The MI Discretionary Unit Fund

Transcription

1 Annual Report 30 April 2018

2 Contents Page Directory* Statement of the Authorised Unit Trust Manager s Responsibilities Certification of the Annual Report by the Authorised Unit Trust Manager Statement of the Trustee s Responsibilities in Respect of the Scheme and Report of the Trustee to the Unitholders Independent Auditor s Report to the Unitholders of the Scheme Investment Objective and Policy* Investment Manager s Report* Portfolio Statement* Comparative Tables* Statement of Total Return Statement of Change in Net Assets Attributable to Unitholders Balance Sheet Notes to the Financial Statements Distribution Tables General Information* *These collectively comprise the Authorised Unit Trust Manager s Report.

3 Directory Authorised Unit Trust Manager (AUTM) & 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 J. Clark (appointed 21 December 2017) P.J. Foley-Brickley S. Georgala D. Jones G. Kok (appointed 30 November 2017) R.W. Leedham (retired 19 December 2017) Investment Manager Thornbridge Investment Management LLP 13 Austin Friars, London EC2N 2HE (Authorised and regulated by the Financial Conduct Authority) Trustee The Northern Trust Global Services PLC 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 The MI Discretionary Unit Fund 1

4 Statement of the Authorised Unit Trust Manager s Responsibilities The Collective Investment Schemes sourcebook published by the FCA, ( the COLL Rules ) requires Authorised Unit Trust Manager (AUTM) to prepare financial statements for each annual accounting period which give a true and fair view of the financial position of the Scheme and of the net income and net gains on the property of the scheme for the period. In preparing the financial statements the AUTM 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 Scheme 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 Scheme 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 AUTM is responsible for the management of the Scheme 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 AUTM, Maitland Institutional Services Ltd. R. Ackermann D. Jones Directors Maitland Institutional Services Ltd 29 June The MI Discretionary Unit Fund

5 Statement of the Trustee s Responsibilities in Respect of the Scheme and Report of the Trustee to the Unitholders of the MI Discretionary Unit Fund ( the Scheme ) for the Year Ended 30 April 2018 The Trustee in its capacity as Trustee of the MI Discretionary Unit Fund must ensure that the Scheme 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 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 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 Scheme are 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 Authorised Unit Trust Manager ( the AUTM ), 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 Scheme is managed in accordance with the Regulations and the Scheme documents of the Trust in relation to the investment and borrowing powers applicable to the Scheme. Having carried out such procedures as we considered 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 AUTM: (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 Scheme s income in accordance with the Regulations and the Scheme documents of the Scheme; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Scheme in accordance with the Regulations and the Scheme documents of the Scheme. Northern Trust Global Services PLC UK Trustee and Depositary Services 29 June 2018 The MI Discretionary Unit Fund 3

6 Independent Auditor s Report to the Unitholders of the MI Discretionary Unit Fund ( the Scheme ) Opinion We have audited the financial statements of the Scheme for the year ended 30 April 2018 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 Tables for the Scheme and the accounting policies set out on pages 12 to 23. 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 of the Scheme as at 30 April 2018 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 Scheme 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 Authorised Unit Trust Manager (AUTM) is responsible for the other information, which comprises the AUTMs report. 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 AUTM 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 Scheme have not been kept; or the financial statements are not in agreement with the accounting records. Authorised Unit Trust Manager s responsibilities As explained more fully in their statement set out on page 2, the AUTM 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 Schemes 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 Scheme to cease operations, or have no realistic alternative but to do so. 4 The MI Discretionary Unit Fund

7 Independent Auditor s Report to the Unitholders of the MI Discretionary Unit Fund ( the Scheme ) continued 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 Scheme 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 Scheme 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 Scheme and the Scheme 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, Canary Wharf, London E14 5GL 29 June 2018 The MI Discretionary Unit Fund 5

