for margetts providence strategy fund · 2016. 11. 3. · through the referendum held on the 23rd...

HEAD OFFICE MARGETTS FUND MANAGEMENT LTD DEALING 1 SOVEREIGN COURT PO BOX 17067 GRAHAM STREET www.margetts.com BIRMINGHAM BIRMINGHAM VAT No. (GB) 795 0415 16 B2 2HL B1 3JR

Registered in England No. 4158249

TELEPHONE: 0121 236 2380 Authorised and Regulated by TELEPHONE: 0345 607 6808 FACSIMILE: 0121 236 2330 the Financial Conduct Authority FACSIMILE: 0131 525 9900

Annual Report and

Financial Statements

for Margetts

Providence Strategy Fund

For the year ended 30 June 2016

http://www.margetts.com/

Manager

Margetts Fund Management Limited 1 Sovereign Court

Graham Street Birmingham

B1 3JR

Tel: 0121 236 2380 Fax: 0121 236 2330

(Authorised and regulated by the Financial Conduct Authority)

Directors of the Manager

T J Ricketts T H Ricketts A J M Quy J E J Clay

M D Jealous A S Weston

G M W Oakley (non-exec) J M Vessey (non-exec)

Trustee

BNY Mellon Trust & Depositary (UK) Ltd The Bank of New York Mellon Centre

160 Queen Victoria Street London

EC4V 4LA


Administrator and Registrar

Margetts Fund Management Ltd PO Box 17067

Birmingham B2 2HL

Tel: 0345 607 6808 Fax: 0121 236 8990


Auditors

Shipleys LLP Chartered Accountants & Statutory Auditors

10 Orange Street Haymarket

London WC2H 7DQ

Contents Fund Manager’s Report 1 Certification of Accounts by Directors of the Manager 4 Significant Purchases and Sales 5 Portfolio Statement 6 Statement of Manager’s Responsibilities 7 Statement of Trustee’s Responsibilities 7 Report of the Trustee 8 Independent Auditors’ Report to the Unitholders of the Margetts Providence Strategy Fund 9 Net Asset Value per Unit and Comparative Tables 11 Financial Statements

Statement of Total Return 14 Statement of Change in Net Assets Attributable to Unitholders 14

Balance Sheet 15 Notes to the Financial Statements 16 Distribution Table 24

General Information 25

1

Fund Manager’s Report For the year ended 30 June 2016

Investment Objective To provide a balance of long term capital growth and increasing income by investment in any economic sector in any geographic area in regulated collective investment schemes investing in a wide range of assets including equities, fixed interest and cash type instruments. The Fund is designed with a cautious investment strategy and a risk rating of 2 to 3 on a scale of 1 to 10 (with 10 being highest risk). The Fund typically invests in equity income and fixed interest funds with a bias towards the UK market and is intended to comply with the requirements of the Investment Management Association (IMA) Mixed Investment 20-60% Shares sector. Investment Review Providence Strategy R 1.99% Providence Strategy 1.23% Benchmarks: IA Mixed Investment 20-60% Share 3.03% FTSE 350 High Yield TR GBP 5.86% FTSE Actuaries UK Conventional Gilts All Stocks 14.80% (Source – Analytics) The Margetts Providence fund has provided a positive return over the period which has been marginally below the IA peer group and considerably below the two technical benchmarks especially the FTSE Actuaries UK Conventional Gilts All Stocks index. Please note that the performance figures are negatively distorted due to the significant volatility which occurred in the wake of the Brexit vote, in the last few days of the reporting period. This will be reflected in the next interim report. The key event during this reporting period was the historic decision of the British people, expressed through the referendum held on the 23rd June, to leave the European Union. This decision has far reaching consequences for the UK economy, the European economy and the global economy. Stock markets experienced high levels of volatility in the run-up to the vote as the polls showed that the result of the referendum was too close to call. On the day of the referendum, global currency and stock markets appeared to price in a 'remain' outcome, as privately commissioned polls hinted to this likelihood, and this scenario reversed abruptly as the first results were announced. The initial market reaction was a significant fall in both sterling and UK equities shortly followed by a recovery in equity markets. This resulted in strong performance for many assets in the days that followed the Brexit vote. Overseas assets have been boosted in Sterling terms by the currency devaluation, whilst UK equities had recovered on hopes that the Bank of England will provide further stimulus as a consequence of the Brexit vote. Prior to the Brexit vote, when David Cameron was interviewed on Radio 4 and asked if he would resign if an ‘Out’ vote occurred, he replied that he would go to work on Friday morning, whatever the outcome, and carry out the will of the British people. In the event, this is not what occurred as when he appeared after the vote, following what was clearly an emotional defeat, he resigned. He suggested that his successor should take over before October and trigger ‘Article 50’ of the Lisbon Treaty, which would formally begin the untested process, by which a member state leaves the European Union. A ‘Hail Mary’ pass is a very long forward pass in American football made in desperation with only a small chance of success. As a firm ‘Remain’ campaigner this was the final option available to Mr Cameron to avoid triggering the irreversible ‘Article 50’ and instead create some time and space for any other developments, which could avoid the outcome he desperately believes to be against the national interest. Key European leaders were quick to defend against this tactic. Europe has significant problems and providing an easy exit for the UK will encourage others to pursue a similar path. The President of the European Commission, Jean-Claude Juncker, has insisted that the UK now triggers ‘Article 50’ without

