MI Brompton UK Recovery Unit Trust

Transcription

1 Annual report 30 June 2017

2 Contents Page Directory Investment objective and policy Investment manager s report Portfolio statement Comparative table Statement of authorised unit trust manager s responsibilities Certification of report by the authorised unit trust manager Statement of trustee s responsibilities Independent auditor s report to the unitholders of the fund Statement of total return Statement of change in net assets attributable to unitholders Balance sheet Notes to the financial statements Distribution table General Information

3 Directory Authorised unit trust manager and 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 unit trust manager R. Ackermann (appointed 1 January 2017) P.J. Foley-Brickley S. Georgala D. Jones R.W. Leedham D.W. Munting (retired 14 October 2016) Investment manager Brompton Asset Management LLP 1 Knightsbridge Green, London SW1X 7QA (Authorised and regulated by the Financial Conduct Authority) Trustee To 31 August 2016 National Westminster Bank Plc Trustee & Depositary Services Younger Building, 1st Floor, 3 Redheughs Avenue, Edinburgh EH12 9RH (Authorised and regulated by the Financial Conduct Authority) From 01 September 2016 Northern Trust Global Services Ltd 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 Brompton UK Recovery Unit Trust 1

4 Investment objective The investment objective of the MI Brompton UK Recovery Unit Trust (the fund) is to achieve capital growth. Investment policy The fund will invest principally in the securities of UK Companies quoted on the London Stock Exchange that are experiencing difficult trading or that have growth prospects that are not duly recognised by the market. In addition to ordinary shares the fund may also invest in fixed interest securities, preference shares, debt securities convertible to ordinary stock, money market instruments, deposits and any other permitted asset type deemed appropriate to meet the investment objective. The fund may also invest outside the UK. Investment manager s report for the year ended 30 June 2017 Performance The MI Brompton UK Recovery Unit Trust gained 27.50% over the year to 30 June 2017, outperforming the UK equity market, which gained 17.85% while cash as measured by the three-month UK Interbank Rate returned 0.37%. At the year end, the gain from the fund s July 2002 inception was % compared with the UK stockmarket s % return while cash returned 44.95%. Manager s review The year under review was a strong period for UK equities. Markets were buoyant during the third quarter of 2016 as the US Federal Reserve kept interest rates on hold despite improved employment data while Theresa May s swift appointment as new UK prime minister removed some of the political uncertainty resulting from the leave vote in Britain s European Union referendum. The Bank of England added to the firm tone when it cut interest rates and announced fresh quantitative easing to counteract any weakness in corporate capital spending in response to the Brexit vote. Equities retreated during the closing days of the US presidential election campaign but rebounded over the winter and spring of 2017 as investors grew confident that Donald Trump would pursue a business-friendly agenda as president. The Fed raised rates three times between December 2016 and June 2017 but the pace of monetary tightening was slower than investors had feared. The UK market also benefitted from the weakness of sterling, down 5.36% and 2.83% respectively against the euro and the dollar over the year. Such weakness was expected to boost UK exports, increase the overseas profits of UK companies in sterling terms and compensate potentially for the imposition by the EU of post-brexit trade tariffs. The UK economy showed robust growth of 0.7% in the final quarter of Growth slowed to 0.2% in the first quarter of 2017 but there were signs that growth would be higher over the spring and early summer. Share prices ran into headwinds, however, in the closing weeks of the year on expectations that the Fed would increase the tempo of monetary tightening in response to robust economic growth and falling unemployment at the same time as Trump s economic reform initiatives appeared to be running out of steam. The uncertainties of UK politics also unsettled investors after May s decision to call a snap election backfired and led to a hung parliament in which the Tories found themselves depending for Ulster Unionist support. Meanwhile, there were indications of a shift in the Bank s monetary policy committee towards monetary tightening later this year. The strongest sectors within the UK stockmarket over the year were those likely to benefit from robust economic growth, rising commodity prices and rising interest rates. Technology, a sector where there has been a surge in takeover activity, returned 38.41%, basic materials returned 38.40% while financial stocks returned 35.54%. Some sectors were, however, conspicuously weak, notably those market areas populated by companies perceived as bond proxies and, therefore, likely to suffer in relative valuation terms as bond prices weaken in response to revived inflation and monetary tightening. Over the year, utilities and telephony fell 10.87% and 8.96% respectively. With the oil price down 14.94% in sterling terms over the year, energy also lagged, rising just 5.87%, while the defensive drugs sector gained 6.30%. 2 MI Brompton UK Recovery Unit Trust

