Annual Report & Financial Statements FP CAF Investment Fund FUND PARTNERS
contents FP CAF Investment Fund Page Authorised Corporate Director s ( ACD ) Report* 3 Certification of Financial Statements by Directors of the ACD* 4 Statement of the ACD s Responsibilities 5 Statement of the Depositary s Responsibilities 6 Report of the Depositary to the Shareholders of the Company 7 Independent Auditor s Report 8 Aggregated Statement of Total Return 10 Aggregated Statement of Change in Net Assets Attributable to Shareholders 10 Aggregated Balance Sheet 11 Notes to the Aggregated Financial Statements 12 Individual Funds Investment Commentary and Financial Statements FP CAF Alternative Strategies Fund 23 FP CAF Fixed Interest Fund 40 FP CAF International Equity Fund 60 FP CAF UK Equity Fund 77 General Information 97 Contact Information 100 * Collectively, these comprise the ACD s Report.
FP CAF Investment Fund Authorised Corporate Director s ( ACD ) Report We are pleased to present the Annual Report & Financial Statements for FP CAF Investment Fund for the year ended 30 April 2015. Authorised Status FP CAF Investment Fund ( the Company ) is an investment company with variable capital incorporated in England and Wales under registered number IC000876 and authorised by the Financial Conduct Authority ( FCA ) with effect from 4 March 2011. The Company has an unlimited duration. Shareholders are not liable for the debts of the Company. Head Office: The Head Office of the Company is at Cedar House, 3 Cedar Park, Cobham Road, Wimborne, Dorset BH21 7SB. The Head Office is the address of the place in the UK for service on the Company of notices or other documents required or authorised to be served on it. Structure of the Company The Company is structured as an umbrella company, in that different Funds may be established from time to time by the ACD with the approval of the FCA. On the introduction of any new Fund or Class, a revised prospectus will be prepared setting out the relevant details of each Fund or Class. The Company is a non-ucits retail scheme (NURS). The assets of each Fund will be treated as separate from those of every other Fund and will be invested in accordance with the investment objective and investment policy applicable to that Fund. Investment of the assets of each of the Funds must comply with the FCA s Collective Investment Schemes Sourcebook ( COLL ), the FCA s Investment Funds Sourcebook ( FUND ) and the investment objective and policy of the relevant Fund. In the future there may be other Funds established. On 22 July 2014, Fund Partners Limited was authorised by the FCA as an Alternative Investment Fund Manager ( AIFM ). Under the Alternative Investment Fund Managers Directive ( AIFMD ) we are required to disclose remuneration information in regards to those individuals whose actions have a material impact on the risk profile of the Fund. Due to the Fund not having been operating as an Alternative Investment Fund for a full 12 months no remuneration disclosure has been provided in these accounts. Base Currency: The base currency of the Company is Pounds Sterling. Each Fund and class is designated in Pounds Sterling. Share Capital: The minimum Share capital of the Company is 1 and the maximum is 100,000,000,000. Shares in the Company have no par value. The Share capital of the Company at all times equals the sum of the Net Asset Values of each of the Funds. 3
FP CAF Investment Fund Certification of Financial Statements by Directors of the ACD Directors Certification This report has been prepared in accordance with the requirements of COLL and FUND, as issued and amended by the FCA. We hereby certify the report on behalf of the Directors of Fund Partners Limited. The Directors are of the opinion that it is appropriate to adopt the going concern basis in the preparation of the Financial Statements as the assets of the Funds consist predominately of securities that are readily realisable and, accordingly, the Funds have adequate resources to continue in operational existence for the foreseeable future. R. Coe V. Hoare Fund Partners Limited 8 July 2015 4
FP CAF Investment Fund Statement of the ACD s Responsibilities The Authorised Corporate Director ( ACD ) of FP CAF Investment Fund ( Company ) is responsible for preparing the Annual Report and the Financial Statements in accordance with the Open- Ended Investment Companies Regulations 2001 ( the OEIC Regulations ), the FCA s Collective Investment Schemes Sourcebook ( COLL ), the FCA s Investment Fund Sourcebook ( FUND ) and the Company s Instrument of Incorporation. The OEIC Regulations and COLL require the ACD to prepare Financial Statements for each annual accounting period which: are in accordance with United Kingdom Generally Accepted Accounting Practice ( United Kingdom Accounting Standards and applicable law ) and the Statement of Recommended Practice: Financial Statements of Authorised Funds issued by the Investment Association (formerly the Investment Management Association) ( IMA SORP ) in October 2010; and give a true and fair view of the financial position of the Company and each of its sub-funds as at the end of that period and the net revenue and the net capital gains or losses on the property of the Company and each of its sub-funds for that period. In preparing the Financial Statements, the ACD is required to: select suitable accounting policies and then apply them consistently; make judgments and estimates that are reasonable and prudent; state whether applicable UK Accounting Standards and the IMA SORP have been followed, subject to any material departures disclosed and explained in the Financial Statements; and prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in operation. The ACD is responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the applicable IMA SORP and United Kingdom Accounting Standards and applicable law. The ACD is also responsible for the system of internal controls, for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities. In accordance with COLL 4.5.8BR, and FUND 3.3.2R, the Annual Report and the audited Financial Statements were approved by the board of directors of the ACD of the Company and authorised for issue on 8 July 2015. 5
