PRACTICAL INVESTMENT FUND

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PRACTICAL INVESTMENT FUND

  1. 1. PRACTICAL INVESTMENT FUND ANNUAL REPORT 15 SEPTEMBER 2009 CONSISTENT UNIT TRUST MANAGEMENT COMPANY LIMITED
  2. 2. PRACTICAL INVESTMENT FUND Manager and Advisers Manager Consistent Unit Trust Management Company Limited Registered Office and Main Office: Woodside, Maidstone Road, Colts Hill, Pembury, Kent TN2 4AL Telephone: 01892 824445 Fax: 01892 822994 (Authorised and regulated by the Financial Services Authority, a member of the Investment Management Association) Directors of the Manager P. J. C. Ashfield (Chairman) S. P. Ashfield Ms. J. M. Sculley Secretary Ms. J. M. Sculley Trustee BNY Mellon Trust and Depositary (UK) Limited The Bank of New York Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA (Authorised and regulated by the Financial Services Authority) Administrators & Registrars Phoenix Fund Services (UK) Limited Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW Telephone: 01245 398950 Fax: 01245 398951 www.phoenixfundservices.com Customer Service Centre: PO Box 10117, Chelmsford, Essex CM1 9JB Telephone: 0845 026 4281 Fax: 0845 280 2234 (Authorised and regulated by the Financial Services Authority) Auditors Shipleys LLP Chartered Accountants & Registered Auditors 10 Orange Street, Haymarket, London WC2H 7DQ 1
  3. 3. PRACTICAL INVESTMENT FUND Manager’s Report For the year ended 15 September 2009 It is with great sadness we have to announce that Gerald Ashfield died on 11 September 2009. Mr Ashfield had been the Investment Adviser to the Practical Investment Fund since he started the Fund in 1941. Its track record over the years in providing both capital growth and income is a testament to his dedication to the investment aims of the Fund. During the last few years Mr Ashfield’s involvement in the management of the assets had lessened and Sean Ashfield has been instrumental in maintaining the investment aims of the Fund. It is the intention of the Managers that the Fund will continue to provide capital and income growth over the long term. History and Aims of the Fund From its inception in 1941, the Practical Investment Fund has been designed to provide investors with above average capital growth and increasing real income through a wide spread of Investment Companies’ ordinary shares and other selected financial securities. The results of the last 68 years demonstrate that these objectives have been achieved, despite many difficult years. Investment Strategy The Fund has investments in about forty Investment Companies. As at 15 September 2009, of the Fund’s total assets of £52,679,667 about 71% was invested in UK and international securities including United States, Canada, Europe, Japan and the Pacific Basin. Of the remaining 29%, around 7% was in Investment Companies Prior Charges, 5% in Collective Investment Schemes (unit trusts) and the final 17% was in short-dated British Government securities, bonds, cash and current assets. We consider many factors when selecting Investment Companies. Confidence in the expertise of the management and its ability to achieve better than average performance over the years is essential. In addition, we look to take advantage of investment opportunities, for example, where an Investment Company is trading at a higher than average discount. Discounts are currently 10% which means £100 worth of assets can be bought for around £90, whereas direct purchases of shares in major companies such as Tesco or GlaxoSmithKline would cost the full £100. An additional advantage for unitholders is that neither the Fund itself (nor the approved Investment Companies in the portfolio) pay capital gains tax on profits arising from sales of underlying investments, whereas a private investor when selling still has to pay tax on capital gains in excess of the exemption limit. We believe our investment process and constant monitoring of the investment portfolio will enable the Fund to produce positive returns for its unitholders over the coming years. The compound annual increase in capital value and gross income has been 7.48% for the capital, and 7.34% for the income since 1941. Income We are pleased to report that, despite many companies cutting back on their dividend payments, we have been able to maintain the distribution level for the current year to that paid last year, which was at a record level. The amount to be distributed to unitholders on 31 October 2009 is 6.6p net. The total distribution for the year is 7.4p net. Unitholders should be aware that, in the present uncertain economic conditions, it may not be possible to maintain this high level of distributions. 2
