interim report and accounts

Transcription

1 interim report and accounts six months to 30 April 2015 (unaudited) The Affirmative Equity Fund for Charities The Affirmative Fixed Interest Fund for Charities The Affirmative Corporate Bond Fund for Charities The Affirmative Deposit Fund for Charities affir mative

2 1 Report of the investment manager 3 Responsibilities Affirmative Equity Fund for Charities 5 Investment objectives and policy Risk profile Risk warning Net asset value/fund size 6 Statement of total return Statement of movement in unitholders net assets Balance sheet 7 Summary of investments and other assets 8 Portfolio statement 10 Summary of material portfolio changes 11 Distribution Price and income history Performance record Total expense ratios 12 Notes to the accounts Affirmative Fixed Interest Fund for Charities 14 Investment objectives and policy Risk profile Risk warning 15 Net asset value/fund size Statement of total return Statement of movement in unitholders net assets 16 Balance sheet Summary of investments and other assets 17 Portfolio statement 18 Summary of material portfolio changes Analysis of credit rating 19 Distribution Price and income history Performance record Total expense ratios 20 Notes to the accounts Affirmative Corporate Bond Fund for Charities 22 Investment objectives and policy Risk profile Risk warning 23 Net asset value/fund size Statement of total return Statement of movement in unitholders net assets 24 Balance sheet Summary of investments and other assets 25 Portfolio statement 28 Summary of material portfolio changes Analysis of credit rating 29 Distribution Price and income history Performance record Total expense ratios 30 Notes to the accounts Affirmative Deposit Fund for Charities 32 Investment objectives and policy Risk profile Risk warning 33 Statement of total return Balance sheet Total expense ratios 34 Income and net asset value history Distributions paid Summary of deposits 35 Summary of deposits by credit rating Summary of deposits by banking group 36 Notes to the accounts

3 Report of the investment manager Market movements and performance Cash The base rate has remained unchanged at 0.5% since March month rates opened and closed at the low of 0.50%, peaking at 0.52%. 12 month rates opened at the high of 0.98% and closed at the low of 0.90%. Over the half-year under review, the Affirmative Deposit Fund provided a gross average AER distribution of 0.81% (0.54% after expenses of 0.27% pa, with 0.50% being the rate payable at the end of April). The AER of 1 week LIBID for the period was 0.36%. Fixed interest The 10 year US Treasury yield began the half year under review at 2.34%, traded between 2.39% in November and 1.64% in January before rebounding to 2.04% at the end of April. UK gilt yields opened at 2.25%, edged up to a high of 2.27% in November, before falling to a low of 1.33% in January. However, prices did not hold and by March the yield was close to 2%. Following a further rally and setback the yield closed the half year at 1.83%. The yield curve flattened, with 2 year gilt yields down 12bp at 0.54% whilst the 30 year gilt yield was down 44bp at 2.54%. The average spread of corporate bond yields over gilts opened the six months under review at +117bp, peaked at +126bp and fell to +102bp before closing at +108bp. The spread between AAA and BBB rated bonds opened at +150bp, traded between +160bp and +128bp, closing at +139bp. For the half year the Affirmative Fixed Interest Fund total return (+4.5% after annualised expenses of 0.35%) lagged that of the Composite Index (+5.0%).The Affirmative Corporate Bond Fund produced a total return of +4.5% (after expenses of 0.39%) which lagged both its Benchmark Index (+5.0%). Equities The UK equity markets began the period under review poorly falling almost 5% by the middle of December. However, it then rallied strongly, rising almost 16% from the low before easing back to complete the half year up 7.3% for a total return of 9.2%. This was not very different from overseas equities which rose 8.5% for a total return of 9.7%, led by Japan. Over the half year sterling rose against the (+7.1%) and the (+2.0%), but fell against the $ (-4.0%). The main positive relative contributors were the Media, Travel & Leisure and Life Insurance sectors, whilst the main negative contributors were Oil Producers, Mining and Multi Utilities. Smaller stocks continued to perform better than larger companies with total returns of +14.1% and +8.3% respectively. Over the six months to 30 April the total return of the Affirmative Equity Fund was +9.6% after annualised expenses of 0.45%. This was ahead of the total return on the Composite Index (+9.3%) but behind the Index adjusted to exclude certain stocks on ethical grounds (+10.0%). Economic overview The outlook for global economic growth remains stable, with strong growth in retail sales in advanced economies balanced against weaker than expected manufacturing data. Recent European economic data have been ahead of expectations, whilst US data have been disappointing. However, the absolute level of growth remains higher in the US, with year on year GDP growth in the first quarter of 3% compared to 1% for the Eurozone. US economic growth remains robust, with the dip in GDP growth to 0.2% in the first quarter seen as a temporary, weather-related, phenomenon. Indeed, the first-quarter slowdown was less dramatic than the fall in GDP seen in the equivalent 2014 quarter, which was also both weather-related and short-lived. Growth in consumer spending appears weak in nominal terms due to low consumer price inflation, but in real terms the pace is reasonable. The Purchasing Managers Index (PMI) continues to point towards strong growth. Eurozone inflation reached an important turning point in April when the year-on-year change in the Consumer Price Index came in at precisely zero. This followed four months of deflation, which had helped to justify the European Central Bank s Quantitative Easing measures. When these were announced in January, the ECB president Mario Draghi stated that they were intended to be carried out until end- September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation. Inflation is likely to move closer to the ECB s target of just under 2% over the next 12 months, as the earlier low comparisons begin to fall out of the numbers. The IMF expects GDP growth in Asia-Pacific to hold steady at 5.6% this year before slowing marginally in Despite slower worldwide economic growth, Asian countries have maintained impressive growth rates through a gradual shift from exports to domestic consumption. Since the region is a net oil importer, the IMF expects the impact of lower oil prices to offset the effects of tighter monetary conditions, which would help to reduce potential capital outflows if and when the US Federal Reserve raises interest rates. After solid if unspectacular GDP growth of just under 2% in 2012 and 2013 in the early stages of Abenomics, Japan s economy stalled in 2014 with output falling by 0.1%. Last month the Bank of Japan cut its growth forecast for the current fiscal year to 2.0% from 2.1% and for inflation to 0.8% from 1.0%. For the fiscal year, expectations are for growth to fall to 1.5% but inflation to rise to the 2.0% target. The outlook for the UK economy has appeared less certain but with survey data showing that activity remains at high levels, growth in 2015 should be similar to that of last year. GDP in the first quarter of the year showed growth of only 0.4%, lower than survey data had predicted, but 2.9% higher than the same quarter last year. The labour market continues to be strong. Average weekly earnings excluding bonuses were growing at 2.7% pa in April, up from 2.3% the previous month. The unemployment rate has continued to decline and is now at 5.5%. In its latest Inflation Report, the Bank of England lowered its forecasts of GDP growth from 2.9% to 2.6% for both 2015 and 2016 with a further drop to 2.5% rather than 2.7% in Productivity has continued to disappoint since the financial crisis and both Bank and Office for Budget Responsibility projections rely on productivity growth increasing. Should this view prove incorrect, the UK is likely to experience both lower growth and higher inflation than it currently expects. 1