FP CAF Investment Fund Statement of the Depositary s Responsibilities The Depositary must ensure that the Company is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook, and, from 22 July 2014 (date of AIFMD authorisation) the Investment Funds Sourcebook, the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228), as amended, the Financial Services and Markets Act 2000, as amended, (together the Regulations ), the Company s Instrument of Incorporation and Prospectus (together the Scheme documents ) as detailed below. The Depositary must in the context of its role act honestly, fairly, professionally, independently and in the interests of the Company and its investors. The Depositary is responsible for the safekeeping of all custodial assets and maintaining a record of all other assets of the Company in accordance with the Regulations. The Depositary must ensure that: the Company s cash flows are properly monitored and that cash of the Company is booked into the cash accounts; the sale, issue, repurchase, redemption and cancellation of shares are carried out; the value of shares of the Company are calculated; any consideration relating to transactions in the Company s assets is remitted to the Company within the usual time limits; the Company s income is applied in accordance with the Regulations; and the instructions of the Alternative Investment Fund Manager ( the AIFM ) are carried out (unless they conflict with the Regulations). The Depositary also has a duty to take reasonable care to ensure that Company is managed in accordance with the Scheme documents and the Regulations in relation to the investment and borrowing powers applicable to the Company. 6
FP CAF Investment Fund Report of the Depositary to the Shareholders of the Company Having carried out such procedures as we consider necessary to discharge our responsibilities as Depositary of the Company, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Company, acting through the AIFM: (i) (ii) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Company s shares and the application of the Company s income in accordance with the Regulations, the Scheme documents of the Company, and has observed the investment and borrowing powers and restrictions applicable to the Company. State Street Trustees Limited Depositary London 8 July 2015 7
FP CAF Investment Fund Independent Auditor s Report to the Shareholders of FP CAF Investment Fund We have audited the Financial Statements of FP CAF Investment Fund ( the Company ) for the year ended 30 April 2015 which comprise the Aggregated Statement of Total Return, the Aggregated Statement of Change in Net Assets Attributable to Shareholders, the Aggregated Balance Sheet, the related notes 1 to 15 and for each sub-fund: the Statement of Total Return, the Statement of Change in Net Assets Attributable to Shareholders, the Balance Sheet, the related notes, and the distribution tables. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), the Statement of Recommended Practice: Financial Statements of Authorised Funds issued by the Investment Management Association in October 2010, the Collective Investment Schemes Sourcebook and the Instrument of Incorporation. This report is made solely to the Company s shareholders, as a body, in accordance with Paragraph 4.5.12R of the Collective Investment Schemes Sourcebook of the FCA. Our audit work has been undertaken so that we might state to the Company s Shareholders those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s Shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of the Depositary, the Authorised Corporate Director (ACD) and the Auditor As explained more fully in the Statement of the Depositary s Responsibilities and Statement of the ACD s Responsibilities, the Depositary is responsible for safeguarding the property of the Company and the ACD is responsible for the preparation of the Financial Statements. Our responsibility is to audit and express an opinion on the Financial Statements in accordance with the requirements of the Collective Investment Schemes Sourcebook, applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the Financial Statements An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the ACD; 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. 8
FP CAF Investment Fund Independent Auditor s Report to the Shareholders of FP CAF Investment Fund (continued) Opinion on Financial Statements In our opinion the Financial Statements: give a true and fair view of the financial position of the Company and the sub funds as at 30 April 2015 and of the net revenue and the net capital gains on the property of the Company and the sub funds for the year ended 30 April 2015; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, the Statement of Recommended Practice Financial Statements of Authorised Funds, the rules in the Collective Investment Schemes Sourcebook and the Instrument of Incorporation. Opinion on other matters prescribed by the Collective Investment Schemes Sourcebook In our opinion: proper accounting records for the Company and the sub funds have been kept and the Financial Statements are in agreement with those records; we have received all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit; and the information disclosed in the Annual Report for the year ended 30 April 2015 for the purpose of complying with Paragraph 4.5.9R of the Collective Investment Schemes Sourcebook is consistent with the Financial Statements. Deloitte LLP Chartered Accountants and Statutory Auditor Edinburgh, United Kingdom 8 July 2015 9