  4. 4. PRACTICAL INVESTMENT FUND Capital Record 15.09.08 15.03.09 15.09.09 One year 6 Months % change % change Practical Investment Fund Income Units Offer Price 169.85p 123.34p 152.33p -10.3 +23.5 FTSE All Share Index 2653 1899 2594 -2.2 +36.6 Twenty Largest Holdings As at 15 September 2009 %* %* 1 London & St Lawrence 9.17 11 Brunner 3.33 2 Third Canadian General 6.40 12 City of London 3.29 3 Bankers 4.40 13 Alliance 3.13 4 Edinburgh 4.37 14 Witan 3.06 5 Martin Currie Portfolio 4.19 15 Treasury 5.75% 2009 2.88 6 Merchants 4.06 16 Law Debenture 2.45 7 Treasury 6.25% 2010 4.05 17 Foreign & Colonial 2.09 8 JPMorgan Inc & Growth Income 4.02 18 Treasury 4.5% 2013 2.05 9 Consistent Unit Trust 3.51 19 National Grid 6.25% 2014 2.02 10 TR Property 3.41 20 Treasury 4.5% 2011 2.00 The above totals 73.88% of net assets. * percentage of net assets Investment Outlook Our prudent investment policy should continue to achieve steady progress over the future years. Consistent Unit Trust Management Company Ltd. 31 October 2009 3
  5. 5. PRACTICAL INVESTMENT FUND Manager’s Report continued Portfolio Breakdown as at 15 March 2009 Canada Collective Investment 7.24% Schemes 4.68% Investment Companies Prior Charges 7.30% Net Current Assets (including cash on deposit) 2.48% Investment Companies British Government 62.98% Securities and Bonds 15.32% Portfolio Breakdown as at 15 September 2009 Canada Collective Investment 7.54% Schemes 4.95% Investment Companies Prior Charges 7.35% Net Current Assets (including cash on deposit) 3.51% Investment Companies British Government 63.65% Securities and Bonds 13.00% 4
  6. 6. PRACTICAL INVESTMENT FUND Trust Size Income Units Accumulation Units As at Net Asset Net Asset 15 Sept Net Asset No. of Value Net Asset No. of Value Value units Pence per Value units Pence per £ in issue unit £ in issue unit 2006 55,209,165 31,810,777 173.55 23,196,931 3,922,108 591.44 2007 55,338,818 29,870,938 185.26 23,715,938 3,629,430 653.43 2008 42,381,608 28,006,423 151.33 17,919,411 3,341,564 536.26 2009* 37,246,272 27,419,015 135.84 15,433,395 3,060,556 504.27 *As at 15 September 2009 Price History The table below shows the highest buying and lowest selling prices on a calendar year basis in pence per unit for the last five years. Past performance is not necessarily a guide to the future performance. Income Units Accumulation Units Year Highest Buying Lowest Selling Highest Buying Lowest Selling 2004 143.22 120.33 455.94 369.34 2005 178.17 133.09 587.50 423.70 2006 200.16 165.41 682.11 547.39 2007 215.02 183.33 735.86 627.41 2008 197.97 110.84 698.28 409.45 2009* 153.06 107.09 569.51 395.60 *As at 15 September 2009 Distribution Record Income Units Accumulation Units Year Net income per unit Per £1,000 invested Net income per unit Per £1,000 invested p £ p £ 2005 5.4720 38.21 17.4860 38.35 2006 5.8700 40.99 19.4130 42.58 2007 6.5751 45.91 22.4933 49.33 2008 7.4000 51.67 26.2103 57.49 2009* 7.4000 51.67 27.4556 60.22 *As at 15 September 2009 Total Expense Ratio Expense Type 15 September 2009 % 15 September 2008 % Manager’s periodic charge 1.01 1.00 Other expenses 0.09 0.18 Total expense ratios 1.10 1.18 Portfolio Turnover Ratio Turnover 15 September 2009 % 15 September 2008 % Portfolio turnover ratios 14.95 34.26 5
  7. 7. PRACTICAL INVESTMENT FUND Statement of Total Return for the year ended 15 September 2009 2009 2008 Note £ £ £ £ Income 2 Net capital losses (6,497,499) (14,822,033) 3 Revenue 3,450,269 3,925,659 4 Expenses (550,401) (795,517) 6 Finance costs: Interest (1,662) (15) Net revenue before taxation 2,898,206 3,130,127 5 Taxation (8,471) (40,769) Net revenue after taxation 2,889,735 3,089,358 Total return before distributions (3,607,764) (11,732,675) 6 Finance costs: Distributions (2,933,746) (3,041,665) Change in net assets attributable to unitholders from investment activities £(6,541,510) £(14,774,340) Statement of Change in Net Assets Attributable to Unitholders for the year ended 15 September 2009 2009 2008 £ £ £ £ Opening net assets attributable to unitholders 60,301,019 79,054,756 Movement due to sales/repurchases of units Amounts receivable on issue of units 926,814 116,088 Less: Amounts payable on cancellation of units (2,863,326) (4,976,996) (1,936,512) (4,860,908) 1(g)Stamp duty reserve tax – (265) Change in net assets attributable to unitholders from investment activities (see Statement of Total Return above) (6,541,510) (14,774,340) Re-invested income on Accumulation shares 847,225 880,542 Unclaimed distributions 9,445 1,234 Closing net assets attributable to unitholders £52,679,667 £60,301,019 6
  8. 8. PRACTICAL INVESTMENT FUND Portfolio of Investments and Net Current Assets as at 15 September 2009 Value % of Total (Note 1g) Net Assets Holding Security £ 2009 2008 British Government Securities £1,500,000 Treasury 5.75% 2009 1,518,450 2.88 £2,000,000 Treasury 6.25% 2010 2,135,400 4.05 £1,000,000 Treasury 4.25% 2011 1,051,400 2.00 £1,000,000 Treasury 4.50% 2013 1,077,100 2.05 5,782,350 10.98 10.98 Other UK Bonds £1,000,000 National Grid 6.125% 2014 1,064,620 2.02 1,064,620 2.02 – Investment Companies Prior Charges 3,385,000 JPMorgan Income & Growth income 2,115,625 4.02 28,000 London & St Lawrence 5% gross cum pref 21,000 0.04 12,750,000 M&G Equity income 1,020,000 1.94 700,000 M&G High Income income 304,500 0.58 884,473 M&G High Income units 406,857 0.77 3,867,982 7.35 7.87 Collective Investment Schemes 4,000,000 Consistent Unit Trust income 1,850,800 3.51 1,536,205 Henderson Preference & Bond income 758,578 1.44 2,609,378 4.95 4.69 Equities 450,000 Aberforth Geared Capital & Income 470,250 0.89 550,000 Alliance 1,647,800 3.13 655,000 Bankers 2,318,700 4.40 500,000 Brunner 1,755,000 3.33 755,000 City of London 1,734,990 3.29 600,000 Dunedin Income Growth 1,056,000 2.00 650,000 Edinburgh 2,301,000 4.37 450,000 Foreign & Colonial 1,100,250 2.09 450,000 Invesco Income Growth 753,750 1.43 7