8 Investment Objective and Policy Investment objective The investment objective of the Scheme is to provide maximum appreciation with above average yield for a growth fund. Investment policy It is envisaged that the Scheme will normally be fully invested subject to market considerations. The Scheme is to concentrate on smaller and medium sized UK companies. The policy does not envisage hedging either against price or currency fluctuations. Smaller and medium sized companies display characteristics of lower liquidity and investors should therefore recognise that the Manager reserves the right to control the rate of investment of new monies. The consequence of this is that from time to time the Scheme may hold liquidity in the range of 0% 10%. Investment Manager s Report for the year ended 30 April 2018 After delivering mid-teen returns in , the market softened in the year ending April The FTSE 100 Index, FTSE 350 Index and the FTSE AllShare Index were up around 4% while the FTSE SmallCap Index was up 6%. The Fund posted marginally higher returns of 6.3% at the 30 April 2018 valuation point, after fees. However, it should be emphasised that we are bottom-up stock-pickers and weigh companies on their merit, not whether they are part of any index. Hence we were not invested in Carillion when many Funds were. Compared to index constituents, we believe our portfolio companies are of a higher quality and offer a more promising outlook because they are adapting and innovating. In their presentation, Macfarlane summed it up well Customers expectations are never static. yesterday s WOW quickly becomes today s ordinary. One recent Google report mentioned that search for best paper towels was up 170% over the last year - reminding companies that consumers want only the best, even when they are choosing basic products. More importantly, we get more intrinsic value per invested pound because we are disciplined about what we pay. In the short term, the market can behave speculatively and deliver good performance but over time we expect our disciplined approach to outperform the indexes. Investment Approach Our priority has been and remains: safety of capital. Warren Buffett wrote in his 1989 letter, the less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs. What we seek is good quality companies led by great managers that will compound over time. What we do not need is speculative companies without a sustainable business that look good on technical charts. What we also do not need is growth for the sake of it. Conviviality Retail managed to destroy 330m of shareholder value beaten only by Carillion ( 1.3 billion), after pursuing a volume rather than value strategy. The good news is that we escaped; the Fund was not invested in Conviviality or Carillion but there are lessons to be learnt nonetheless: Firstly, we believe big companies are not always as safe as we perceive them to be. At a time when the market is changing rapidly, the structure and bureaucracy of larger companies decreases the required agility to adopt. Smaller companies on the other hand are generally more nimble, able to manoeuvre and change direction quickly. Second, our observation is when managements have their family wealth in the business, they think like partners. Since ownership influences decision making, it is important to us that company managers are invested alongside us. A fond farewell Two of our portfolio companies, Fenner and Laird, received bids at premiums of 30% and 72% respectively. We attended the Fenner AGM in January and were quietly accumulating its shares. In March, Michelin announced an unexpected cash offer and the stock price immediately soared. If stock market participants incorrectly value a great company, savvy corporate buyers will bid and capture the value for themselves. Such premium offers also provide one important non-financial gain : it encourages us that our method of studying and valuing companies is more aligned to corporations, who are strategically minded, rather than stock market participants who are often focussed on daily stock price movements. It is in our view, a positive validation that we are in the right company and on the right track. 6 The MI Discretionary Unit Fund

9 Investment Manager s Report continued Portfolio Purchases In general, companies across a number of sectors are facing an increasingly complex and intrusive compliance burden, coupled with higher costs of operating to new standards. SimplyBiz simplifies complex rules & regulations (such as GDPR, MIFID etc.) for more than 3000 small financial firms. Unlike large firms, many smaller companies cannot afford a full-time compliance officer but nonetheless need to be compliant. SimplyBiz does not take any regulatory risks and its business model is based on make once and sell many times. Growth will capture higher margins, a nice way to benefit from scale. We invested in this solid business because it is led by a management team that is first-rate and ambitious. The company s knowledge and the potential network effect, which is yet to come into play, means the current revenues at 44m are very small compared to the size of the market. With an ownership of 49%, this committed management team will fully participate on the upside value they deliver for Shareholders. In the current market, we are constantly ploughing more time and effort to find mis-priced companies. One such opportunity is the Lighthouse Group, a leading IFA business. Over the last few years, this management team has delivered a superb turnaround and successfully moved beyond the traditional network offering. The company has grown its affinity business, which now has access to 6 million retail investors. There are not many IFA s who can access 6m investors at a flick of a switch and in our view this company has never been so heavily embedded with value. After buying an initial position in November 2017, we further increased our holding in April We are able to buy shares in excellent companies, in decent size, because we enjoy good relationships with a wide network of outstanding brokers, to whom we say a BIG THANK YOU for their help and expertise. Had we purchased the Lighthouse Group shares in dribs and drabs we might have chased the price up, even perhaps reported a higher NAV and an impressive performance for the month ended April (while foolishly paying more for the acquired shares). Such short-term thinking is not our style. Rather, our focus remains on delivering compounded gains over the long term. In fact, when we are accumulating shares ironically as it may sound we want weaker prices so we can buy cheaply. The market in general, is fickle and very short term driven and we believe our long term approach provides a meaningful advantage. Going forward, stock selection will become even more important. We are constantly meeting and evaluating companies and shortlisting outstanding businesses for investment. Our style is a mixture: we wait and exercise patience but when an appropriate opportunity arises, we move fast. The Fund was born on 8 August 1963 and is therefore almost 55 years young. More than five decades on, our task remains the same: finding good companies run by extraordinary managers, not over-paying and keeping the portfolio turnover to a minimum so that we do not disturb our compounders. Melwin Mehta Portfolio Manager The MI Discretionary Unit Fund 7