5 Investment manager s report Portfolio review Within the portfolio, some of the strongest returns among large and medium-sized companies came in sectors such as industrials, consumer services and goods, financial services and basic materials. Among industrial stocks, Melrose Industries, Electrocomponents, Vesuvius and Renishaw returned %, %, 91.52% and 68.77% respectively; in consumer areas, N Brown and Redrow returned 82.80% and 78.69% respectively; among financial stocks, HSBC returned 62.84% while in basic materials, Hochschild Mining and Rio Tinto returned 53.58% and 47.46% respectively. Conspicuous weakness was, however, shown by International Personal Finance, an emerging markets subprime lender, BT in telephony and Pearson in media, down 36.97%, 25.42% and 23.10% respectively. Among smaller stocks, Brammer, an industrial supplies business, returned % following a private equity cash bid while Serica Energy recovered % in response to evidence that it was generating cash from a recently-acquired producing North Sea oil field. Security camera systems developer IndigoVision recovered % on signs of a return to growth at a time of heightened interest in security in response to terrorist attacks. Oxford BioMedica also recovered strongly, returning 58.65% in response to growing optimism about its drug delivery technology. A number of smaller stocks were conspicuously weak, however, with Ocean Power Technologies sliding 46.10% as optimism faded about its wave-power technology and specialist publisher Dods easing 6.25% on disappointing profits news. During the year, the fund participated in fundraisings by LiDCO and LondonMetric Property and initiated new holdings in Advanced Oncotherapy, an early-stage healthcare company aiming to use advanced technology to reduce the cost of radiotherapy and improve its safety, and Serco, the outsourcing group, and completed its initial purchase of a holding in Intertek. The fund also increased a number of holdings on weakness. These included British Land, N Brown, BT, Colefax, Dixons Carphone, IMI, IndigoVision, International Personal Finance, Kingfisher, Lloyds Banking, Michelmersh Brick, Northbridge Industrial, Pearson, Royal Bank of Scotland, Serica and Vodafone. Partial profits, meanwhile, were taken in Anglo American, Electrocomponents, Hochschild Mining and Johnson Service. Outlook At the year end, leading indicators of economic activity suggested there would be a slowdown in global growth over the summer but inflation-adjusted monetary trends indicated a reacceleration of growth later in the year, with the main engines of growth coming from within the Group of Seven (G7) major industrialised countries and specifically, the US and Canada. The impact of this reacceleration of economic growth on equity market performance may, however, be negatively affected by central bank monetary policy and inflation trends. In late June, G7 bond yields were rising on fears of central bank monetary tightening and these fears may be heightened by G7 unemployment rates moving significantly below the troughs in the late 1980s, the late 1990s and the middle of the last decade at a time of reviving consumer price inflation. This change in sentiment has in recent months been shown in the switch in market leadership away from defensive sectors and quality growth stocks so-called bond proxies towards more risky cyclical sectors. Forward-looking survey data were pointing in early July towards further declines in US unemployment. In Asia, Chinese economic growth was holding up while Japanese manufacturing output was growing at a time when growing numbers of Japanese companies were reporting labour shortages. Within the eurozone, core consumer prices were rising while survey data were suggesting further falls in unemployment. In the UK, economic conditions were mixed, with money supply trends suggesting that individuals and families might rein in their spending but that companies were in better health and likely to maintain capital spending. In such an environment, equity valuations may prove vulnerable to earnings disappointments and rising bond yields. Relative performance among companies and sectors may, therefore, vary significantly over the second half of 2017 as in the year under review, emphasising the importance of stock selection in generating performance. MI Brompton UK Recovery Unit Trust 3