  9. 9. PRACTICAL INVESTMENT FUND Portfolio of Investments and Net Current Assets continued Value % of Total (Note 1g) Net Assets Holding Security £ 2009 2008 75,000 JPMorgan Mid Cap 285,750 0.54 2,000,000 Jupiter Dividend & Growth 320,000 0.61 3,014,000 Jupiter Second Enhanced income 286,330 0.54 100,000 Keystone 975,000 1.85 475,000 Law Debenture Corporation 1,292,000 2.45 2,100,000 London & St Lawrence 4,830,000 9.17 2,000,000 Martin Currie Portfolio 2,205,000 4.19 50,000 Mercantile 464,000 0.88 650,000 Merchants 2,138,500 4.06 85,000 Murray Income 445,400 0.85 1,750,000 New Star Financial Opportunities 595,000 1.13 200,000 Scottish Mortgage 957,000 1.82 875,000 Small Companies Dividend 638,750 1.21 100,000 Temple Bar 739,000 1.40 1,100,000 TR Property 1,795,200 3.41 550,000 Value & Income 814,000 1.55 400,000 Witan 1,614,000 3.06 33,532,670 63.65 65.28 Canada 41 Canadian & Foreign Securities* 454,305 0.86 255,000 Third Canadian General 3,372,257 6.40 5,332 United Corporations 145,527 0.28 3,972,089 7.54 9.25 Total Value of Investments 50,829,089 96.49 98.07 Net Other Assets 1,850,578 3.51 1.93 Total Value of the Trust as at as at 15 September 2009 £52,679,667 100.00 100.00 All holdings are ordinary shares unless otherwise stated. *unlisted stocks 8
  10. 10. PRACTICAL INVESTMENT FUND Balance Sheet as at 15 September 2009 15.09.09 15.09.08 Note £ £ £ £ ASSETS Investment assets 50,829,089 59,134,679 Other assets 7 Debtors 1,052,386 583,454 Bank balances 2,632,570 2,510,006 Total other assets 3,684,956 3,093,460 Total assets £54,514,045 £62,228,139 LIABILITIES Other liabilities 8 Creditors (24,723) (78,696) Distribution payable on Income Units (1,809,655) (1,848,424) Total liabilities (1,834,378) (1,927,120) Net assets attributable to Unitholders £52,679,667 £60,301,019 PRICES & YIELD as at 16 September 2009 (first XD dealing date) Income Units Buying 147.52p Selling 135.39p Accumulation Units Buying 566.58p Selling 520.00p Yield 5.02% Income and Accumulation selling to buying spread 8.22% (includes 5% initial charge) 9
  11. 11. PRACTICAL INVESTMENT FUND Statement of Material Portfolio Changes for the year ended 15 September 2009 Purchases since 16 September 2008 Cost £ Edinburgh 1,277,266 National Grid 6.125% 2014 1,018,413 Alliance 669,063 Temple Bar 504,002 Aberforth Geared Capital & Income 494,425 City of London 445,969 Bankers 318,883 JPMorgan Income & Growth - income 271,326 M&G Equity - income 167,077 TR Property 108,361 Total purchases for the year (note 14) £5,274,786 Sales since 16 September 2008 Proceeds £ Gartmore Global 1,308,060 Scottish Mortgage 1,122,619 Treasury 4% 2009 1,000,000 Brunner 955,123 London & St Lawrence 813,776 JPMorgan Mid Cap 731,794 Foreign & Colonial 498,922 Throgmorton 247,500 M&G Equity - income 129,804 Ecofin Water & Power Opportunities - income 125,000 Majedie Investments 62,611 Total sales for the year (note 14) £6,995,209 10
  12. 12. PRACTICAL INVESTMENT FUND Income/Accumulation Statement for the year ended 15 September 2009 Income Unit Distribution Interim paid 30 April 2009 Net Income Tax Equalisation Distribution Distribution Units Gross Credit Net 2009 2008 Group 1 0.8889 0.0889 0.8000 — 0.8000 0.8000 Group 2 — — — 0.8000 0.8000 0.8000 Accumulation Unit Distribution Interim allocated 30 April 2009 Net Income Tax Equalisation Allocation Allocation Units Gross Credit Net 2009 2008 Group 1 3.2834 0.3283 2.9551 — 2.9551 2.8220 Group 2 — — — 2.9551 2.9551 2.8220 Income Unit Distribution Final payable 31 October 2009 Net Income Tax Equalisation Distribution Distribution Units Gross Credit Net 2009 2008 Group 1 7.3333 0.7333 6.6000 — 6.6000 6.6000 Group 2 6.3226 0.6323 5.6903 0.9097 6.6000 6.6000 Accumulation Unit Distribution Final to be allocated 31 October 2009 Net Income Tax Equalisation Allocation Allocation Units Gross Credit Net 2009 2008 Group 1 27.2228 2.7223 24.5005 — 24.5005 23.3883 Group 2 23.4766 2.3471 21.1235 3.377 24.5005 23.3883 Further information Interim: Group 1 – Units purchased prior to 16 September 2008 Group 2 – Units purchased on or after 16 September 2008 Final: Group 1 – Units purchased prior to 16 March 2009 Group 2 – Units purchased on or after 16 March 2009 Equalisation Equalisation applies only to units purchased during the distribution period (Group 2 units). It represents the accrued income included in the purchase price of the units. After averaging it is returned with the distribution as a capital repayment. It is not liable to Income Tax but must be deducted from the cost of the units for Capital Gains Tax purposes. 11