10 Portfolio Statement as at 30 April 2018 Market % of total value net assets Holding Security 2018 BASIC MATERIALS 11.80% (16.31%) Chemicals 11.80% (16.31%) 430,000 Scapa* 1,876, ,000 Treatt 1,886, ,000 Zotefoams 1,889, INDUSTRIALS 57.40% (53.41%) 5,652, Construction & Materials 7.29% (9.23%) 700,000 Boot (Henry) 1,960, ,304 Titon 1,531, ,491, General Industrials 10.20% (9.35%) 2,480,000 Coral Products* 260, ,000 Dyson** 12, ,750,000 Low & Bonar 945, ,910,000 Macfarlane 2,473, ,566 RPC 1,197, ,888, Electronic & Electrical Equipment 4.56% (4.11%) 330,000 Dewhurst A Non Voting* 1,914, ,000 Dewhurst* 270, ,184, Industrial Engineering 13.50% (15.08%) 300,000 Castings 1,284, ,000 Chamberlin* 459, ,865 Fenner 1,525, ,000 Hill & Smith 1,990, ,900 Spirax-Sarco Engineering 915, ,000 Vitec 296, ,471, Support Services 21.85% (15.64%) 325,000 Electrocomponents 1,979, ,428 Menzies (John) 1,726, ,000 RWS* 715, ,500 SIG 153, ,132,352 SimplyBiz* 3,369, ,500 VP 2,523, ,467, The MI Discretionary Unit Fund

11 Portfolio Statement continued Market % of total value net assets Holding Security 2018 CONSUMER GOODS 9.65% (9.79%) Food Producers 0.79% (0.81%) 275,000 Carr s 379, Household Goods & Home Construction 8.86% (8.72%) 232,101 Churchill China* 2,367, ,000 Colefax* 1,878, Leisure Goods 0.00% (0.26%) CONSUMER SERVICES 2.25% (1.52%) 4,246, General Retailers 1.21% (1.52%) 2,000,000 Pendragon 579, Travel & Leisure 1.04% (0.00%) 500,000 Brighton Pier* 500, FINANCIALS 13.92% (9.74%) Financial Services 7.48% (0.00%) 17,570,588 Lighthouse Group* 3,584, Equity Investment Instruments 6.44% (9.74%) 150,500 Rights & Issues Investment Trust 3,085, TECHNOLOGY 1.18% (1.58%) Software & Computer Services 1.18% (0.09%) 15,000 First Derivatives* 565, Technology Hardware & Equipment 0.00% (1.49%) Investment assets 46,093, Net other assets 1,819, Net assets 47,913, 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. **This is a delisted security and has been valued at the Manager s best assessment of its fair value. The MI Discretionary Unit Fund 9

12 Comparative Tables Change in net assets per unit Income Units p p p Opening net asset value per unit 2, , , Return before operating charges^ Operating charges Return after operating charges^ Distributions Closing net asset value per unit 2, , , ^After direct transaction costs of Performance Return after charges 6.26% 35.76% 15.97% Other information Closing net asset value 32,681,644 32,230,543 26,587,942 Closing number of units 1,382,631 1,437,667 1,591,824 Operating charges 1.11% 1.14% 1.15% Direct transaction costs 0.06% 0.05% 0.04% Prices Highest unit price 2, , , Lowest unit price 2, , , Accumulation Units p p p Opening net asset value per unit 8, , , Return before operating charges^ , Operating charges Return after operating charges^ , Distributions Retained distributions on accumulation units Closing net asset value per unit 9, , , ^After direct transaction costs of Performance Return after charges 6.27% 36.09% 15.99% Other information Closing net asset value 15,231,360 15,354,916 11,701,714 Closing number of units 165, , ,414 Operating charges 1.11% 1.14% 1.15% Direct transaction costs 0.06% 0.05% 0.04% Prices Highest unit price 9, , , Lowest unit price 8, , , Operating charges include indirect costs incurred in the maintenance and running of the Scheme, as disclosed (but not limited to) the detailed expenses within the Statement of Total Return. The figures used within this table have been calculated against the average net asset value for the accounting year. The return after charges is calculated as the closing net asset value per unit plus the distributions on income 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 year. The figures used within the table have been calculated against the average net asset value for the accounting year. 10 The MI Discretionary Unit Fund

