Morgan Stanley Funds (UK)...Morgan Stanley Funds (UK) Semi-Annual Report (Unaudited) 31 March 2016...

Morgan StanleyFunds (UK)

Semi-Annual Report (Unaudited)31 March 2016

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25983 MS Funds Semi-Annual Report Cover_25983 MS Funds Semi-Annual Report Cover 26/04/2016 07:52

Morgan Stanley Funds (UK) 31 March 2016 1

Table of Contents

Job No.: 25983 Proof Event: 7 Park Communications Ltd Alpine Way London E6 6LACustomer: Morgan Stanley Project Title: Semi-Annual Report 2016 T: 020 7055 6500 F: 020 7055 6600

2 Morgan Stanley Funds (UK)

3 Directory

4 Report of the Authorised Corporate Director of Morgan Stanley Funds (UK)

FUND REVIEWS & FINANCIAL STATEMENTS

Equity Fund

5 Global Brands Fund

Fixed Interest Fund

11 Sterling Corporate Bond Fund

24 Further information

25983 U MS Funds Semi-Annual Report Text_25983 MS Funds Semi-Annual Report Text 20/05/2016 13:29 Page 1

2 Morgan Stanley Funds (UK) 31 March 2016

Morgan Stanley Funds (UK) (the “Company”)


The Company is an investment company with variable capital (“ICVC”), also known as Open Ended Investment Company (“OEIC”).The Company is incorporated in England and Wales, and is authorised by the Financial Conduct Authority (“FCA”). The Company isan undertaking for collective investment in transferable securities (“UCITS”) scheme in accordance with the European Union Directive2009/65/EC of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings forcollective investment in transferable securities (UCITS) (as amended and as implemented in the United Kingdom). It is structured asan umbrella company with two sub-funds (“Funds”), each with a different investment objective and policy.



Directory


REGISTERED OFFICE

25 Cabot SquareCanary WharfLondonE14 4QAUnited Kingdom

AUTHORISED CORPORATE DIRECTOR

Morgan Stanley Investment Management (ACD) Limited25 Cabot SquareCanary WharfLondonE14 4QAUnited KingdomAuthorised and regulated by The Financial Conduct Authority

REGISTRAR

International Financial Data Services LimitedPO Box 9025ChelmsfordCM99 2WEUnited Kingdom

INVESTMENT MANAGER

Morgan Stanley Investment Management Limited25 Cabot SquareCanary WharfLondonE14 4QAUnited KingdomAuthorised and regulated by The Financial Conduct Authority

ADMINISTRATOR

State Street Bank and Trust Company20 Churchill PlaceLondonE14 5HJUnited Kingdom

DEPOSITARY

State Street Trustees Limited525 Ferry RoadEdinburghEH5 2AWUnited KingdomAuthorised and regulated by The Financial Conduct Authority

INDEPENDENT AUDITORS

Ernst & Young LLPTen George StreetEdinburghEH2 2DZUnited Kingdom

LEGAL ADVISERS

Eversheds LLPOne Wood StreetLondonEC2V 7WSUnited Kingdom



Report of the Authorised Corporate Directorof Morgan Stanley Funds (UK)For the period ended 31 March 2016


The Authorised Corporate Director (“ACD”) of Morgan Stanley Funds (UK) (the “Company”) is Morgan Stanley InvestmentManagement (ACD) Limited. The ACD is the sole director of the Company. The Depositary is State Street Trustees Limited and theIndependent Auditors are Ernst & Young LLP.

The Company is an authorised open-ended investment company with variable capital under Regulation 12 (Authorisation) of theOEIC regulations and the shareholders are not liable for the debts of the Company. The Company is structured as an umbrellacompany with each underlying Sub-fund (“Fund”) having the investment powers equivalent to those of a securities company. In thefuture, there may be other Funds within the Company. The assets of each Fund belong exclusively to that Fund and are not available todischarge (directly or indirectly) the liabilities of, or claims against any other fund.

The investment objective of each Fund, the Company’s policy for pursuing that objective and a review of each Fund’s investmentactivities for the relevant year are set out in the individual fund reviews contained in this semi-annual Report and Financial Statements.

STATEMENT OF AUTHORISED CORPORATE DIRECTOR’S RESPONSIBILITIESThese semi-annual financial statements have been prepared by the ACD in accordance with the Statement of Recommended Practicefor Authorised Funds issued by the Investment Association (IA) in May 2014 and the rules contained in the Financial ConductAuthority’s Collective Investment Scheme Sourcebook (COLL Sourcebook) (together the “Regulations”) and give a true and fair view ofthe net revenue and gains/(losses) of the scheme property of the Company and each Fund and the financial position of the Companyand each Fund at the end of the accounting period.

The ACD is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financialposition of the Company and enables the ACD to ensure that the financial statements comply with the Regulations. In preparing thissemi-annual report, the Authorised Corporate Director has:

• prepared the financial statements on a going concern basis;

• selected suitable accounting policies and applied them consistently;

• made judgements and estimates that are reasonable and prudent;

• followed applicable accounting standards; and

• prepared financial statements in accordance with the Statement of Recommended Practice for Authorised Funds issued by the IA inMay 2014.