  13. 13. PRACTICAL INVESTMENT FUND Notes to the Financial Statements as at 15 September 2009 1. Accounting Policies (a) Basis of accounting The financial statements have been prepared under the historical cost basis, as modified by the revaluation of investments and in accordance with the Statement of Recommended Practice (“SORP”) for Financial Statements of Authorised Funds issued by the Investment Management Association in November 2008. (b) Recognition of income Dividends on quoted equities and preference shares are recognised when the securities are quoted ex-dividend. Distributions from collective investment schemes are recognised when the schemes are quoted ex-distribution. Equalisation returned with the distribution is deducted from the cost of the scheme and does not form part of the distributable income. Interest on bank and other cash deposits is recognised on an accruals basis. Income on debt securities is recognised on an accruals basis. All income includes withholding taxes but excludes irrecoverable tax credits. (c) Treatment of stock and special dividends The ordinary element of stocks received in lieu of cash dividends is credited to capital in the first instance followed by a transfer to income of the cash equivalent being offered and this forms part of the distributable income. Special dividends are reviewed on a case by case basis in determining whether the dividend is to be treated as income or capital. Amounts recognised as income will form part of the distributable income. The tax accounting treatment follows the treatment of the principal amount. (d) Treatment of expenses All expenses, except for those relating to the purchase and sale of investments and stamp duty reserve tax, are charged initially against income. (e) Taxation Corporation tax is provided at 20% on income, other than UK dividends, after deduction of expenses. Where overseas tax has been deducted from overseas income 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. Stamp duty reserve tax suffered on surrender of shares is deducted from capital. 12
  14. 14. PRACTICAL INVESTMENT FUND (f) Distribution policy The net income after taxation, as disclosed in the financial statements, after adjustment for items of a capital nature, is distributable to shareholders as dividend distributions. Any income deficit is deducted from capital. Interim distributions may be made at the Manager’s discretion and the balance of income is distributed in accordance with the regulations. (g) Basis of valuation of investments Listed investments are valued at closing bid prices excluding any accrued interest in the case of fixed interest securities, on the last business day of the accounting period. 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. Unlisted or suspended investments are valued by the Manager taking into account, where appropriate, latest dealing prices, valuations from reliable sources, financial performance and other relevant factors (h) Exchange rates Transactions in foreign currencies are recorded in sterling at the rate ruling at the date of the transactions. Assets and liabilities expressed in foreign currencies at the end of the accounting period are translated into sterling at the closing exchange rates ruling on that date. 13
  15. 15. PRACTICAL INVESTMENT FUND Notes to the Financial Statements as at 15 September 2009 2. Net capital losses 15.09.09 15.09.08 £ £ Net losses on investments Non-derivative securities (6,497,499) (14,822,033) Net capital losses £(6,497,499) £(14,822,033) 3. Revenue 15.09.09 15.09.08 £ £ Revenue from non-derivative investments: UK dividends: Ordinary 2,776,862 2,939,135 Overseas Dividends 350,102 572,732 Interest on debt securities 303,558 303,715 Bank interest 18,809 110,077 Sundry 938 – £3,450,269 £3,925,659 4. Expenses 15.09.09 15.09.08 £ £ Payable to the Manager, associates of the Manager and agents of either of them: Manager’s periodic charge 506,001 737,832 Payable to the Trustee, associates of the Trustee and agents of either of them: Trustee’s fee (including VAT) 23,396 31,207 Transaction charges 571 1,524 Safe custody and other bank charges 5,659 8,400 29,626 41,131 Other expenses: Audit fee (including VAT) 6,580 6,580 Registration fees 15,191 6,726 FSA (rebate)/fee (2,713) 1,106 Printing costs (4,284) 2,142 14,774 16,554 Total expenses £550,401 £795,517 14
  16. 16. PRACTICAL INVESTMENT FUND 5. Taxation 15.09.09 15.09.08 £ £ (a) Analysis of charge for the year: Overseas tax 8,471 40,769 Current tax charge (note 5b) £8,471 £40,769 (b) Factors affecting taxation charge for the year Net income before taxation 2,898,206 3,130,127 Corporation tax at 20% 579,641 626,025 Effects of: UK dividends (555,372) (587,827) Movement in income accruals – 4,331 Expenses not deductible for tax purposes 114 304 Utilisation of excess management expenses (24,383) (42,833) Overseas tax expensed 8,471 – Higher tax rates on overseas earnings – 40,769 Current tax charge (note 5a) £8,471 £40,769 (c) Provision for defered taxation At the year end there are potential deferred tax assets of £56,392 (15.09.08: £178,307) in relation to surplus management expenses, and £26,611 (15.09.08: £30,661) in relation to excess unutilised foreign tax available for tax relief. It is unlikely that the Fund will generate sufficient taxable profits to utilise these amounts and therefore, no deferred tax asset has been recognised in the period. 15