4 Report of the investment manager Economic overview cont. The General Election result was a surprise to most. The new government is pledged to implement a number of spending and tax cuts but the economic impact will be difficult to determine before details are revealed in the budget. There is also a pledge to hold a referendum on European Union membership by the end of There is a broad political consensus in favour of membership, depending on the terms, but recent experience suggests predicting the electorate s decision will be difficult. A period of uncertainty is likely which may adversely affect business and consumer confidence. Market outlook Both the Bank of Japan (BOJ) and the European Central Bank (ECB) continue their policies of Quantitative Easing (QE), but their impact on growth has been less than expected. The Federal Reserve Open Market Committee has noted improvements in the US economy and most committee members anticipate a rate rise later this year. UK base rate is unlikely to be raised before US interest rates indicating that longer term deposits remain attractive where credit quality can be maintained. investment, it seems likely that the result will be a slower trend rate of economic growth. In addition, the economy is likely to reach full capacity at lower levels of growth in both GDP and wages and inflationary pressures could result. This would certainly put upward pressure on bond yields, but the outlook for equities may also be mixed. Lower productivity growth implies lower revenue growth and a potential squeeze on margins if labour costs rise. However, in the US at least there is a low correlation between the cyclically adjusted PE ratio and future productivity trends. Indeed, a lower level of technological innovation could benefit incumbent companies which are more likely than new competitors to be listed on stock exchanges, though any positive impact is unlikely to be sustainable. Nevertheless, equities remain the preferred asset class over the medium term as they offer exposure to economic growth, valuations are not excessively expensive, and on a yield basis they continue to be attractive compared to bonds. Epworth Investment Management Ltd Investment Manager 22 June 2015 Bond markets continue to be relatively volatile. Yields were trending higher as investors began to look towards central bank interest rate rises in the US and UK. However, the escalating Greek crisis has seen a return of the flight to quality and a renewed rally in bond prices. Further volatility can be expected, but gilt yields appear unsustainable on a medium term basis. High quality corporate bonds remain our favoured fixed interest asset, although the yield premium over gilts can be expected to widen modestly. After reaching all-time highs in April, overseas equities have subsequently retreated in sterling terms. Investors continue to confront the dilemma that both equities and bonds appear expensive by historical standards, while returns on cash are minimal given low interest rates. The Eurozone provided a dramatic example of the impact of changing sentiment. The improving economic backdrop was offset by worries of contagion from the Greek crisis. The result was that 10-year German government bond yields rose from just 0.05% in mid-april to 0.95% at one stage, whilst equity prices fell 10%. Japanese equities have held up fairly well in local terms thanks to further QE and a weaker yen, which boosts foreign earnings. However, the risk of further yen weakness will limit its attractions. Conversely, the prospect of US interest rate rises is supporting the US dollar and equity prices. Tighter US monetary policy is widely seen as a bigger threat to equities in Pacific and emerging markets countries, although the longer term growth prospects remain attractive. Sterling has been strong in recent months helped by the continued commitment to QE of both the ECB and the BOJ together with the growing risk of a disorderly Greek exit from the Eurozone. However, given the relative strength of the US economy and the weak UK balance of payments position, the possibility of profit taking in sterling cannot be ignored. The relative valuation attractions of UK equities remain, but only a small overweight position seems justified. UK equity prices have also fallen sharply from the April peak, but still appear close to fully valued given that earnings are expected to fall 11% this year, the third successive annual decline. A 13% rebound is currently the consensus view for Although the changing nature of employment markets since the financial crisis has muted productivity growth, it had already begun to decline beforehand. Potential causes include a fall in both the number of new firms, the rate of new job creation and job hording. Unless the long term structural issues are addressed, for example through effective public 2

