The MI Downing Managed Funds

Transcription

1 The MI Downing Managed Funds Annual Report 31 May 2017

2 The MI Downing Managed Funds Contents Page Directory MI Downing Diversified Global Managers Investment Objective and Policy Investment Manager s report Portfolio Statement Comparative Tables Statement of the Authorised Corporate Directors Responsibilities Certification of Annual Report by the Authorised Corporate Director Statement of the Depositary s responsibilities Report of the Depositary to the Shareholders Independent Auditor s Report to the Shareholders of the Fund Statement of Total Return Statement of Change in Net Assets Attributable to Shareholders Balance Sheet Notes to the Financial Statements Distribution Tables General Information

3 The MI Downing Managed Funds Directory Authorised Corporate Director (ACD) & 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 Corporate Director R.A. Ackermann (appointed 30 December 2016) P.J. Foley-Brickley S. Georgala D. Jones R.W. Leedham D.W. Munting (retired 14 October 2016) Investment Manager Downing LLP Ergon House, Horseferry Road, London SW1P 2AL (Authorised and regulated by the Financial Conduct Authority) Depositary Depositary to 30 September 2016: National Westminster Bank Plc Depositary from 01 October 2016: Northern Trust Global Services Limited 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 Downing Managed Funds 1

4 Investment Objective and Policy The investment objective of the Fund is to provide medium to long term capital growth on a medium risk basis. It is intended that this objective will be achieved by the Fund investing primarily in a diversified portfolio of units/shares of collective investment schemes, (including, but not restricted to, Exchange Traded Funds, unregulated funds such as hedge funds, collective investment schemes which themselves invest in property and/or the shares of property companies, and index-linked collective investment schemes), and transferable securities (including, but not restricted to, shares in investment companies including investment trusts which themselves invest in equities, property and/or the shares of property investment companies and equity linked transferable securities and fixed interest securities) on a global basis. The Fund is also permitted to invest in money market instruments, government and public securities, cash and near cash, warrants and deposits as permitted for Non-UCITS Retail Schemes in accordance with COLL. It is intended that the assets of the Fund will be managed so that it is eligible for quotation within the Investment Association s Flexible Investment sector. Further details may be found via the IA s website at The Fund may only invest in derivatives and forward transactions for the purposes of hedging. Investment Manager s Report for the year ended 31 May 2017 This first half of 2017 has been dominated by politics, with a rise of what has been described as global populism. We have seen the election of Donald Trump with his right-leaning policies, the continuing saga of Brexit and latterly a trouncing at the polls for the Conservative party in the UK. Together with the election of Macron in France (a rank outsider with no political experience) and a general move away from left-leaning governments in Argentina and Brazil we might have expected much volatility in equity markets, however, the converse has been true and in our view markets have remained generally bullish. Over the period we have continued repositioning the Fund in line with our enhanced investment process. We have sold six funds and implemented fourteen new managers. Many of these were detailed in the interim managers report. The year of transition is now complete and we expect turnover going forward to be much lower. In this report, we highlight two newer Funds in the portfolio which we believe demonstrates our investment strategy in action. These were Alquity Asia Y Accumulation Fund (up 31%) and MontLake Tosca Micro Cap I Accumulation Fund (up 23.4%). The managers have performed well in the rising markets, and we generally believe have controlled risk well. The funds that were a drag on returns were Melchior European Absolute Return 17 (Hedged) Accumulation (down 8.9%) and Kriticos Strategy Global Short Only Fund International (down 6.5%). We note that both of these funds had a short bias and protected the fund over the period in drawdowns. We are comfortable overall with how they have performed given the downside insurance they have provided to the portfolio. As the Fund approaches its 10 year anniversary we reflect upon the momentous changes that have taken place in that time. At launch in September 2007 we could not have foreseen what was to come: the great financial crash, the collapse of Lehman Brothers and then a wholly unexpected rebound of fortunes just a year later in It was testament to the quality of our underlying Fund Managers to navigate these difficult markets that our Fund continues to stand the test of time. Despite all of this uncertainty and headwinds, we believe the Fund continues to serve its investors well, producing competitive investment returns coupled with low downside risk. The move of the Fund to Downing has provided benefits such as a deeper research capability and resource. We believe this has improved the Fund s risk/return profile and should put us in good stead to deliver consistent, risk adjusted returns over the long term for our investors. 2 MI Downing Diversified Global Managers

