Interim Report and Financial Statements For the period ended: 31.10.2015
Contents Page 1 Directory 2 Authorised Status* 3 Certification of Financial Statements by Directors of the Manager* 4 Manager's Investment Report* 5 Portfolio Statement 9 Material Portfolio Changes 10 Performance Record Financial Statements of F&C High Income Fund 11 Statement of Total Return 11 Statement of Change in Net Assets Attributable to Unitholders 12 Balance Sheet 13 Notes to the Financial Statements Authorised Fund Manager's Report* and Financial Statements for: *The Authorised Corporate Director s Report in accordance with the Investment Management Association (IMA) SORP (2014) and the Collective Investment Schemes Sourcebook comprises those items denoted above along with the Fund Objective, Market Review, Activity, Outlook, Performance Summary, Portfolio Statement and Material Portfolio Changes of the Fund.
Directory Manager F&C Fund Management Limited Exchange House Primrose Street London EC2A 2NY Telephone: 0800 085 2752, Facsimile: (0207) 600 4180 Registration No: 2170242 England The Manager is authorised and regulated in the UK by the Financial Conduct Authority and is a member of the Investment Management Association. Directors B. Apfel D. Logan M. Smith N. Parry M. Tonkin R. Watts T Watts Trustee State Street Trustees Limited Registered Office 20 Churchill Place London E14 5HJ Head Office and Principal Place of Business 525 Ferry Road Edinburgh EH5 2AW Fund Accounting and Unit pricing State Street Bank and Trust Company 525 Ferry Road Edinburgh EH5 2AW Company Secretary F&C Asset Management plc Investment Advisor F&C Managers Limited Exchange House Primrose Street London EC2A 2NY Registration No: 02219464 England Authorised and regulated in the UK by the Financial Conduct Authority Independent Auditors PricewaterhouseCoopers LLP Level 4 Atria One 144 Morrison Street Edinburgh EH3 8EX Administrator and Registrar International Financial Data Services (UK) Limited IFDS House St Nicholas Lane Basildon Essex SS15 5FS Legal Advisors Eversheds LLP One Wood Street London EC2V 7WS 1
Authorised Status Authorised Status This Fund is an authorised unit trust scheme under Section 243 of the Financial Services and Markets Act 2000 and is a UCITS scheme within the meaning of the FCA s Collective Investment Schemes sourcebook (COLL). Other Information The Ongoing Charges Figure can be found in the Fund s Performance Record. With effect from 1 January 2015 the Investment Management Association (IMA) was replaced by the Investment Association (IA). As of 6 July 2015, BMO Global Asset Management is the trading name of F&C Fund Management Limited, following the acquisition of F&C Asset Management plc. There were no cross holdings in the F&C High Income Fund as at 31 October 2015. 2
Certification of Financial Statements by Directors of the Manager This report contains the information required by the Statement of Recommended Practice (SORP) for Financial Statements of Authorised Funds issued in May 2014, and FCA's Collective Investment Schemes sourcebook (COLL) in the case of interim financial statements and was approved for publication on 11 December 2015 Director On behalf of F&C Fund Management Limited Manager 11December 2015. 3
Manager's Investment Report for the period ended 31 October 2015 (unaudited) Fund Objective The Fund aims to provide a high monthly income whilst maintaining the value of the property of the Scheme. The Fund will hold structured debentures and derivatives, equities, fixed interest securities, collective investment schemes and other permitted investments. The equity exposure may be held in shares or securities, which qualify as an investment within an Individual Savings Account or for any other tax purposes as defined from time to time. Synthetic Risk and Reward Indicator The Synthetic Risk and Reward Indicator is calculated in accordance with the Key Investor Information Regulations and is disclosed