5 Responsibilities The Schemes of the Charity Commissioners, made under Sections of the Charities Act 2011, dated 6 June 2001, 14 August 2006 and 22 September 2009 define the responsibilities, duties and powers of the Trustee and Manager. Responsibilities of the Corporate Trustee The Corporate Trustee is required by the Schemes to: (a) (b) (c) (d) (e) (f) (g) ensure the Manager s compliance with the Schemes and the Scheme Particulars; appoint and supervise the Registrar; safeguard the assets of the Fund and collect all income due to the Fund; create and cancel units in accordance with the instructions of the Manager; make distributions to Participating Charities; prepare an annual report and inform the Charity Commission if it is not satisfied with the Manager s compliance with the Schemes or Scheme Particulars; be responsible for any winding up of the Funds. Responsibilities of the Manager The Manager is required by the Schemes to: (a) (b) (c) (d) (e) (f) (g) (h) (i) instruct the Trustee of creation and cancellation of units; manage the investments of the Fund; carry out regular valuations of the unitised Funds and ensure units are correctly priced; make and revise the written statement of the investment policy of the Funds; make and revise the Scheme Particulars; keep a record of units purchased or sold on behalf of the Trustee, or in the case of the Affirmative Deposit Fund keep a daily record the receipt and repayment of deposits; make all records of the Funds available for inspection by the Trustee; prepare a report and accounts of the Fund for each accounting period; appoint the auditor of the Fund; The Manager is required in accordance with UK Generally Accepted Accounting Principles to: select suitable accounting policies that are appropriate for the Funds and apply them on a consistent basis; comply with the disclosure requirements of the Charities (Accounts and Reports) Regulations 2008; follow law and UK accounting standards (UK Generally Accepted Accounting Practice); keep proper accounting records which enable them to demonstrate that the accounts as prepared comply with the above requirements; make judgements and estimates which are reasonable and prudent; prepare the accounts on the basis that the Funds will continue in operation unless it is inappropriate to do presume this. The Manager is required to manage and administer the Funds in accordance with the Schemes, maintain accounting records and take reasonable steps for the prevention and detection of fraud and other irregularities. The Trustee has appointed the Manager as Registrar to the Funds. 3

6 Approval of the financial statements The financial statements of the Affirmative Equity Fund for Charities, the Affirmative Fixed Interest Fund for Charities, the Affirmative Corporate Bond Fund for Charities and the Affirmative Deposit Fund for Charities were approved by the Manager on 16 June 2014 and are signed on behalf of the Manager by: William T Seddon Director, Epworth Investment Management Limited Marina Phillips Secretary, Epworth Investment Management Limited 15 July

7 Affirmative Equity Fund for Charities Investment objectives and policy The Fund will seek to maximise long term total returns consistent with commercial prudence, diversification and risk management through a portfolio investing in UK Equities (80%-100%), Overseas Equities (0%- 20%), Property (0%-5%) and Cash and near cash (0%-5%). This may be achieved through direct holdings or pooled investment vehicles. Investment will be made in well run companies which seek to enhance shareholder value and are thereby likely to provide above average returns. Such companies are characterised by financial strength, above average management teams and will normally (but not exclusively) pursue long term sustainable growth strategies in the wider interests of all parties, including owners, lenders, employees, suppliers, customers/ clients and the local and wider community. The Fund will avoid investments in companies where business is wholly or mainly involved in alcohol, armaments, gaming, pornography or tobacco. In the view of the Fund Manager there will be no adverse impact on long term investment returns due to any exclusions on these grounds. No sector of the market will be automatically included or excluded but the portfolio will be widely diversified to capture exposure to all significant sectors of the market. The Fund Manager will engage with those companies where exclusion from the portfolio is not appropriate but where either there is minor exposure to the avoided sectors or other ethical issues such as environmental performance, corporate governance and social justice are raised. The Fund Manager will vote direct shareholdings in line with the Fund s overall ethical policy wherever practicable. The benchmark against which the Fund s return will be monitored is a composite index comprising the Epworth proprietary UK ethical index (90%) and overseas equities (10%). The Fund will have a yield which reflects the prevailing yield of a composite of UK equities (90%) and overseas equities (10%). The Fund may invest in the Affirmative Deposit Fund for Charities and the Epworth Investment Fund European sub-fund, of which the Manager is the fund manager. Any management charges incurred in this respect are refunded to the Fund by the Manager. Risk profile The fund has little exposure to credit or cash flow risk, and there are no borrowings or unlisted securities of a material nature and therefore liquidity risk is low. The main risks to its financial instruments are market price and currency risk. The Manager reviews the policies for managing these risks in order to follow and achieve the Investment Objective as summarised above. Risk warning The Affirmative Equity Fund for Charities is designed for long-term investors. The value of and the income from units in the funds can and do fall, as well as rise, and as a result you may not get back the amount originally invested. Past performance is no guarantee of future returns. Net asset value/fund size Net asset Net asset value Units in issue pence per unit 31 October ,994,940 43,574, October ,889,010 48,546, October ,098,712 46,424, October ,075,358 52,927, October ,827,547 57,085, April ,726,004 57,755,