FP CAF Investment Fund Aggregated Statement of Total Return 01/05/14 to 30/04/15 01/05/13 to 30/04/14 Note Income Net capital gains 2 9,243,538 13,445,655 Revenue 3 5,421,029 5,351,872 Expenses 4 (1,173,456) (1,139,939) Finance costs: Interest 6 (187) (36) Net revenue before taxation 4,247,386 4,211,897 Taxation 5 (3,418) Net revenue after taxation 4,243,968 4,211,897 Total return before distributions 13,487,506 17,657,552 Finance costs: Distributions 6 (4,943,400) (4,910,514) Change in net assets attributable to Shareholders from investment activities 8,544,106 12,747,038 Aggregated Statement of Change in Net Assets Attributable to Shareholders 01/05/14 to 30/04/15 01/05/13 to 30/04/14 Opening net assets attributable to Shareholders 217,200,787 209,680,363 Amounts received on issue of Shares 18,672,007 15,832,735 Less: Amounts paid on cancellation of Shares (20,268,366) (21,721,131) (1,596,359) (5,888,396) Dilution adjustment charged 53,446 48,428 Stamp duty reserve tax* (107) (15,515) Change in net assets attributable to Shareholders from investment activities (see above) 8,544,106 12,747,038 Retained distribution on accumulation Shares 738,957 628,869 Closing net assets attributable to Shareholders 224,940,830 217,200,787 * Abolished from 30 March 2014 for OEICs. 10
FP CAF Investment Fund Aggregated Balance Sheet As at 30 April 2015 30/04/15 30/04/14 Note Assets Investment assets 215,726,663 205,217,417 Debtors 7 1,260,927 1,240,165 Cash and bank balances 8 8,885,339 12,782,951 Total other assets 10,146,266 14,023,116 Total assets 225,872,929 219,240,533 Liabilities Investment liabilities Creditors 9 (194,104) (1,427,449) Distribution payable on income Shares (737,995) (612,297) Total other liabilities (932,099) (2,039,746) Total liabilities (932,099) (2,039,746) Net assets attributable to Shareholders 224,940,830 217,200,787 11
FP CAF Investment Fund Notes to the Aggregated Financial Statements 1. Accounting Basis and Policies (a) Basis of accounting The Financial Statements have been prepared under the historical cost basis, as modified by the revaluation of investments and in accordance with the Statement of Recommended Practice ( SORP ) for Financial Statements of Authorised Funds issued by the Investment Management Association in October 2010. As described in the Certification of Financial Statements by Directors of the ACD on page 4, the ACD continues to adopt the going concern basis in the preparation of the aggregated Financial Statements and the Financial Statements of the Funds. (b) (c) (d) Basis of aggregation The aggregated Financial Statements represent the sum of the relevant items from the Financial Statements of the individual Funds within the umbrella Company. Realised and unrealised gains and losses Realised gains or losses have been calculated as the proceeds from disposal less book cost. Where realised gains or losses include gains or losses which have arisen in previous periods, a corresponding loss or gain is included in unrealised gains or losses. Recognition of revenue Dividends on quoted equities and preference Shares are recognised when the securities are quoted ex-dividend and are recognised net of attributable tax credits. Rebates of annual management charges on underlying investments are accounted for on an accruals basis and recognised as revenue or capital in line with the treatment of the charge on the underlying Fund. Revenue from debt securities is accounted for on an effective yield basis. Accrued interest on purchase and sale contracts is recognised as revenue and transferred to revenue or capital as appropriate. Distributions from Collective Investment Schemes are recognised when the schemes are quoted ex-distribution. Equalisation returned with the distribution is deducted from the cost of the investment and does not form part of the distributable revenue. Interest on bank and other cash deposits is recognised on an accruals basis. All revenue includes withholding taxes but excludes irrecoverable tax credits. Any reported revenue from an offshore fund, in excess of any distribution received in the reporting period, is recognised as revenue no later than the date on which the reporting fund makes this information available. Returns on derivative transactions have been treated as either revenue or capital depending on the motives and circumstances on acquisition. 12
FP CAF Investment Fund Notes to the Aggregated Financial Statements (continued) 1. Accounting Basis and Policies (continued) (e) Treatment of stock and special dividends The ordinary element of stock dividends received in lieu of cash dividends is credited to capital in the first instance followed by a transfer to revenue of the cash equivalent being offered and this forms part of the distributable revenue. Special dividends are reviewed on a case by case basis in determining whether the dividend is to be treated as revenue or capital. Amounts recognised as revenue will form part of the distributable revenue. The tax treatment follows the treatment of the principal amount. (f) Treatment of expenses Stamp Duty Reserve Tax ( SDRT ) and costs associated with the purchase and sale of investments which are allocated to the capital of the Funds. All other expenses are allocated as follows: FP CAF Fixed interest Fund - expenses are charged 100% to capital FP CAF UK Equity Fund - expenses are charged 50% to capital and 50% to revenue. FP CAF International Equity Fund and FP CAF Alternative Strategies Fund - expenses are charged 100% to revenue. (g) (h) Allocation of revenue and expenses to multiple Share Classes and Funds Any revenue or expenses not directly attributable to a particular Share Class or fund will normally be allocated pro-rata to the net assets of the relevant Share classes and funds. Taxation Tax is provided for using tax rates and laws which have been enacted or substantively enacted at the balance sheet date. Corporation tax is provided for on the income liable to corporation tax less deductible expenses. Corporation tax is provided for on realised gains on non-reporting offshore funds less deductible expenses. Deferred tax is provided for on unrealised gains on non-reporting offshore funds less deductible expenses. Where tax has been deducted from revenue that tax can, in some instances, be set off against the corporation tax payable, by way of double tax relief. Deferred tax is provided using the liability method on all timing differences arising on the treatment of certain items for taxation and accounting purposes, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset. SDRT suffered on surrender of Shares is deducted from capital. SDRT was abolished 30 March 2014. 13