5 Portfolio Statement as at 31 May 2017 Market % of total value net assets Holding Security 2017 United Kingdom 13.47% (33.21%) 302,475 Aurora Investment Trust 601, ,828 MI Downing UK Micro-Cap Growth B Accumulation* 898, ,240 MontLake Tosca Micro Cap I Accumulation* 987, ,487, Asia Pacific 8.39% (13.25%) 12,323 Alquity Asia Y Accumulation* 1,549, Europe 8.06% (11.13%) 111,102 Jupiter European Opportunities Trust 767, ,945 Melchior European Absolute Return 17 (Hedged) Accumulation* 720, ,487, Global 13.23% (12.17%) 175,859 Fundsmith Equity I Accumulation* 601, ,365 Polar Capital Global Convertible I Hedged GBP Accumulation* 1,107, ,999 Polar Capital Global Insurance Fund I GBP Accumulation* 732, ,442, Japan 12.96% (10.65%) 9,719 Arcus Japan Fund Relative I JPY Accumulation* 1,108, ,814 Arcus Japan Value Relative Unit Series , ,555 Schroder Tokyo Z Accumulation* 720, ,393, North America 17.49% (10.17%) 7,941 Conventum Lyrical I Accumulation* 1,414, ,008 Edgewood L Select - US Select Growth I Accumulation* 1,597, Vanguard US Equity Index Accumulation* 218, ,230, Emerging Markets 13.93% (5.62%) 900,229 MI Somerset Emerging Markets Small Cap B Accumulation* 1,342, ,361 Overstone Emerging Markets Equity A* 1,229, ,571, Specialist 4.03% (1.67%) 1,000 Kriticos Strategy Global Short Only Fund 744, Investment assets 16,905, Net other assets 1,558, Net assets 18,464, 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 Unregulated * Collective Investment Schemes permitted under COLL, not listed on any exchange. MI Downing Diversified Global Managers 3

6 Comparative Tables Change in net assets per share A Income p p p Opening net asset value per share Return before operating charges^ Operating charges Return after operating charges^ Distributions Closing net asset value per share ^After direct transaction costs of Performance Return after charges 20.72% -5.13% 7.85% Other Information Closing net asset value 3,877,622 3,379,099 4,157,675 Closing number of shares 2,677,882 2,817,181 3,270,958 Operating charges* 1.95% 1.47% 2.04% Direct transaction costs 0.06% 0.00% 0.00% Prices Highest share price Lowest share price A Accumulation p p p Opening net asset value per share Return before operating charges^ Operating charges Return after operating charges^ Distributions Retained distributions on accumulation shares Closing net asset value per share ^After direct transaction costs of Performance Return after charges 20.72% -5.14% 7.85% Other Information Closing net asset value 14,586,552 14,205,653 16,413,436 Closing number of shares 9,822,619 11,548,533 12,657,971 Operating charges* 1.95% 1.47% 2.04% Direct transaction costs 0.06% 0.00% 0.00% Prices Highest share price Lowest share price * The Investment Manager currently rebates the Fund s operating charges in order for them not to exceed 1.95% of the average net asset value of the Fund. Operating charges include indirect costs incurred in the maintenance and running of the Fund, as disclosed (but not limited to) the detailed expenses within the Statement of Total Return. The figures used within this table have been calculated against the average Net Asset Value for the accounting period. The return after charges is calculated as the closing net asset value per share plus the distributions on income shares minus the open net asset value per share as a % of the opening net asset value per share. The Fund invests in Collective Investment Schemes, the expenses incurred by these schemes in relation to the Fund (synthetic ongoing charge) are included within the operating charges. Direct transaction costs include fees, commissions, transfer taxes and duties in the purchasing and selling of investments, which are offset (where applicable) against any dilution levies charged within the accounting period. The figures used within the table have been calculated against the average Net Asset Value for the accounting period. 4 MI Downing Diversified Global Managers

