Rathbone Core Investment Fund for Charities. Annual report for the period ended 31 March 2017

Transcription

1 Rathbone Core Investment Fund for Charities Annual report for the period ended 31 March 2017

2 Rathbone Core Investment Fund for Charities Authorised Fund Manager (the Manager) Rathbone Unit Trust Management Limited 8 Finsbury Circus London EC2M 7AZ Telephone Facsimile A member of the Rathbone Group Authorised and regulated by the Financial Conduct Authority and member of The Investment Association Dealing office PO Box 9948 Chelmsford CM99 2AG Telephone Facsimile Registrar International Financial Data Services (UK) Limited PO Box 9948 Chelmsford CM99 2AG Telephone Facsimile Authorised and regulated by the Financial Conduct Authority Directors of the Manager PL Howell Chairman MM Webb Chief Executive Officer JR Chillingworth Chief Investment Officer JM Ardouin Finance Director NM Busby Compliance Director CRC Hexton RP Lanyon CR Stick JG Thomson BN Jones Administrator HSBC Securities Services 1-2 Lochside Way Edinburgh Park Edinburgh EH12 9DT Authorised and regulated by the Financial Conduct Authority Trustee The National Westminster Bank Plc Trustee and Depositary Services 135 Bishopsgate London EC2M 3UR Authorised and regulated by the Financial Conduct Authority Independent Auditor Deloitte LLP Chartered Accountants and Statutory Auditor 110 Queen Street Glasgow G1 3BX Rathbone Core Investment Fund for Charities Annual Report

3 Manager s report for the period ended 31 March 2017 Equity markets performed strongly over the reporting period, with the FTSE All Share index rising 6.7% and the FTSE All-World ex UK index up 11.8%. The fund performed well in both absolute and relative terms, producing a total return of 7.1% against the composite index benchmark which was up 6.2%. Whilst the equity exposure marginally underperformed at a headline level, outperformance in both the fixed income and alternatives areas of the fund contributed to our overall outperformance. Global economic growth is in the midst of a pronounced upturn, with expectations for GDP in 2017 at 3.5%, up from the 3.0% observed in While the US economy was already running at a robust pace prior to the US election in November, post-election data has showed a further pick-up. In the Eurozone, economic momentum continues to improve and growth is becoming increasingly broadly-based across the region. The UK has performed better than feared following the Brexit vote in June and growth in 2017 is now expected to be 2%. China too has stabilised after fears of a slowdown took hold early in Despite this positive backdrop, inflation remains relatively subdued and this should ensure that monetary policy remains relatively easy around the world. We remain somewhat cautious in our stance, however, mainly due to the elevated levels of geopolitical uncertainty that are much in evidence. From a US perspective, whilst investors continue to give Donald Trump the benefit of the doubt, there remains huge uncertainty around any potential protectionist measures and tax reforms he may introduce. In the UK, even though Article 50 has now been triggered, Brexit negotiations are yet to begin and the final terms are not likely to be known for several years. In Europe, while the Dutch parliamentary elections did not produce an upset, the upcoming French, German and Italian elections have the capacity to introduce considerable uncertainty especially if the Euro is seen as being under threat. Finally equity valuations, especially in the US, seem elevated. So, whilst the economic backdrop remains strong, we believe current market levels do not fully reflect the risks. We increased our exposure to the Mayfair Property Income Trust for Charities in January. As the fund is exclusively for charities, it benefits from a Stamp Duty exemption which allows them to manage their portfolio with relatively little frictional cost. A 6% dividend yield would appear to be very attractive in the current low interest rate environment. We use the SPDR S&P 500 ETF for our passive exposure to US equities. Whilst we are primarily active managers, we recognise that the US market is possibly the most efficient equity market in the world and, as such, active managers often struggle to outperform. We believe this particular vehicle, from a well-regarded passive investment house, offers cost effective exposure to US equities. Given our increasing caution, we increased our exposure to the Ruffer Total Return Fund steadily throughout the period. The Ruffer Fund aims to make positive returns in all market conditions whilst not losing money over any 12 month period. Ruffer has a strong track record in achieving this and is, as such, heavily focused on capital preservation. The BlackRock Continental European Income Fund is our preferred European Equity Income Fund. It looks to deliver a yield in excess of the FTSE World Europe (ex UK) index whilst outperforming on a total return basis over a 5 year period. We believe the fund s quality bias makes it an ideal core holding for us. We increased the Troy Trojan Fund holding throughout the period. The fund firstly aims for capital preservation and then real growth over the long term. Like Ruffer, the fund invests in a transparent way and does not use gearing to try to amplify returns or shorting to benefit from reducing prices. We like Troy due to its cautious approach and increased our holding in light of elevated equity market valuations. We sold the Troy Income Fund in October note this is different the Troy Trojan Fund. Whilst the fund has a good track record and provides a differentiated approach to many UK Income managers, we felt the holdings were too similar to those we held directly. 2 Rathbone Core Investment Fund for Charities Annual Report 2017