  17. 17. PRACTICAL INVESTMENT FUND Notes to the Financial Statements continued 6. Finance costs 15.09.09 15.09.08 £ £ Distributions The distributions take account of income received and deducted on the issue and cancellation of units, and comprise: Interim 318,464 330,944 Final 2,559,506 2,629,959 2,877,970 2,960,903 Add: Income deducted on cancellation of units 62,728 82,634 Deduct: Income received on issue of units (6,952) (1,872) Net distributions for the year 2,933,746 3,041,665 Finance costs: Interest 1,662 15 Total finance costs £2,935,408 £3,041,680 7. Debtors 15.09.09 15.09.08 £ £ Amounts receivable on creations 55,809 33,070 Currency deals outstanding 8,999 8,551 Sales awaiting settlement 350,943 – Accrued income: Bank interest receivable – 7,210 Interest on debt securities 89,615 65,524 UK dividends 492,587 391,202 Income tax recoverable 29,781 44,770 Prepaid expenses: Management fee 23,568 28,833 Trustee’s fee 1,084 4,294 Total debtors £1,052,386 £583,454 16
  18. 18. PRACTICAL INVESTMENT FUND 8. Creditors 15.09.09 15.09.08 £ £ Amounts payable on cancellations 6,506 55,702 Currency deals outstanding 9,148 8,456 Accrued expenses: Amounts payable to the Manager, associates of the Manager and agents of either of them: Printing costs – 4,284 Registration fees 2,503 514 2,503 4,798 Amounts payable to the Trustee, associates of the Trustee and agents of either of them: Transaction charges payable – 60 Safe custody and other bank charges 779 976 779 1,036 Other expenses: FSA fee – 2,711 Audit fee payable 5,787 5,993 5,787 8,704 £24,723 £78,696 17
  19. 19. PRACTICAL INVESTMENT FUND Notes to the Financial Statements continued 9. Dealing and Average Commission The average rate of commission charged to the Trust on the acquisition and disposal of securities was 0.24% (15.09.08 : 0.15%). The brokers who accounted for more than 10% of the business transacted was Charles stanley. The total commission paid during the year was £29,115 (15.09.08 : £42,488) to Charles Stanley. There were no soft commission arrangements in place during the period. There was no dealing via either the Managers, Trustee or associates of theirs. 10. Individual Savings Accounts and Personal Equity Plans The trust has been managed throught the period to ensure that it is eligible to qualify and be included in an Individual Savings Account (ISA) and a Personal Equity Plan (PEP). 11. Related Party Transactions Management fees payable to Consistent Unit Trust Management Company Limited (the Managers) are disclosed in note 4 and amounts due at the period end are shown in note 8. Trustee and other fees payable to BNY Mellon Trust and Depositary (UK) Limited are disclosed in note 4 and amounts due at the period end are shown in note 8. 12. Contingent liabilities There were no contingent liabilities or outstanding commitments at the balance sheet date (15.09.08: same). 13. Derivatives and other Financial Instruments In pursuing the investment objective a number of financial instruments are held which may comprise securities and other investments, cash balances and debtors and creditors that arise directly from operations, for example, in respect of sales and purchases awaiting settlement, amounts receivable for creation and payable for liquidations and debtors for accrued income. There is little exposure to credit or cash flow risk. There are no net borrowings or unlisted securities and so little exposure to liquidity risk. The main risks arising from financial instruments are: (i) Foreign currency risk, being the risk that the value of investments will fluctuate as a result of exchange rate movements. 18
  20. 20. PRACTICAL INVESTMENT FUND The table below details the interest rate risk profile at the balance sheet date. 15.09.09 15.09.08 £ £ Currency: Canadian dollars 3,981,237 5,589,416 Pounds sterling 48,698,430 54,711,603 Net assets £52,679,667 £60,301,019 Although the Trust’s capital and income are denominated in sterling, a proportion of the Trust’s investments have currency exposure and, as a result, the income and capital value of the Trust are affected by currency movements. (ii) Interest rate risk, being the risk that the value of investments will fluctuate as a result of interest rate changes. The table below details the interest rate risk profile at the balance sheet date. 15.09.09 15.09.08 £ £ Floating rate assets: Canadian dollars 9,148 – Pounds sterling 2,623,422 2,510,006 Fixed rate assets: Pounds sterling 6,867,970 6,609,700 Assets on which interest is not paid:* Canadian dollars 3,972,089 5,580,980 Pounds sterling 41,041,416 46,943,999 45,013,505 52,524,979 Liabilities on which interest is not paid Pounds sterling (1,834,378) (1,343,666) Net assets £52,679,667 £60,301,019 *Equity shares which receive dividend income, and debtors. The floating rate financial assets comprise bank balances that earn interest at rates linked to the UK base rate. Fixed rate financial assets have a weighted average yield of 5.54% (15.09.08: 4.10%) and a weighted average period for which income is fixed of 1.91 years (15.09.08: 2.00 years) (assuming the earliest maturity date for those assets with variable maturity dates). There are no material amounts of non-interest bearing financial assets and liabilities, other than equities, which do not have maturity dates. 19