7 Comparative Tables continued Risk and reward profile The risk and reward indicator table demonstrates where the Fund ranks in terms of its potential risk and reward. The higher the rank the greater the potential reward but the greater the risk of losing money. It is based on past data, may change over time and may not be a reliable indication of the future risk profile of the Fund. The shaded area in the table below shows the Fund s ranking on the risk and reward indicator. Typically lower rewards, Typically higher rewards, lower risk higher risk The Fund is ranked 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 Fund: The Fund invests into other funds which themselves invest in assets such as bonds, company shares, cash and currencies. The objectives and risk profiles of these underlying funds may not be fully in line with those of this Fund. Investing in other funds may expose investors to increased risk due to restrictions on withdrawals, less strict regulations and the use of derivatives. The Fund may invest in bond funds which will be impacted by change in interest rates, inflation and any decline in creditworthiness of the underlying bond issuers. The Fund may invest in property funds and unregulated schemes which can be less liquid than other asset classes. Investing overseas can bring additional returns and spread risk to different markets. There are risks, however, that changes in currency exchange rates may cause the value of your investment to decrease and increase. Emerging markets or less developed countries may face more political, economic or structural challenges than developed countries. This means your money is at greater risk. Smaller company shares can be riskier as they may be more difficult to buy and sell and their share price may fluctuate more than that of larger companies. For further risk information please see the prospectus. Risk warning An investment in a non-ucits retail scheme Open-Ended Investment Company should be regarded as a medium to longterm investment. Investors should be aware that the price of shares and the revenue from them can fall as well as rise and investors may not receive back the full amount invested. Past performance is not a guide to future performance. Investments denominated in currencies other than the base currency are subject to fluctuation in exchange rates, which can be favourable or unfavourable. MI Downing Diversified Global Managers 5

8 Statement of the Authorised Corporate Director s Responsibilities The ACD is responsible for preparing the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practices. The Financial Conduct Authority s Collective Investment Schemes sourcebook ( the COLL Sourcebook ) requires the ACD to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the net expense and of the net gains on the property of the Company for that year. In preparing the financial statements the ACD is required to: select suitable accounting policies, as described in the attached financial statements, and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable United Kingdom accounting standards have been followed, including Financial Reporting Standard 102 The financial reporting standard applicable in the United Kingdom and the Republic of Ireland (FRS102) and in accordance with the Statement of Recommended Practice for Financial Statements of UK Authorised Funds issued by the Investment Association (IA) in May 2014, subject to any material departures, which are required to be disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The ACD is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable it to ensure that the financial statements comply with the COLL Sourcebook. The ACD is also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the ACD is aware: there is no relevant audit information of which the Company s auditor is unaware; and the ACD has taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. Certification of the Annual Report by the Authorised Corporate Director In accordance with the requirements of the Regulations and COLL Sourcebook, we hereby certify the Report on behalf of the ACD, Maitland Institutional Services Ltd. R.W. Leedham D. Jones Directors Maitland Institutional Services Ltd 21 July 2017 Maitland Institutional Services Ltd operates as ACD and AIFM for the purposes of the AIFM directive 22 July MI Downing Diversified Global Managers

9 Statement of the Depositary s Responsibilities in Respect of the Scheme and Report of the Depositary to the Shareholders of the MI Downing Managed Fund ( the Company ) for the Year Ended 31 May The Depositary must ensure that the Company is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook, and, from 22 July 2014 the Investment Funds Sourcebook, the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228), as amended, the Financial Services and Markets Act 2000, as amended, (together the Regulations ), the Company s Instrument of Incorporation and Prospectus (together the Scheme documents ) as detailed below. The Depositary must in the context of its role act honestly, fairly, professionally, independently and in the interests of the Company and its investors. The Depositary is responsible for the safekeeping of all custodial assets and maintaining a record of all other assets of the Company in accordance with the Regulations. The Depositary must ensure that: the Company s cash flows are properly monitored and that cash of the Company is booked into the cash accounts in accordance with the Regulations; the sale, issue, repurchase, redemption and cancellation of shares are carried out in accordance with the Regulations; the value of shares of the Company are calculated in accordance with the Regulations; any consideration relating to transactions in the Company s assets is remitted to the Company within the usual time limits; the Company 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 Depositary also has a duty to take reasonable care to ensure that Company is managed in accordance with the Scheme documents and the Regulations in relation to the investment and borrowing powers applicable to the Company. Having carried out such procedures as we consider necessary to discharge our responsibilities as Depositary of the Company, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Company, acting through the AIFM: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Company s shares and the application of the Company s income in accordance with the Regulations, the Scheme documents of the Company, and (ii) has observed the investment and borrowing powers and restrictions applicable to the Company. Northern Trust Global Services Limited UK Trustee and Depositary Services 21 July 2017 MI Downing Diversified Global Managers 7