6 Portfolio statement as at 30 June 2017 Market % of total value net assets Holding Security 2017 Oil & gas 3.67% (2.77%) Oil & gas producers 3.67% (2.77%) 442 Royal Dutch Shell A 8, ,027 Royal Dutch Shell B 144, ,988 Serica Energy* 165, , Alternative energy 0.00% (0.00%) 81 Ocean Power Technologies Basic materials 6.18% (7.82%) Mining 6.18% (7.82%) 14,745 Anglo American 150, ,327 Hochschild Mining 173, ,568 Rio Tinto 212, Industrials 30.87% (27.31%) 537, Construction & materials 2.80% (1.26%) 53,326 Melrose Industries 129, ,000 Michelmersh Brick* 114, , Aerospace & defence 1.84% (1.91%) 25,351 BAE Systems 160, General industrials 5.21% (4.75%) 41,950 Smith (DS) 198, ,366 Smiths 165, ,819 Vesuvius 89, , Electronic & electrical equipment 6.15% (5.72%) 18,970 Halma 208, ,164 Renishaw 223, ,718 TT Electronics 103, ,000 Turbo Power Systems** , Industrial engineering 2.54% (2.07%) 8,366 IMI 99, ,557 Northbridge Industrial Services* 121, , MI Brompton UK Recovery Unit Trust

7 Portfolio statement Market % of total value net assets Holding Security 2017 Support services 12.33% (11.60%) 42,980 Electrocomponents 247, ,500 Hogg Robinson 145, ,015 Intertek 127, ,900 Johnson Service* 209, ,084 Rentokil Initial 226, ,708 Serco 116, Consumer goods 8.20% (7.79%) 1,073, Beverages 0.84% (1.09%) 1,044 Dr Pepper Snapple 73, Household goods & home construction 5.55% (4.74%) 15,657 Bovis Homes 149, ,175 Colefax* 120, ,842 Redrow 212, , Personal goods 1.81% (1.96%) 3,803 Unilever 158, Health care 4.08% (3.60%) Health care equipment & services 1.44% (0.77%) 75,000 Advanced Oncotherapy* 9, ,190,635 LiDCO* 116, , Pharmaceuticals & biotechnology 2.64% (2.83%) 9,681 GlaxoSmithKline 158, ,287 Oxford BioMedica 71, Consumer services 16.75% (16.83%) 229, Food & drug retailers 5.45% (6.00%) 106,031 Booker 197, ,911 J Sainsbury 115, ,393 Wm Morrison Supermarkets 162, , General retailers 6.35% (5.25%) 44,996 Dixons Carphone 127, ,075 Inchcape 136, ,804 Kingfisher 116, ,509 N Brown 172, , MI Brompton UK Recovery Unit Trust 5

8 Portfolio statement Market % of total value net assets Holding Security 2017 Media 4.03% (4.79%) 846,780 Dods* 107, ,000 Metrodome** ,249 Pearson 133, ,009 Sky 109, , Travel & leisure 0.92% (0.79%) 57,500 Peel Hotels* 79, Telecommunications 3.17% (3.38%) Fixed line telecommunications 1.51% (1.87%) 44,594 BT 131, Mobile telecommunications 1.66% (1.51%) 66,168 Vodafone 144, Financials 20.20% (20.00%) Banks 5.00% (3.87%) 22,444 HSBC 159, ,749 Lloyds Banking 142, ,800 Royal Bank of Scotland 132, , Nonlife insurance 2.25% (2.28%) 31,783 RSA Insurance 195, Life insurance 2.99% (2.76%) 53,005 Legal & General 136, ,926 Standard Life 123, , Real estate investment trust 4.47% (4.66%) 21,583 British Land 130, ,374 Intu Properties 116, ,036 Londonmetric Property 142, , Real estate investment & services 1.40% (1.77%) 41,570 Capital & Counties Properties 121, Financial services 3.40% (3.94%) 38,183 H&T* 112, ,148 International Personal Finance 50, ,444 Provident Financial 132, , MI Brompton UK Recovery Unit Trust

