Marlborough High Yield Fixed Interest Fund

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Marlborough High Yield Fixed Interest Fund

Short Report

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Fund Details

Marlborough High Yield Fixed Interest Fund

Manager and Registrar

Marlborough Fund Managers Ltd

Marlborough House

59 Chorley New Road

Bolton BL1 4QP

Investor Support:

0808 145 2500 (FREEPHONE)

Authorised and regulated by the Financial Conduct Authority

Trustee

HSBC Bank plc

8 Canada Square

London

E14 5HQ

Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority

and the Prudential Regulation Authority

Investment Adviser

Aberdeen Asset Managers Limited

10 Queens Terrace

Aberdeen

Aberdeenshire AB10 1YG

Auditor

Barlow Andrews LLP

Carlyle House

78 Chorley New Road

Bolton BL1 4BY

Directors of Marlborough Fund Managers Ltd

Andrew Staley

Chairman

Nicholas F J Cooling

Deputy Chairman

Allan Hamer

Joint Managing Director

Wayne D Green

Joint Managing Director

Dom M Clarke

Finance Director

Geoffrey Hitchin

Investment Director

Keith Ounsworth

Director – Sales

John R Heap

Director – Strategic Development

B John Leyland

Director

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1 M

MAARRLLBBOORROOUUGGHH HHIIGGHH YYIIEELLDD FFIIXXEEDD IINNTTEERREESSTT FFUUNNDD G

GEENNEERRAALL IINNFFOORRMMAATTIIOONN IInnvveessttmmeenntt OObbjjeeccttiivvee

The investment objective is to provide a high level of income with the opportunity for some long-term capital growth.

The Fund will be invested in a portfolio largely comprising fixed and variable rate and index related securities issued by corporates, government, supranational institutions and local and regional agencies, both in the UK and internationally, as well as other securities deemed to be appropriate by the manager. At times it may be appropriate for the Fund not to be fully invested but to hold cash and near cash. The Fund is permitted to invest in derivatives and forward transactions for the purposes of hedging only.

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Riisskk PPrrooffiillee

The Fund aims to provide a high level of income from a portfolio of securities which mainly pay a regular fixed income in sterling or euros. The main risks are market price risks, due to market fluctuations or a change in credit risk, and foreign currency risk as a result of movement in the sterling/euro exchange rate. Both risks may affect the level of income arising in the Fund but will be monitored by the manager in accordance with the investment objective and policy set out in the Prospectus. Changes in interest rates can affect the value of investments in the portfolio although the short dated nature of most holdings limits fluctuations. Some holdings may be subject to liquidity risk from time to time although most are readily realisable.

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Riisskk WWaarrnniinngg

The past is not necessarily a guide to future performance. Investments and the income derived from them can fall as well as rise and the investor may not get back the amount originally invested. The Fund is subject to an initial charge and consequently charges are not made uniformly throughout the period of the investment. Changes in exchange rates between currencies may cause the value of the investment to diminish or increase. Investments in fixed interest securities are subject to market and credit risk and will be impacted by interest rates. Investments in higher yielding bonds issued by borrowers with lower credit ratings may result in a higher risk of default and have a negative impact on income and capital value. The Fund may use derivatives to protect the value of the Fund's assets or to reduce the costs of investing, although this may not be achieved. It is not anticipated that the use of derivatives will have any significant effect on the risk profile of the Fund. To ensure that the principal objective of providing a high level of income can be met, 50% of the annual management charge is deducted from capital rather than income. Future capital growth may be constrained as a result.

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Reeppoorrttss aanndd AAccccoouunnttss

The purpose of sending this Short Report is to present you with a summary of how the Fund has performed during the accounting period in accordance with the FCA rules. If you wish to request further information, the more detailed long form report is available. For a copy please write to Marlborough Fund Managers Ltd, Marlborough House, 59 Chorley New Road, Bolton, BL1 4QP or telephone Investor Support on 0808 145 2500.

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Chhaannggee iinn PPrroossppeeccttuuss

No changes have been made since the last report.

Up to date key investor information documents, prospectus and manager’s reports and accounts for any fund within the manager’s range, can be requested by the investor at any time.