8 Affirmative Equity Fund for Charities Statement of total return For the six months ended 30 April 2015 (unaudited) Note Net gains on investments 2 6,040 1,385 Income 3 1,336 1,144 Expenses 4 (178) (158) Net income 1, Total return before distributions 7,198 2,371 Finance costs: Distributions 7 (1,155) (997) Change in net assets attributable to unitholders 6,043 1,374 Statement of change in unitholders net assets For the six months ended 30 April 2015 (unaudited) 000s 000s Net assets at start of period 74,828 70,075 Amounts receivable on creations of units 2,637 3,921 Amounts payable on cancellation of units (1,782) (760) 75,683 73,236 Change in net assets attributable to unitholders 6,043 1,374 Net assets at end of period 81,726 74,610 Balance sheet as at 30 April 2015 (unaudited) Assets Note Portfolio of investments 80,962 74,105 Debtors Bank balances 9 1,244 1,188 Total assets 82,570 75,443 Liabilities Creditors 10 (35) (39) Distribution payable (809) (576) Total liabilities (844) (615) Net assets attributable to unitholders 81,726 74,828 6

9 Affirmative Equity Fund for Charities Summary of investments and other assets As at 30 April 2015 (unaudited) Market value Fund 31/10/2014 Market value 31/10/2014 Fund 000s % 000s % Oil & Gas Producers 9, , Oil Equipment & Services Chemicals Mining 4, , Construction & Materials General Industrials Electronic & Electrical Equipment Industrial Engineering Industrial Transportation Support Services 3, , Beverages Food Producers Household Goods & Home Construction 3, , Personal Goods 2, , Healthcare Equipment & Services Pharmaceuticals & Biotechnology 8, , Food & Drug Retailers 1, General Retailers 1, , Media 3, , Travel & Leisure 3, , Fixed Line Telecommunications 1, , Mobile Telecommunications 2, , Electricity Gas Water & Multiutilities 2, , Banks 8, , Non-life Insurance Life Insurance 4, , Real Estate Investment Trusts 1, , Real Estate Investment Services Financial Services 1, , Equity Investment Instruments 1, , Non-equity Investment Instruments Software & Computer Services Technology Hardware & Equipment Overseas 7, , , , Net cash Total value of fund 81,726 74,828 7

10 Affirmative Equity Fund for Charities Portfolio statement as at 30 April 2015 (unaudited) Market value Fund Holding 000s % Oil & Gas Producers BG Group 133,400 1, BP 633,400 2, Enquest 140, ishares S&P Global Energy 12, Premier Oil 58, Royal Dutch Shell B 216,100 4, Tullow Oil 35, , Oil Equipment & Services Wood Group 15, Chemicals Croda International 11, Johnson Matthey 8, Mining Anglo American 48, BHP Billiton 76,300 1, Glencore 371,000 1, Randgold Resources 3, Rio Tinto 44,250 1, , Construction & Materials CRH 29, General Industrials Rexam 28, Smith (DS) 108, Smiths Group 15, Electronic & Electrical Equipment Oxford Instruments 13, Spectris 10, Industrial Engineering IMI 14, Rotork 10, Spirax-Sarco 5, Weir Group 8, Industrial Transportation BBA Aviation 61, Royal Mail 19, Market value Fund Holding 000s % Support Services Aggreko 9, Ashtead Group 41, Bunzl 14, Capita 26, Diploma 32, Experian 41, Hays 190, Intertek Group 6, Regus 120, RWS Holdings 117, Sthree 50, Wolseley 16, , Beverages Britvic 30, Coca-Cola HBC 9, Food Producers Associated British Foods 16, Hilton Food Group 41, Tate & Lyle 21, Household Goods & Home Construction Berkeley Group 15, Galliford Try 25, Gleeson 41, Persimmon 33, Reckitt Benckiser 30,400 1, , Personal Goods Burberry Group 18, Ted Baker 8, Unilever (UK) 57,650 1, , Healthcare Equipment & Services Dignity 15, Smith & Nephew 44, Pharmaceuticals & Biotechnology Astrazeneca 63,100 2, GlaxoSmithKline 238,100 3, Shire 25,700 1, The Biotech Growth Trust 38, , Food & Drug Retailers Morrison (WM) 65, Sainsbury (J) 69, Tesco 346, ,