2

Fund Manager’s Report (continued)

delay with French, German and other leaders insisting that no negotiations of any kind (formal or informal) can begin until this occurs. Once ‘Article 50’ is triggered, the UK will be cut out of EU decision-making at the highest level and the only way back is by unanimous consent from all other members, so it is effectively a one way process. In the meantime, the UK remains bound by all other membership requirements of the EU including the contentious requirements of free movement of people and contribution to EU budgets. The process is mandated to only take two years and again all members must consent if any extension is granted. The work and skill required to negotiate a successful exit is considerable and it is not realistic to expect that 43 years of European integration can be undone in such a short timeframe. Since the outcome of the referendum was announced, events have moved quickly. The political landscape has changed considerably as the Labour party has disintegrated, with the majority of the shadow cabinet resigning triggering a new leadership contest, and the Conservative party electing a new lead in Theresa May. Scotland and Northern Ireland voted to remain part of the EU and the Scottish National Party are looking at options of independence once again, and also the possibility of blocking the UK exit from the EU in Parliament. Standard & Poor’s and other ratings agencies have reduced their view of the creditworthiness of the UK, warning of further downgrades due to lower economic growth expectations. This has not negatively impacted the value of UK Government debt, which has soared to record highs. 10 year yields have fallen below 1% on the expectation that UK interest rates will remain lower for longer. The effect to date for investors has been generally positive and some investors will be surprised that their portfolios have risen sharply as a result of Brexit. Investors who hold overseas assets or UK fixed interest investments will have seen positive returns. Investment markets have effectively granted many investors their own ‘Hail Mary’ pass opportunity, as anyone wishing they had ‘panicked’ out of their investments pre-referendum can now do so at a profit to pre-referendum levels. The key question is should they? We feel there are more positives than investors perceive right now. The devaluation in Sterling is something which Western economies have being trying to achieve for many years. Japan, most notably, has engaged in the most aggressive money printing policy (relative to the rest of the world) combined with negative interest rates; but the Yen has remained stubbornly expensive. The benefit of a weak currency is that exports become cheaper and imports more expensive, boosting demand for domestic goods and services. The Brexit effect has created a 10% price cut for UK exporters. Companies trading with the EU are unlikely to benefit due to the increased uncertainty with regard to future UK access to the free market, but export businesses trading internationally outside of the EU will be celebrating. Most would accept that the EU project has been failing in recent years with the credit crisis exposing the huge economic imbalances, which exist within Europe. Youth unemployment of 50% in many southern European countries presents a huge problem and the financial discipline, which Germany insists upon, has condemned many members to years of negative growth with no immediate solution in sight. European politics has become increasingly detached from European democracy and the British referendum has exposed this fact in a manner that cannot be ignored by any member state. Europe must reform to survive and leaving a failing project may work, but remaining part of a reformed Europe may also be logical. This opportunity may ultimately present itself, but this cannot be a short term consideration. In the meantime short term political uncertainty is very high. If or when will the Government trigger 'Article 50'? How long will the exit take and what will it look like? Who will lead the Opposition? Will Scotland and Northern Ireland remain in the UK?

3

Fund Manager’s Report (continued) We have developed an expected framework (outlined below) around these unknowns so that we can monitor outcomes to our current expectations. Theresa May is building a team to negotiate the UK exit from the EU. It does not seem sensible to activate 'Article 50' until she is certain of her initial negotiating position and strategy. This is a considerable project and it could take some time to complete. It will be difficult for the Prime Minister to balance the best possible preparation against the inevitable calls for action from 'out' campaigners if progress is too slow. As an educated guess we expect 'Article 50' to be triggered in the first two quarters of 2017. Political posturing from Scotland and Northern Ireland is unlikely to result in an independence vote until the future position of the UK within Europe is established, as voters will not want to make a decision without this information. It has already become clear that the pace of the UK withdrawal from Europe will be much slower than many of the ‘Leave’ camp initially expected. This is effectively a divorce where there is much at stake. The ‘children’ of the divorce are around 3 million EU nationals who live in the UK and around 1.2 million UK nationals who live in Europe, whose rights must be agreed. The financial implications are the £8Bn per annum (£121m per week) net contribution to the EU budget (source: BBC) and the significant trade generated via our access to the single market, which is vital to both sides. There is also the additional burden of replacing or adopting European legislation once the UK has left the EU. Given the size of the challenge and the need for Europe to agree our exit with the unanimous vote of the remaining 27 members, the prospect that this can be completed in two years is unrealistic, given the issues at stake and the previous pace of European negotiation (with the example of serious issues, such as the Greek debt crisis being negotiated to the 11th hour). If the EU does insist on the UK leaving within the two year timeframe, the exit will be rushed and poorly orchestrated, with significant economic damage caused to both sides. Therefore we expect that a gradual exit programme will be agreed with the UK leaving the EU within the two year timetable, but moving to an EEA plus or minus (European Economic Area) position. This will continue our access to the single market whilst also requiring the UK to contribute to the EU budget and adopt EU legislation. This initial change will not result in any significant difference to the current position, except that we will lose our voice in Europe. But this is balanced by the UK gaining some control over EU immigration, with the ability to negotiate trade agreements outside of the EU. From this position, further withdrawal may occur over the following years with access to the single market being reduced if we cease to contribute to the EU budget and/or impose significant restrictions on EU immigration. During this process, the door back into the EU will remain open, should the EU reform and become more compatible with the will of the British people. From an investment perspective, the referendum result was a shock to global markets and initial thoughts were of a disorderly and rushed exit from the EU. As the initial shock subsided, it will become clear that this exit will be over a number of phases and on a glacial time scale rather than a ‘quickie’ divorce. The uncertainty will continue to lead to market volatility and the EU may start to realise that reform is needed for its survival and this would be a positive outcome. The outcome of the referendum is a path changing or 'sliding doors' event. Prior to this event we believed that economic progress was likely to exceed expectation with signs that the second half of 2016 could experience accelerating growth. This indication is no longer valid as the effects of the referendum are unknown. Post Brexit data has not yet started to come through and we expect that investors will place a high level of importance on economic data collected after the Brexit vote.