13 Comparative Tables continued Risk and reward profile The risk and reward indicator table demonstrates where the Scheme 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 Scheme. The shaded area in the table below shows the Scheme s ranking on the risk and reward indicator. Typically lower rewards, Typically higher rewards, lower risk higher risk The Scheme is ranked at 4 because funds of this type have experienced average 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 Scheme: Smaller company shares, including AIM companies, can be riskier as they may be more difficult to buy and sell and their share prices may fluctuate more than those of a larger company. In difficult market conditions, the value of some investments may be less predictable than normal and the Scheme may not be able to buy and sell these investments at the best time or at a fair price. This could affect the Scheme s performance, potentially reducing your returns. The level of targeted income is not guaranteed and may not always be achieved. 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. The MI Discretionary Unit Fund 11

14 Statement of Total Return for the year ended 30 April Note Income Net capital gains 2 2,568,033 12,331,034 Revenue 3 932,671 1,030,397 Expenses 4 (547,556) (462,138) Interest payable and similar charges 4 Net revenue before taxation 385, ,259 Taxation 5 Net revenue after taxation 385, ,259 Total return before distributions 2,953,148 12,899,293 Distributions 6 (385,115) (568,260) Change in net assets attributable to Unitholders from investment activities 2,568,033 12,331,033 Statement of Change in Net Assets Attributable to Unitholders for the year ended 30 April Opening net assets attributable to Unitholders 47,585,459 38,289,656 Amounts receivable on issue of units 791, ,661 Less: Amounts payable on cancellation of units (3,157,678) (3,621,194) (2,366,559) (3,220,533) Change in net assets attributable to Unitholders from investment activities (see Statement of Total Return above) 2,568,033 12,331,033 Retained distributions on accumulation units 122, ,639 Unclaimed distributions 3,820 7,664 Closing net assets attributable to Unitholders 47,913,004 47,585,459 The notes on pages 14 to 22 form an integral part of these Financial Statements. 12 The MI Discretionary Unit Fund

15 Balance Sheet as at 30 April 2018 ASSETS Notes Fixed Assets Investments 46,093,808 43,945,860 Current Assets Debtors 7 1,283, ,640 Cash and bank balances 9 789,202 3,704,364 Total current assets 2,072,643 3,819,004 Total assets 48,166,451 47,764,864 LIABILITIES Investment liabilities Creditors Distribution payable (152,399) (109,790) Other creditors 8 (101,048) (69,615) Total creditors (253,447) (179,405) Total liabilities (253,447) (179,405) Net assets attributable to Unitholders 47,913,004 47,585,459 The notes on pages 14 to 22 form an integral part of these Financial Statements. The MI Discretionary Unit Fund 13

16 Notes to the Financial Statements for the year ended 30 April 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 Scheme can be found within the general information starting on page 24. The Certification of the Annual Report by the Authorised Unit Trust Manager can be found on page 2. (b) Recognition of revenue Revenue is included in the Statement of Total Return on the following basis: Dividends on quoted equities and preference shares are recognised when the securities are quoted ex-dividend. 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. Stamp duty reserve tax suffered on surrender of shares is deducted from capital. (g) Distribution policy The net revenue after taxation as disclosed in the financial statements, after adjustment for items of a capital nature, is distributable to Unitholders as dividend distributions. Any revenue deficit is funded from capital. At the year end, there were no items of a capital nature. Interim distributions may be made at the Investment Manager s discretion and the balance of revenue is distributed in accordance with the regulations. Distributions not claimed within a six year period will be forfeited and added back to the capital of the Scheme. 14 The MI Discretionary Unit Fund