10 Independent Auditors Report to the Shareholders of the MI Downing Managed Fund We have audited the financial statements of the Company for the period ended 31 May 2017 which comprise the Statement of Total Return, the Statement of Change in Net Assets attributable to Shareholders, the Balance Sheet, the Related Notes,and Distribution Tables on pages 10 to 24. 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 FRS102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. This report is made solely to the Company s shareholders, as a body, in accordance with Rule of the Collective Investment Schemes Sourcebook ( the COLL Rules ) issued by the Financial Services Authority under the Open-Ended Investment Companies Regulations Our audit work has been undertaken so that we might state to the Company s shareholders those matters we are required to state to them in an Auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s shareholders as a body, for our audit work, for this report, or for the opinion we have formed. Respective Responsibilities of the Authorised Corporate Director ( ACD ) Maitland Institutional Services Ltd and the Auditor As explained more fully in the Statement of ACD s Responsibilities set out on page 6, the ACD is responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit, and express opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council s website at Opinion on financial statements In our opinion the financial statements: give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the financial position of the Company as at 31 May 2017 and of the net expense and the net capital gains on the property of the Company for the year then ended; and have been properly prepared in accordance with the Instrument of Incorporation, the Statement of Recommended Practice for Financial Statements of Authorised Funds and the rules in the COLL rules. Opinion on other matters prescribed by the COLL Rules In our opinion the information given in the Authorised Corporate Director s Report is consistant with the financial statements. We have received all the information and explanations which we consider necessary for the purpose of our audit. 8 MI Downing Diversified Global Managers

11 Independent Auditors Report to the Shareholders of the MI Downing Managed Fund continued 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 Company have not been kept; or the financial statements are not in agreement with the accounting records. Ravi Lamba for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square, Canary Wharf, London E14 5GL 21 July 2017 MI Downing Diversified Global Managers 9

12 Statement of Total Return for the year ended 31 May Note Income Net capital gains/(losses) 2 3,467,292 (1,145,929) Revenue 3 153, ,824 Expenses 4 (165,668) (225,449) Interest payable and similar charges 4 (38) (10) Net (expense)/revenue before taxation (12,456) 104,365 Taxation Net (expense)/revenue after taxation (12,250) 104,588 Total return before distributions 3,455,042 (1,041,341) Distributions 6 (4,485) (104,590) Change in net assets attributable to Shareholders from investment activities 3,450,557 (1,145,931) Statement of Change in Net Assets Attributable to Shareholders for the year ended 31 May Opening net assets attributable to Shareholders 17,584,752 20,571,111 Amounts receivable on issue of shares 683, ,311 Less: Amounts payable on cancellation of shares (3,255,449) (2,426,086) (2,571,766) (1,915,775) Dilution levy 631 Renewal commission 420 Change in net assets attributable to Shareholders from investment activities (see Statement of Total Return above) 3,450,557 (1,145,931) Retained distribution on accumulation shares 74,927 Closing net assets attributable to Shareholders 18,464,174 17,584,752 The notes on pages 12 to 23 form an integral part of these Financial Statements. 10 MI Downing Diversified Global Managers

13 Balance Sheet as at 31 May 2017 ASSETS Note Fixed Assets Investments 16,905,727 17,209,881 Current Assets Debtors 7 1,326,890 27,388 Cash and bank balances 9 909,699 3,250,357 Total current assets 2,236,589 3,277,745 Total assets 19,142,316 20,487,626 LIABILITIES Investment liabilities Creditors Bank overdrafts 9 (646,993) Distribution payable (17,895) Other creditors 8 (31,149) (2,884,979) Total creditors (678,142) (2,902,874) Total liabilities (678,142) (2,902,874) Net assets attributable to Shareholders 18,464,174 17,584,752 The notes on pages 12 to 23 form an integral part of these Financial Statements. MI Downing Diversified Global Managers 11