  21. 21. PRACTICAL INVESTMENT FUND Notes to the Financial Statements continued 13. Derivatives and other Financial Instruments (continued) (iii) Market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than currency or interest rates or foreign currency movements. The investment portfolio is exposed to market price fluctuations which are monitored by the Manager’s in pursuance of the investment objective and policy set out in the Prospectus. Adherence to investment guidelines and to investment and borrowing powers set out in the Trust Deed and the Prospectus and the rules of the CIS Sourcebook mitigates the risk of excessive exposure to any particular type of security or issuer. (iv) Counterparty risk, being the risk that the counterparty will not deliver the investments for a purchase or the cash for a sale after the Trust has fulfilled it's responsibilities. 14. Portfolio Transaction Costs 15.09.09 15.09.08 £ £ Analysis of purchases Purchases before transaction costs 5,243,770 12,308,805 Transaction costs: Commissions 13,553 22,262 Stamp Duty and other charges 21,156 27,996 34,709 50,258 Total purchase cost £5,278,479 £12,359,063 Analysis of sales Sales before transaction costs 7,010,790 16,232,404 Transaction costs: Commissions (15,562) (20,226) Other charges (19) (39) (15,581) (20,265) Net sales proceeds £6,995,209 £16,212,139 20
  22. 22. PRACTICAL INVESTMENT FUND Certification of Accounts by Directors of the Manager This report is signed in accordance with the requirements of the COLL Sourcebook. P. J. C. Ashfield Chairman Ms. J. M. Sculley Director For Consistent Unit Trust Management Ltd. Managers of the Consistent Unit Trust 9 November 2009 21
  23. 23. PRACTICAL INVESTMENT FUND Statement of the Manager’s Responsibilities in Relation to the Report and Accounts of the Trust The Manager is responsible for preparing the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice. The Financial Services Authority’s Collective Investment Schemes Sourcebook (“the COLL Sourcebook”) requires the Manager to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Trust and of the net income/expenses and of the net gains/losses on the property of the Trust for that year. In preparing the financial statements the Manager is required to: • select suitable accounting policies, as described in the attached financial statements, and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • comply with the Trust Deed, generally accepted accounting principles and applicable accounting standards, subject to any material departures, which are required to be disclosed and explained in the financial statements; • comply with the disclosure requirements of the Statement of Recommended Practice on financial statements of Authorised Funds; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Scheme will continue in business. The Manager is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Trust and to enable them to ensure that the financial statements comply with the COLL Sourcebook. The Manager is also responsible for safeguarding the assets of the Trust and hence forth taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the Manager is aware: • there is no relevant audit information of which the Trust’s auditors are unaware; and • the Manager has taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. 22
  24. 24. PRACTICAL INVESTMENT FUND Statement of the Trustee’s Responsibilities in Relation to the Financial Statements of the Scheme The Trustee is under a duty to take into its custody and to hold the property of the Scheme in trust for the holders of units. It is also the duty of the Trustee to enquire into the conduct of the Managers in the management of the Scheme and to ensure that the Scheme is managed in accordance with all applicable rules and restrictions in each annual accounting period, and to report thereon to unitholders. A copy of the Trustee’s report is set out below. Report of the Trustee To the investors of Practical Investment Fund for the year ended 15 September 2009 In our opinion, the Managers have managed the Scheme, in all material respects during the period covered by this Report in accordance with the investment and borrowing powers and the restrictions applicable to the Scheme and otherwise in accordance with the provisions of the Trust Deed and the rules in the COLL Sourcebook. BNY Mellon Trust and Depositary (UK) Limited Trustee of Consistent Unit Trust 9 November 2009 23