17 Notes to the Financial Statements continued 1. Accounting Policies (continued) (g) Basis of valuation of investments Listed investments are valued at close of business bid prices on the last business day of the accounting year excluding any accrued interest in the case of fixed and floating rate interest securities. Unlisted or suspended investments are valued by the Investment Manager taking into account where appropriate, latest dealing prices, valuations from reliable sources, financial performance and other relevant factors. Market value is defined by the SORP as fair value, which generally is the bid value of each security. 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 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. The MI Discretionary Unit Fund 15

18 Notes to the Financial Statements continued 2. Net Capital Gains Non-derivative securities 2,571,959 12,332,228 Transaction charges (3,926) (1,194) Net capital gains 2,568,033 12,331, Revenue UK dividends: Ordinary 932,671 1,030,397 Total revenue 932,671 1,030, Expenses Payable to the Authorised Unit Trust Manager (AUTM), associates of the AUTM and agents of either of them: Registration fees 13,278 11,770 Payable to the Investment Manager, associates of the Investment Manager and agents of either of them: Investment Manager s fee 495, ,347 Payable to the Trustee, associates of the Trustee and agents of either of them: Trustee s fee (including VAT) 18,405 18,268 Safe custody and other bank charges 3,473 6,715 21,878 24,98 Other expenses: Audit fee (including VAT) 7,200 7,380 Audit fee (including VAT): taxation services 1,500 1,500 FCA fee Legal fees 3,601 4,440 Printing costs 4,059 4,518 16,516 18,038 Expenses 547, ,138 Interest payable and similar charges Total 547, , The MI Discretionary Unit Fund

19 Notes to the Financial Statements continued 5. Taxation (a) Analysis of charge in the year: Total tax charge (note 5b) (b) Factors affecting taxation charge for the year: Net revenue before taxation 385, ,259 Corporation tax at 20% 77, ,652 Effects of: UK dividends (186,534) (206,079) Movement in surplus management expenses 109,511 92,427 Total tax charge (note 5a) (c) Deferred tax At the year end there is a potential deferred tax asset of 1,372,508 (2017: 1,262,997) in relation to surplus management expenses. It is unlikely that the Scheme 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 The distributions take account of revenue received on the issue of units and revenue deducted on the cancellation of units, and comprise: Interim distribution , ,193 Final distribution , , , ,111 Revenue deducted on cancellation of units 6,787 12,413 Revenue received on issue of units (2,195) (1,264) Distributions 385, ,260 Reconciliation of net revenue after taxation to net distributions: Net revenue after taxation per Statement of Total Return 385, ,259 Undistributed revenue brought forward 1 2 Undistributed revenue carried forward (1) (1) Distributions 385, ,260 The MI Discretionary Unit Fund 17

20 Notes to the Financial Statements continued 7. Debtors Amounts receivable on issues 2,250 7,400 Sales awaiting settlement 1,122,549 Accrued income: Dividends receivable 158, ,015 Prepaid expenses: Legal fee Total debtors 1,283, , Other Creditors Amounts payable on cancellations 39,387 10,000 Accrued expenses: Amounts payable to the Authorised Unit Trust Manager (AUTM), associates of the AUTM and agents of either of them: Registration fees 1,093 1,180 Amounts payable to the Investment Manager, associates of the Investment Manager and agents of either of them: Investment Manager s fee 39,977 38,238 Amounts payable to the Trustee, associates of the Trustee and agents of either of them: Trustee s fee (including VAT) 4,346 5,206 Safe custody and other bank charges 2,443 3,291 6,789 8,497 Other expenses: Audit fee (including VAT) 7,200 7,200 Audit fee (including VAT): taxation services 4,500 3,000 Printing costs 2,102 1,500 13,802 11,700 Total other creditors 101,048 69, Cash and Bank Balances Cash and bank balances 789,202 3,704,364 Cash and bank balances 789,202 3,704, The MI Discretionary Unit Fund