FP CAF Investment Fund Notes to the Aggregated Financial Statements (continued) 1. Accounting Basis and Policies (continued) (i) Distribution policy The net revenue after taxation, as disclosed in the Financial Statements, after adjustment for items of a capital nature, is distributable to Shareholders as dividend distributions, apart from the FP CAF Global Fixed Interest Fund which has Gross interest distributions. Any revenue deficit is deducted from capital. In addition, the SDRT and portfolio transaction charges will be charged wholly to the capital of all Funds. Accordingly, the imposition of such charges may constrain the capital growth of every Fund. The ACD has elected to pay all revenue less expenses charged to revenue and taxation as a quarterly distribution at the end of the quarterly accounting period. Interim distributions may be made at the ACD s discretion. (j) Basis of valuation of investments Listed investments are valued at close of business bid prices excluding any accrued interest in the case of fixed interest securities, on the last business day of the accounting period. Market value is defined by the SORP as fair value which is the bid value of each security. Collective Investment Schemes 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. (k) (l) 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 mid market exchange rates ruling on that date. Dilution adjustment The ACD may require a dilution adjustment on the creation and redemption of Shares if, in its opinion, the existing Shareholders (for sales) or remaining Shareholders (for redemptions) might otherwise be adversely affected. In particular, the dilution adjustment may be charged in the following circumstances: where the scheme property is in continual decline; on a Fund experiencing large levels of net sales relative to its size; on large deals ; in any case where the ACD is of the opinion that the interests of remaining Shareholders require the imposition of a dilution adjustment. (m) Equalisation Equalisation applies only to Shares purchased during the distribution period (Group 2 Shares). It represents the accrued revenue included in the purchase price of the Shares. After averaging it is returned with the distribution as a capital repayment. It is not liable to income tax but must be deducted from the cost of the Shares for Capital Gains tax purposes. (n) Set up costs Set up costs are written off as they are incurred. 14
FP CAF Investment Fund Notes to the Aggregated Financial Statements (continued) 1. Accounting Basis and Policies (continued) (o) Derivatives Some of the Funds may enter into permitted transactions such as derivative contracts or forward foreign currency transactions. Where these transactions are used to protect or enhance revenue, the revenue and expenses are included within net revenue in the Statement of Total Return. None of the Funds have entered derivative contracts or forward foreign currency transactions during the year. 2. Net capital gains The net capital gains during the year comprise of: 01/05/14 to 01/05/13 to 30/04/15 30/04/14 Realised currency gains/(losses) 13,112 (34) Unrealised currency gains/(losses) 4,000 (2,403) Realised non-derivative securities (losses)/gains (6,363,289) 10,411,055 Unrealised non-derivative securities gains 15,589,715 3,037,037 Net capital gains 9,243,538 13,445,655 3. Revenue 01/05/14 to 01/05/13 to 30/04/15 30/04/14 Bank interest 26,351 27,665 Franked dividends from Collective Investment Schemes 1,886,235 1,474,195 HMRC interest 766 630 Interest income from Collective Investment Schemes 1,091,836 1,156,318 Offshore funds dividends 1,805,030 2,013,924 Rebates received from underlying funds 435,626 486,285 Unfranked dividends from Collective Investment Schemes 175,185 192,855 Total revenue 5,421,029 5,351,872 4. Expenses 01/05/14 to 30/04/15 01/05/13 to 30/04/14 Payable to the ACD, associates of the ACD, and agents either of them AMC fees* 1,145,335 1,128,221 Printing, postage, stationery and typesetting costs 28,121 11,718 Total expenses 1,173,456 1,139,939 * FCA fees and Audit fees of 38,640 for the year ended 30 April 2015 (2014: 37,920) have been borne by the ACD out of its periodic charge. 15
FP CAF Investment Fund Notes to the Aggregated Financial Statements (continued) 5. Taxation (a) Analysis of the tax charge in the year 01/05/14 to 01/05/13 to 30/04/15 30/04/14 Corporation tax 3,418 Total current tax charge (Note 5 (b)) 3,418 Deferred tax (Note 5 (c)) Total taxation for the year 3,418 (b) Factors affecting current tax charge for the year The tax assessed for the year is different from that calculated when the standard rate of corporation tax for an open ended investment company of 20% (2014: 20%) is applied to the net revenue before taxation. The differences are explained below: 01/05/14 to 30/04/15 01/05/13 to 30/04/14 Net revenue before taxation 4,247,386 4,211,897 Net revenue for the year multiplied by the standard rate of corporation tax 849,478 842,380 Effects of: Movement in excess management expenses 69,366 (41,359) Revenue not subject to corporation tax (564,471) (488,409) Tax deductible interest distributions (350,955) (312,612) Current tax charge for the year 3,418 OEICs are exempt from tax on capital gains in the UK. Therefore, any capital return is not included within the reconciliation above. (c) (d) Provision for deferred tax There is no provision required for deferred taxation at the Balance Sheet date in the current year or prior year. Factors that may affect future tax charges Factors affecting future tax charges are disclosed within the individual Funds Financial Statements. 16