  25. 25. PRACTICAL INVESTMENT FUND Independent Auditors’ Report to the Unitholders of Practical Investment Fund We have audited the financial statements of Practical Investment Fund for the year ended 15 September 2009, which comprise the Statement of Total Return, the Statement of Change in Net Assets Attributable to Unitholders, the Balance Sheet, the Distribution Table and the related notes. These financial statements have been prepared under the historical cost convention as modified by the revaluation of investments and the accounting policies set out therein. This report is made solely to the Trust’s unitholders as a body, in accordance with Rule 4.5.12 of the Collective Investment Scheme Sourcebook issued by the Financial Services Authority under section 247 of the Financial Services and Markets Act 2000. Our audit work has been undertaken so that we might state to the Trust’s unitholders those matters we are required to state to them in an Auditor’s Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trust and the Trust’s unitholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of the Managers and the Auditors As described in the Statement of Manager’s Responsibilities, the Manager is responsible for preparing the Annual Report and the financial statements in accordance with applicable law, UK Financial Services Rules and Regulations and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Trust Deed, the Statement of Recommended Practice for Financial Statements of Authorised Funds issued by the Investment Management Association, and the rules of the Collective Investment Schemes Sourcebook issued by the Financial Services Authority. We also report to you if, in our opinion, the information given in the Manager’s Report is not consistent with the financial statements, if the Manager has not kept proper accounting records for the Trust, if the financial statements are not in agreement with the accounting records for the Trust or if we have not received all the information and explanations we require for our audit. We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Financial Statements. Our responsibilities do not extend to any other information. 24
  26. 26. PRACTICAL INVESTMENT FUND Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Manager in the preparation of the financial statements and of whether the accounting policies are appropriate to the Trust’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion : • the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Trust’s affairs as at 31 July 2009 and of the net income and the net losses on the property of the Trust for the year then ended; • the financial statements have been properly prepared in accordance with the Trust Deed, the Statement of Recommended Practice for Financial Statements of Authorised Trust’s issued by the Investment Management Association, and the rules of the Collective Investment Schemes Sourcebook issued by the Financial Services Authority; • the information given in the Manager’s Report is consistent with the financial statements year ended 31 July 2009. Shipleys LLP Chartered Accountants and Registered Auditors 9 November 2009 25
  27. 27. PRACTICAL INVESTMENT FUND General Information Authorised Status Practical Investment Fund (“the Fund”) is an Authorised Unit Trust Scheme, established on 30 September 1964, and belongs to the “securities fund” category of such schemes. The base currency of the Scheme is pounds sterling. Investment Policy This Fund is designed to provide investors with capital growth and increasing income from investment in a wide spread of UK and dollar denominated investment trusts, ordinary shares and other selected investments. The Fund will invest mainly in a broad base of investment trusts which satisfy the Managers’ criteria of sound long term performance, a satisfactory discount to net asset value and income growth potential. However, equities are subject to short term fluctuations and there is a risk that their value can decrease as well as increase. Currencies are also subject to the same risk. The Managers will attempt to minimise these risks by pursuing a policy of diversification and may also use other hedging mechanisms. All or part of the Managers’ periodic fee can be charged to capital instead of income and may accordingly constrain capital growth but will reduce the pressure to invest at an above average rate of income. Normally the Fund will be fully invested save for an amount of cash to enable ready settlement of liabilities (including redemption of units) and the efficient management of the Fund both generally and in relation to its strategic objective. This amount of cash will vary depending upon prevailing circumstances and although it would normally not exceed 10% of the total value of the Fund, there may be times when the Managers consider stock markets around the world to be overpriced or that a period of instability exists which presents unusual risks. In such cases or during such periods, a higher level of liquidity may be maintained and, if considered prudent, the amount of cash or near cash instruments held would be increased. Unless market conditions were deemed unusually risky, the increased amount and period would not be expected to exceed 30% and six months respectively. Valuation of the Trust The property of the Fund is valued on each business day at 12 noon for the purpose of determining prices at which units in the Fund may be bought or sold. Valuations may be made at other times with the Trustee’s approval. 26