The ACD confirms that they have complied with the above requirements in preparing the financial statements. The ACD is responsiblefor the management of the Company in accordance with the Company’s Instrument of Incorporation, Prospectus and the Regulations.The ACD is responsible for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Ruairi O’HealaiDirector on behalf of

Morgan Stanley Investment Management (ACD) Limitedas Authorised Corporate Director of Morgan Stanley Funds (UK)

19 May 2016



Global Brands FundAs at 31 March 2016 (unaudited)


Fund ReviewINVESTMENT OBJECTIVEThe objective of the Fund is to provide long term capitalappreciation through investment primarily in equity securitiesissued worldwide.

RISK AND REWARD PROFILE

Lower risk Higher risk

Potentially lower rewards Potentially higher rewards

The risk and reward category shown is based on historic data.

• Historic figures are only a guide and may not be a reliableindicator of what may happen in the future.

• As such this category may change in the future.

• The higher the category, the greater the potential reward, butalso the greater the risk of losing the investment. Category 1does not indicate a risk free investment.

• The Fund is in this category because it invests in companyshares and the Fund’s simulated and/or realised return hasexperienced high rises and falls historically.

This rating does not take into account other risk factors whichshould be considered before investing, these include:

• Your investment can go down as well as up. You may not getback the amount you have invested.

• The Fund may be impacted by movements in the exchangerates between the Fund’s currency and the currencies of theFund’s investments.

PERFORMANCESince inception

03/02/03 1 year 6 months% change % change % changecumulative cumulative cumulative

MSCI World (Net) Index 215.66 -0.28 10.80Global Brands Fund A Acc 332.88 11.13 15.97Global Brands Fund I Acc 377.47 11.97 16.41

Source Index: FactSet as at 31 March 2016 on a bid to bid price basis with net incomereinvested.

Source Fund: Morgan Stanley Investment Management Ltd.

Past performance is no guarantee of future returns. In particular, any returns illustratedhere will not necessarily continue at the levels shown.

NET ASSET VALUESNet Net

asset value Shares in asset valueDate of share class (£) issue per share (£)

Share Class A – Accumulation*31.03.16 5,030,231 92,964 54.1130.09.15 4,614,124 98,916 46.6530.09.14 7,241,210 165,989 43.6230.09.13 12,147,326 302,035 40.22

Share Class A – Income*31.03.16 120,726 7,362 16.4030.09.15 104,242 7,369 14.1530.09.14 343,930 25,847 13.3130.09.13 925,750 74,823 12.37

Share Class I – Accumulation*31.03.16 569,882,449 9,548,410 59.6830.09.15 479,643,936 9,357,667 51.2630.09.14 455,548,389 9,574,923 47.5830.09.13 477,925,918 10,977,864 43.54

Share Class I – Income*31.03.16 125,321,319 7,194,566 17.4230.09.15 106,163,367 7,066,904 15.0230.09.14 123,789,122 8,759,240 14.1330.09.13 101,387,869 7,709,447 13.15

* Valued at bid basis.

1 2 3 4 5 6 7



Global Brands Fund


Fund Review (continued)SHARE PRICE AND INCOME RECORD

NetHighest Lowest incomeshare share per

Calendar Year price (£)* price (£)* share (p)

Share Class A – Accumulation2016 54.11(1) 48.67(1) 3.21442015 51.67 44.61 26.51982014 46.86 39.03 39.15672013 43.75 35.80 38.8400

Share Class A – Income2016 16.41(1) 14.76(1) 1.21682015 15.67 13.60 8.29282014 14.29 12.01 11.31122013 13.55 11.12 12.5289

Share Class I – Accumulation2016 59.68(1) 53.63(1) 25.08582015 56.88 48.99 69.23982014 51.17 42.36 77.49292013 47.24 38.54 75.4770

Share Class I – Income2016 17.49(1) 15.72(1) 7.35692015 16.67 14.49 20.56582014 15.20 12.79 23.31342013 14.42 11.84 23.1527

* Highest and lowest share prices are valued at mid basis.(1) 1 January to 31 March 2016.

ONGOING CHARGE FIGURE (“OCF”)The Total Ongoing Charge Figure (OCF) per share class are asfollows:

OngoingCharge

Date Class of Share Figure (OCF)

31.03.16 ‘A’ Class** 1.69%‘I’ Class*** 0.91%

2 months to 30.11.15 ‘A’ Class 1.75%*‘I’ Class 1.00%*

4 months to 31.03.16 ‘A’ Class 1.64%*‘I’ Class 0.89%*

30.09.15 ‘A’ Class 1.75%*‘I’ Class 1.00%*

The OCF shows the annual expenses of the Fund as a percentage of the average net assetvalue.

* Annualised rates.** Effective 1 December 2015 the OCF reduced from 1.75% to 1.65%.*** Effective 1 December 2015 the OCF reduced from 1.00% to 0.90%.