4 Manager s report for the period ended 31 March 2017 (continued) We sold the Lindsell Train Global Equity Fund in November. Following a very good run, the fund traded on a P/E in excess of 35x and, in spite of the quality of the names held, we felt this valuation was too rich. We sold the Veritas Global Focus Fund at a similar time to the above. Leading into the US presidential election, we wanted to reduce our US equity exposure and, with more than half of the fund invested in the US, we decided to sell. We sold the Majedie UK Equity Fund in November. We felt there were better opportunities elsewhere in the UK market. We sold Centrica at the end of March. Centrica faces a number of challenges in its core UK supply market, including the threat of increased government intervention as well as increased competition from new players, impacting profits and margins. Whilst the company has ambitions to grow its smart metering and connected homes divisions, this will not be easy and may not lead to shareholder returns for a number of years. Andrew Pitt and Gareth Pearl 19 April 2017 Rathbone Core Investment Fund for Charities Annual Report

5 Net asset value per unit and comparative tables Income units ** pence per unit Change in net assets per unit Opening net asset value per unit p Return before operating charges* 7.46p Operating charges (0.41p) Return after operating charges* 7.05p Distributions on income units (1.44p) Closing net asset value per unit p *after direct transactions costs 1 of: 0.04p 1 Transaction costs include dealing costs, broker commission, stamp duty and other explicit investment costs. Performance Return after charges 7.05% Other information Closing net asset value 24,382,631 Closing number of units 23,087,326 Operating charges 1.08% Direct transaction costs 0.04% Prices Highest unit price p Lowest unit price 99.41p **The fund was launched on 3 October Risk and reward profile as published in the fund s most recent Key Investor Information Document Lower potential risk/reward (Not risk-free) Higher potential risk/reward This indicator is a measure of the fund s past volatility (the extent and rapidity of up-and-down movements of the value of an investment). It may not be a reliable indication of the fund s future risk. The risk category shown is not a target or a guarantee and may change over time. 4 Rathbone Core Investment Fund for Charities Annual Report 2017

6 Portfolio and net other assets as at 31 March 2017 Value Percentage Holding (note 1f) of total net (Ordinary shares unless otherwise stated) assets Debt Securities Government Bonds Corporate Bonds 180,000 UK Treasury 1.25% , ,000 UK Treasury 2.5% , ,400 UK Treasury 4.25% , ,000 UK Treasury 5% , ,000 3i 6.875% , ,000 Aviva 6.875% VRN perp 126, ,000 Deutsche Bahn Finance BV 3.125% , ,000 HSBC Bank 6.5% , ,000 Lloyds Banking Group 5.75% , ,500 London Stock Exchange 4.75% , ,000 Marks & Spencer 3% , ,000 Nestle Finance International 2.25% , ,000 SSE /8% , ,000 Total Capital International SA 2.25% , ,000 Zurich Finance 6.625% VRN Perp 93, Total Debt Securities 2,131, Bond Funds 2,300 BlueBay Global High Yield Bond Fund 232, ,000 Fidelity Strategic Bond Fund 196, ,800 Man GLG Strategic Bond Fund 123, Total Bond Funds 552, United Kingdom Oil & Gas 42,000 BP 192, ,000 Royal Dutch Shell B 589, , Basic Materials 10,000 BHP Billiton 123, ,814 Johnson Matthey 117, ,600 Rio Tinto 179, , Rathbone Core Investment Fund for Charities Annual Report

7 Portfolio and net other assets as at 31 March 2017 (continued) Value Percentage Holding (note 1f) of total net (Ordinary shares unless otherwise stated) assets Industrials Infrastructure Consumer Goods 99,000 Equiniti 194, ,000 Experian 162, ,140 Kier 70, ,000 Rentokil Initial 123, ,000 Royal Mail 93, ,650 RPC 91, ,835 Wolseley 92, , ,000 GCP Infrastructure Investments 579, ,191 HICL Infrastructure 110, , ,440 Reckitt Benckiser 177, ,500 Unilever 453, , Healthcare 4,600 AstraZeneca 225, ,700 Clinigen 132, ,000 GlaxoSmithKline 215, ,000 Shire 233, ,000 Smith & Nephew 218, ,025, Consumer Services 73,000 Booker 142, ,000 Compass 90, ,000 ITV 240, ,500 Next 107, ,000 RELX 218, ,000 Saga 132, ,600 Whitbread 142, ,485 WPP 131, ,205, Rathbone Core Investment Fund for Charities Annual Report 2017

8 Portfolio and net other assets as at 31 March 2017 (continued) Value Percentage Holding (note 1f) of total net (Ordinary shares unless otherwise stated) assets Telecommunications 55,000 BT 175, ,000 Vodafone 332, , Utilities 18,000 National Grid 182, Real Estate 340,000 F&C Commercial Property Trust 491, ,760 Land Securities REIT 50, , Financials Technology 1,999 Aberforth Smaller Companies Trust 23, ,648 Barclays 141, ,000 BCA Marketplace 78, ,513 Highbridge Multi-Strategy Fund 41, ,000 HSBC Holdings (London listed) 260, ,000 JP Morgan Emerging Markets Investment Trust 553, ,400 Legal & General 216, ,000 Lloyds Banking Group 285, ,000 Phoenix 156, ,076 Prudential 270, ,650 Standard Chartered 27, ,000 The Mercantile Investment Trust 708, ,763, ,000 Micro Focus International 182, UK Equity Funds 555,000 BlackRock Continental European Income Fund 835, ,000 CF Ruffer Total Return Fund 817, ,000 R&M UK Equity Smaller Companies Fund 472, ,000 Trojan Investment Fund 600, ,726, Total United Kingdom 12,486, Rathbone Core Investment Fund for Charities Annual Report