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MAARRLLBBOORROOUUGGHH HHIIGGHH YYIIEELLDD FFIIXXEEDD IINNTTEERREESSTT FFUUNNDD A

AUUTTHHOORRIISSEEDD IINNVVEESSTTMMEENNTT AADDVVIISSEERR’’SS RREEPPOORRTT FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001155

Percentage change and sector position to 31 December 2015

Six months 1 year 3 years 5 years Since launch**

Marlborough High Yield Fixed Interest Fund 0.57% 3.82% 12.51% 26.98% 72.94%

Quartile Ranking* ₁ ₁ ₁ ₂ ₂

* _{Based on ranking within The Investment Association £ High Yield sector} **_{launched 8 November 2004}

External Source of Economic Data: Morningstar (bid to bid, net income reinvested)

A year in which World growth has continued to disappoint and oil and commodity prices have plummeted and Emerging markets have remained under pressure, so the performance of the high yield market in Europe has been positive, as the asset class continues to mature and offer more diversity for investors. As mentioned in the last annual report we expected USA interest rates to be increased in q3 2015, and was only a quarter out, so this move was very expected and part of a move from the FED to normalise interest rates which would imply a move back to interest rates around 1.5% in the USA over the next 2 years. The high yield market has remained somewhat isolated from the Energy sector impact seen in credit markets, given the weighting of only 3% in the European high yield index, compared to 17% in the USA high yield market.

Companies have continued to refinance their debt to lock into low coupon rates as government bond yields in Europe have been at historical low levels and the coupon rate on the market has now reached a rate of 5.64% and the average leverage of European high yield companies remains sensible at 4 times compared to 6 times in the USA.

PPoorrttffoolliioo rreevviieeww

The number of holdings was at 135 at the year-end, with a currency split of 60% in euro currency and rest in Sterling currency. We ended the year with 9.2% in CCC rated bonds, and 21.9% in BB rated bonds. We had no defaults in the Fund during the time period and generally within the asset class defaults have remained subdued with the latest number from Moody’s being 2.5% for European high yield . The top 10 holdings now represent 16% of the Fund as we try to avoid concentration issues and weight holdings appropriately and effective duration of the Fund was 3.21 years.

O Ouuttllooookk

With the steady increase in the macro picture for European growth we should see a 2% GDP number for 2016, but no sign of interest rates moving up in Europe before 2017 ,as deflation trends remain strong given the weakness in oil and commodity markets.

The sterling credit market will have to deal with Brexit vote in 2016 and this will cause uncertainty for investors in the short term and a weaker currency.

With European high yield spreads at 576 bps at the year-end using JP Morgan data, you can claim that the market is factoring in higher volatility in markets and higher probability of defaults than expected by Moody’s which forecasts 2.8% in November 2017.

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3 M

MAARRLLBBOORROOUUGGHH HHIIGGHH YYIIEELLDD FFIIXXEEDD IINNTTEERREESSTT FFUUNNDD A

AUUTTHHOORRIISSEEDD IINNVVEESSTTMMEENNTT AADDVVIISSEERR’’SS RREEPPOORRTT ((CCOONNTTIINNUUEEDD)) D

Diissttrriibbuuttiioonnss YYeeaarr 22001166 YYeeaarr 22001155 YYeeaarr 22001144 YYeeaarr 22001133

Class A

Net income paid 28 February 0.851886ppu 0.972115ppu 1.131053ppu 1.585570ppu

Net income paid 31 May 0.816853ppu 1.002910ppu 1.215565ppu

Net income paid 31 August 0.888672ppu 1.027689ppu 1.575557ppu

Net income paid 30 November 0.849448ppu 0.919332ppu 1.357691ppu

Class B

Net income paid 28 February 0.907658ppu 1.022340ppu 1.212809ppu

Class P

Net income paid 28 February 0.931176ppu 1.061046ppu 1.236083ppu

Steven Logan 10 February 2016

This report contains FTSE data. Source: FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and / or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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4

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MAARRLLBBOORROOUUGGHH HHIIGGHH YYIIEELLDD FFIIXXEEDD IINNTTEERREESSTT FFUUNNDD A