14 Notes to the Financial Statements for the year ended 31 May Accounting Policies (a) Basis of accounting The financial statements have been prepared under the historical cost basis, as modified by the revaluation of investments and in accordance with FRS 102 and the Statement of Recommended Practice ( SORP ) for Financial Statements of UK Authorised Funds issued by the Investment Association (IA) in May The financial statements have been prepared on the going concern basis. The authorised Status and head office of the Fund can be found within the general information starting on page 25. The Certification of the Annual Report by the Authorised Corporate Director can be found on page 6. (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. Distributions from collective investment schemes are recognised when the schemes are quoted ex-distribution. Equalisation returned with the distribution is deducted from the cost of the investment and does not form part of the distributable revenue. Any reported revenue from an offshore reporting fund is recognised as revenue no later than the date on which the reporting fund makes the information available. 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) Allocation of revenue and expenses to multiple share classes With the exception of the Investment Manager s fee which is directly attributable to individual share classes, all revenue and expenses are apportioned to the Fund s share classes pro-rata to the value of the net assets of the relevant share class on the day that the revenue or expense is recognised. (f) 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. 12 MI Downing Diversified Global Managers

15 Notes to the Financial Statements continued (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 Shareholders 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 Fund. (h) 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. Collective investment schemes are valued at quoted bid price for dual priced funds and at quoted price for single priced funds, on the last business day of the accounting period. 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. The fair value of open forward foreign currency contracts is calculated with reference to the changes in the spot rate, changes in interest rate differential and the reduced term left to maturity. Market value is defined by the SORP as fair value, which generally is the bid value of each security. Amendments to FRS Fair value hierarchy disclosures, amends paragraphs and of FRS 102, revising the disclosure requirements for financial instruments held at fair value and aligning the disclosures with those required by EU-adopted IFRS. There are no accounting policy or disclosure changes as a result of this adoption. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows: Level 1 Unadjusted quoted price in an active market for an identical instrument. Level 2 Valuation techniques using observable inputs other than quoted prices within Level 1. Level 3 Valuation techniques using unobservable inputs. (i) 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. (j) Dilution levy The Authorised Corporate Director may require a dilution levy on the sale and redemption of shares if, in its opinion, the existing shareholders (for redemptions) might otherwise be adversely affected. In particular, the dilution levy may be charged in the following circumstances: where the scheme property is in continual decline; on a Fund experiencing large levels of net sales relative to its size; on large deals ; in any case where the Authorised Corporate Director is of the opinion that the interests of remaining shareholders require the imposition of a dilution levy. MI Downing Diversified Global Managers 13

16 Notes to the Financial Statements continued 2. Net Capital Gains/(Losses)^ Realised Unrealised Total Non-derivative securities 2,647, ,877 3,465,049 Currency gains 7,239 7,239 Transaction charges (4,996) (4,996) Net capital gains 2,649, ,877 3,467, Realised Unrealised Total Non-derivative securities (261,184) (883,943) (1,145,127) Transaction charges (802) (802) Net capital losses (261,986) (883,943) (1,145,929) ^ Where realised gains/losses include gains/losses arising from prior years, a corresponding loss/gain is included within the unrealised gains/losses presented. 3. Revenue Distributions from Regulated Collective Investment Schemes: Franked investment income 137, ,303 Unfranked investment income 20,334 Offshore distributions 3,962 Interest distributions 2,991 Bank interest (228) Renewal commission (4,669) 9,568 Total revenue 153, , MI Downing Diversified Global Managers

17 Notes to the Financial Statements continued 4. Expenses Payable to the Authorised Corporate Director (ACD), associates of the ACD and agents of either of them: ACD s fee 182,632 61,163 Registration fees 13,290 4, ,922 66,007 Payable to the Investment Manager, associates of the Investment Manager and agents of either of them: Investment Manager s fee 131,615 Payable to the Depositary associates of the Depositary and agents of either of them: Depositary s fee (including VAT) 12,764 8,701 Safe custody and other bank charges 9,783 5,141 22,547 13,842 Other expenses: Audit fee (including VAT) 7,380 7,140 Audit fee (including VAT): taxation services 1,500 1,500 FCA fee Sundry (436) Legal fees 5,719 3,988 Printing costs 1,318 1,529 15,928 13,985 Total ongoing charge rebates accrued against expenses (68,729) Expenses 165, ,449 Interest payable and similar charges Total 165, ,459 MI Downing Diversified Global Managers 15