in a fund's KIIDs (Key Investor Information Documents). It is calculated from the last five years' performance data and shows the historic volatility of the Fund and is updated periodically. The SRRI is reported against standard bands ranging from 1 (lower risk/reward) to 7 (higher risk/reward). This classification is intended as a general indication of the overall level of risk of a Fund in order to facilitate comparisons between funds. The most recent value of the SRRI for the Fund was 3, published on 18 August 2015. From the most recent review it has been determined that this is still appropriate. A fuller explanation of the SRRI and the risk and reward profile of the Fund is contained in the Fund's KIIDs. Fund manager Fund size Launch date Market Review Chris Childs 95.9 million 26 January 1993 The six months to 31 October 2015 was a difficult time for risk assets generally and equities specifically. Growing concerns over a hard landing in China, the impact of the ongoing commodity price falls, particularly on emerging economies, and the potential for the first upward turn in US interest rate policy since 2004 led investors to become increasingly risk averse. Over the six months global equities fell almost 5%. The UK equity market was one of the weaker developed economies equity markets, falling over 8%, hindered by the weakness in the oil & gas sector as well as the more than 30% fall in basic resource stocks, with Glencore grabbing the headlines. Typically, a period of weakness in the equity markets is accompanied by a compensating rally in the government bond market, however, this failed to materialise and other areas of the fixed income market suffered. In short, there was no safe haven. Activity The principal equity exposure within the Fund remains the UK equity market, although the Fund continues to hold exposure to both the European and Japanese equity markets - two markets which we believe offer better value than other developed equity markets. The Fund has also increased its exposure to good quality corporate bonds, reducing its exposure to UK Gilts. A move that targets an increase in the level of income generated by the fund s core assets. With yields at historically low levels generally and the Fund constrained as to how much credit risk (riskier bonds tend to pay a higher yield) it is permitted to take, the use of derivative instruments within the portfolio continues to be a significant element of the fund s strategy. Outlook We remain positive on the outlook for global growth but continue to be mindful of the deflationary pressures that are still present, particularly in light of the likely rise in US interest rates. However, the European Central Bank and other central banks continue to pursue very accommodative monetary policies and the recent pull back in markets offers better value. Performance Summary The F&C High Income Fund continued to make a monthly distribution of 5% on an annualised basis. The total return of the Fund was -3.1% over the six month period. All figures are net of fees, on a total return basis and in sterling F&C Fund Management Limited 1 November 2015 4
Portfolio Statement as at 31 October 2015 (unaudited) Holdings Market Value 000 Total Net Assets % EQUITIES (34.31%*) 29,661 30.92 BASIC MATERIALS (2.43%*) 1,638 1.71 Industrial Metals & Mining South32 52,136 35 0.04 Mining Anglo American 30,499 167 0.17 BHP Billiton 52,136 542 0.57 Glencore Xstrata 222,338 250 0.26 Lonmin 1,770 - - Rio Tinto 27,296 644 0.67 CONSUMER GOODS (4.74%*) 4,950 5.16 Automobiles & Parts GKN 75,300 216 0.23 Rolls-Royce Preference 'C' Shares 6,085,842 6 0.01 Beverages Diageo 48,539 912 0.95 SABMiller 9,950 397 0.41 Household Goods & Home Construction Barratt Developments 44,500 272 0.28 Persimmon 14,000 279 0.29 Taylor Wimpey 37,000 73 0.08 Personal Goods Unilever (London listing) 23,947 693 0.72 Tobacco British American Tobacco 39,289 1,516 1.58 Imperial Tobacco 16,753 586 0.61 CONSUMER SERVICES (2.93%*) 2,544 2.64 Food & Drug Retailers Sainsbury (J) 9,336 25 0.03 Tesco 7,195 13 0.01 Wm Morrison Supermarkets 32,692 55 0.06 General Retailers Kingfisher 72,133 255 0.27 Marks & Spencer 49,498 254 0.26 Media British Sky Broadcasting 3,012 33 0.03 ITV 29,700 75 0.08 Pearson 19,273 166 0.17 Reed Elsevier 19,315 224 0.23 WPP 43,069 628 0.65 Travel & Leisure Carnival 1,421 51 0.05 Compass 40,570 454 0.48 easyjet 5,100 89 0.09 International Consolidated Airlines 38,200 222 0.23 5