21 Notes to the Financial Statements continued 10.Related Party Transactions Authorised Unit Trust Manager (AUTM) 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. Fees payable to Thornbridge Investment Management LLP (the Investment 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 and dilution levy are disclosed in the Statement of Change in Net Assets Attributable to Unitholders. There were no amounts due at the year end. Trustee and other fees payable to Northern Trust Global Services PLC are disclosed in note 4 and amounts due at the year end are shown in note Contingent Liabilities and Outstanding Commitments There were no contingent liabilities or outstanding commitments at the balance sheet date (2017: none). 12.Risk Management Policies and Disclosures In pursuing its investment objectives, the Scheme 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 Scheme 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 AUTM accepts market price risk in relation to the investment portfolio. The risks arising from financial instruments and the AUTM s policies for the monitoring and managing of these risks are stated below in accordance with the Risk Management Policy of the AUTM. 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 Scheme 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 Scheme in the context of all their investments. The Scheme s investment portfolio is exposed to market price fluctuations, which are monitored by the AUTM 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 Scheme will be exposed. At the balance sheet date, if the price of the investments held by the Scheme increased or decreased by 10%, with all other variables held constant, the net assets attributable to Unitholders would increase or decrease by approximately 4,609,381 (2017: 4,394,586). Currency risk The majority of the Scheme s assets comprise of investments and cash denominated in sterling. As a result, the income and capital value of the Scheme are not affected by currency movements. 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 Scheme 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. The MI Discretionary Unit Fund 19

22 Notes to the Financial Statements continued 12.Risk Management Policies and Disclosures (continued) 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 Manager considers that the Scheme has little exposure to credit risk. Liquidity risk Liquidity risk is the risk that a Scheme 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 Scheme 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 Scheme, the Scheme 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 Scheme has fulfilled its responsibilities which could result in the scheme suffering a loss. The Investment Manager minimises the risk by conducting trades through only the most reputable counterparties. 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. 20 The MI Discretionary Unit Fund

23 Notes to the Financial Statements continued 13.Portfolio Transaction Costs Purchases Analysis Net before of purchases purchase Commissions Taxes transaction cost paid cost % % Equities 10,366,263 6, , ,354,709 Total purchases after commissions and tax 10,366,263 Sales Analysis Net before of sales sale Commissions Taxes transaction proceeds paid cost % % Equities 10,816,665 15, ,832,386 Total sales after commissions and tax 10,816,665 Commission as a % of average net assets 0.05% Taxes as a % of the average net assets 0.01% Purchases Analysis Net before of purchases purchase Commissions Taxes transaction cost paid cost % % Equities 1,087,757 2, , ,080,632 Total purchases after commissions and tax 1,087,757 Sales Analysis Net before of sales sale Commissions Taxes transaction proceeds paid cost % % Equities 6,358,312 13, ,371,896 Total sales after commissions and tax 6,358,312 Commission as a % of average net assets 0.04% Taxes as a % of the average net assets 0.01% Commissions and taxes as a % of the average net assets form part of the direct transactions costs stated within the comparative tables on page 10. The direct transaction costs within the comparative tables may differ due to the effect of dilution levies charged (where applicable). The MI Discretionary Unit Fund 21

24 Notes to the Financial Statements continued 14.Portfolio Dealing Spread The average portfolio dealing spread at 30 April 2018 is 2.89% (2017: 1.86%). 15.Fair Value Disclosure Valuation technique Assets Liabilities Assets Liabilities Level 1^ 46,081,568 43,945,860 Level 2^^ Level 3^^^ 12,240 ^Level 1: Unadjusted quoted price in an active market for an identical instrument. 46,093,808 43,945,860 ^^Level 2: Valuation techniques using observable inputs other than quoted prices within level 1. ^^^Level 3: Valuation techniques using unobservable inputs. A reconciliation of fair value measurements in Level 3 is set out in the following table Opening Balance Purchases Sales Total gains or losses included in the net capital gains/(losses) in the Statement of Total Return: on assets sold on assets held at year end 12,240 Closing Balance 12, Unitholders Funds Income Accumulation Opening number of units 1,437, ,817 Units issued 3,695 7,598 Units cancelled (58,731) (19,433) Closing number of units 1,382, , The MI Discretionary Unit Fund

25 Distribution Tables for the year ended 30 April 2018 Income Unit Distribution Distribution Units Net revenue Equalisation Distribution Distribution paid/payable paid p p 2018 p 2017 p Interim Group Group Final Group Group Accumulation Unit Distribution Distribution Units Net revenue Equalisation Amount Amount reinvested reinvested p p 2018 p 2017 p Interim Group Group Final Group Group Interim period: Final period: Group 1: Group 2: Units purchased prior to a distribution period Units purchased during a distribution period Equalisation Equalisation applies only to units purchased during the distribution period (Group 2 units). It represents 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. The MI Discretionary Unit Fund 23