9 Portfolio and net other assets as at 31 March 2017 (continued) Value Percentage Holding (note 1f) of total net (Ordinary shares unless otherwise stated) assets Asia 210,000 Stewart Investors Asia Pacific Leaders Fund 455, Europe 86,100 Jupiter European Opportunities Fund 533, Japan 93,000 Baillie Gifford Japan Investment Trust 588, ,000 Man GLG Japan CoreAlpha Professional Fund 929, Total Japan 1,517, United States 27,500 Brown Advisory US Smaller Companies Fund 349, ,600 Edgewood US Select Growth Fund 352, ,999 Findlay Park American Fund 1,041, ,000 JP Morgan US Equity Income Fund 938, ,150 Vulcan Value Equity Fund 356, ,500 SPDR S&P 500 UCITS ETF 1,418, Total United States 4,457, Global 180,000 JP Morgan Global Macro Opportunities Fund 224, ,000 PIMCO GIS Global Investment Fund 316, Total Global 541, Alternatives 87,100 SQN Asset Finance Income Fund 97, ,098 SQN Asset Finance Income Fund C 67, Total Alternatives 165, Property Unit Trusts 858,064 Mayfair Property Income Trust 703, Total value of investments 23,544, Net other assets 838, Total value of the fund as at 31 March ,382, Note: The fund was launched on 3 October 2016, hence no figures for comparitives 8 Rathbone Core Investment Fund for Charities Annual Report 2017

10 Summary of portfolio investments Percentage Value of total net assets Equities 11,652, Bonds 2,131, Pooled investment vehicles 9,759, Total value of investments 23,544, Rathbone Core Investment Fund for Charities Annual Report

11 Statement of total return for the period from 3 October 2016 to 31 March 2017 Income Note Net capital gains 2 1,280,493 Revenue 3 286,717 Expenses 4 (77,960) Interest payable and similar charges (97) Net revenue before taxation 208,660 Taxation 5 Net revenue after taxation 208,660 Total return before distributions 1,489,153 Distributions 6 (283,761) Change in net assets attributable to unitholders from investment activities 1,205,392 Statement of change in net assets attributable to unitholders for the period from 3 October 2016 to 31 March Opening net assets attributable to unitholders Amounts receivable on issue of units 23,181,361 Amounts payable on cancellation of units (4,122) 23,177,239 Change in net assets attributable to unitholders from investment activities (see Statement of total return above) 1,205,392 Closing net assets attributable to unitholders 24,382, Rathbone Core Investment Fund for Charities Annual Report 2017

12 Balance sheet as at 31 March 2017 Assets Note Investments 23,544,017 Current assets: Debtors 7 272,819 Cash and bank balances 823,102 Total current assets 1,095,921 Total assets 24,639,938 Liabilities Creditors: Other creditors 8 (35,669) Distribution payable on income units (221,638) Total liabilities (257,307) Net assets attributable to unitholders 24,382,631 Rathbone Core Investment Fund for Charities Annual Report

13 Notes to the financial statements 1 Accounting policies a) Basis of accounting The annual financial statements have been prepared under the historical cost basis, as modified by the revaluation of investments and in accordance with FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and the Statement of Recommended Practice (SORP) for Financial Statements of UK Authorised Funds issued by The Investment Association in May As stated in the Statement of the Manager s responsibilities in relation to the report and accounts of the scheme on page 24, the Manager continues to adopt the going concern basis in the preparation of the financial statements of the fund. b) Recognition of revenue All dividends including distributions from collective investment schemes on investments marked exdividend up to the accounting date are included in revenue inclusive of any tax deducted at source and net of attributable tax credits. Bank and other interest receivable is accrued up to the accounting date, and this forms part of the distribution. Revenue on debt securities has been accounted for on an effective interest method. Revenue received from investments in authorised collective investment schemes, which are purchased during the financial year, will include an element of equalisation which represents the average amount of revenue included in the price paid for shares or units. The equalisation is treated as capital and deducted from the cost of the investment. Management fee rebates arising from the holding of unit or shares in underlying funds are recognised on an accrual basis. Where the policy of the underlying fund is to charge it s management fee to capital, in determining its distributions, then the management fee rebates are recognised in capital. Otherwise, the management fee rebates are recognised in revenue. c) Treatment of scrip and special dividends Any stock 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 distribution made by the fund. Special dividends are treated as revenue or capital depending on the facts of each particular case. d) Treatment of expenses All expenses (including direct costs of purchase and sale of investments) are charged against capital. e) Distribution policy Revenue arising from the fund s investments accumulates during each accounting period. If, at the end of the accounting period, revenue exceeds expenses, the net revenue of the fund is available to be distributed to unitholders. For the purpose of calculating the distribution available to unitholders. All expenses are deducted from capital, offsetting expenses against capital may constrain future growth in revenue and capital. For the purpose of calculating the distribution available to unitholders, revenue on debt securities is computed as the higher of the amount determined on an accrual of coupon basis and on an effective yield basis. A reconciliation of the net distribution to the net revenue of the fund as reported total return is shown in note 6. In order to conduct a controlled dividend flow to unitholders, interim distributions will be made at the Managers discretion, up to a maximum of the distributable revenue available for the year. All remaining revenue is distributed in accordance with the regulations. 12 Rathbone Core Investment Fund for Charities Annual Report 2017