Portfolio Statement as at 31 October 2015 (unaudited) Holdings Market Value 000 (continued) Total Net Assets % FINANCIALS (11.52%*) 10,004 10.43 Banks Barclays 318,752 739 0.77 HSBC 374,951 1,903 1.98 Lloyds Banking 529,787 390 0.41 Standard Chartered 39,918 288 0.30 Equity Investment Instruments GAM Star CAT Bond Institutional USD Acc 132,303 1,097 1.14 Renewables Infrastructure 960,396 963 1.00 Riverstone Energy 70,000 574 0.60 Twelve-Falcon Insurance Linked Strategy Fund T USD 15,778 1,094 1.14 Financial Services Aberdeen Asset Management 37,800 131 0.14 Hargreaves Lansdown 1,300 19 0.02 Schroders 800 24 0.03 Life Insurance Aviva 69,242 336 0.35 Legal & General 260,657 681 0.71 Old Mutual 165,642 351 0.37 Prudential 57,343 871 0.91 St James's Place 26,000 251 0.26 Standard Life 69,306 292 0.30 HEALTH CARE (2.76%*) 2,461 2.57 Pharmaceuticals & Biotechnology AstraZeneca 22,138 919 0.96 GlaxoSmithKline 105,125 1,477 1.54 Shire 1,328 65 0.07 INDUSTRIALS (2.03%*) 1,436 1.50 Aerospace & Defence BAE Systems 57,198 252 0.26 Rolls-Royce 26,862 185 0.19 Rolls-Royce Preference shares 2,490,107 2 - Construction & Materials CRH 11,400 203 0.21 General Industrials Smiths 17,344 167 0.17 Industrial Engineering Weir 7,069 75 0.08 Industrial Transportation Royal Mail 2,000 9 0.01 Support Services Aggreko 2,804 26 0.03 Ashtead 8,200 82 0.09 Capita 2,768 35 0.04 Experian 7,688 85 0.09 G4S 8,826 21 0.02 Wolseley 7,716 294 0.31 6
Portfolio Statement as at 31 October 2015 (unaudited) Holdings or Nominal Values Market Value 000 (continued) Total Net Assets % OIL & GAS (4.75%*) 4,258 4.44 Oil & Gas Producers BG 28,632 294 0.31 BP 450,444 1,740 1.82 Royal Dutch Shell 'A' Shares 72,779 1,230 1.28 Royal Dutch Shell 'B' Shares 55,970 951 0.99 Tullow Oil 21,213 43 0.04 TECHNOLOGY (0.22%*) TELECOMMUNICATIONS (1.80%*) 1,447 1.51 Fixed Line Telecommunications BT 90,705 421 0.44 Mobile Telecommunications Vodafone 478,761 1,026 1.07 UTILITIES (1.13%*) 923 0.96 Electricity SSE 19,676 298 0.31 Gas, Water & Multiutilities Centrica 103,577 234 0.24 National Grid 42,242 391 0.41 DEBT SECURITIES (62.99%*) 65,351 68.13 FIXED INTEREST (50.84%*) 47,818 49.85 FCE Bank 4.825% 15/02/2017 GBP500,000 517 0.54 GKN 6.75% 28/10/2019 GBP500,000 563 0.59 Goldman Sachs 6.125% 14/02/2017 GBP500,000 528 0.55 ITV 2.125% 21/09/2022 EUR 191,000 136 0.14 Lloyds Bank 6.75% 24/10/2018 GBP750,000 848 0.88 Santander Consumer Finance 1.5% 12/11/2020 EUR 100,000 72 0.08 UK Treasury 8% 07/12/2015 GBP5,500,000 5,539 5.77 UK Treasury 2% 22/01/2016 GBP6,000,000 6,019 6.28 UK Treasury 4% 07/09/2016 GBP8,000,000 8,234 8.58 UK Treasury 1.75% 22/01/2017 GBP10,000,000 10,149 10.58 UK Treasury 8.75% 25/08/2017 GBP1,000,000 1,149 1.20 UK Treasury 1% 07/09/2017 GBP5,650,000 5,688 5.93 UK Treasury 5% 07/03/2018 GBP7,600,000 8,376 8.73 FLOATING RATE (12.15%*) 17,533 18.28 Apple (FRN) 0.5614% 07/02/2020 USD 800,000 513 0.53 Bank of Nova Scotia (FRN) 0.345% 10/09/2018 EUR 800,000 571 0.60 Carrefour Banque (FRN) 0.828% 21/10/2019 EUR 700,000 502 0.52 Commonwealth Bank of Australia (FRN) 1.27938% 26/10/2018 GBP300,000 300 0.31 Deutsche Bank (FRN) 1.64285% 20/08/2020 USD 500,000 324 0.34 Goldman Sachs (FRN) 1.5372% 15/09/2020 USD 300,000 193 0.20 Home Depot (FRN) 0.7072% 15/09/2017 USD 1,000,000 649 0.68 Nationwide Building Society (FRN) 0.432% 02/11/2018 EUR 700,000 500 0.52 Nederlandse Gasunie (FRN) 0.321% 16/10/2018 EUR 400,000 286 0.30 New York Life Global Funding (FRN) 0.90688% 28/09/2017 GBP700,000 697 0.73 Nordea Bank (FRN) 1.17425% 17/09/2018 USD 800,000 520 0.54 NRW Bank (FRN) 1.25563% 21/03/2016 GBP5,000,000 5,011 5.22 7
