Allocated Group Group Retail 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. 21

25 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 units 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 Exchange Tower, London E14 9SR or to: complaint.info@financial-ombudsman.org.uk or by telephone to 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. 22