9 Portfolio statement Market % of total value net assets Holding Security 2017 Equity investment instruments 0.69% (0.72%) 6,516 Gresham House Strategic* 59, Technology 5.10% (4.71%) Software & computer services 3.29% (3.14%) 33,125 IndigoVision* 88, ,675 Sage 197, , Technology hardware & equipment 1.81% (1.57%) 134,586 Spirent Communications 157, Investment assets 8,547, Net other assets 155, Net assets 8,703, 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 * Quoted on the Alternative Investment Market. ** These are delisted securities and has been valued at the manager s best assessment of their fair value. MI Brompton UK Recovery Unit Trust 7

10 Comparative table Change in net assets per unit Accumulation units p p p Opening net asset value per unit Return before operating charges^ Operating charges Return after operating charges^ Distributions Retained distributions on accumulation units Closing net asset value per unit ^After direct transaction costs of Performance Return after charges 24.89% -3.84% 7.63% Other Information Closing net asset value 8,703,052 6,946,131 7,204,345 Closing number of units 2,317,185 2,309,773 2,303,664 Operating charges 2.25% 2.23% 2.20% Ongoing operating charges* 2.19% Direct transaction costs 0.05% 0.05% 0.07% Prices Highest unit price Lowest unit price Operating charges include indirect costs incurred in the maintenance and running of the 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 period. * The net asset value of the fund increased from 6,946,000 to 8,703,000 during the year. Taking an average of the daily net asset values for the last three months of the period has the effect of reducing operating charges by 0.06%. The authorised unit trust manager believes this to be more representative of the charges going forward. The return after charges is calculated as the closing net asset value per unit plus the distributions on accumulation units minus the opening net asset value per unit as a % of the opening net asset value per unit. 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 period. The figures used within the table have been calculated against the average net asset value for the accounting period. 8 MI Brompton UK Recovery Unit Trust

11 Comparative table Risk and reward profile The risk and reward indicator table demonstrates where the 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 fund. The shaded area in the table below shows the fund s ranking on the risk and reward indicator. Typically lower rewards, Typically higher rewards, lower risk higher risk The fund is ranked five because funds of this type have experienced medium to high 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 fund: There may be cases where the company in which the fund owns shares falls into receivership due to trading difficulties. This could cause losses to the fund and reduce your investment. The fund invests in particular stocks which are experiencing difficulties or are undervalued. It may therefore not perform in line with funds that have a broader investment policy. For further risk information please see the prospectus. Risk warning An investment in a unit trust should be regarded as a medium-to-long-term investment. Investors should be aware that the price of units 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 Brompton UK Recovery Unit Trust 9

12 Statement of the authorised unit trust manager s responsibilities The Collective Investment Schemes sourcebook published by the FCA, (the COLL Rules) require the authorised unit trust manager to prepare financial statements for each annual accounting period which give a true and fair view of the financial position of the fund and of the net income and net gains on the property of the fund for the period. In preparing the financial statements the authorised unit trust manager is responsible for: selecting suitable accounting policies and then apply them consistently; making judgements and estimates that are reasonable and prudent; following UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland; complying with the disclosure requirements of the Statement of Recommended Practice for UK Authorised Funds issued by the Investment Management Association in May 2014; keeping proper accounting records which enable it to demonstrate that the financial statements as prepared comply with the above requirements; assessing the fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; using the going concern basis of accounting unless they either intend to liquidate the fund or to cease operations, or have no realistic alternative but to do so; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and taking reasonable steps for the prevention and detection of fraud and irregularities. The authorised unit trust manager is responsible for the management of the fund in accordance with its trust deed, the prospectus and the COLL Rules. Certification of the annual report by the authorised unit trust manager In accordance with the requirements of the regulations and COLL Sourcebook, we hereby certify the report on behalf of the authorised unit trust manager, Maitland Institutional Services Ltd. R. Ackermann D. Jones Directors Maitland Institutional Services Ltd 21 August MI Brompton UK Recovery Unit Trust