4

Fund Manager’s Report (continued) Initially signs of falls in confidence have been observed with downgrades to UK, European and Global growth being reported by many agencies. This reflects apprehension, which is understandable, but if indicators improve in the short term this will be positive and we believe that there are currently investment opportunities available. Margetts Fund Management Ltd Manager 20 September 2016

Certification of Accounts by Directors of the Manager This report is signed in accordance with the requirements of the Collective Investment Schemes Sourcebook (COLL) as issued and amended by the Financial Conduct Authority.

T J Ricketts M D Jealous

Margetts Fund Management Ltd 13 October 2016

Authorised Status The fund is an authorised unit trust scheme established on 10 February 1995.

It is a Non UCITS Retail Fund (NURS) authorised under Section 243 of the Financial Services and Markets Act 2000, and the currency of the fund is Pounds Sterling.

5

Significant purchases and salesFor the year ended 30 June 2016

Total purchases for the year £61,624,963

Purchases Cost (£)

L&G ASIAN INCOME TRUST I ACC £10,583,000

GOLDMAN SACHS GBP INSTL LIQUIDITY FUND £10,340,000

INVESCO GBP CORPORATE CLASS FUND £10,270,000

SCHRODER UK ALPHA INCOME L INC £9,699,963

ROYAL LONDON SHORT DUR CRDT Z GBP INC £8,591,000

AXA STERLING CREDIT SHORT DURATION BND Z GROSS ACC £2,805,000

M&G GLOBAL DIVIDEND I ACC £2,748,000

SMITH & WILLIAMSON SHORT-DATED CORP BOND Z £2,250,000

STANDARD LIFE GLOBAL INDEX LINKED BOND INST INC £1,250,000

Total sales for the year £64,280,912

Sales Proceeds (£)

NEWTON ASIAN INCOME INSTL W NET ACC £11,120,356

GOLDMAN SACHS STERLING LIQUID RESERVES ADMIN DIST £10,340,000

INVESCO STERLING LIQUIDITY SELECT CLASS FUND £10,270,000

SCHRODER UK ALPHA INCOME Z INC £10,150,963

FP BROWN SHIPLEY STERLING BOND I ACC £8,833,593

STANDARD LIFE EUROPEAN EQ INC INST ACC £2,753,000

AXA STERLING CREDIT SHORT DURATION BND Z GROSS ACC £2,050,000

SMITH & WILLIAMSON SHORT-DATED CORP BOND Z £1,986,000

M&G GLOBAL DIVIDEND I ACC £1,901,000

STANDARD LIFE GLOBAL INDEX LINKED BOND INST INC £1,164,000

6

Portfolio statement As at 30 June 2016

Total Net Assets

Holding Portfolio of Investments Value (£) 30.06.16

% 30.06.15

%

United Kingdom

8,594,795 Aviva UK Equity Income SC 2 11,539,371 6.38

1,568,205 Premier Income Fund Class C Net Income Shares 10,941,839 6.05

6,843,050 MGTS Ardevora UK Income A Inst Acc 12,021,185 6.65

1,676,163 Royal London Equity Inc B 11,899,084 6.58

22,851,258 Schroder UK Alpha Income Z Inc 11,555,881 6.39

9,129,391 Threadneedle UK Equity Income ZNI 11,638,147 6.44

Total United Kingdom 69,595,507 38.49 38.22

Bonds

8,629,904 Axa Sterling Credit Short Duration Bond Z Gross Acc 10,148,767 5.61

2,952,748 Blackrock Corporate Bond D Acc 9,044,266 5.01

8,355,603 M&G UK Inflation Linked Corporate Bond I Acc 9,631,503 5.33

8,535,228 Royal London Short Dur Crdt Z Gbp Inc 8,654,721 4.79

9,402,008 Smith & Williamson Short-Dated Corp Bnd Z 9,182,941 5.08

6,482,789 Standard Life Global Index Linked Bond Inst Inc 9,847,357 5.45

Total Bonds 56,509,555 31.27 29.50

Europe (excl. UK)

9,093,793 Standard Life European Eq Inc Inst Acc 9,848,578 5.45

Total Europe (excl. UK) 9,848,578 5.45 6.27

Asia Pacific (excl. Japan)

1,768,329 L&G Asian Income Trust I Acc 11,320,843 6.27

Total Asia Pacific (excl. Japan) 11,320,843 6.27 5.86

Global

5,254,125 M&G Global Dividend I Acc 11,821,255 6.54

Total Global 11,821,255 6.54 5.34

Money Markets

10,340,000 Goldman Sachs Sterling Liquid Reserves Admin Dist 10,340,000 5.72

10,270,000 Invesco Sterling Liquidity Select Class Fund 10,270,000 5.68

Total Money Markets 20,610,000 11.40 10.96

Portfolio of Investments 179,705,738 99.42 96.15

Net Current Assets 1,054,406 0.58 3.85

Net Assets 180,760,144 100 100

The investments have been valued in accordance with note 1(b) and are authorised Collective Investment Schemes.