14 Notes to the financial statements (continued) f) Basis of valuation of investments The quoted investments of the fund have been valued at the closing bid-market prices excluding any accrued interest in the case of debt securities ruling on the principal markets on which the stocks are quoted on the last business day of the accounting year. If no market price is available we use two different vendors (at least one being independent) to obtain a price and verify it against. If the Stock Exchange quotation of an investment has been suspended, and in the opinion of the Manager, it is unlikely to be reinstated, this has been indicated in the portfolio of investments. Suspended investments are value based on the latest financial statements of the respective company and agreed with the Trustee. Authorised collective investment schemes are valued at the bid price for dual price funds and at the quoted price for single price funds. g) 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 year are translated into sterling at the closing mid exchange rates ruling on that date. h) Taxation/Deferred Tax i) The fund was an authorised unit trust within the meaning of the Income Tax Act 2007 prior to 1 April Approval was received from the FCA to launch the fund, on 3 October 2016, as a Non-UCITS Retail Scheme (NURS) and was also approved by HMRC to enable the income to be streamed under the Tax Elected Fund (TEF) regime. ii) As a TEF, the fund will be exempt from UK tax on capital gains on the disposal of investment assets and will be exempt on certain investment income. i) Unit classes rights on termination, allocation of tax and distributable income The fund may be terminated if an order declaring the fund to be an authorised unit trust scheme is revoked, or the Financial Conduct Authority (FCA) determines to revoke the order at the request of the Trustee or the Manager. In the case of a reconstruction or an amalgamation of the fund with another body or trust, on the passing of an extraordinary resolution of holders of units approving the amalgamation. The Trustee shall wind up the fund in accordance with that resolution. On the termination of the fund in any other case, the Trustee shall sell the investments, and out of the proceeds of the sale shall settle the fund s liabilities and pay the costs and expenses of the winding up before distributing the proceeds of the realisation to unitholders and the Manager proportionally to their respective interests in the fund. Any unclaimed proceeds or cash held by the Trustee after the expiration of 12 months from the date on which the same became payable shall be paid by the Trustee into court subject to the Trustee having a right to retain any expenses incurred by it in making such payment into court. On the completion of the winding-up the trustee must notify the FCA to revoke the relevant authorisation order. Allocation of tax and distributable income is done proportionally to the unitholders respective interests in the fund. Rathbone Core Investment Fund for Charities Annual Report

15 Notes to the financial statements (continued) 2 Net capital gains The net capital gains during the period comprise: Realised gains non-derivative securities 23,977 Unrealised gains non-derivative securities 1,257,628 Realised losses currency (1,105) Unrealised gains currency 257 Rebates on annual management charges on underlying investments 153 Transaction charges (417) Total net capital gains 1,280,493 3 Revenue Dividends UK Ordinary 115,402 Overseas 43,772 Unfranked 10,157 Property income distributions 808 Interest on debt securities 116,555 Bank interest 23 Total revenue 286,717 4 Expenses Payable to the Manager, associates of the Manager and agents of either of them: Manager s periodic charge 48,133 Payable to the Trustee, associates of the Trustee and agents of either of them: Trustee s fees 2,141 Safe custody and other bank charges 2,110 4, Rathbone Core Investment Fund for Charities Annual Report 2017

16 Notes to the financial statements (continued) 4 Expenses (continued) Other expenses: Administration fees 14,312 Audit fee* 8,760 FCA fee 292 Printing and publication costs 973 Registration fees 1, ,576 Total expenses 77,960 * Audit fees paid in the year were 7,300 excluding VAT 5 Taxation a) Analysis of charge in the period Total taxation charge (note 5b) b) Factors affecting current tax charge for the period The tax assessed for the period is lower than the standard rate of corporation tax in the UK for an Authorised Unit Trust (20%). The differences are explained below: Net revenue before taxation 208,660 Corporation tax at 20% 41,732 Effects of: Revenue not subject to taxation Tax deductible interest distributions Corporate tax charge (31,996) (9,736) Total tax charge for the period (note 5a) c) Deferred tax At the period end the fund had surplus management expenses of nil. It is unlikely that the fund will generate sufficient taxable profits in the future to utilise these expenses and, therefore, a deferred tax asset of nil has not been recognised in the financial statements. Rathbone Core Investment Fund for Charities Annual Report