11 Affirmative Equity Fund for Charities Portfolio statement continued as at 30 April 2015 (unaudited) Market value Fund Holding 000s % General Retailers Dunelm Group 15, Kingfisher 77, Marks & Spencer Group 31, Next 10, WH Smith 19, , Media ITV 236, M&C Saatchi 60, Next Fifteen Communications 100, Pearson 28, Reed Elsevier 61, Sky 43, WPP 66,600 1, , Travel & Leisure Carnival 7, Cineworld 51, Compass 70, Easyjet 26, Intercontinental Hotels Group 7, International Consolidated Airlines 78, Restaurant Group 30, Whitbread 7, , Fixed Line Telecommunications BT 411,500 1, , Mobile Telecommunications Vodafone 1,284,000 2, , Electricity SSE 46, Gas, Water & Multiutilities Centrica 222, National Grid 178,170 1, Pennon Group 22, Severn Trent 11, United Utilities Group 25, , Banks Barclays 568,000 1, HSBC 654,000 4, Lloyds Banking Group 2,047,600 1, Royal Bank Of Scotland 55, Standard Chartered 69, , Non Life Insurance Direct Line Insurance 28, RSA Insurance Group 29, Market value Fund Holding 000s % Life Insurance Aviva 114, Legal & General 300, Old Mutual 167, Prudential 101,600 1, St James s Place 45, Standard Life 66, , Real Estate Investment Trusts British Land 31, Custodian Reit 150, Great Portland Estates 40, Land Securities Group 25, Primary Health Properties 54, Shaftesbury 17, , Real Estate Investment Services Property Income Trust For Charities 265, Quintain Estates & Developments 210, St Modwen Properties 61, Financial Services Aberdeen Asset Management 67, Hargreaves Lansdown 24, Jupiter Fund Management 78, Rathbone Brothers 12, Schroders 6, Schroders NV 4, , Equity Investment Instruments Bioscience Investment Trust 10, Electra Private Equity 5% 2017 Convertible Herald Investment Trust 32, HG Capital Trust 17, North Atlantic Smaller Companies 27, Oryx International Growth Fund 58, Worsley Investors Fund , Software & Computer Services Aveva Group 5, Keywords Studios 70, Micro Focus 23, Sage Group 46, Technology Hardware and Equipment Arm Holdings 57,

12 Affirmative Equity Fund for Charities Portfolio statement continued as at 30 April 2015 (unaudited) Market value Fund Holding 000s % Market value Fund Holding 000s % Overseas Baring Emerging Europe 6, Basic Industries Sector SPDR 1, Consumer Discretionary Sector SPDR 2, Consumer Staples Sector SPDR 1, Energy Sector SPDR 1, Financial Sector SPDR 11, First State Asia Pacific B 73, First State Asia Pacific Sustainibility B 65, First State Latin America B 51, Genesis Emerging Markets 4, Healthcare Sector SPDR 3, Industrial Sector SPDR 2, ishares Core S&P 500 2, Overseas cont. ishares MSCI Europe Ex-UK 56,200 1, ishares MSCI Japan 78, ishares MSCI KLD ,750 2, ishares Russell Midcap 5, ishares S&P/TSX 60 Index Fund 21, PowerShares QQQ 1, Technology Sector SPDR 4, Templeton Emerging Markets 8, , , Net cash 764 Total value of Fund 81,726 Summary of material portfolio changes as at 30 April 2015 (unaudited) Cost 000s Total purchases for the period 5,666 Proceeds 000s Total sales for the period 4,846 Largest purchases 3,530 Royal Dutch Shell B 534 ishares Core S&P First State Asia Pacific B 350 Persimmon 253 HSBC 197 Astrazeneca 163 Custodian Reit 156 Glaxosmithkline 148 Dunelm Group 131 National Grid 130 Vodafone 130 BP 126 Lloyds Banking Group 118 Reckitt Benkiser 104 Unilever 95 ishares Russell Midcap 91 British Land 91 Direct Line Insurance 90 Legal & General 86 BT Group 83 Largest Sales 3,584 Royal Dutch Shell B 638 ishares Core S&P First State Asia Pacific B 251 Persimmon 250 HSBC 201 Astrazeneca 187 Custodian Reit 169 Glaxosmithkline 166 Dunelm Group 165 National Grid 161 Vodafone 131 BP 128 Lloyds Banking Group 124 Reckitt Benkiser 122 Unilever 114 ishares Russell Midcap 108 British Land 95 Direct Line Insurance 91 Legal & General 65 BT Group 65 Other purchases 2,136 Total purchases 5,666 Other sales 1,262 Total sales 4,846 10

13 Affirmative Equity Fund for Charities Distribution for the six months ended 30 April Distribution period p per unit Date paid p per unit 1 November 2014 to 31 January March February 2015 to 30 April June Price and income history Highest buying price Lowest selling price Net income per unit Calendar year p p p Six months to 30 April Performance record 1 year 3 years 5 years Total return performance to 30 April 2015 % % p.a. % p.a. Affirmative Equity Fund for Charities Composite benchmark (with exclusions) Composite benchmark (without exclusions) The performance of the Fund is based on the net asset value per share Total expense ratios Expense type % % Manager s periodic charge (inc VAT) Corporate Trustee s charge (inc VAT) Other expenses Total expense ratio