18 Notes to the Financial Statements continued 5. Taxation (a) Analysis of charge in the year: UK income tax recoverable (206) (223) Total tax charge (note 5b) (206) (223) (b) Factors affecting taxation charge for the year Net (expense)/revenue before taxation (12,456) 104,365 Corporation tax at 20% (2,491) 20,873 Effects of: UK dividends (31,629) (63,453) UK income tax recoverable (206) (223) Realised gain on Non Reporting Fund 5,104 Movement in surplus management expenses 29,016 42,580 Total tax charge (note 5a) (206) (223) (c) Deferred tax At the year end there is a potential deferred tax asset of 214,347 (2016: 185,331) in relation to surplus management expenses. It is unlikely that the Fund will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset has been recognised in the year. 6. Distributions The distributions take account of revenue received on the issue of shares and revenue deducted on the cancellation of shares, and comprise: Final distribution ,822 Revenue deducted on cancellation of Shares 5,619 14,521 Revenue received on issue of Shares (1,134) (2,753) Distributions 4, ,590 Reconciliation of net (expense)/revenue after taxation to net distributions: Net (expense)/revenue after taxation per statement of total return (12,250) 104,588 Revenue deficit to be transferred from capital 16,733 Undistributed revenue brought forward 2 4 Undistributed revenue carried forward (2) Distributions 4, , MI Downing Diversified Global Managers

19 Notes to the Financial Statements continued 7. Debtors Amounts receivable on issues 2,337 19,706 Sales awaiting settlement 1,314,094 Accrued income: Management fee rebates accrued 5,828 UK income tax recoverable 1, Prepaid expenses: Legal fee 111 Registration fees - 1,032 Total ongoing charge rebates accrued against expenses 9,320 Total debtors 1,326,890 27, Other Creditors Amounts payable on cancellations ,619 Purchases awaiting settlement 2,822,683 Accrued expenses: Amounts payable to the Authorised Corporate Director (ACD), associates of the ACD and agents of either of them: ACD s fee 15,395 15,211 Registration fees 1,135 16,530 15,211 Amounts payable to the Depositary associates of the Depositary and agents of either of them: Depositary s fee (including VAT) 2,003 1,049 Safe custody and other bank charges 1,253 2,000 3,256 3,049 Other expenses: Audit fee (including VAT) 7,200 7,020 Audit fee (including VAT): taxation services 3,000 1,500 Legal fees 208 Printing costs 810 1,500 FCA fee ,010 10,417 Total other creditors 31,149 2,884,979 MI Downing Diversified Global Managers 17

20 Notes to the Financial Statements continued 9. Cash and Bank Balances Cash and bank balances 909,699 3,250,357 Overdraft positions (646,993) Cash and bank balances 262,706 3,250, Related Party Transactions Authorised Corporate Director and other fees payable to Maitland Institutional Services Ltd (the ACD) are disclosed in note 4 and amounts due at the year end are shown in note 8. Fees payable to Downing 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 shares and any dilution levy are disclosed in the Statement of Change in Net Assets Attributable to Shareholders and in note 6, amounts due at the year end are shown in notes 7 and 8. Amounts receivable from the Investment Manager for Total ongoing charge rebates accrued against expenses 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 (2016: none). 12.Risk Management Policies and Disclosures In pursuing its investment objectives, the Fund may hold a number of financial instruments. These financial instruments comprise securities and other investments, cash balances, debtors and creditors that arise directly from the Fund s operations, for example, in respect of sales and purchases awaiting settlement, amounts receivable for creations and payable for redemptions and debtors for accrued revenue. In doing so, the ACD accepts market price risk in relation to the investment portfolio. The Fund may also enter into a range of derivative transactions whose purpose is efficient portfolio management. In addition the Fund only executes derivative contracts where both the derivative instrument and the counterparty have been approved by the ACD. The risks arising from financial instruments and the ACD s policies for the monitoring and managing of these risks are stated below in accordance with the Risk Management Policy of the ACD. These policies have been consistent for both years through which these financial statements relate. Market price risk Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Fund might suffer through holding market positions in the face of price movements. This means the value of an investor s holding may go down as well as up and an investor may not recover the amount invested. Investors should consider the degree of exposure of the Fund in the context of all their investments. The Fund s investment portfolio is exposed to market price fluctuations, which are monitored by the ACD 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 Fund will be exposed. At the balance sheet date, if the price of the investments held by the Fund increased or decreased by 10%, with all other variables held constant, the net assets attributable to Shareholders would increase or decrease by approximately 1,690,573 (2016: 1,720,988). 18 MI Downing Diversified Global Managers