17 Notes to the financial statements (continued) 6 Distributions The distributions take account of amounts received on the issue of units and amounts deducted on the cancellation of units, and comprise: Interim 99,999 Final 221, ,637 Add: Amounts deducted on cancellation of units 9 Deduct: Amounts received on issue of units (37,885) Net distribution for the period 283,761 Reconciliation of net distribution for the period to net revenue after tax: Net distribution for the period 283,761 Expenses charged to capital: Manager s periodic charge (48,133) Trustee s fees (2,141) Audit fee (8,760) FCA fee (292) Safe custody and other bank charges (2,110) Registration fees (1,239) Printing and publication costs (973) Administration fees (14,312) Balance carried forward 2,859 Net revenue after taxation 208,660 7 Debtors Amounts receivable for issue of units 191,610 Accrued revenue 80,391 Prepaid expenses 511 Taxation recoverable 307 Total debtors 272,819 8 Other creditors Accrued expenses 35, Rathbone Core Investment Fund for Charities Annual Report 2017

18 Notes to the financial statements (continued) 9 Reconciliation of units Income units Opening units issued at Unit movements to Units issued 23,091,459 Units cancelled (4,133) 23,087, Related party transactions Management fees paid to Rathbone Unit Trust Management Limited (the Manager) are disclosed in note 4 and amounts outstanding at the year end in note 8. Trustee and other fees paid to National Westminster Bank Plc, Trustee and Depositary Services are also detailed in note 4 except for transaction charges which are disclosed in note 2. Any amounts prepaid and due at the year end are disclosed in notes 7 and 8. There were no commissions paid to stockbroking of the Manager in respect of dealings in the investments of Rathbone Core Investment Fund for Charities during the period. All other amounts paid to or received from the related parties, together with the outstanding balances are disclosed in the financial statements. At the period end Rathbone Nominees were significant shareholders in the Fund. 11 Contingent liabilities and commitments There were no contingent liabilities or outstanding commitments at the balance sheet date. 12 Risk disclosures on financial instruments 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, for example, in respect of sales and purchases awaiting settlement, amounts receivable for creations and payable for liquidations and debtors for accrued revenue. There is little exposure to credit or cash flow risk. There are no net borrowings and little exposure to liquidity risk because assets can be readily realised to meet redemptions. The fund holds a substantial number of Collective Investment Schemes that are designed to give overseas exposure. The fund has indirect exposure to foreign currency risk, interest rate risk and credit risk as a result of these holdings (see the portfolio statement on pages 5-8). The fund does not make use of derivatives. Rathbone Core Investment Fund for Charities Annual Report

19 Notes to the financial statements (continued) 12 Risk disclosures on financial instruments (continued) The main risks arising from the financial instruments are: (i) Foreign currency risk, being the risk that the value of investments will fluctuate as a result of exchange rate movements. The value of the fund s underlying investments will be affected by movements in exchange rate against sterling, in respect of non-sterling denominated rates. The table below shows the foreign currency risk profile at the balance sheet date: Currency: US dollar 710,003 Pound sterling 23,671,810 24,381,813 Other net assets not categorised as financial instruments 818 Net assets 24,382,631 If GBP to foreign currency exchange rates had increased by 10% as at the balance sheet date, the net asset value of the fund would have decreased by 64,546. If GBP to foreign currency exchange rates had decreased by 10% as at the balance sheet date, the net asset value of the fund would have increased by 78,889. These calculations assume all other variables remain constant. (ii) Interest rate risk, being the risk that the value of investments will fluctuate as a result of interest rate changes. The table below shows the interest rate risk profile at the balance sheet date: Fixed rate assets: Pound sterling 1,092,324 Floating rate assets: Pound sterling 1,862,609 Assets on which no interest is paid: US dollar 710,003 Pound sterling 20,974,184 Liabilities on which no interest is paid: Pound sterling 21,684,187 (257,307) Other net assets not categorised as financial instruments 818 Net assets 24,382, Rathbone Core Investment Fund for Charities Annual Report 2017

20 Notes to the financial statements (continued) 12 Risk disclosures on financial instruments (continued) (ii) Interest rate risk (continued) Interest rate risk is not material to the Fund. The floating rate financial assets and liabilities comprise bank balances, floating rate securities and index linked bonds that earn or pay interest at rates linked to the UK base rate or its international equivalents. Credit risk is not material in this fund. Fixed rate financial assets Weighted average Weighted average period redemption yield rate for which rate is fixed Currency Pound sterling 1.79% 7.12 years There are no material amounts of non-interest bearing financial assets and liabilities, other than equities and collective investment schemes, which do not have maturity dates. (iii) Market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than currency or interest rate movements. The investment portfolio is exposed to market price fluctuations which are monitored by the Manager in pursuance of the investment objective and policy set out in the Prospectus. Adherence to investment guidelines and to investment and borrowing powers set out in the Trust Deed and Prospectus and the rules of the FCA s Collective Investment Scheme Sourcebook mitigates the risk of excessive exposure to any particular type of security or issuer. If market prices had increased by 10% as at the balance sheet date the net asset value of the fund would have increased by 2,354,402. If market prices had decreased by 10% as at the balance sheet date the net asset value of the fund would have decreased by 2,354,402. These calculations assume all other variables remain constant. (iv) Counterparty risk, being the risk that the counterparty will not deliver the investments for a purchase, or the cash for a sale after the fund has fulfilled its responsibilities. (v) Fair value. There is no material difference between the carrying value and fair value of the financial instruments disclosed in the balance sheet. Rathbone Core Investment Fund for Charities Annual Report