14 Affirmative Equity Fund for Charities Notes to the accounts 1. Accounting policies (a) Basis of accounting The accounts of the fund have been prepared on the historical cost basis, as modified by the evaluation of investments, and in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), the Charities Act 2011, the Charities (Accounts and Reports) Regulations 2008 and the relevant Scheme of the Charity Commissioners. (b) Recognition of income Dividends on ordinary stocks are credited to income when the securities are quoted ex-dividend. Interest on fixed interest stocks is accrued on a day to day basis. (c) Management expenses The Manager s periodic charge paid to Epworth Investment Management Ltd is charged to the income of the Fund before distribution at a rate of 0.30%, plus VAT, of the value of the Fund. This fee covers the provision of staff and investment services and other expenses incurred by the Manager. The Corporate Trustee fee, audit, legal, safe custody fees and transaction charges, are charged separately to the income of the Fund before distribution. (d) Distribution policy All income of the Fund, after deduction of management and other expenses is distributed to unitholders. Distributions take into account income received on the creation of units and income deducted on the cancellation of units. A reconciliation of the net distribution to the net income of the Fund is shown in note 7. (e) Basis of valuation Listed investments are valued at bid-market values at the close of business on an accounting date less, in the case of fixed interest securities, interest accrued. Suspended securities are valued by the Manager having regard to the last dealing price on the date of suspension and subsequent available information. Suspended securities are written off after they have been carried at nil value for two years or if the Manager does not expect any returns for the Fund. (f) Foreign exchange Assets and liabilities in foreign currencies are expressed in sterling at rates of exchange ruling on the accounting date. Transactions in foreign currencies are translated into sterling at the exchange rates ruling on the transaction dates. 2. Net gains on investments Net gains on investments during the period comprise: Proceeds from sales of investments 4,846 5,542 Original cost of investments sold (4,159) (4,321) Gains realised on investments sold 687 1,221 Net unrealised gains 5, Net gains on investments 6,040 1, Gross income UK dividends 1,287 1,095 Overseas dividends Bank interest 4 3 Total Income 1,336 1, Expenses Payable to the Manager or associates Payable to the Corporate Trustee or associates Corporate Trustee s fee Safe custody fees and transaction charges Auditor s fees 3 4 Other expenses Total expenses Portfolio transaction costs Analysis of total purchase costs Purchases in period before transaction costs 5,659 8,575 Commissions 4 10 Custodian transaction costs 3 5 Total purchase costs 7 15 Gross purchases total 5,666 8,590 Analysis of total sale costs Gross sales before transaction costs 4,702 5,551 Commissions (5) (8) Custodian transaction costs (1) (1) Total sale costs (6) (9) Total sales net of transaction costs 4,696 5, Taxation The Fund is exempt from UK income tax and capital gains tax due to its charitable status pursuant to Sections 478 and 479 of the Corporation Tax Act Distributions are paid on the basis that all recoverable UK taxation has been reclaimed. Overseas withholding tax is deducted in full from overseas income on receipt. Withholding tax is credited to income when it is recovered. 12

15 Affirmative Equity Fund for Charities Notes to the accounts 7. Distributions The distributions take account of income received on the creation of units and income deducted on the cancellation of units, and comprise: 31 January April , Income deducted on cancellation of units 8 2 Income received on creation of units (9) (7) Net distribution for the period 1, Debtors Sales awaiting settlement Accrued income Total debtors Cash and bank balances Affirmative Deposit Fund for Charities 1,240 1,185 Cash at bank 4 3 Total cash and bank balances 1,244 1, Creditors Purchases awaiting settlement - - Accrued expenses Total Creditors Portfolio turnover calculation % % Portfolio turnover calculation Risk management policies Securities held by the Fund are valued at bid-market value. Bid-market value is considered to be a fair representation of the amount repayable to unitholders should they wish to sell their units. Other financial assets and liabilities of the Fund are included in the balance sheet at their fair value. The main risks arising from the Fund s financial instruments and Manager s policies for managing these risks are summarised below. These policies have been applied throughout the year. Market price risk This is an actively managed fund, which invests in UK and overseas equities. The fund is therefore exposed to market price risk, which can be defined as the uncertainty about future price movements of the underlying investments of the Fund. Market price risk arises mainly from economic factors, including investor confidence, and may result in substantial fluctuations in the unit price from time to time. Generally, however, there will be a close correlation in the movement of the unit price to the markets the Fund is invested in. The Fund seeks to minimise the risks by holding a widely diversified portfolio of investments in line with the Fund s investment objectives. Currency risk The Fund is exposed to currency risks as some of its assets are denominated in currencies other than sterling. The Manager does not seek to avoid this exposure since it believes in the long term, hedging is detrimental to total return. At 30 April 2015 the Fund s foreign currency exposure is: Canadian Dollar United States Dollar 4,522 4,856 Credit risk 4,785 5,115 The Fund s transactions in securities expose it to the risk that the counterparty will not deliver the investment for a purchase or the cash for a sale. To minimise this, the Fund only deals with an approved list of brokers maintained by the Manager. Liquidity risk The Fund s assets comprise securities that can readily be realised to meet obligations that may arise on the redemption of units. In addition the Manager s policy is that the Fund liquidity should be 5% or less. 13. Future calls There were no calls on partly paid stocks due for payment after the period end. 14. Related party transactions The Manager s periodic charge is paid to Epworth Investment Management Limited, a related party to the Fund. The amounts paid in respect of the Manager s periodic charge are disclosed in Note 4. The amount outstanding as at 30 April 2015 was 24,188 (30 April 2014: 22,114). In addition, the fund placed deposits during the period with the Affirmative Deposit Fund for Charities, a fund managed by Epworth Investment Management Limited. All charges levied for the management of these deposits have been refunded to the fund by Epworth. There were no other related party transactions during the period. 15. Contingent assets and liabilities As at 30 April 2015, there are no commitments, contingent assets or liabilities of which we are aware (31 October nil). 13