7

Statement of Manager’s responsibilities

The Manager is responsible for preparing the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice.

The Financial Conduct Authority’s Collective Investment Schemes Sourcebook (“COLL”) requires the Manager to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Fund and of the net revenue / expenses and of the net gains / losses on the property of the Fund for that year.

In preparing the financial statements the Manager is required to:

select suitable accounting policies, as described in the attached financial statements, and apply them consistently;

make judgments and estimates that are reasonable and prudent;

comply with the Prospectus, generally accepted accounting principles and applicable accounting standards subject to any material departures which are required to be disclosed and explained in the financial statements;

comply with the disclosure requirements of the Statement of Recommended Practice for Financial Statements and Authorised Funds;

keep proper accounting records which enable it to demonstrate that the accounts as prepared comply with the above requirements; and

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the scheme will continue in operation.

The Manager is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Fund and to enable them to ensure that the financial statements comply with the COLL Sourcebook. The Manager is also responsible for safeguarding the assets of the Fund and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. This function is performed by the manager, and references to the manager include the AIFM as applicable.

In so far as the Manager is aware:

There is no relevant audit information of which the Fund’s auditors are unaware; and

The Manager has taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

Statement of the Trustee's Responsibilities for the year ended 30 June 2016 The Trustee is responsible for the safekeeping of all custodial assets of the Trust, for verifying ownership and maintaining a record of all other assets of the Trust and for the collection of income that arises from those assets. It is the duty of the Trustee to take reasonable care to ensure that the Trust is managed in accordance with the Financial Conduct Authority’s Collective Investment Company’s Sourcebook (“COLL”), from the 22nd July 2014 the Financial Conduct Authority’s Investment Funds Sourcebook (“FUND”) and the Trust Deed and Prospectus, in relation to the pricing of, and dealings in, units in the Trust; the application of revenue of the Trust; and the investment and borrowing powers and restrictions of the Trust. The Trustee must ensure that: • the Trust’s cash flows are properly monitored and that cash of the Trust is booked in cash accounts in accordance with the Sourcebooks; • the issue, sale, redemption and cancellation of units are carried in accordance with the Regulations; • the value of units of the Trust are calculated in accordance with the Regulations; • the instructions of the Alternative Investment Fund Manager (AIFM) are carried out (unless they conflict with the Regulations); • any consideration relating to transactions in the Trust’s assets is remitted within the usual time limits; and • that the Trust’s income is applied in accordance with the Regulations.

8

Report of the Trustee to the Unitholders of the Margetts Providence Strategy fund for the year ended 30 June 2016 Having carried out such procedures as we consider necessary to discharge our responsibilities as Trustee of the Trust, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Trust, acting through the AIFM: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Trust’s units and the application of the Trust’s income in accordance with COLL and, where applicable, the FUND Sourcebook the OEIC Regulations, the Instrument of Incorporation and Prospectus of the Trust; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Trust. For and on behalf of BNY Mellon Trust & Depositary (UK) Limited 160 Queen Victoria Street London EC4V 4LA

Manager Date 19 October 2016

9

Independent auditors’ report to the unitholders of Margetts Providence Strategy fund We have audited the financial statements of Margetts Providence Strategy Fund for the year ended 30 June 2016, which comprise the statement of total return, the balance sheet, the statement of change in net assets attributable to unitholders, together with the related notes and the distribution table. The financial reporting framework that has been applied in their preparations is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Fund’s unitholders as a body, in accordance with Rule 4.5.12 of the Collective Investment Scheme Sourcebook issued by the Financial Conduct Authority under Section 247 of the Financial Services and Markets Act 2000. Our audit work has been undertaken so that we might state to the Fund’s unitholders those matters we are required to state to them in an Auditor’s Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Fund and the Fund’s unitholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Manager and auditors

As explained more fully in the Manager's Responsibilities Statement set out on page 7, the Manager is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an 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 (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the fund's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

give a true and fair view of the state of the Fund's affairs as at 30 June 2016 and of the net income and the net capital loss on the property of the Fund for the year then ended; and

have been properly prepared in accordance with the Prospectus, the Statement of Recommended Practice relating to Authorised Funds, the rules of the Collective Investment Schemes Sourcebook issued by the Financial Conduct Authority and United Kingdom Generally Accepted Accounting Practice.

Opinion on other matters prescribed by the collective investment scheme sourcebook

The information given in the Manager's report for the financial period for which the financial statements are prepared is consistent with the financial statements; and

We have received all the information and explanations we require for our audit.

10

Independent auditors’ report to the shareholders of Margetts Providence Strategy fund (continued) Matters on which we are required to report by exception We have nothing to report in respect of the following matters, where we are required to report, if in our opinion:

adequate accounting records have not been kept; or

the financial statements are not in agreement with the accounting records and returns.