21 Notes to the financial statements (continued) 13 Portfolio transaction cost For the period from 3 October 2016 to 31 March 2017 Analysis of total purchases costs Value Commissions Taxes % % Equity transactions 4,017,715 1, , Bond transactions 615,100 Fund transactions 2,623, In specie transactions 3,661,582 Corporate actions 12,676,208 Total purchases before transaction costs 23,593,813 1,753 5,522 Total purchases including commission and taxes 23,601,088 Analysis of total sales costs Value Commissions Taxes % % Equity transactions 272, Bond transactions 22,003 Fund transactions 927,666 Corporate actions 189,812 Total sales including transactions costs 1,411, Total sales net of commission and taxes 1,411,608 Commissions and taxes as % of average net assets Commissions 0.01% Taxes 0.03% In the case of share, commissions and taxes are paid by the fund on each transaction. In addition, there is a dealing spread between the buying and selling prices of the underlying investments. Unlike shares, other types of investments (such as bonds, money market instruments, derivatives) have no separately identifiable transaction costs; these costs form part of dealing spread. Dealing spreads vary considerably depending on the transaction value and market sentiment. At the balance sheet date the dealing spread was 0.23%. 20 Rathbone Core Investment Fund for Charities Annual Report 2017

22 Notes to the financial statements (continued) 14 Fair value of investments The fair value of investments has been determined using the following hierarchy Category A Category B Category C(i) Category C(ii) Where there is a quoted price for an identical asset in an active market at the reporting date. Where such quoted prices are unavailable, the price of a recent transaction for an identical asset, adjusted if necessary. Where quoted prices are unavailable and recent transactions of an identical asset on their own are either unavailable or not a good estimate of fair value and therefore valuation techniques are employed using observable market data. The majority of investments included in Category C(i) are corporate bonds which have been valued based on average broker quotes for identical instruments. Where quoted prices are not unavailable and recent transactions of an identical asset on their own are either unavailable or not a good estimate of fair value and therefore valuation techniques are employed using non-observable market data. For the period ended 31 March 2017 Category A B C(i) C(ii) Total Investment assets Equities 10,949,229 11,652,584 Bonds 1,150, ,737 2,131,831 Pooled investment vehicles 1,614,635 8,848,322 9,759,602 13,713,958 8,848, ,737 23,544, Unit price movement since the balance sheet date Subsequent to the period end, the net asset value per unit of the fund has increased using the unit prices at the period end date compared to 9 May This movement takes into account routine transactions but also reflects the market movements of recent months. There are no post balance sheet events which require adjustments Unit type bid price bid price Income p p Rathbone Core Investment Fund for Charities Annual Report

23 Distribution tables for the period from 3 October 2016 to 31 March 2017 Distribution tables (pence per unit) Third Interim Group 1 Units purchased prior to 3 October 2016 Group 2 Units purchased on or after 3 October 2016 and on or before 31 December 2016 Income Net Paid units Income Equalisation Dividend Distribution Group Group Non-dividend Distribution Group Group Final Group 1 Units purchased prior to 1 January 2017 Group 2 Units purchased on or after 1 January 2017 and on or before 31 March 2017 Income Net Payable units Income Equalisation Dividend Distribution Group Group Non-dividend Distribution Group Group Equalisation Equalisation applies only to units purchased during the distribution period (Group 2 units). It represents the accrued revenue included in the purchase price of the units. 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 units for Capital Gains Tax purposes. 22 Rathbone Core Investment Fund for Charities Annual Report 2017

24 Directors statement This report is approved in accordance with the requirements of the Financial Conduct Authority s Collective Investment Schemes Sourcebook. MM Webb for Rathbone Unit Trust Management Limited Manager of Rathbone Core Investment Fund for Charities 17 May 2017 Rathbone Core Investment Fund for Charities Annual Report

25 Statement of the Manager s responsibilities in relation to the report and accounts of the Rathbone Core Investment Fund for Charities The Financial Conduct Authority s Collective Investment Schemes Sourcebook requires the Manager to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the fund and of the net revenue/ expense and of the net capital gains/losses on the property of the fund for that year. In preparing those financial statements, the Manager is required to: 1. select suitable accounting policies, as described in the attached financial statements, and then apply them consistently; 2. make judgements and estimates that are reasonable and prudent; 3. comply with the disclosure requirements of the SORP relating to financial statements of UK authorised funds issued by the The Investment Association; 4. follow UK generally accepted accounting principles and applicable UK accounting standards; 5. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the fund will continue in operation; and 6. keep proper accounting records which enable it to demonstrate that the financial statements as prepared comply with the above requirements. The Manager is responsible for the management of the scheme in accordance with its Trust Deed, Prospectus and the Financial Conduct Authority s Collective Investment Schemes Sourcebook. The manager has general responsibility for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the Manager is aware: 1. there is no relevant audit information of which the fund s auditor is unaware; 2. the Manager has taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information; and 3. the Manager is of the opinion that it is appropriate to continue to adopt the going concern basis in the preparation of the financial statements as the assets of the fund consist predominantly of securities that are readily realisable and, accordingly, the fund has adequate resources to continue in operational existence for the foreseeable future. 24 Rathbone Core Investment Fund for Charities Annual Report 2017