13 Statement of the trustee s responsibilities in respect of the scheme and report of the trustee to the unitholders of the MI Brompton UK Recovery Unit Trust (the fund) for the year end 30 June The trustee in its capacity as trustee of MI Brompton UK Recovery Unit Trust must ensure that the fund is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook, the Financial Services and Markets Act 2000, as amended, (together the regulations), the trust deed and prospectus (together the scheme documents) as detailed below. The trustee must in the context of its role act honestly, fairly, professionally, independently and in the interests of the fund and its investors. The trustee is responsible for the safekeeping of all custodial assets and maintaining a record of all other assets of the fund in accordance with the regulations. The trustee must ensure that: the fund s cash flows are properly monitored and that cash of the fund is booked in cash accounts in accordance with the regulations; the sale, issue, repurchase, redemption and cancellation of units are carried out in accordance with the regulations; the value of units of the fund are calculated in accordance with the regulations; any consideration relating to transactions in the fund s assets is remitted to the fund within the usual time limits; the fund s income is applied in accordance with the regulations; and the instructions of the authorised unit trust manager, which is the UCITS management company, are carried out (unless they conflict with the regulations). The trustee also has a duty to take reasonable care to ensure that the fund is managed in accordance with the regulations and the scheme documents of the fund in relation to the investment and borrowing powers applicable to the fund. Having carried out such procedures as we considered necessary to discharge our responsibilities as trustee of the fund, it is our opinion, based on the information available to us and the explanations provided, that, in all material respects the fund, acting through the authorised unit trust manager: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the fund s units and the application of the fund s income in accordance with the regulations and the scheme documents of the fund; and (ii) has observed the investment and borrowing powers and restrictions applicable to the fund in accordance with the regulations and the scheme documents of the fund. Northern Trust Global Services Limited UK Trustee and Depositary Services 21 August 2017 MI Brompton UK Recovery Unit Trust 11

14 Independent auditor s report to the unitholders of MI Brompton UK Recovery Unit Trust (the fund) Opinion We have audited the financial statements of the fund for the year ended 30 June 2017 which comprise the statement of total return, the statement of changes in net assets attributable to unitholders, the balance sheet, the related notes and distribution table and the accounting policies set out on pages 14 to 26. In our opinion the financial statements: give a true and fair view, in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, of the financial position the fund as at 30 June 2017 and of the net revenue and the net capital gains on the property for the year then ended; and have been properly prepared in accordance with the trust deed, the statement of recommended practice relating to Authorised Funds, and the COLL Rules. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the fund in accordance with, UK ethical requirements including the FRC Ethical Standard. We have received all the information and explanations which we consider necessary for the purposes of our audit and we believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Going concern We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in these respects. Other information The manager Maitland Institutional Services Ltd is responsible for the other information, which comprises the manager s report, portfolio statement and comparative table. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work: we have not identified material misstatements in the other information; and in our opinion the information given in manager s report for the financial year is consistent with the financial statements. 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 fund have not been kept; or the financial statements are not in agreement with the accounting records. 12 MI Brompton UK Recovery Unit Trust

15 Independent auditor s report to the unitholders of MI Brompton UK Recovery Unit Trust (the fund) Manager s responsibilities As explained more fully in their statement set out on page 10, the manager is responsible for: the preparation of financial statements that give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the fund or to cease operations, or have no realistic alternative but to do so. Auditor s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC s website at The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the fund s unitholders, as a body, in accordance with Rule of the Collective Investment Schemes sourcebook ( the COLL Rules ) issued by the Financial Conduct Authority under section 247 of the Financial Services and Markets Act Our audit work has been undertaken so that we might state to the fund s unitholders 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 unitholders as a body, for our audit work, for this report, or for the opinions we have formed. Ravi Lamba for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square, London E14 5GL 23 August 2017 MI Brompton UK Recovery Unit Trust 13

16 Statement of total return for the year ended 30 June Note Income Net capital gains/(losses) 2 1,677,602 (338,101) Revenue 3 230, ,354 Expenses 4 (178,935) (153,767) Interest payable and similar charges 4 (1) Net revenue before taxation 51,891 60,587 Taxation 5 (372) (225) Net revenue after taxation 51,519 60,362 Total return before distributions 1,729,121 (277,739) Distributions 6 (51,516) (60,364) Change in net assets attributable to unitholders from investment activities 1,677,605 (338,103) Statement of change in net assets attributable to unitholders for the year ended 30 June Opening net assets attributable to unitholders 6,946,131 7,204,345 Amounts receivable on issue of units 47, ,580 Less: amounts payable on cancellation of units (20,000) (88,055) 27,800 19,525 Change in net assets attributable to unitholders from investment activities (see statement of total return above) 1,677,605 (338,103) Retained distribution on accumulation units 51,516 60,364 Closing net assets attributable to unitholders 8,703,052 6,946,131 The notes on pages 16 to 25 form an integral part of these financial statements. 14 MI Brompton UK Recovery Unit Trust