AUUTTHHOORRIISSEEDD IINNVVEESSTTMMEENNTT AADDVVIISSEERR’’SS RREEPPOORRTT ((CCOONNTTIINNUUEEDD))

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Maatteerriiaall PPoorrttffoolliioo CChhaannggeess

For the year ended 31 December 2015

Major Purchases Cost (£) Major Sales Proceeds (£)

International Personal Fin 5.75% 07.04.21 800,722 House of Fraser 8.875% 15.08.18 939,937

Convatec Healthcare 10.875% 18.02.16 769,849 Verisure Holdings 8.75% 01.09.18 924,780

Wind Acquisition 7% 23.04.21 605,697 Moto Finance 10.25% 15.03.17 789,938

Valeant Pharmaceuticals 4.5% 15.05.23 601,106 Lecta 8.875% 15.05.19 773,563

Matterhorn Telecom 3.875% 01.05.22 575,307 Debenhams 5.25% 15.07.21 745,100

Novafives SAS 4.5% 30.06.21 554,178 LBG Capital No2 15% 21.12.19 666,131

Obrascon Huarte Lain 5.5% 15.03.23 537,150 International Personal Fin 11.5% 06.08.15 560,165

LGE Holdco VI 7.125% 15.05.19 506,923 Matterhorn Telecom 3.875% 01.05.22 535,511

Co-op Group Holdings 6.875% 08.07.20 503,721 Wepa Hygieneprodukte 6.5% 15.05.20 532,944

AXA 3.941% Perp 498,925 Loxama 7.375% 24.01.20 531,429

Crown Euro Holdings 3.375% 15.05.25 497,272 Medi-Partenaires 7% 15.05.20 524,588

R & R Ice Cream 5.5% 15.05.20 496,103 Hastings Insurance Group 8% 21.10.20 521,421

Alliance Data Systems 5.25% 15.11.23 494,700 R & R Ice Cream 5.5% 15.05.20 518,925

Tesco 6.125% 24.02.22 489,663 Ardagh Glass Finance 8.75% 01.02.20 517,071

Jaguar Land Rover Auto 5% 15.02.22 466,868 British Airways 6.75% Cum Prf 516,358

Assicurazioni Generali 6.416% Perp 456,030 Eco-Bat Finance 7.75% 15.02.17 468,453

Homevi 6.875% 15.08.17 398,359 DFS Furniture 7.625% 15.08.18 415,252

Autostrada 2.375% 20.03.20 379,096 Galapagos Holdings 4.832% 15.06.21 413,514

Telenet Finance VI 4.875% 15.07.27 376,522 Matterhorn Midco 7.75% 15.02.20 395,438

Barclays 6.5% Var Perp 357,785 Autostrada 2.375% 20.03.20 380,182

Other purchases 14,378,493 Other sales 10,709,364

Total purchases for the year 24,744,469 Total sales for the year 22,380,064

TTOOPP TTEENN HHOOLLDDIINNGGSS AASS AATT 3311 DDEECCEEMMBBEERR 22001155 TTOOPP TTEENN HHOOLLDDIINNGGSS AASS AATT 3311 DDEECCEEMMBBEERR 22001144 %

% %%

PGH Capital 6.625% 18.12.25 2.06 Verisure Holdings 8.75% 01.09.18 1.95

Cegedim 6.75% 01.04.16 1.74 Pearl Group Holdings 6.5864% FRN 1.84

Deutsche Raststatten 6.75% 30.12.16 1.61 House of Fraser 8.875% 15.08.18 1.84 Lloyds Bank 13% Step-Up Perp 1.60 Matalan Finance 8.875% 01.06.20 1.82 International Personal Finance 5.75% 07.04.21 1.60 Cegedim 6.75% 01.04.20 1.81 Interxion Holding 6% 15.07.16 1.55 Cirsa Funding Luxembourg 8.75% 15.05.18 1.65 Crown Newco 3 8.875% 16.02.16 1.48 Deutsche Raststatten 6.75% 30.12.20 1.63

Convatec Healthcare 10.875% 18.02.16 1.48 Lecta 8.875% 15.05.19 1.59

Matalan Finance 8.875% 01.06.20 1.46 Moto Finance 10.25% 15.03.17 1.53

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6

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MAARRLLBBOORROOUUGGHH HHIIGGHH YYIIEELLDD FFIIXXEEDD IINNTTEERREESSTT FFUUNNDD C