FP CAF Investment Fund Notes to the Aggregated Financial Statements (continued) 6. Finance costs Distributions The distributions take account of revenue received on the creation of Shares and revenue deducted on the cancellation of Shares and comprise: 01/05/14 to 30/04/15 01/05/13 to 30/04/14 Interim 4,028,239 4,154,815 Final 899,433 710,184 Add: Revenue paid on cancellation of Shares 67,173 80,890 Deduct: Revenue received on creation of Shares (51,445) (35,375) Net distribution for the year 4,943,400 4,910,514 Interest 187 36 Total finance costs 4,943,587 4,910,550 Reconciliation of net revenue after taxation to distributions Net revenue after taxation 4,243,968 4,211,897 Expenses charged to capital 706,591 712,563 Net movement in revenue account 1 56 Tax relief from capital* (7,160) (14,002) Net distribution for the year 4,943,400 4,910,504 * Included in the tax relief amounts is relief to income from capital expenses and relief to capital where income expenses have been utilised to reduce the tax arising on offshore gains 7. Debtors 30/04/15 30/04/14 Accrued bank interest 1,636 2,480 Accrued revenue 70,281 Amounts due for rebates from underlying funds 65,809 109,507 Amounts receivable for creation of Shares 103,326 49,783 Dilution adjustment receivable 350 186 Income tax recoverable 294,751 318,209 Sales awaiting settlement 724,774 760,000 Total debtors 1,260,927 1,240,165 17
FP CAF Investment Fund Notes to the Aggregated Financial Statements (continued) 8. Cash and bank balances 30/04/15 30/04/14 Cash 8,885,339 12,782,951 Total cash and bank balances 8,885,339 12,782,951 9. Creditors 30/04/15 30/04/14 Amounts payable for cancellation of Shares 89,270 67,808 Corporation tax payable 3,420 Dilution adjustment payable 3 Purchases awaiting settlement 1,260,000 92,693 1,327,808 Accrued expenses Manager and Agents AMC fees 98,710 94,241 Printing, postage, stationery and typesetting costs 2,701 5,400 101,411 99,641 Total creditors 194,104 1,427,449 10. Related party transactions Management fees paid to the ACD and Registration fees, are disclosed in note 4 and amounts due at the year end are disclosed in note 9. The aggregate monies received and paid by the ACD through the creation and cancellation of Shares are disclosed in the Aggregated Statement of Change in Net Assets Attributable to Shareholders and amounts due at the year end are disclosed in notes 7 and 9. The ACD and its associates (including other authorised investment funds managed by the ACD) have no Shareholdings in the Company at the year end. All other amounts received or paid by the related parties together with the outstanding balances are disclosed within the individual Funds Financial Statements. 18
FP CAF Investment Fund Notes to the Aggregated Financial Statements (continued) 11. Share Classes The Share Class and ACD s Annual Management Charges applicable to each Fund are as follows: FP CAF Alternative Strategies Fund Share Class A Accumulation 0.55 Share Class A Income 0.55 Share Class C Accumulation 0.55 FP CAF Fixed Interest Fund Share Class A Accumulation 0.55 Share Class A Income 0.55 Share Class B Accumulation 0.475 Share Class B Income 0.475 Share Class C Accumulation 0.55 FP CAF International Equity Fund Share Class A Accumulation 0.55 Share Class A Income 0.55 Share Class C Accumulation 0.55 FP CAF UK Equity Fund Share Class A Accumulation 0.55 Share Class A Income 0.55 Share Class B Accumulation 0.55 Share Class B Income 0.55 Share Class C Accumulation 0.55 Each Share Class has equal rights in the event of the wind up of any fund. % 12. Capital commitments and contingent liabilities Capital commitments and contingent liabilities are disclosed within the individual Funds Financial Statements. 13. Derivatives and other financial instruments Management of risk is a critical responsibility of the ACD in managing the Company. The Funds for which Fund Partners Limited acts as ACD are exposed to a wide range of risks. The purpose of the ACD s Risk Management Policy ( RMP ) is to identify these risks and document the controls and processes in place to manage and mitigate these risks. The specific risks to the Funds are documented in sections (a) to (i) below and are reviewed on a regular basis. 19
FP CAF Investment Fund Notes to the Aggregated Financial Statements (continued) 13. Derivatives and other financial instruments (continued) The control environment on which the ACD s RMP has been developed is based on six key characteristics: (i) Commitment, from senior management and all employees, to a control ethic based on competence and integrity. (ii) Identification and evaluation of risks and control objectives. (iii) Control and information procedures that identify and capture relevant and reliable data to monitor risks within pre-determined limits. (iv) Formal procedures for monitoring, reporting, escalation and remedial follow-up action. (v) An independent and permanent risk management function in regards to portfolio management. (vi) An independent and permanent risk management function in regards to the firm. In pursuing the investment objectives of the Funds, 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 currency contracts, may be utilised for hedging purposes. The main risks from the Funds holding of financial instruments, together with the ACD s policy for managing these risks, are disclosed below: (a) Foreign currency risk A significant portion of the Company s assets or the underlying assets of the Collective Investment Schemes in which the Company invests may be denominated in a currency other than the base currency of the Company or Class. There is the risk that the value of such assets and/or the value of any distributions from such assets may decrease if the underlying currency in which assets are traded falls relative to the base currency in which Shares of the relevant Fund are valued and priced. The Company is not required to hedge its foreign currency risk, although it may do so through foreign currency exchange contracts, forward contracts, currency options and other methods. To the extent that the Company does not hedge its foreign currency risk or such hedging is incomplete or unsuccessful, the value of the Company s assets and revenue could be adversely affected by currency exchange rate movements. There may also be circumstances in which a hedging transaction may reduce currency gains that would otherwise arise in the valuation of the Company in circumstances where no such hedging transactions are undertaken. (b) Interest rate risk profile of financial assets and liabilities The interest rate risk is the risk that the value of the Company s investments will fluctuate due to changes in the interest rate. Cashflows from floating rate securities, bank balances, or bank overdrafts will be affected by the changes in interest rates. As the Company s objective is to seek capital growth, these cashflows are considered to be of secondary importance and are not actively managed. The Company did not have any long term financial liabilities at the balance sheet date. 20