16 Affirmative Fixed Interest Fund for Charities Investment objectives and policy The Fund will seek to maximise long term total returns consistent with commercial prudence, diversification and risk management through a portfolio investing in UK Government Securities (70%-90%), Corporate Debt Securities (10%-30%) and Cash and near cash (0%-10%); It is hoped to provide a yield in excess of that which can be achieved through UK Government securities alone. This will be done through corporate debt securities, which whether through direct holdings or indirectly through the Affirmative Corporate Bond Fund for Charities will be widely diversified and invested in well run companies characterised by financial strength and above average management teams and will normally (but not exclusively) pursue long term sustainable growth strategies in the wider interests of all parties including owners, lenders, employees, suppliers, customers/clients and the local and wider community. This policy is likely to result in a portfolio that excludes investments in bonds issued by companies where business is wholly or mainly involved in alcohol, armaments, gaming, pornography, or tobacco. In the view of the Fund Manager there will be no adverse impact on long term investment returns due to any exclusions on these grounds. Other matters such as environmental performance, corporate governance and social justice issues will be reviewed when making investment decisions. No sector of the market will be automatically included or excluded but the portfolio will be widely diversified to capture exposure to all significant sectors of the market; The Fund will have an average life of between five and fifteen years and a yield reflecting the prevailing yield on UK Government Securities. The benchmark against which the performance of the Fund is measured is a composite comprising of UK Government securities (80%); Non Gilts AAA (6%); Non Gilts AA (8%); Non Gilts A (5%) and Non Gilts BBB (1%). The Fund may invest in the Affirmative Deposit Fund for Charities and the Affirmative Corporate Bond Fund for Charities, for both of which the Manager is the fund manager. Any management charges incurred in this respect are refunded to the Fund by the Manager. Risk profile The main risks to the Fund s financial instruments are market price and interest risks. Market price risk arises mainly from economic factors, including investor confidence, and may result in substantial fluctuations in the unit price. However, generally you should expect a close correlation in the movement of the unit price and the underlying markets. Movements in interest rates may result in the manager being unable to secure similar income returns following the disposal or redemption of securities. There is little credit and no currency risk.. Risk warning The Affirmative Fixed Interest Fund for Charities is designed for longterm investors. The value of and the income from units in the fund can and do fall, as well as rise, and as a result you may not get back the amount originally invested. Past performance is no guarantee of future returns. 14

17 Affirmative Fixed Interest Fund for Charities Net asset value/fund size Net asset Net asset value Units in issue pence per unit 31 October ,516,390 19,797, October ,558,557 19,686, October ,650,548 19,765, October ,409,727 19,507, October ,736,569 16,667, Six months to April ,385,826 16,660, Statement of total return For the six months to 30 April 2015 (unaudited) Note Net gains/(losses)on investments (176) Income Expenses 4 (36) (33) Net income Total return before distributions Finance costs: Distributions 7 (230) (271) Change in net assets attributable to unitholders 652 (170) Statement of changes in unitholders net assets For the six months ended 30 April 2015 (unaudited) 000s 000s Net assets at start of period 19,737 22,410 Amounts receivable on creations of units 1, Amounts payable on cancellation of units (1,169) (3,071) 19,734 20,017 Change in net assets attributable to unitholders 652 (170) Net assets at end of period 20,386 19,847 15

18 Affirmative Fixed Interest Fund for Charities Balance sheet As at 30 April 2015 (unaudited) Assets Note Portfolio of investments 21,124 19,544 Debtors Bank balances Total assets 20,512 19,898 Liabilities Creditors 10 (14) (44) Distribution payable (112) (117) Total liabilities (126) (161) Net assets attributable to unitholders 20,386 19,737 Summary of investments and other assets As at 30 April 2015 (unaudited) Market value Fund 31/10/2014 Market value 31/10/2014 Fund 000s % 000s % British Government 15, , Corporate Bonds and Supranational 4, , Total Securities 20, , Net current assets Total value of fund 20,386 19,737 16