COOMMPPAARRAATTIIVVEE TTAABBLLEE C

Cllaassss AA iinnccoommee uunniittss C

Chhaannggee iinn nneett aasssseettss ppeerr uunniitt Year to 2015 2014 2013

p p p

Opening net asset value per unit 72.64 75.37 75.33

Return before operating charges* 3.86 2.40 6.53

Operating charges (1.19) (1.21) (1.21)

Return after operating charges* 2.67 1.19 5.32

Distribution on income units (3.41) (3.92) (5.28)

Closing net asset value per unit 71.90 72.64 75.37

* after direct transaction costs of: 0.00 0.00 0.00

PPeerrffoorrmmaannccee

Return after charges 3.68% 1.58% 7.06%

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Otthheerr iinnffoorrmmaattiioonn

Closing net asset value (£) 17,896,103 25,869,140 42,691,604

Closing number of units 24,891,501 35,610,472 56,641,123

Operating charges 1.60% 1.59% 1.60%

Direct transaction costs 0.00% 0.00% 0.00%

PPrriicceess

Highest unit price 79.66p 82.46p 83.27p

Lowest unit price 71.87p 72.61p 72.52p

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Cllaassss BB iinnccoommee uunniittss C

p p p

Opening net asset value per unit 73.02 75.57 **76.08

* after direct transaction costs of 0.00 0.00 0.00

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Closing net asset value £) 816,335 393,297 275,590

Closing number of units 1,126,747 538,602 364,665

Prices

** Opening net asset value per unit on 3.1.13

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7 M

MAARRLLBBOORROOUUGGHH HHIIGGHH YYIIEELLDD FFIIXXEEDD IINNTTEERREESSTT FFUUNNDD C

COOMMPPAARRAATTIIVVEE TTAABBLLEE ((CCOONNTTIINNUUEEDD)) C

Cllaassss PP iinnccoommee uunniittss C

p p p

Opening net asset value per unit 73.20 75.66 **76.08

* after direct transaction costs of 0.00 0.00 0.00

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Closing net asset value (£) 29,922,151 25,048,502 9,481,468

Closing number of units 41,149,175 34,220,472 12,531,508

PPrriicceess

** Opening net asset value per unit on 3.1.13

Operating charges are the same as the ongoing charges and are the total expenses paid by each unit class in the year.

Direct transaction costs are the total charges for the year, included in the purchase and sale of investments in the portfolio of the Fund.

These amounts are expressed as a percentage of the average net asset value over the year and the average units in issue for the pence per unit figures.

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8

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MAARRLLBBOORROOUUGGHH HHIIGGHH YYIIEELLDD FFIIXXEEDD IINNTTEERREESSTT FFUUNNDD G

GEEOOGGRRAAPPHHIICCAALL BBRREEAAKKDDOOWWNN

0.33 32.48 5.19 0.53 0.00 9.94 12.05 4.23 1.79 3.89 8.75 8.78 1.97 1.08 1.34 0.00 0.18 0.63 0.00 6.84 2.04 31.82 2.98 1.56 0.61 10.28 15.61 1.75 3.53 4.98 6.49 10.82 1.45 0.81 1.41 1.48 0.53 0.52 0.67 0.66 0 5 10 15 20 25 30 35 United States United Kingdom Sweden Spain Norway Netherlands Luxembourg Jersey Italy Ireland Germany France Czech Republic Croatia Cayman Islands Canada Belgium Austria Australia Cash %

% ooff ttoottaall nneett aasssseett vvaalluuee

as at 31.12.2015 as at 31.12.2014

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Marlborough Fund Managers Ltd

Marlborough House

59 Chorley New Road

Bolton

BL1 4QP

Investor

Support:

0808 145 2500

Dealing:

0808 145 2501

Fax:

01204 533045

Email:

[email protected]

Website:

www.marlboroughfunds.com

Marlborough Fund Managers Ltd

Registered in England No. 2061177

Marlborough High Yield Fixed Interest Fund