17 Balance sheet as at 30 June 2017 ASSETS Note Fixed assets Investments 8,547,785 6,543,665 Current assets Debtors 7 33,600 81,533 Cash and bank balances 9 154, ,949 Total current assets 187, ,482 Total assets 8,735,594 6,989,147 LIABILITIES Investment liabilities Creditors Other creditors 8 (32,542) (43,016) Total creditors (32,542) (43,016) Total liabilities (32,542) (43,016) Net assets attributable to unitholders 8,703,052 6,946,131 The notes on pages 16 to 25 form an integral part of these financial statements. MI Brompton UK Recovery Unit Trust 15

18 Notes to the financial statements for the year ended 30 June 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 fund can be found within the general information starting on page 27. The certification of the annual report by the authorised unit trust manager can be found on page 10. (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. Interest on bank and short-term deposits is recognised on an earned basis. 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. (e) 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. (f) Distribution policy The net revenue after taxation as disclosed in the financial statements, after adjustment for items of a capital nature, is distributable to unitholders as dividend distributions. Any revenue deficit is funded from capital. At the year end, there were no items of a capital nature. The policy of the fund is to make dividend accumulations on the last working day of August each year, where any revenue accumulated is transferred to the capital property of the fund. (g) Basis of valuation of investments Quoted 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. Unquoted 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. Market value is defined by the SORP as fair value, which generally is the bid value of each security. 16 MI Brompton UK Recovery Unit Trust

19 Notes to the financial statements (g) Basis of valuation of investments () 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. 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: Unadjusted quoted price in an active market for an identical instrument. Level 2: Valuation techniques using observable inputs other than quoted prices within level 1. Level 3: Valuation techniques using unobservable inputs. (h) 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. 2 Net capital gains/(losses) Non-derivative securities 1,678,667 (336,262) Currency gains Transaction charges (1,080) (2,055) Net capital gains/(losses) 1,677,602 (338,101) 3 Revenue UK dividends: Ordinary 203, ,195 UK dividends: Stock dividend 8,292 6,693 Overseas dividends 5,024 1,502 Property income dividends 11,636 10,971 UK dividends: Stock dividend 1,968 2,993 Sundry 2 _ Total revenue 230, ,354 MI Brompton UK Recovery Unit Trust 17

20 Notes to the financial statements 4. Expenses Payable to the authorised unit trust manager, associates of the authorised unit trust manager and agents of either of them: Authorised unit trust manager s fee 29,500 29,500 Payable to the investment manager, associates of the investment manager and agents of either of them: Investment manager s fee 119, ,787 Payable to the trustee associates of the trustee and agents of either of them: Trustee s fee (including VAT) 11,762 6,000 Safe custody and other bank charges 5, ,346 6,700 Other expenses: Audit fee (including VAT) 7,380 7,980 Audit fee (including VAT): taxation services 1,308 1,500 Financial Conduct Authority (FCA) fee Legal fees 2, Printing costs 1,405 2,093 12,389 12,780 Expenses 178, ,767 Interest payable and similar charges 1 Total 178, , MI Brompton UK Recovery Unit Trust

21 Notes to the financial statements 5. Taxation a) Analysis of charge in the year: Overseas tax Current tax charge (note 5b) b) Factors affecting taxation charge for the year: Net revenue before taxation 51,891 60,587 Corporation tax at 20% 10,378 12,117 Effects of: UK dividends (40,781) (38,439) Stock dividends not taxable (1,658) (1,339) Movement in surplus management expenses 33,066 27,961 Overseas tax expensed Non-taxable overseas earnings (1,005) (300) Current tax charge (note 5a) c) Deferred Tax At the year end there is a potential deferred tax asset of 216,930 (2016: 183,864) in relation to surplus management expenses. It is unlikely that the fund will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset has been recognised in the year. 6. Distributions Final distribution ,516 60,364 Distributions 51,516 60,364 Reconciliation of net revenue after taxation to net distributions: Net revenue after taxation per statement of total return 51,519 60,362 Undistributed revenue brought forward 1 3 Undistributed revenue carried forward (4) (1) Distributions 51,516 60,364 MI Brompton UK Recovery Unit Trust 19