26 General Information Authorised Status The MI Discretionary Unit Fund (the Scheme ) is an authorised unit trust scheme and UCITS scheme operating under chapter 5 of COLL. The Scheme was established on 8 August The Scheme does not intend to have an interest in immovable property. Unitholders are not liable for the debts of the Scheme. Head Office Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW Address for Service The Head Office is the address in the United Kingdom for service on the Scheme of notices or other documents required or authorised to be served on it. Base Currency The base currency of the Scheme is Pounds Sterling. Units The Scheme may issue income and accumulation units. Holders of Income units are entitled to be paid the revenue attributable to such units in respect of each annual accounting period in the currency of the relevant units. Holders of Accumulation units are not entitled to be paid the revenue attributable to such units, but that revenue is retained and accumulated for the benefit of Unitholders and is reflected in the price of units. Valuation Point The scheme property of the Scheme will normally be valued at 10:00 on each dealing day for the purpose of calculating the price at which units in the Scheme may be issued, sold, repurchased or redeemed. For the purpose of the pricing of units, a business day is defined as a day on which the dealing office of the Manager is open for the buying and selling of units. The Manager may at any time during a business day carry out an additional valuation of the property of the Scheme if the Manager considers it desirable to do so, with the Trustee s approval. Buying, Redeeming and Switching of Units The Manager will accept orders for the purchase, sale and switching of units on normal business days between 08:30 and 16:30. Instructions to buy or sell units may either be in writing to: Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW Or by telephone to: The Manager has the right to establish facilities for recording telephone calls made or received on this telephone line. A contract note giving details of the units purchased will be issued no later than the next business day after the business day on which an application to purchase units is received and instrumented by the Manager. Certificates will not be issued in respect of units. Ownership of units will be evidenced by an entry on the register of Unitholders. 24 The MI Discretionary Unit Fund

27 General Information continued Pricing Basis The Scheme will value the scheme property using the dual pricing method. The Manager calculates prices at which investors buy and sell units, in accordance with the dual-pricing method set out below. The basis of the calculation is the value of the underlying assets of the Scheme. The Scheme is valued either on a bid basis or on an offer basis, as appropriate. The maximum permitted spread is wider than the spread the Manager normally quotes for dealing, but the Manager may deal at any prices calculated in accordance with the provisions set out below and notified to the Trustee. The maximum offer price may not be more than the issue price plus any preliminary charge and the maximum bid price may not be less than the cancellation price. The Scheme will be valued on a net asset value basis to determine the price of the units ( NAV price ). Units will be redeemed at the NAV price and purchased at a price that includes a preliminary charge at the rate applying to the Scheme. The prices of units are published daily on the Managers website at Neither the Manager nor the Scheme can be held responsible for any errors in the publication of the prices. The units in the Scheme will be issued and redeemed on a forward pricing basis which means that the price will not necessarily be the same as the published price. Other Information Copies of the Trust Deed and of any Supplemental Deeds of the Scheme, the Prospectus and the most recent annual and halfyearly reports may be inspected at the head office of the AUTM at the address set out in the Directory and copies may be obtained free of charge upon application. Unitholders who have complaints about the operation of the Scheme should in the first instance contact the Manager, or, following that, may make their complaint direct to the Financial Ombudsman Service, Exchange Tower, London E14 9SR. Remuneration of the Authorised Unit Trust Manager Its purpose is to ensure that the remuneration of the staff of the AUTM is consistent with and promotes sound and effective risk management, does not encourage risk-taking which is inconsistent with the risk profiles, rules or instruments of incorporation of itself and the UCITS it manages (including the Scheme) and does not impair the AUTM s compliance with its duty to act in the best interests of the UCITS it manages. Further information is available in the AUTM s Remuneration Policy document which can be obtained from A paper copy of the remuneration policy is available on request from the registered office of the Manager free of charge Number of Total Remuneration Fixed Beneficiaries Paid Remuneration Total remuneration paid by the AUTM during the year 74 79,375 79,375 Remuneration paid to employees of the AUTM who have material impact on the risk profile of the AIF 6 17,288 17,288 The table has been calculated based on the total remuneration paid to the Manager as Manager fees in the period as contained within these financial statements. The total remuneration has been apportioned between the code staff and general staff by way of a percentage based assessment. The management has reviewed the general principles of the Remuneration Policy and its application in the last year which has resulted in no material changes to the Policy. The MI Discretionary Unit Fund 25