21 Notes to the Financial Statements continued 12.Risk Management Policies and Disclosures (continued) Currency risk Although the Fund s capital and income are denominated in sterling, a proportion of the Fund s investments may have currency exposure and, as a result, the income and capital value of the Fund are affected by currency movements. Currency risk is the risk that the value of the Fund s investments will fluctuate as a result of changes in currency exchange rates. For Funds where a proportion of the net assets of the Fund is denominated in currencies other than sterling, the balance sheet can be affected by movements in exchange rates. The ACD monitors the currency exposure of the Fund and may seek to manage exposure to currency movements by using forward exchange contracts or by hedging the sterling value of investments that are priced in other currencies. The table below details the currency risk profile at the balance sheet date Monetary Non-monetary Currency exposures exposures Total Euro 1,487,444 1,487,444 Japanese yen 2,393,161 2,393,161 Pound sterling 1,558,447 7,821,531 9,379,978 United States dollar 5,203,591 5,203,591 1,558,447 16,905,727 18,464, Monetary Non-monetary Currency exposures exposures Total Euro 1,956,635 1,956,635 Japanese yen 1,872,577 1,872,577 Pound sterling 374,871 11,593,041 11,967,912 United States dollar 1,787,628 1,787, ,871 17,209,881 17,584,752 At the balance sheet date, if the value of sterling increased or decreased by 10%, with all other variables held constant, then the net assets attributable to Shareholders would increase or decrease by approximately 908,420 (2016: 561,684). Interest rate risk Interest rate risk is the risk that the value of the Fund s investments will fluctuate as a result of changes in interest rates. The Fund may invest in fixed and floating rate securities or schemes that invest in fixed or floating rate securities. The revenue of these Funds may be affected by changes in interest rates relevant to particular securities or as a result of the ACD being unable to secure similar returns on the expiry of contracts or sale of securities. The value of fixed interest securities may be affected by interest rate movements or the expectation of such movements in the future. Interest receivable on bank deposits or payable on bank overdraft positions will be affected by fluctuations in interest rates. MI Downing Diversified Global Managers 19

22 Notes to the Financial Statements continued 12.Risk Management Policies and Disclosures (continued) Interest rate risk (continued) The table below details the interest rate risk profile at the balance sheet date: Assets Floating on which Assets rate interest on which financial distributions interest is Currency assets are paid not paid^ Total Euro 2,130,457 2,130,457 Japanese yen 2,393,161 2,393,161 Pound sterling 909,699 8,505,408 9,415,107 United States dollar 5,203,591 5,203,591 ^ Equity Shares which receive dividend revenue and debtors 909,699 18,232,617 19,142,316 Floating Financial rate liabilities financial not carrying Currency liabilities interest Total Euro 643, ,013 Pound sterling 3,980 31,149 35, ,993 31, , Assets Floating on which Assets rate interest on which financial distributions interest is Currency assets are paid not paid^ Total Euro 1,956,635 1,956,635 Japanese yen 1,872,577 1,872,577 Pound Sterling 3,250,357 11,620,429 14,870,786 United States dollar 1,787,628 1,787,628 ^ Equity Shares which receive dividend revenue and debtors 3,250,357 17,237,269 20,487,626 Floating Financial rate liabilities financial not carrying Currency liabilities interest Total Pound sterling 2,902,874 2,902,874 2,902,874 2,902, MI Downing Diversified Global Managers

23 Notes to the Financial Statements continued 12.Risk Management Policies and Disclosures (continued) Interest rate risk (continued) Floating rate interest-bearing assets at the balance sheet date consist of bank balances, on which interest is calculated at a variable rate by reference to sterling bank deposit rates or the international equivalent; and floating rate notes, on which interest is calculated at a variable rate by reference to the London Interbank Offered Rate (LIBOR) or the Euro Interbank Offered Rate (EURIBOR). There is no material interest rate exposure in the Fund (2016: none). Credit risk Credit risk arises from two main sources. Firstly, the possibility that the issuer of a security will be unable to pay interest and principal in a timely manner. Secondly, there is the possibility of default of the issuer and default in the underlying assets of a Collective Investment Scheme, meaning that a Fund may not receive back the full principal originally invested. Adhering to investment guidelines and avoiding excessive exposure to one particular issuer or scheme can limit credit risk. There are no net borrowings or unlisted securities and the ACD considers that the Fund has little exposure to credit risk. Liquidity risk Liquidity risk is the risk that a Fund cannot raise sufficient cash to meet its liabilities when due. One of the key factors influencing this will be the ability to sell investments at, or close to, the fair value without a significant loss being realised. Under normal circumstances, a Fund will remain close to fully invested. However, where circumstances require: either because a view of illiquid securities markets or high levels of redemptions in the Fund, the Fund may hold cash and/or more liquid assets. Temporary higher liquidity levels may also arise during the carrying out of a change in asset allocation policy, or following a large issue of shares. Counterparty risk The risk that the counterparty will not deliver the investments for a purchase or the cash for a sale after the Fund has fulfilled it s responsibilities which could result in the fund suffering a loss. The Investment Manager minimises the risk by conducting trades through only the most reputable counter parties. Derivatives The Fund may enter into derivative contracts for Efficient Portfolio Management (EPM) purposes. The purposes of EPM must be to achieve reduction of risk, the reduction of cost, or the generation of additional income or capital with an acceptably low level of risk and the use of these instruments must not cause the Fund to stray from its investment objectives. Any EPM transaction must be economically appropriate and the exposure fully covered. The ACD monitors the use of derivatives to ensure EPM rules are satisfied. In the opinion of the ACD there is no sophisticated derivative use within the Fund and accordingly a sensitivity analysis is not presented. Fair value of financial assets and liabilities Investments disclosed as at the balance sheet date are at fair value. Current assets and liabilities disclosed in the balance sheet are at amortised cost which is approximate to fair value. MI Downing Diversified Global Managers 21