FP CAF Investment Fund Notes to the Aggregated Financial Statements (continued) 13. Derivatives and other financial instruments (continued) (c) (d) Credit risk The Company may find that companies in which it invests fail to settle their debts on a timely basis. The value of securities issued by such companies may fall as a result of the perceived increase in credit risk. Adhering to investment guidelines and avoiding excessive exposure to one particular issuer can limit credit risk. Liquidity risk Subject to the Regulations, the Company may invest up to and including 20% of the Scheme Property of the Company in transferable securities which are not approved securities (essentially transferable securities which are admitted to official listing in an EEA state or traded on or under the rules of an eligible securities market). Such securities and instruments are generally not publicly traded, may be unregistered for securities law purposes and may only be able to be resold in privately negotiated transactions with a limited number of purchasers. The difficulties and delays associated with such transactions could result in the Company s inability to realise a favourable price upon disposal of such securities, and at times might make disposition of such securities and instruments impossible. To the extent the Company invests in securities and instruments the terms of which are privately negotiated, the terms of such securities and instruments may contain restrictions regarding resale and transfer. In addition, certain listed securities and instruments, particularly securities and instruments of smaller capitalised or less seasoned issuers, may from time to time lack an active secondary market and may be subject to more abrupt or erratic price movements than securities of larger, more established companies or stock market averages in general. In the absence of an active secondary market the Company s ability to purchase or sell such securities at a fair price may be impaired or delayed. (e) (f) Market price risk The Company invests principally in Collective Investment Schemes. The value of these investments are not fixed and may go down as well as up. This may be the result of a specific factor affecting the value of an individual equity or be caused by general market factors (such as government policy or the health of the underlying economy) which can affect the entire portfolio. The Investment Manager seeks to minimise these risks by holding a diversified portfolio of collective investment schemes in line with the Company s objectives. In addition, the management of the Company complies with the FCA s COLL sourcebook, which includes rules prohibiting a holding greater than 35% of assets in any one Fund. Counterparty risk Transactions in securities entered into by the Company 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. The Investment Manager minimises this risk by conducting trades through only the most reputable counterparties. Counterparty risk is also managed by limiting the exposure to individual counterparties through adherence to the investment spread restrictions included within the Company s prospectus and COLL. 21
FP CAF Investment Fund Notes to the Aggregated Financial Statements (continued) 13. Derivatives and other financial instruments (continued) (g) (h) 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. Operational risk Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Trust cannot eliminate operational risks but, through the continual review and assessment of its control environment, by monitoring and responding to potential risks, they can be managed. High level controls include effective segregation of duties, trade confirmation checking and reconciliation procedures, incident reporting and oversight of delegated functions. (i) Leverage The Company is not allowed leverage in the traditional sense. The Company is in accordance with the relevant FCA Sourcebook. Therefore as at this year end, this Company did not employ significant amount of leverage. 14. Portfolio transaction costs Analysis of total trade costs are disclosed within the individual Funds Financial Statements. 15. Post balance sheet events Post balance sheet events are disclosed within the individual Funds Financial Statements. 22
FP CAF Alternative Strategies Fund Investment Manager s Report Investment Objective The Fund aims to provide an absolute return for investors over any 12-month rolling period regardless of the prevailing market conditions, although Capital invested in the Fund is at risk and there is no guarantee that this objective will be met. The Fund will look to deliver its return through investment in alternative investment strategies across multiple asset classes. Investment Policy The Fund will seek to achieve its objective through investments in a range of Collective Investment Schemes, money market instruments, deposits, transferable securities and derivative instruments. Subject to the requirements of the FCA Regulations, the portfolio will normally remain fully invested. There will, however, be no restrictions on the underlying investments held, in terms of investment type, geographical or economic sector, other than those imposed by the FCA Regulations, meaning that the Fund manager has