Robert Wood Senior Statutory Auditor For and on behalf of Shipleys LLP Chartered Accountants and Statutory Auditors 19 October 2016

11

Net Asset Value per Unit and Comparative Tables

Accumulation share class

Change in net assets per share 30/06/2016 30/06/2015 30/06/2014

Opening net asset value per share 326.7000 317.4000 297.4300

Return before operating charges * 8.9400 14.3700 24.8900

Operating charges -5.0600 -5.0700 -4.9200

Return after operating charges 3.8800 9.3000 19.9700

Distribution on income shares 0.0000 0.0000 0.0000

Closing NAV per share 330.5800 326.7000 317.4000

Retained distribution on acc shares 9.5928 8.5960 8.6618

* After direct transaction costs of 0.0017 0.0011 0.0012

Return after charges 1.19% 2.93% 6.71%

Other Information

Closing net asset value (£) 64,576,620 79,703,168 96,152,281

Closing number of shares 19,534,691 24,396,920 30,294,331

Operating charges 2.18% 2.23% 2.20%

Direct transaction costs 0.00% 0.00% 0.00%

Prices

Highest share price (pence) 348.86 358.01 337.39

Lowest share price (pence) 306.31 306.77 309.31

Performance

Income share class






Distribution on income shares -4.6428 -4.2732 -4.4241




Other Information





Prices



Performance

12

Net Asset Value per Unit and Comparative Tables (continued)

R Accumulation share class






Distribution on income shares 0.0000 0.0000 0.0000


Retained distribution on acc shares 9.8232 8.7064 8.6780



Other Information





Prices



Performance

R Income share class






Distribution on income shares -4.7525 -4.3285 -4.4377




Other Information





Prices



Performance

13

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 income from them can fall as well as rise and investors may not receive back the full amount invested. Past performance is not a guide to future performance. Investments denominated in currencies other than the base currency are subject to fluctuations in exchange rates, which can be favourable or unfavourable. Fund Performance The performance of the fund is shown in the Fund Manager’s Report.

14

Financial statements

Notes 30.06.16 30.06.15

Income £ £ £ £

Net capital losses 4 (747,582) 3,228,545

Revenue 6 5,622,957 4,967,915

Expenses 7 (2,059,520) (2,194,843)

Net revenue before taxation 3,563,437 2,773,072

Taxation 8 (10,682) (2,617)

Net revenue after taxation 3,552,755 2,770,455

2,805,173 5,999,000

Finance costs: Distributions 9 (5,448,142) (4,808,522)

(2,642,969) 1,190,478

£ £ £ £

Opening net assets attributable

to unitholders188,098,094 165,905,789

19,170,165 47,157,532

Amounts payable on cancellation of

units(28,585,890) (30,524,306)

(9,415,725) 16,633,226

(2,642,969) 1,190,478

4,720,781 4,368,601

180,760,181 188,098,094

Statement of total returnFor the year ended 30 June 2016

Statement of change in net assets attributable to unitholdersFor the year ended 30 June 2016

Total return before distributions

Change in net assets attributable to

unitholders from investment activities

Retained distribution on accumulation units

Amounts receivable on issue of units

Change in net assets attributable to

unitholders from investment activities

Closing net assets attributable to

unitholders

15

As at 30 June 2016

Notes 30.06.16 30.06.15

Assets £ £ £ £

Investment assets 179,705,741 180,851,208

Debtors 10 819,484 1,031,857

Cash and bank balances 5,724,262 10,071,418

Total other assets 6,543,746 11,103,275

Total assets 186,249,487 191,954,483

Liabilities

Creditors 11 392,659 1,114,308

Distribution payable on income

units 350,762 322,465

Bank overdrafts 4,745,885 2,419,616

Total other liabilities 5,489,306 3,856,389

Net assets attributable to

unitholders 180,760,181 188,098,094

Balance sheet

16

Notes to the financial statements As at 30 June 2016

1 Accounting policies

a) Basis of accounting

The financial statements have been prepared under the historical cost basis, in accordance with Financial Reporting Standard (FRS 102), as modified by the revaluation of investments, and in accordance with the revised Statement of Recommended Practice (SORP) for Authorised Funds issued by the Investment Association in May 2014. No changes to the Net Asset Value of the fund have arisen from the adoption of the SORP.

b) Basis of valuation of investments

The investments are valued at quoted bid prices for dual priced funds and at quoted prices for single priced funds, on the last business day of the accounting period.

c) Foreign exchange rates

Transactions in foreign currencies are recorded in sterling at the rate ruling at the date of the transactions. Assets and liabilities expressed in foreign currencies at the end of the accounting period are translated into sterling at the closing middle exchange rates ruling on that date.

d) Revenue

All income allocations and distributions declared by the managers of the underlying funds up to the accounting date are included in Income, net of attributable tax credits. The net allocations which are retained in Income are included in the fund’s own income allocation. Bank and other interest receivable is accrued up to the accounting date. Equalisation on distributions received is deducted from the cost of the investment and not included in the fund’s income available for distribution.

e) Expenses

The Manager’s periodic charge is deducted from Capital. All of the other expenses are charged against Income except for costs associated with the purchase and sale of investments which are charged against Capital.

f) Taxation

(i) The fund is treated as a corporate unitholder with respect to its underlying holdings and its income is subject to streaming into franked and unfranked.

(ii) Corporation tax is provided at 20% on income, other than the franked portion of distributions from collective investment schemes, after deduction of expenses.

(iii) The charge for deferred tax is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is provided using the liability method on all timing differences, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset.