26 Statement of the Trustee s responsibilities and report of the Trustee to the unitholders of Rathbone Core Investment Fund for Charities (the Scheme) for the period ended 31 March 2017 The Trustee must ensure that the Scheme is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook, the Investment Funds 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 Scheme and Its investors. The Trustee is responsible for the safekeeping of all custodial assets and maintaining a record of all other assets of the Scheme in accordance with the Regulations. The Trustee must ensure that: the Scheme s cash flows are properly monitored and that cash of the Scheme is booked into the cash accounts in accordance with the regulations; the sale, issue, redemption and cancellation of units are carried out in accordance with the Regulations; the value of units in the Scheme is calculated in accordance with the Regulations; any consideration relating to transactions in the Scheme's assets is remitted to the Scheme within the usual time limits; the Scheme s income is applied in accordance with the Regulations; and the Instructions of the Alternative Investment Fund Manager ( the AIFM ) are carried out (unless they conflict with the Regulations). The Trustee also has a duty to take reasonable care to ensure that the Scheme is managed in accordance with the Regulations and the Scheme documents in relation to the investment and borrowing powers applicable to the Scheme. Having carried out such procedures as we consider necessary to discharge our responsibilities as Trustee of the Scheme, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Scheme, acting through the AIFM: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Scheme s units and the application of the Schemes income in accordance with the Regulations and the Scheme documents; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Scheme. Rathbone Core Investment Fund for Charities Annual Report

27 Independent Auditor s Report to the unitholders of Rathbone Core Investment Fund for Charities We have audited the financial statements of Rathbone Core Investment Fund for Charities ( the fund ) for the period ended 31 March 2017 which comprise the Statement of Total Return, the Statement of Change in Net Assets Attributable to Unitholders, the Balance Sheet, the Distribution Tables and the related notes The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, the Statement of Recommended Practice: Financial Statements of UK Authorised Funds issued by The Investment Association in May 2014, the Collective Investment Schemes Sourcebook and the Trust Deed. This report is made solely to the fund s unitholders, as a body, in accordance with Paragraph R of the Collective Investment Schemes Sourcebook of the Financial Conduct Authority. 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. Respective responsibilities of the Trustee, the Manager and the Auditor As explained more fully in the Statement of the Trustee s Responsibilities and the Statement of the Manager s Responsibilities, the Trustee is responsible for safeguarding the property of the fund and the Manager is responsible for the preparation of the financial statements. Our responsibility is to audit and express an opinion on the financial statements in accordance with the requirements of the Collective Investment Schemes Sourcebook, applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements 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 Manager; 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: 1. give a true and fair view of the financial position of the fund as at 31 March 2017 and of the net revenue and the net capital gains on the property of the fund for the period ended 31 March 2017; and 2. have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, the Statement of Recommended Practice Financial Statements of UK Authorised Funds, the rules in the Collective Investment Schemes Sourcebook and the Trust Deed. 26 Rathbone Core Investment Fund for Charities Annual Report 2017

28 Independent Auditor s Report to the unitholders of Rathbone Core Investment Fund for Charities (continued) Opinion on other matters prescribed by the Collective Investment Schemes Sourcebook In our opinion: 1. proper accounting records for the fund have been kept and the financial statements are in agreement with those records; 2. we have received all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit; and 3. the information disclosed in the Annual Report for the period ended 31 March 2017 for the purpose of complying with Paragraph 4.5.9R of the Collective Investment Schemes Sourcebook is consistent with the financial statements. Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 17 May 2017 Rathbone Core Investment Fund for Charities Annual Report