the absolute discretion to weight the portfolio towards any investment type or sector, including cash, at any time. Unregulated Collective Investment Schemes may be used to the extent permitted by the FCA Regulations. The portfolio will be actively managed and the Fund may hold exchange traded derivatives for investment purposes as well as for efficient portfolio management purposes (including hedging). Borrowing will be permitted up to the levels stated in the Regulations. Please note that a positive return in a twelve month period is not guaranteed. Investment Review The FP CAF Alternative Strategies Fund provided a strong positive return of 4.4% 1 in the twelve months from 1 May 2014 to 30 April 2015, against its cash benchmark of 0.6% 1 during the period. We began the period by adding to our market-neutral investments, as we expected to see improving economic conditions in the coming months. The purchase of Absolute Insight Credit proved timely as the European Central Bank (ECB) announced its intention to support this type of investment, which is backed by company assets such as cashflow, in order to stimulate economic growth. We added to some of our equity holdings in August, where we felt falls in value offered attractive opportunities. This included selling our investment in Castlerigg Merger Arbitrage and using the proceeds to add JPMorgan Merger Arbitrage. We also increased our holdings in Morgan Stanley Diversified Alpha Plus and H2O MultiReturns, which had both fallen harder than others. Our exchange traded funds (ETFs) benefited from market rallies in the UK and US, when our strategy was to sell some holdings at a profit, including Vanguard FTSE 100 ETF and Vanguard S&P 500 ETF. We reduced equity risk early in January by reducing holdings in equity tracking funds as the oil price fell and inflation was expected to weaken. Our view that the ECB had the potential to surprise was borne out in March, when it announced a larger-than-expected quantitative easing (QE) programme of bond buying to stimulate economic growth. We had moved some of the portfolio from US to European assets in time for the announcement. We took the opportunity to invest in db x-trackers DJ Euro Stoxx, an ETF that tracks the largest, most frequently traded continental European equities. 23
FP CAF Alternative Strategies Fund Investment Manager s Report (continued) Investment Review (continued) We sold Merrill Lynch Factor Index in February, after its assets under management fell in size. This presented the opportunity to introduce Royal London Absolute Return Government Bond, which focuses on government bond markets in the G10 group of leading economies. One of the disappointments towards the end of the period was the performance of Morgan Stanley Diversified Alpha Plus, which favours investing in Europe over the US and China. While we believe this continues to be a sound longer-term strategy, it worked against the fund in March. As Japan s QE programme showed some signs of boosting the country s economy, our Japanese investments performed well, with rises in ishares Japan GBP Hedged ETF and Salar Convertible Absolute Return. Market Overview It has been a good twelve months for UK based investors. Global stock markets, led by the US, performed well, buoyed by improving global growth underpinned by supportive economic policies. However, it wasn t all plain sailing for investment markets, with geographic, economic and political events creating uncertainty. We saw a sharp fall in stock markets in October, due to fears around the sustainability of US growth. In December, markets were concerned by Russia s actions in Ukraine, as well as falls in oil and commodity prices. Investor fears proved short lived, though, and markets continued on their upward trajectory into 2015. Investors kept a close eye on central banks for signs of any potential interest rate rises in the US and QE programmes elsewhere, notably Europe and Japan. The ECB embarked on its large scale QE programme of bond buying to stimulate economic growth. Japan continued reforms to boost growth and weaken the value of the yen, while China cut its interest rates to stimulate growth, with limited success. In Greece, the government was running out of time to sort out its economic problems and meet pledges made to its electorate. Outlook The unexpected outcome of the UK General Election is being absorbed, and the focus is on what lies in store for the Conservatives and what is being heralded as their next battle the European Union referendum. The Conservative victory creates more predictable outcomes for business and was generally welcomed by the markets. In Europe, economic events in Greece will continue to dominate. The longer Greece s saga goes on, the more market volatility we are likely to see from investment markets, and the more likely we are to review our current investment position in Europe, holding a little more in cash until agreement is reached. It appears unlikely that we will see any rises in US interest rates until at least September. The US Federal Open Markets Committee (FOMC) emphasised the dual aspects of its long-term objective: controlling both employment and inflation at certain levels. Attention will focus on consumer spending and wage inflation over the coming months, while investors will also hope that second quarter growth numbers will show a marked improvement to compensate for a weak first quarter. In Japan, the current QE programme to stimulate economic growth is being maintained rather than increased as Prime Minister Abe moves through his list of reforms. Wage increases appear to be coming through, which is a key part of the strategy, and would be strong evidence of a change in fortune for the Japanese economy. 24