22 Notes to the financial statements 7. Debtors Sales awaiting settlement 52,107 Accrued income: Dividends receivable 32,983 29,318 UK income tax recoverable Total debtors 33,600 81, Other creditors Purchases awaiting settlement 20,087 Accrued expenses: Amounts payable to the authorised unit trust manager, associates of the authorised unit trust manager and agents of either of them: Authorised unit trust manager s fee 2,465 2,377 Amounts payable to the investment manager, associates of the investment manager and agents of either of them: Investment manager s fee 10,891 8,642 Amounts payable to the trustee, associates of the trustee and agents of either of them: Trustee s fee (including VAT) 2, Safe custody and other bank charges 5, , Other expenses: Audit fee (Including VAT) 7,200 7,020 Audit fee (including VAT): taxation services 3,000 3,192 Printing costs 750 1,100 10,950 11,312 Total creditors 32,542 43, Cash and bank balances Cash and bank balances 154, ,949 Cash and bank balances 154, , MI Brompton UK Recovery Unit Trust

23 Notes to the financial statements 10 Related party transactions Authorised unit trust manager and other fees payable to Maitland Institutional Services Ltd (the authorised unit trust manager) are disclosed in note 4 and amounts due at the year end are shown in note 8. Amounts receivable on issue and payable on cancellation of units are disclosed in the statement of change in net assets attributable to unitholders. There were no amounts due at the year end. Fees payable to Brompton Asset Management LLP (the investment manager) are disclosed in note 4 and amounts due at the year end are shown in note 8. Brompton Asset Management LLP and its associates had the following unitholdings in the fund: Accumulation units Held at Change in Held at period New Star Investment Trust 659, , 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 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 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 authorised unit trust manager accepts market price risk in relation to the investment portfolio. The fund may also enter into a range of derivative transactions whose purpose is efficient portfolio management. In addition the fund only executes derivative contracts where both the derivative instrument and the counterparty have been approved by the authorised unit trust manager. The risks arising from financial instruments and the authorised unit trust manager s policies for the monitoring and managing of these risks are stated below in accordance with the risk management policy of the authorised unit trust manager. These policies have been consistent for both years through which these financial statements relate. Market price risk Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the fund might suffer through holding market positions in the face of price movements. This means the value of an investor s holding may go down as well as up and an investor may not recover the amount invested. Investors should consider the degree of exposure of the in the context of all their investments. The fund s investment portfolio is exposed to market price fluctuations, which are monitored by the authorised unit trust manager as per the policies as set out in the prospectus. The investment guidelines and investment and borrowing powers set out in the instrument of incorporation, the prospectus and in the Financial Conduct Authority s Collective Investment Schemes Sourcebook describe the nature of the market risk to which the will be exposed. At the balance sheet date, if the price of the investments held by the fund increased or decreased by 10%, with all other variables held constant, the net assets attributable to unitholders would increase or decrease by approximately 854,779 (2016: 654,367). MI Brompton UK Recovery Unit Trust 21