Portfolio Statement as at 31 October 2015 (unaudited) Holdings or Nominal Values Market Value 000 (continued) Total Net Assets % Rabobank Netherland (FRN) 0.202% 12/10/2017 EUR 900,000 644 0.67 Royal Bank of Canada (FRN) 1.27438% 09/10/2018 GBP600,000 600 0.63 Sanofi (FRN) 0.263% 22/03/2019 EUR 700,000 501 0.52 Svenska Handelsbanken (FRN) 1.2555% 01/10/2020 USD 500,000 324 0.34 UBS Group Funding Jersey (FRN) 1.7665% 24/09/2020 USD 570,000 369 0.38 Yorkshire Building Society (FRN) 2.33688% 23/03/2016 GBP5,000,000 5,029 5.25 DERIVATIVES (0.45%*) 315 0.33 Futures Euro Stoxx 50 Futures December 2015 93 (22) (0.02) FTSE 100 Index Futures December 2015 (208) (594) (0.62) S&P 500 E Mini Futures December 2015 20 88 0.09 Options Euro Stoxx 50 Index Futures 3575 Call December 2015 (300) (58) (0.06) Euro Stoxx 50 Index Futures 3450 Call December 2015 300 146 0.15 Euro Stoxx 50 Index Futures 3550 Call December 2015 (300) (71) (0.07) FTSE 100 Index 6125 Call November 2015 150 402 0.42 FTSE 100 Index 6500 Call December 2015 (100) (54) (0.06) FTSE 100 Index 6650 Call December 2015 100 16 0.02 FTSE 100 Index 6700 Cal December 2015 100 10 0.01 FTSE 100 Index 6000 Put November 2015 (150) (17) (0.02) Nikkei 225 Index 20250 Call June 2016 110 454 0.47 Nikkei 225 Index 23250 Call June 2016 (110) (110) (0.11) Price Return Swap Bank of America Merrill Lynch: MLIEIFCLS - USD - Price Return Index September 2015 USD 10,025,912 133 0.14 Total Return Swap JPMorgan: F&C Global Equity Absolute Return Index - USD - Total Return Index December 2015 USD 19,600,797 (8) (0.01) FORWARD CURRENCY CONTRACTS (0.19%*) 29 0.03 Euro Sold EUR2,993,198 for GBP2,168,333 Settlement 30/11/2015 19 0.02 Sold EUR700,000 for GBP511,071 Settlement 18/12/2015 8 0.01 Sold EUR698,181 for GBP501,811 Settlement 30/11/2015 - - US Dollar Sold USD4,463,218 for GBP2,920,323 Settlement 30/11/2015 12 0.01 Sold USD2,606,273 for GBP1,687,749 Settlement 18/12/2015 (10) (0.01) Portfolio of investments^ 95,356 99.41 Net other assets 562 0.59 Total net assets 95,918 100.00 Collective Investment Schemes are regulated within the meaning of the FCA rules, Debt securities and Equity Investment Instruments are traded on a regulated market, unless otherwise stated. Derivative contracts can be Exchange Traded on a regulated market or Over the Counter (OTC). * Comparative figures shown in brackets relate to 30 April 2015 ^ Including derivative liabilities. Summary of portfolio by credit ratings Rating block Investment grade (AAA to BBB-) 65,351 68.13 Total bonds 65,351 68.13 Other 30,567 31.87 Total net assets 95,918 100.00 8
Material Portfolio Changes for the period ended 31 October 2015 (unaudited) Major purchases Cost 000 Major sales Proceeds 000 Euro Stoxx 50 Futures September 2015 28,900 Euro Stoxx 50 Futures September 2015 28,747 FTSE 100 Index Futures June 2015 25,251 FTSE 100 Index Futures September 2015 17,401 FTSE 100 Index Futures September 2015 16,418 Euro Stoxx 50 Futures June 2015 12,844 Euro Stoxx 50 Futures June 2015 15,207 FTSE 100 Index Futures December 2015 12,600 Euro Stoxx 50 Futures December 2015 7,203 FTSE 100 Index Futures June 2015 11,120 UK Treasury 5% 07/03/2018 3,343 UK Treasury 4.75% 07/09/2015 7,252 UK Treasury 8% 07/12/2015 2,037 UK Treasury 8.75% 25/08/2017 7,174 UK Treasury 2% 22/01/2016 2,011 Euro Stoxx 50 Futures December 2015 5,101 S&P E Mini Futures September2015 1,332 Nikkei 225 Index Futures June 2015 3,553 S&P E Mini Futures December 2015 1,264 Clydesdale Bank (FRN) 08/06/2015 3,000 Purchases and sales of Futures have been included at the value of their exposure. 9