2 Distribution policy

Income arising from investments accumulates during each accounting period. Surplus income is allocated to unitholders in accordance with the COLL regulations. In order to conduct a controlled dividend flow to unitholders, interim distributions will be made at the Manager’s discretion, up to a maximum of the distributable income available for the period. All remaining income is distributed in accordance with the COLL regulations.

17

3 Risk management policies

In pursuing the investment objective, a number of financial instruments are held which may comprise securities and other investments, cash balances and debtors and creditors, that arise directly from operations. Derivatives, such as futures or forward foreign exchange contracts, may be utilised for efficient portfolio management purposes. Political and economic events in the major economies of the world, such as the United States, Japan and the European Union, will influence stock and securities markets worldwide. The main risks from the fund’s holding of financial instruments with the Manager’s policy for managing these risks are set out below:

i. Credit Risk – The fund may find that collective investment schemes in which it invests fail to settle their debts or deliver the investments purchased on a timely basis.

ii. Interest Rate Risk – Debt securities may be held by the underlying investments of the fund.

The Interest Rate Risk of these securities is managed by the relevant manager.

iii. Foreign Currency Risk – Although the net assets of the fund are denominated in sterling, a proportion of the fund’s investments in collective investment schemes have currency exposure with the effect that the balance sheet and total return can be affected by currency movements.

iv. Liquidity Risk – The main liability of the fund is the cancellation of any units that investors

want to sell. Securities may have to be sold to fund such cancellations should insufficient cash be held at the bank to meet this obligation. Smaller companies by their nature, tend to have relatively modest traded share capital, and the market in such shares can, at times, prove illiquid. Shifts in investor sentiment, or the announcement of new price-sensitive information, can provoke significant movement in share prices, and make dealing in any quantity difficult. The equity markets of emerging countries tend to be more volatile than the more developed markets of the world. Standards of disclosure and accounting regimes may not always fully comply with international criteria, and can make it difficult to establish accurate estimates of fundamental value. The dearth of accurate and meaningful information and insufficiencies in its distribution, can leave emerging markets prone to sudden and unpredictable changes in sentiment. The resultant investment flows can trigger significant volatility in these relatively small and illiquid markets. At the same time, this lack of liquidity, together with the low dealing volumes, can restrict the Manager’s ability to execute substantial deals.

v. Market Price Risk – Market Price Risk is the risk that the value of the fund’s financial instruments will fluctuate as a result of changes in market prices caused by factors other than interest rates or foreign currency movement. The Market Price Risk arises primarily from uncertainty about the future prices of financial instruments that the fund holds.

Market Price Risk represents the potential loss the fund may suffer through holding market positions in the face of price movements. This risk is generally regarded as consisting of two elements – Stock Specific Risk and Market Risk. The fund’s exposure to Stock Specific Risk is reduced for equities and bonds through the holding of a diversified portfolio in accordance with the investment and borrowing powers set out in the Trust Deed.

vi. Counterparty Risk – Transactions in securities entered into by the fund give rise to exposure to the risk that the counterparties may not be able to fulfil their responsibility by completing their side of the transaction.

vii. Fair Value of Financial Assets and Financial Liabilities – There is no material difference

between the value of the financial assets and liabilities, as shown in the balance sheet, and their fair value.

18

4 Net capital losses 30.06.16 30.06.15

£ £

Proceeds from sales on investments during the year 64,280,912 19,167,921

Original cost of investments sold during the year (61,484,503) (16,025,398)

Gains realised on investments sold during the year 2,796,409 3,142,523

Net appreciation thereon already recognised in prior periods (6,345,078) (2,007,602)

Net realised depreciation for the year (3,548,669) 1,134,921

Trustee transaction charge (930) (610)

Net unrealised appreciation for the year 2,802,017 2,094,234

Net losses on non-derivative securities (747,582) 3,228,545Net capital losses (747,582) 3,228,545

5 Purchases, sales and transaction chargesCollective Investment Schemes

Purchases excluding transaction costs 61,624,963 40,208,000

Trustee transaction charges : 0.00% [0.00%] 370 440

Purchases including transaction costs 61,625,333 40,208,440

Sales excluding transaction costs 64,291,611 19,167,921

Dilution levy : 0.02% [0.00%] (10,699) -

Trustee transaction charges : 0.00% [0.00%] (560) (170)

Sales net of transaction costs 64,280,352 19,167,751

Total dilution levy : 0.01% [0.00%] 10,699 -

Total transaction charges : 0.00% [0.00%] 930 610

Average portfolio dealing spread : 0.07% [0.03%]

6 Revenue

UK franked dividends 4,166,316 3,487,846

UK unfranked dividends 53,411 13,085

Bond interest 739,399 903,531

Gross bond interest 243,940 149,829

Overseas gross bond interest 367,958 371,900

Rebate of annual management charges 51,043 41,045

Bank interest 890 679Total revenue 5,622,957 4,967,915

7 Expenses

Manager's periodic charge 1,895,395 2,038,076

Trustee's fee 80,165 79,912

Safe custody 20,602 20,185

100,767 100,097

Other expenses:

FCA fee 235 358

Audit fee 7,280 7,260

Registration fees 55,843 49,052Total expenses 2,059,520 2,194,843

Total charges displayed as percentage of average net asset value

Transaction charges displayed as percentage of purchase/sales

Payable to the Trustee associates of the Trustee and agents of either:

Payable to the Manager, associates of the Manager and agents of either:

Trustee transaction charges have been deducted in determining net capital gains/(losses)

19

8 Taxation 30.06.16 30.06.15

£ £ a) Analysis of the tax charge for the year:

Irrecoverable income tax 10,682 2,617

Current tax charge (note 8b) 10,682 2,617Total tax charge 10,682 2,617

b) Factors affecting the tax charge for the year:

Net revenue before taxation 3,563,437 2,773,072

Corporation tax at 20% 712,688 554,615

Effects of:

UK dividends (833,263) (697,569)

Utilisation of excess management expenses 120,575 142,954

Irrecoverable income tax 10,682 2,617Current tax charge for the year (note 8a) 10,682 2,617

c) Provision for deferred taxation

No provision for deferred taxation has been made in the current or prior accounting year.

d) Factors that may affect future tax changes

The fund has unutilised management expenses of £3,858,535 (prior year £3,255,660). The fund does not

expect to be able to utilise this in the forseeable future.

9 Finance costs 30.06.16 30.06.15

£ £

Distributions

Interim 2,465,217 2,148,790

Final 2,892,823 2,772,393

5,358,040 4,921,183

Amounts deducted on cancellation of units 240,341 217,947

Amounts received on issue of units (150,239) (330,608)

Finance costs: Distribution 5,448,142 4,808,522Total finance costs 5,448,142 4,808,522

Represented by:

Net revenue after taxation 3,552,755 2,770,455

Expenses charged to capital

Manager's periodic charge 1,895,395 2,038,076

Balance of revenue brought forward 28 20

Balance of revenue carried forward (35) (29)Finance costs: Distribution 5,448,142 4,808,522

20

10 Debtors 30.06.16 30.06.15

£ £

Amounts receivable for issue of units 55,342 329,694Accrued revenue:UK franked dividends 430,333 436,766Gross bond interest 8,244 2,859Overseas gross unfranked income 82,026 -

520,603 439,625

Prepayments 27 -

Other receivables 75,647 66,978

Taxation recoverable 167,865 195,560Total debtors 819,484 1,031,857

11 Creditors£ £

Amounts payable for cancellation of units 212,746 906,637

Accrued expenses:

Amounts payable to the Manager, associates and agents:

Manager's periodic charge 148,223 167,261

Amounts payable to the Trustee, associates and agents:

Trustee's fees 6,487 6,740

Transaction charges - 30

Safe custody fee 1,885 1,778

8,372 8,548

Other expenses 23,318 31,862Total creditors 392,659 1,114,308

12 Contingent liabilities and commitments There were no contingent liabilities or outstanding commitments at the balance sheet date [30.06.15 : £Nil].

13 Related party transactions Margetts Fund Management Ltd as manager, is a related party, and acts as principal in respect of all transactions of shares in the Company. The aggregate monies received through issues, and paid on cancellations are disclosed in the statement of change in net assets attributable to shareholders and note 9. Amounts paid to Margetts Fund Management Ltd in respect of management services are disclosed in note 7 and amounts due at the end of the year in note 11.

21

L Acc L Inc R Acc R Inc

Opening number of shares 24,396,920 5,027,635 26,064,595 8,373,943

Shares issued 310,145 542,230 7,556,449 1,840,395

Shares converted - (817) 382 -

Shares redeemed (5,172,375) (758,305) (5,764,665) (1,461,828)Closing number of shares 19,534,691 4,810,743 27,856,762 8,752,510

14 Shareholders' funds

15 Risk disclosures – interest risk Debt securities may be held by the underlying investments of the fund. The Interest Rate Risk of these securities is managed by the relevant manager. The table below shows the Interest Rate Risk profile at the balance sheet date:

30.06.16 30.06.15

£ £

Floating rate assets (pounds sterling): 5,724,262 10,071,418

Floating rate liabilities (pounds sterling): (4,745,885) (2,419,616)

Assets on which interest is not paid (pounds sterling): 180,525,225 181,883,065

Liabilities on which interest is not paid (pounds sterling): (743,421) (1,436,773)

Net Assets 180,760,181 188,098,094

The floating rate financial assets and liabilities comprise bank balances, which earn or pay interest at rates linked to the UK base rate.

There are no material amounts of non-interest bearing financial assets and liabilities, other than collective investment schemes, which do not have maturity dates.

16 Post balance sheet events There were no material post balance sheet events which have a bearing on the understanding of the financial statements.

22

17 Fair Value Techniques

Assets 30.06.16 30.06.15

£ £

Quoted prices for identical instruments in active markets 179,705,741 180,851,208