24 Notes to the financial statements 12 Risk management policies and disclosures () Currency risk Although the fund s capital and income are denominated in sterling, a proportion of the fund s investments may have currency exposure and, as a result, the income and capital value of the fund are affected by currency movements. Currency risk is the risk that the value of the fund s investments will fluctuate as a result of changes in currency exchange rates. For funds where a proportion of the net assets of the fund is denominated in currencies other than sterling, the balance sheet can be affected by movements in exchange rates. The authorised unit trust manager monitors the currency exposure of the fund and may seek to manage exposure to currency movements by using forward exchange contracts or by hedging the sterling value of investments that are priced in other currencies. The table below details the currency risk profile at the balance sheet date Monetary Non-monetary Currency exposures exposures Total Euro 5,789 5,789 Sterling 145,027 8,474,475 8,619,502 Dollar 4,451 73,310 77, ,267 8,547,785 8,703, Monetary Non-monetary Currency exposures exposures Total Euro 6 6 Sterling 398,778 6,468,058 6,866,836 Dollar 3,682 75,607 79, ,466 6,543,665 6,946,131 At the balance sheet date, if the value of sterling increased or decreased by 10%, with all other variables held constant, then the net assets attributable to unitholders would increase or decrease by approximately 8,355 (2016: 7,930). Interest rate risk Interest rate risk, being the risk that the value of investments will fluctuate as a result of interest rate changes. The majority of the fund s assets comprise equity shares which neither pay interest nor have a maturity date. Interest receivable on bank deposits or payable on bank overdraft positions will be affected by fluctuations in interest rates. There is no material interest rate exposure in the fund (2016: none). Credit risk Credit risk arises from the possibility that the issuer of a security will be unable to pay interest and principal in a timely manner. Adhering to investment guidelines and avoiding excessive exposure to one particular issuer can limit credit risk. There are no net borrowings or unlisted securities and the authorised unit trust manager considers that the fund has little exposure to credit risk. 22 MI Brompton UK Recovery Unit Trust

25 Notes to the financial statements 12 Risk management policies and disclosures () Liquidity risk Liquidity risk is the risk that a fund cannot raise sufficient cash to meet its liabilities when due. One of the key factors influencing this will be the ability to sell investments at, or close to, the fair value without a significant loss being realised. Under normal circumstances, a fund will remain close to fully invested. However, where circumstances require: either because a view of illiquid securities markets or high levels of redemptions in the fund, the fund may hold cash and/or more liquid assets. Temporary higher liquidity levels may also arise during the carrying out of a change in asset allocation policy, or following a large issue of units. The manager considers that there is little exposure to liquidity risk. Counterparty risk The risk that the counterparty will not deliver the investments for a purchase or the cash for a sale after the fund has fulfilled it s responsibilities which could result in the fund suffering a loss. The investment manager minimises the risk by conducting trades through only the most reputable counter parties. Derivatives The fund may enter into derivative contracts for efficient portfolio management (EPM) purposes. The purposes of EPM must be to achieve reduction of risk, the reduction of cost, or the generation of additional income or capital with an acceptably low level of risk and the use of these instruments must not cause the fund to stray from its investment objectives. Any EPM transaction must be economically appropriate and the exposure fully covered. The authorised unit trust manager monitors the use of derivatives to ensure EPM rules are satisfied. In the opinion of the authorised unit trust manager there is no sophisticated derivative use within the fund and accordingly a sensitivity analysis is not presented. Fair value of financial assets and liabilities Investments disclosed as at the balance sheet date are at fair value. Current assets and liabilities disclosed in the balance sheet are at amortised cost which is approximate to fair value. MI Brompton UK Recovery Unit Trust 23

26 Notes to the financial statements 13 Portfolio transaction costs Purchases Analysis Net before of purchases purchase Commissions transaction cost paid Taxes cost % % Equities 712, % 2, % 709,761 Corporate actions 63, % 0.00% 63,651 Total purchases after commissions and tax 776,563 Sales Analysis Net before of sales sale Commissions Taxes transaction proceeds paid cost % % Equities 451, % % 451,535 Total sales after commissions and tax 451,086 Commission as a % of average net assets 0.01% Taxes as a % of average net assets 0.03% Purchases Analysis Net before of purchases purchase Commissions transaction cost paid Taxes cost % % Equities 538, % 2, % 535,357 Corporate actions 55, % 0.00% 55,331 Total purchases after commissions and tax 593,700 Sales Analysis Net before of sales sale Commissions transaction proceeds paid Taxes cost % % Equities 470, % % 470,606 Total sales after commissions and tax 470,017 Commission as a % of average net assets 0.02% Taxes as a % of average net assets 0.03% Commissions and taxes as a % of the average net assets form part of the direct transactions costs stated within the comparative tables on page 8. The direct transaction costs within the comparative tables may differ due to the effect of dilution levies charged (where applicable). 24 MI Brompton UK Recovery Unit Trust