29 General information Authorised status The Rathbone Core Investment Fund for Charities is a non-ucits retail scheme (NURS) and qualifies as an Alternative Investment Fund within the meaning of AIFMD. An application was made for the fund to become a TEF (Tax Elected Fund) with effect from the beginning of its previous accounting year (1 April 2014) and authorisation was received from HMRC on 19 February The currency of the fund is pounds sterling. Investment objective, policy and strategy The objective of the fund is to achieve a growing level of income and capital growth. The objective will principally be achieved through investment in a range of asset classes including UK, global and emerging market equities, corporate and sovereign fixed income and index-linked bonds and commodities. Investment will be made directly in such assets and/or through other collective investment schemes). The fund will not hold property directly but may make investments in property through other collective investment schemes. For the purposes of this, a reference to a collective investment scheme includes authorised, unauthorised and alternative collective investment schemes including private equity funds. The fund may also invest in derivatives for investment purposes, in addition to using derivatives for efficient portfolio management purposes (such as hedging foreign currency); however, the Manager will seek to constrain the volatility of the fund through the use of active portfolio management techniques, including for example ensuring that the fund is sufficiently diversified. The fund may also invest in cash and near cash. Please be aware that the proportion of the scheme property which may be held in the asset classes listed above may vary from time to time depending on the Manager s view of market conditions, and therefore there may be times when the fund does not have exposure to all the asset classes listed above. The fund will also pursue an ethical investment strategy and will aim not to have any direct exposure to companies that generate more than 20% of their turnover from any one of the following: i) tobacco; ii) gambling; iii) prostitution; or iv) pornography. Valuation of the fund The fund is valued on each business day at 12 noon for the purpose of determining prices at which units in the fund may be bought or sold. Valuations may be made at other times on business days with the Trustee s approval. Stewardship code Rathbone Unit Trust Management Limited fully supports the UK Stewardship Code sponsored by the Financial Reporting Council. Our statement on complying with the code can be found on our website: rutm.com AIFMD disclosure The provisions of the Alternative Investment Fund Managers Directive (AIFMD) took effect in full on 22 July That legislation requires the fund manager, to establish and apply remuneration policies and practices that are consistent with, and promote, sound and effective risk management and that neither encourage risk taking which is inconsistent with the risk profiles, prospectuses, trust deeds and deeds of constitution of the Alternative Investment Funds to which it has been appointed (the Funds) nor impair compliance with the AIFM s duty to act in the best interests of the Funds. As the nature and range of the AIFM s activities, its internal organisation and operations are, in the Directors opinion, limited in their nature, scale and complexity, that is, to the business of a management company engaging in collective portfolio management of investments of capital raised from the public, this is reflected in the manner in which the AIFM has addressed certain requirements regarding remuneration imposed 28 Rathbone Core Investment Fund for Charities Annual Report 2017

30 General information (continued) upon it by the Regulations. The board of directors of the AIFM (the Board) consists of eleven directors (each a Director). The AIFM has delegated the performance of the investment of the Company to Rathbone Unit Trust Management Limited (the Investment Manager). As noted below, the AIFM relies on the remuneration policies and procedures of each delegate to ensure that their remuneration structures promote a culture of investor protection and mitigate conflicts of interest. The Regulations provide that the remuneration policies and practices shall apply to those categories of staff, including senior management, risk takers, control functions and any employee receiving total remuneration that falls within the remuneration bracket of senior management and risk takers whose professional activities have a material impact on the risk profiles of the Funds. The AIFM has appointed the Board and eleven Directors who are therefore considered to be those that have a material impact on the risk profile of the Funds. Accordingly, the remuneration provisions of the Regulations only affect the AIFM with regard to the Board. Each Director is entitled to be paid a fixed director s fee based on an expected number of meetings and the work required to oversee the operations of the AIFM, which is considered to be consistent with the powers, tasks, expertise and responsibility of the Directors. The fee payable to each Director is reviewed from time to time, based on the evolution of the AIFM s activities and the aggregate fees payable are disclosed in the prospectus of the Funds. The Directors do not receive performance based variable remuneration, therefore avoiding any potential conflicts of interest. In addition, each of the Directors has waived the fees to which they would otherwise be entitled. Managers remuneration Below is the total remuneration paid by the AIFM to its staff for the financial year ended 31 March 2017 and there are no other beneficiaries. Fixed Remuneration 0 Variable 41,317 Pension/Benefits 0 Number of code staff 2 Buying and selling of units The Manager is available to receive requests for the buying and selling of units on normal business days between 9.00am and 5.00pm and transactions will be effected at prices determined by the next valuation. Application forms for the purchase of units (obtainable from the Manager) should be completed and sent to the dealing office. In respect of telephoned orders, remittances should be sent on receipt of the contract note. Contract notes confirming transactions will be issued by the close of business on the next business day after the dealing date. Purchasers of units are required to enter their registration details on the form supplied with their contract note. Once units are paid for these details will be entered on the unit register. Units can be sold by telephone, fax or letter followed by despatch to the dealing office of the authorisation to sell duly completed by all unitholders. In the absence of clear written instructions signed by all the registered holders, a Form of Renunciation will be sent out together with the repurchase contract note. This will need to be signed by all registered holders, and returned to our dealing office before settlement can be made. Settlement will be made on whichever is the later of four business days after the dealing date or four days after the receipt of written confirmation. Unitholders may sell units on submitting the purchase contract note and a duly executed Deed of Transfer. The issue and redemption of units will not take place if dealing in the units is suspended by operation of law or any statute for the time being in place. The minimum initial investment for units at present is to the value of 10,000 which may be varied by the Manager. Thereafter holders may invest additional amounts to the value of 2,000 or more from time to time as they wish. Any number of units may be subscribed, sold or transferred so long as transaction complies with applicable minimums. The Manager currently receives an annual remuneration for managing the property of the fund at the rate of 0.5%. Rathbone Core Investment Fund for Charities Annual Report