Prices of recent transactions for identical instruments - -

Valuation techniques using observable data - -

Valuation techniques using non-observable data - -

179,705,741 180,851,208

Liabilities

£ £

Quoted prices for identical instruments in active markets - -

Prices of recent transactions for identical instruments - -

Valuation techniques using observable data - -

Valuation techniques using non-observable data - -

- -

18 Periodic disclosure As required by FUND 3.2.5R the manager is required to disclose certain information periodically in relation to the Fund which is shown below. At the end of the reporting period the percentage of the Fund’s assets subject to special arrangements arising from their illiquid nature was 0% (2015: 0%) of the NAV. There have been no new arrangements introduced for managing the liquidity of the Fund.The risk characteristics of the Fund are explained in the Prospectus. In order to assess the sensitivity of the Fund’s portfolio to the risks to which the Fund is or could be exposed, Margetts Fund Management Ltd monitors relative value at risk, commitment, gross leverage and the results of stress tests. The manager has set limits considered appropriate to the risk profile of the fund. Any breaches of these limits are investigated by the Margetts risk committee and appropriate action taken if necessary. During the reporting period there have been no changes to the maximum level of leverage that the Fund can employ or any right of reuse of collateral or any guarantee granted under leveraging arrangements. At the end of the reporting period the total amount of leverage, expressed as a ratio, calculated using the commitment approach was 0.99:1 and using the gross method was 0.99:1. Leverage is limited to overdraft use and the gross exposure from EPM techniques. Although the manager may use derivatives for EPM, no collateral arrangements are currently in place and no asset re-use arrangements are in place. The maximum leverage expressed as the ratio of the exposure to net asset value using the commitment method is 1.1:1.0 and using the gross method 3.3:1.0. Please note that the maximum leverage under the gross method is theoretical and would only occur if market risk and currency risk were hedged across the entire Sub-fund whilst it was using the maximum borrowing facility of 10%. It is not anticipated that both market risk and currency risk would be simultaneously hedged and therefore the likely maximum leverage which would be used in normal circumstances using the commitment method is 1.1:1.0 and using the gross method 2.2:1.0. The fund does not engage in securities financing transactions or loan securities or commodities to third parties.

23

19 Remuneration In accordance with the requirements of FUND 3.3.5(5) the total amount of remuneration paid by the manager to its staff for the financial year ended 30 September 2015 is: Fixed Remuneration 1,132,404

Variable Remuneration 1,756,307

Total Remuneration 2,888,711

Full Time Equivalent number of staff 29

Analysis of senior management

Senior management 2,180,362

Staff whose actions may have a material impact on the funds -

Other -

2,180,362

24

Distribution table For the year ended 30 June 2016 – in pence per unit Interim Group 1 – units purchased prior to 01 July 2015 Group 2 – units purchased on or after 01 July 2015 Income Units

Units Net Income Equalisation Paid 28.02.16 Paid 28.02.15

Group 1 2.1125 - 2.1125 1.8904 Group 2 0.5444 1.5681 2.1125 1.8904

Accumulation Units

Units Net Income Equalisation Allocated 28.02.16

Allocated 28.02.15

Group 1 4.3384 - 4.3384 3.7814 Group 2 2.7219 1.6165 4.3384 3.7814

R Income Units

Units Net Income Equalisation Paid 28.02.16 Paid 28.02.15

Group 1 2.1357 - 2.1357 1.9083 Group 2 1.0640 1.0717 2.1357 1.9083

R Accumulation Units

Units Net Income Equalisation Allocated 28.02.16

Allocated 28.02.15

Group 1 4.3824 - 4.3824 3.8135 Group 2 2.5824 1.8000 4.3824 3.8135

Final Group 1 – units purchased prior to 01 January 2016 Group 2 – units purchased on or after 01 January 2016 Income Units

Units Net Income Equalisation Payable 31.08.16 Paid 31.08.15

Group 1 2.5303 - 2.5303 2.3828 Group 2 1.7073 0.8030 2.5303 2.3828

Accumulation Units

Units Net Income Equalisation Allocating 31.08.16

Allocated 31.08.15

Group 1 5.2544 - 5.2544 4.8146 Group 2 4.4799 0.7745 5.2544 4.8146

R Income Units

Units Net Income Equalisation Payable 31.08.16 Paid 31.08.15

Group 1 2.6168 - 2.6168 2.4202 Group 2 1.5338 1.0830 2.6168 2.4202

R Accumulation Units

Units Net Income Equalisation Allocating 31.08.16

Allocated 31.08.15

Group 1 5.4408 - 5.4408 4.8929 Group 2 3.2216 2.2192 5.4408 4.8929

Equalisation only applies to units purchased during the distribution period (group 2 units). It represents the accrued income 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.

25

General information Valuation Point The Valuation Point of the fund is 8.30am on each business day. Valuations may be made at other times with the Trustee’s approval. Buying and Selling of Units The Manager will accept orders to buy or sell units on normal business days between 9.00am and 5.00pm and transactions will be effected at prices determined by the following valuation. Instructions to buy or sell units may be made either in writing to: Margetts Fund Management Ltd, PO Box 17067, Birmingham, B2 2HL or by telephone on 0345 607 6808. A contract note will be issued by close of business on the next business day after the dealing date to confirm the transaction. Prices The most recent bid prices of units are published on the Margetts website at www.margettsfundmanagement.com. The associated cancellation price is available on request from the Manager. Other Information The Trust Deed, Supplementary Information Document, Key Investor Information Document and the latest annual and interim reports may be inspected at the offices of the Manager, with a copy available, free of charge, on written request. The register of unitholders can be inspected by unitholders during normal business hours at the offices of the Administrator. Unitholders who have any complaints about the operation of the fund should contact the Manager or the Trustee in the first instance. In the event that a unitholder finds the response unsatisfactory, they may make their complaint direct to the Financial Ombudsman Service at South Quay Plaza, 183 Marsh Wall, London E14 9SR. Data Protection Act Unitholders’ names will be added to a mailing list which may be used by the Manager, its associates or third parties, to inform investors of other products by sending details of such products. Unitholders who do not want to receive such details should write to the Manager, requesting their removal from any such mailing list.

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