FP CAF Alternative Strategies Fund Investment Manager s Report (continued) Outlook (continued) We had, in previous months, taken profits from an extended run of rising prices in equity markets, holding cash back to be used in the event of increased short-term volatility in markets. Looking ahead, we believe there is enough uncertainty to support our view and we will be looking to redeploy cash on subsequent market dips. Opportunities will be found in the volatility as we continue to believe that the longer-term picture for global growth, and equity markets in general, remains positive. In bond markets, we can point to the low yields on offer from German bonds, relative to the US and UK, as an unusual state of affairs that may lead to yields in treasuries and bonds falling further. For us, this reveals the current vulnerability of capital invested in government bond markets and reinforces our view that the bond market is expensive, with a risk to capital that is out of synch with the yield on offer for taking that risk. Your capital is at risk and you may not get back the full amount invested. Past performance is not a reliable indicator of future results. Any views and opinions expressed are subject to change and should not be taken as a recommendation or advice. Source: 1 Lipper. 01/05/14 30/04/15. returns, net income reinvested Investment Manager Octopus Investments Limited 5 June 2015 25
FP CAF Alternative Strategies Fund Net Asset Value per Share and Comparative Table As at 30 April 2015 Net Asset Value Date Net Asset Value of Share Class () Shares in issue Net Asset Value per Share Share Class A Income 30/04/13 867,007 845,915 102.49 30/04/14 947,711 886,491 106.91 30/04/15 961,069 866,909 110.86 Share Class A Accumulation 30/04/13 31,137 30,382 102.49 30/04/14 217,086 202,951 106.96 30/04/15 358,262 321,618 111.39 Share Class C Accumulation 30/04/13 2,506,263 2,445,395 102.49 30/04/14 5,517,823 5,158,304 106.97 30/04/15 10,807,625 9,700,196 111.42 Price and Revenue History Calendar Year Highest Published Share price Lowest Published Share price Net Revenue per Share Share Class A Income 2011 1 102.48 99.57 0.0000 2012 101.34 99.27 0.0000 2013 106.82 100.57 0.0000 2014 109.40 106.33 0.3327 2015 2 112.13 108.98 0.2391 Share Class A Accumulation 2011 1 102.48 99.57 0.0000 2012 101.34 99.27 0.0000 2013 106.81 100.56 0.0000 2014 109.73 106.62 0.4821 2015 2 112.50 109.31 0.1855 Share Class C Accumulation 2011 1 102.48 99.57 0.0000 2012 101.34 99.27 0.0000 2013 106.82 100.56 0.0000 2014 109.74 106.63 0.3794 2015 2 112.52 109.31 0.2015 1 From 12 March to 31 December 2011. 2 From 1 January to 30 April 2015. Includes the distributions paid 15 March and payable 15 June 2015. All Share Classes were launched 12 March 2011. 26
FP CAF Alternative Strategies Fund Net Asset Value per Share and Comparative Table (continued) As at 30 April 2015 Distribution The distribution for Share Class A Income is 0.1846p per Share, payable 15 June 2015. The distribution for Share Class A Accumulation is 0.1783p per Share, payable 15 June 2015. The distribution for Share Class C Accumulation is 0.1680p per Share, payable 15 June 2015. 27
FP CAF Alternative Strategies Fund Performance Information As at 30 April 2015 Total Expense Ratios Date AMC (%) Other expenses (%) Synthetic expense ratio (%) Rebates from underlying funds (%) Total expense ratios (%) 30/04/15 Share Class A 0.55 0.06 0.88 (0.13) 1.36 Share Class C 0.55 0.06 0.88 (0.13) 1.36 30/04/14 Share Class A 0.55 0.04 1.02 (0.14) 1.47 Share Class C 0.55 0.04 1.02 (0.14) 1.47 The Total Expense Ratio ( TER ) is the total expenses paid by the Fund in the year, annualised, against its average Net Asset Value. The TER will fluctuate as underlying costs change. The Fund has invested in Collective Investment Schemes during the year and the expenses incurred by these schemes are included in the above as the Synthetic expense ratio. Risk Warning An investment in an Open-Ended Investment Company should be regarded as a medium to long term investment. Investors should be aware that the price of shares and the income from them may 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 of a fund are subject to fluctuation in exchange rates, which may be favourable or unfavourable. 28
FP CAF Alternative Strategies Fund Portfolio Statement As at 30 April 2015 Holdings or Nominal Value Investments Market value % of Total Net Assets Collective Investment Schemes 30.81% [35.07%] 396,843 BlackRock European Absolute Alpha 504,387 4.16 29,213 BlackRock UK Gilts All Stocks Tracker 43,995 0.36 410,402 Henderson UK Absolute Return 621,348 5.12 698,688 Legal & General Dynamic Bond 740,610 6.11 463,123 Legal & General Short Dated Sterling Corporate Bond Index 238,833 1.97 270,042 NGAM H2O MultiReturns 341,766 2.82 478,865 Schroder European Absolute Target 585,652 4.83 779,302 Standard Life Global Absolute Return Strategies 658,900 5.44 3,735,491 30.81 Exchange Traded Funds 5.25% [7.49%] 355 db x-trackers EURO STOXX 50 9,606 0.08 19,058 ishares Core UK Gilts 234,032 1.93 661 ishares MSCI Japan GBP Hedged 36,804 0.30 1,842 ishares USD Treasury Bond 7-10yr 236,660 1.95 1,972 Vanguard FTSE 100 61,793 0.51 2,213 Vanguard S&P 500 57,527 0.48 636,422 5.25 Offshore Funds 48.87% [51.69%] 433,081 Absolute Insight Credit 561,533 4.63 532,117 BNY Mellon Absolute Return Equity 621,991 5.13 7,187 JPMorgan Global Merger Arbitrage 472,153 3.89 112,168 Majedie Asset Tortoise 202,615 1.67 6,378 Melchior European Absolute Return 742,627 6.12 14,494 Morgan Stanley Diversified Alpha Plus 468,287 3.86 108 MS Long Term Trends 135,657 1.12 6,515 Muzinich Long Short Credit Yield 821,035 6.77 400,701 Old Mutual Global Equity Absolute Return 588,230 4.85 600,195 Royal London Absolute Return Government Bond 601,756 4.96 6,072 Salar Convertible Absolute Return 712,009 5.87 5,927,893 48.87 Portfolio of investments 10,299,806 84.93 Net other assets 1,827,150 15.07 Net assets 12,126,956 100.00 The investments have been valued in accordance with note 1(i) of the Notes to the Aggregated Financial Statements. All investments are Collective Investment Schemes unless otherwise stated. Comparative figures shown above in square brackets relate to 30 April 2014. Gross purchases for the year: 14,958,342 [2014: 14,750,321] (See Note 14). Total sales net of transaction costs for the year: 11,335,279 [2014: 11,741,352] (See Note 14). 29