24 Notes to the Financial Statements continued 13.Portfolio Transaction Costs Purchases Analysis Net before of purchases purchase Commissions transaction cost paid Taxes cost % % Equities 2,509,067 1, % 3, % 2,504,806 Funds 10,404, % 5, % 10,398,530 Total purchases after commissions and tax 12,913,528 Sales Analysis Net before of sales sale Commissions Taxes transaction proceeds paid cost % % Funds 16,697, % 2, % 16,699,872 Total sales after commissions and tax 16,697,633 Commission as a % of average net assets 0.01% Taxes as a % of average net assets 0.06% Purchases Analysis Net before of purchases purchase Commissions Taxes transaction cost paid costs % % Funds 6,308, ,308,787 Total purchases after commissions commissions and tax 6,308,787 Sales Analysis Net before of sales sale Commissions Taxes transaction proceeds paid costs % % Funds 8,413, ,413,694 Total sales after commissions and tax 8,413,694 Commission as a % of average net assets 0.00% Taxes as a % of average net assets 0.00% Commissions and taxes as a % of the average net assets form part of the direct transactions costs stated within the comparative tables on page 4. The direct transaction costs within the comparative tables may differ due to the effect of dilution levies charged (where applicable). 22 MI Downing Diversified Global Managers

25 Notes to the Financial Statements continued 14.Portfolio Dealing Spread The average portfolio dealing spread at 31 May 2017 is 0.10% (2016: 0.22%). 15.Fair Value Disclosure Valuation technique Assets Liabilities Assets Liabilities Level 1^ 1,369,084 Level 2^^ 14,227,719 16,915,571 Level 3^^^ 1,308, ,310 ^ Level 1: Unadjusted quoted price in an active market for an identical instrument. 16,905,727 17,209,881 ^^ 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 294,310 1,252,490 Purchases 1,335,672 Sales (294,310) Total gains or losses included in the net capital gains/(losses) in the Statement of Total Return: - on assets sold (884,284) - on assets held at year end 857,536 (958,180) Closing Balance 1,308, , Shareholders Funds A A Income Accumulation Opening number of Shares 2,817,181 11,548,533 Shares issued 8, ,303 Shares cancelled (148,169) (2,209,217) Closing number of Shares 2,677,882 9,822,619 MI Downing Diversified Global Managers 23

26 Distribution Tables for the year ended 31 May 2017 Income Share Distributions Share Distribution Shares Net Equalisation Distribution Distribution class revenue paid payable p p 2017 p 2016 p A Income Final Group Group Accumulation Share Distributions Share Distribution Shares Net Equalisation Amount Amount class revenue reinvested reinvested p p 2017 p 2016 p A Accumulation Final Group Group Further information Final period: Group 1: Group 2: Shares purchased prior to a distribution period Shares purchased during a distribution period Equalisation Equalisation applies only to shares purchased during the distribution period (Group 2 shares). It represents accrued revenue included in the purchase price of the shares. After averaging, it is returned with the distribution as a capital repayment. It is not liable to income tax but must be deducted from the cost of the shares for capital gains tax purposes. 24 MI Downing Diversified Global Managers