19 Affirmative Fixed Interest Fund for Charities Portfolio statement as at 30 April 2015 (unaudtied) Market Value Fund Holding 000s % British Government Treasury 2% , Treasury 4% , Treasury 1¾% , Treasury 5% ,200,000 1, Treasury 4½% , Treasury 4¾% , Treasury 3¾% , Treasury 3¾% , Treasury 4% , Treasury 2¼% , Treasury 5% , Treasury 4¼% , Treasury 4¼% ,000 1, Treasury 4½% ,000 1, Treasury 4¼% , Treasury 4¾% , Treasury 4¼% , Treasury 4¼% , Treasury 4½% , Treasury 3½% , Treasury 4¼% , Treasury 4¼% , Treasury 4% , , Corporate Bonds and Supranational Affirmative Corporate Bond Fund Units* 3,626,210 4, , , Net current assets 262 Total value of fund 20,386 All investments are listed on a recognised stock exchange with the exception of those marked* 17

20 Affirmative Fixed Interest Fund for Charities Summary of material portfolio changes as at 30 April 2015 (unaudited) Cost 000s Total purchases for the period 1,477 Proceeds 000s Total sales for the period 1,482 Largest purchases Treasury 2¼% Treasury 4½% Treasury 4½% Treasury 4¼% Treasury 4% Affirmative Corporate Bond Fund Units 142 Treasury 3¾% Treasury 3¾ Treasury 4½% Largest sales Treasury 4¾% Treasury 4% Treasury 4¼% Treasury 4¼% Treasury 3¾ Affirmative Corporate Bond Fund Units 90 Treasury 2% Treasury 5% Treasury 2¼% Other purchases - Total purchases 1,477 Other sales - Total sales 1,482 Analysis of credit rating Rating band AAA 1,241 1,255 AA 17,560 16,957 A BBB Not rated Total portfolio of investments 20,124 19,544 18

21 Affirmative Fixed Interest Fund for Charities Distribution Distribution period p per unit Date paid p per unit 1 November 2014 to 31 January March February 2015 to 30 April June Price and income history Highest buying price Lowest selling price Net income per unit Calendar year p p p Six months to April Performance record 1 year 3 years 5 years Total return performance to 30 April 2015 % % p.a. % p.a. Affirmative Fixed Interest Fund for Charities Composite Index The performance of the fund is based on the net assset value per share Total expense ratios Expense type % % Manager s periodic charge (inc VAT) Corporate Trustee s charge (inc VAT) Other expenses Total expense ratio

22 Affirmative Fixed Interest Fund for Charities Notes to the accounts 1. Accounting policies (a) Basis of accounting The accounts of the fund have been prepared on the historical cost basis, as modified by the evaluation of investments, and in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), the Charities Act 2011, the Charities (Accounts and Reports) Regulations 2008 and the relevant Scheme of the Charity Commissioners. (b) Recognition of income Interest on Government stocks, debentures, eurobonds and other fixed interest stocks is accrued on a day-to-day basis. (c) Management expenses The Manager s periodic charge paid to Epworth Investment Management Ltd is charged to the income of the Fund before distribution at a rate of 0.20%, plus VAT, of the value of the Fund. This fee covers the provision of staff and investment services and other expenses incurred by the Manager. The Corporate Trustee fee, audit, legal, safe custody fees and transaction charges, are charged separately to the income of the Fund before distribution. (d) Distribution policy All income of the Fund, after deduction of management and other expenses is distributed to unitholders. Distributions take into account income received on the creation of units and income deducted on the cancellation of units. A reconciliation of the net distribution to the net income of the Fund is shown in note 7. (e) Basis of valuation Listed investments are valued at bid-market values at the close of business on an accounting date less, in the case of fixed interest securities, interest accrued. Suspended securities are valued by the Manager having regard to the last dealing price on the date of suspension and subsequent available information. Suspended securities are written off after they have been carried at nil value for two years or if the Manager does not expect any returns for the Fund. 2. Net gains/(losses) on investments Net gains/(losses) on investments during the period comprise: Proceeds from sales of investments 1,482 3,503 Original cost of investments sold (1,829) (3.401) Gains realised on investments sold (347) 102 Net unrealised gains/(losses) 999 (278) Net gains/(losses) on investments 652 (176) 3. Gross income Interest on debt securities Bank interest 1 1 Other income 5 5 Total income Expenses Payable to the Manager or associates Payable to the Corporate Trustee or associates Corporate Trustee s fee 6 5 Safe custody fees and transaction charges Auditor s fees 2 2 Audit and other expenses written back 2 - Total expenses Portfolio transaction costs Analysis of total purchase costs Purchases in period before transaction costs 1,477 1,201 Custodian transaction costs - - Total purchase costs - - Gross purchases total 1,477 1,201 Analysis of total sale costs Gross sales before transaction costs 1,482 3,503 Custodian transaction costs - - Total sale costs - - Total sales net of transaction costs 1,482 3, Taxation The Fund is exempt from UK income tax and capital gains tax due to its charitable status pursuant to Sections 478 and 479 of the Corporation Tax Act Distributions are paid on the basis that all recoverable UK taxation has been reclaimed. Overseas withholding tax is deducted in full from overseas income on receipt. Withholding tax is credited to income when it is recovered. 7. Distributions The distributions take account of income received on the creation of units and income deducted on the cancellation of units, and comprise: 31 January April Income deducted on cancellation of units 3 8 Income received on creation of units (3) (2) Net distribution for the period