Performance Record as at 31 October 2015 (unaudited) Net Asset Value and Ongoing Charges Figure Net Asset Value of unit class ( ) Units in issue Net Asset Value per unit (p) *Ongoing Charges Figure (%) Unit Class Income 30/04/13 Income 30/04/14 Income 30/04/15 Income 31/10/15 149,462,129 126,932,360 107,821,933 95,918,407 875,577,005 779,002,864 683,457,557 641,647,243 17.07 16.29 15.78 14.95 1.72 1.79 1.82 1.81 *The Ongoing Charges Figure (OCF) is calculated in accordance with the Key Investor Information Regulations and for each accounting period shows the total expenses paid by each unit class in the period, annualised, against its average net asset value. The OCF can fluctuate as underlying costs change. Unit Price History and Revenue Record Calendar year Highest published unit price (p) Lowest published unit price (p) Net Revenue( ) per share (p) Unit Class Income 2010 20.84 17.94 0.81 Income 2011 20.05 17.22 0.78 Income 2012 18.65 16.65 0.76 Income 2013 Income 2014 18.42 17.55 16.47 15.44 0.73 0.71 Income 2015* 16.88 14.79 0.56 ( ) Distributed for income units. Past performance is not necessarily a guide to future performance. The price of units, and the revenue from them, may go down as well as up. * To 31 October 2015. 10
Statement of Total Return for the period ended 31 October 2015 (unaudited) 01/05/15 to 31/10/15 01/05/14 to 31/10/14 000 000 000 000 Income Net capital losses (5,674) (4,079) Revenue 3,827 4,442 Expenses (925) (1,109) Interest payable and similar charges - - Net revenue before taxation 2,902 3,333 Taxation (2) (4) Net revenue after taxation 2,900 3,329 Total return before distributions (2,774) (750) Distributions (2,752) (3,239) Change in net assets attributable to unitholders from investment activities (5,526) (3,989) Statement of Change in Net Assets Attributable to Unitholders for the period ended 31 October 2015 (unaudited) Opening net assets attributable to unitholders Amounts receivable on creation of units Amounts payable on cancellation of units Change in net assets attributable to unitholders from investment activities Unclaimed distributions Closing net assets attributable to unitholders 01/05/15 to 31/10/15 01/05/14 to 31/10/14 000 000 000 000 107,822 126,932 457 347 (6,835) (8,315) (6,378) (7,968) (5,526) (3,989) - 21 95,918 114,996 Comparative information is provided for the Statement of Change in Net Assets Attributable to Shareholders. Since this information is for the prior interim period, the net assets at the end of that period do not correspond to the net assets at the start of the current period. 11
Balance Sheet as at 31 October 2015 (unaudited) Assets Investments Current assets Debtors Cash and bank balances Total assets Liabilities Investment liabilities Creditors Bank overdrafts Distribution payable* Other creditors* Total liabilities Net assets attributable to unitholders *Prior period figures have been updated as a result of the 2014 IMA SORP. 31/10/15 30/04/15 000 000 96,300 106,868 577 747 1,672 3,593 98,549 111,208 (944) (1,270) (335) (1,085) (413) (609) (939) (422) (2,631) (3,386) 95,918 107,822 12
Notes to the Financial Statements Accounting Policies The interim financial statements for the Fund have been prepared on the same basis as the audited financial statements for the year ended 30 April 2015. They are in accordance with the historical cost basis, as modified by the revaluation of investments, and the Statement of Recommended Practice (SORP) for Financial Statements of Authorised Funds issued by the Investment Management Association (IMA) in May 2014 (the IMA SORP 2014), and United Kingdom Generally Accepted Accounting Practice. Adoption of the IMA SORP 2014 Changes in accounting policies There have been no changes to the accounting policies as detailed in the audited financial statements for the year ended 30 April 2015. Changes in presentation The presentation of these financial statements has been changed from the previous period to comply with the requirements of the IMA SORP 2014. These changes include: The inclusion of details on any cross holdings within the ICVC; Amendments to labelling of line items within the Financial Statements. 13