  28. 28. PRACTICAL INVESTMENT FUND Units The Fund has had two types of units available for purchase: 1. Income Units The net income is distributed half-yearly. Holders of Income Units will receive at 31 October and 30 April each year a tax voucher and an income warrant, unless they have given instructions for the payment to be made direct to the bank, when they will receive only a tax voucher. 2. Accumulation Units The net income is automatically re-invested with the result that the value of the Accumulation Units will become progressively greater than that of the Income Units. Tax vouchers showing the amount of the re-invested income accumulated will be issued to Holders of Accumulation Units on 31 October and 30 April. Unitholders may convert their holding from one type of unit to the other at any time, free of charge and without liability to Capital Gains Tax. Buying and Selling of Units The Administrators will accept orders for the purchase and sale of units on normal business days between 9.00 am and 4.30 pm and transactions will be effected at prices determined by the next valuation. Instructions to buy or sell units may either be in writing to: PO Box 10117, Chelmsford, Essex CM1 9JB or by telephone on 0845 026 4281. A contract note will be issued by close of business on the next business day after the dealing date to confirm the transaction. In the case of buying units in the Fund a purchaser will be forwarded within 24 hours a contract note and cancellation notice, if applicable, together with a registration document which will need to be signed and returned confirmimg the registration details The Manager will buy back units from registered holders at not less than the selling price determined by the next valuation following receipt of selling instructions. The authority duly renounced by all Unitholders must be sent to the Managers and payment of redemption proceeds will be made not later than four business days after the dealing date or receipt of the renounced form or stock transfer form(s), if later. The Managers are under no obligation to account to the Trustee or to Unitholders for any profit they make on the issue of units or the re-issue or cancellation of units which they have redeemed. The minimum initial investment is £1,000. Thereafter any number of units may be subscribed, redeemed or transferred so long as the subscription, redemption or transfer does not give rise to a holding less than the minimum original holding. For the purpose of the Pricing Regulations, a large deal will be a purchase or sale of units exceeding £15,000. The purchase price of units includes a preliminary charge of 5%, the maximum permitted by the Trust Deed. 27
  29. 29. PRACTICAL INVESTMENT FUND General Information continued Prices The prices of units are published in the Financial Times in the FT Managed Funds Service section under the heading: Consistent Unit Trust Management Company Limited. Other Information The Trust Deed, Supplemental Deed, Scheme Particulars and the most recent annual and half-yearly reports may be inspected at the offices of the Managers, the Administrators or the Trustee and copies may be obtained upon application to the Managers and/or Administrators. The Register of Unitholders can be inspected by Unitholders at the office of the Customer Service Centre, during normal business hours, at PO Box 10117, Chelmsford, Essex CM1 9JB. Holders who have any complaints about the operation of the Fund should contact the Managers or the Trustee, in the first instance. In the event that a Unitholder finds the response unsatisfactory they may make their complaint direct to the Financial Ombudsman Service at South Quay Plaza, 183 Marsh Wall, London E14 9SR. Unit Trusts should be regarded as longer-term investments and investors should be aware that the value of their units and the income from them can go down as well as up. Distributions and Reports Distributions and allocations of income to Unitholders registered at the accounting dates will be made on 31 October and 30 April in each year and Annual and Half yearly (interim) reports will also be published and issued at this time. 28
  30. 30. PRACTICAL INVESTMENT FUND Notes for Corporate Unitholders only Unitholders liable to UK Corporation Tax are deemed to receive this income distribution and associated tax credit as franked investment income to the extent that the gross income from which the distribution is made is itself franked investment income. Where the gross income from which the distribution is made is not wholly franked investment income, part of the distribution is received as an annual payment from which Income Tax has been deducted. For the Final distribution of Practical Investment Fund payable on 31 October 2009 in relation to the accounting period ended on 15 September 2009: (i) 89.64% of the total distribution together with the tax credit is received as franked investment income. (ii) 10.36% of the total distribution is received as an annual payment after deduction of Income Tax and is liable to Corporation Tax. It is not franked investment income. The maximum amount of Income Tax, if any, that may be reclaimed from the Inland Revenue is the corporate unitholder’s portion of the Trustee’s net liability to Corporation Tax. For this distribution the amount of income tax that may be reclaimed is 100%. ¢ 29
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