PERFORMANCE REVIEWFor the 6-month period ending 31 March 2016, the Fund’s IAccumulation class shares outperformed the benchmark, theMSCI World (Net) Index, by 561 basis points (bps), returning16.41% (net of fees in sterling) versus 10.80% for the Index.

The portfolio continued to deliver very strong returns over theperiod. The outperformance was primarily due to stock selectionin Information Technology (names with recognisable brands andrecurring revenues) and the overweight allocation to ConsumerStaples (companies whose businesses are less sensitive to economiccycles), although this was partly offset by stock selection in thesector. Our structural bias to higher quality stocks in higherquality sectors has worked well. The portfolio’s underweight in Financials and Health Care also contributed positively toperformance. The zero weights in Telecoms, Materials andUtilities detracted from performance for the period. Stockselection in Consumer Discretionary and the allocation toIndustrials also contributed negatively to performance.

MARKET REVIEWThe MSCI World Index advanced 10.80% in sterling terms for the period. The fourth quarter of 2015 started very strongly butmarkets fell slightly over the course of December, as a strong U.S. dollar continued to impact local market returns, and fears of a Chinese slowdown continued to add to volatility. Marketsrecovered in the first quarter of 2016. On a sectoral basis, the six month period was led by Telecoms, Consumer Staples andConsumer Discretionary, while Financials lagged other sectors.

PORTFOLIO ACTIVITYDuring the period we initiated positions in two, what we consider high quality, Consumer Staples (Food and Beverage andTobacco) companies at the upper end of reasonable valuations.We also added to some positions in select Consumer Staples and Consumer Discretionary (particularly Media) names. Oursales during the period could be summarised as retreats in someConsumer Staples and Consumer Discretionary names, where wewere worried about the business or the deteriorating operationalenvironment.




Fund Review (continued)STRATEGY & OUTLOOKNew and massive stimulus measures by major central banks,designed to kick start growth, have only led to the debasement ofcurrencies, deflationary pressures and an expansion of earningsmultiples. They have not translated into significant, sustained, real economic growth in any economy.

The macroeconomic environment has become increasinglyinfluential over the last seven years, when central banks began tomassively distort the price of risk and governments attempted tosuspend the laws of basic economic principles. As stock pickers,not macroeconomic speculators, we remain firmly guided by thequality of the businesses we can invest in and the valuations weare asked to pay for these businesses. Finding well managedcompanies which offer attractive returns on capital and sufficientand sustainable earnings and free cash flow is the comparativelyeasy bit. We more or less know what stocks we’d like to own.Valuations, especially valuations that leave some room for error on our part, are the limiting factor currently. While we are moreconfident that we know which quality businesses are more likelyto protect our clients from the disappearance of profits, the priceswe are being asked to pay seem to be so elevated that an earningsmiss is likely to be compounded by a subsequent multiplecompression.

While we are in uncharted territory with interest rates at aroundzero, multiple expansion cannot go on forever. If and whenthe market is prepared to no longer just buy the dips in theexpectation central bankers surely will rush to the rescue, webelieve the portfolio to be well positioned for two main reasons:firstly, we have not compromised on quality. Profits and potentialreturns should therefore be more protected than in the broadermarket due to more resilient earnings profiles and lower capitalintensity. Secondly, we have maintained our valuation disciplineby reducing exposure to stocks that strike us as too expensivewhile selectively adding to names that we believe sell for belowtheir intrinsic value.

Equally, a negative political event would likely compressmultiples. Equity markets are notoriously poor at forecastingpolitical shocks. The likelihood of such a shock occurring isincreasing. There are plenty of opportunities out there at themoment for politicians and central bankers to make seriousmistakes, especially in Europe and Japan.

As a result, we hold stocks that still have the ability to compound,albeit at a lower rate than what was the norm over the last 20 years or so. In addition, we believe these companies will beable to pay significant dividends which are very valuable in a zero-interest rate environment. These stocks are acceptably, not attractively, valued. However, due to the above-average pricing power inherent in their business models they should offer meaningful downside protection in a deflationary orinflationary world.

All information is provided for informational purposes onlyand should not be deemed as a recommendation to purchaseor sell the securities mentioned.

Global Brands Fund




Global Brands Fund

Portfolio StatementAS AT 31 MARCH 2016 (UNAUDITED)

Market % of net % of netValue asset value asset value

Holdings Investments (£) 31 Mar 2016 30 Sep 2015

France 11.12%374,317 L'Oreal 46,706,255 6.67227,717 Pernod Ricard 17,847,063 2.55235,856 Sanofi 13,329,435 1.90

77,882,753 11.12 6.40

Germany 2.18%271,897 SAP 15,265,344 2.18

15,265,344 2.18 1.83

Ireland 6.67%417,498 Accenture 33,446,795 4.77

1,068,403 Experian 13,301,617 1.9046,748,412 6.67 6.63

Italy 1.05%1,053,168 Davide Campari-Milano 7,338,074 1.05

7,338,074 1.05 0.81

Japan 2.64%636,812 Japan Tobacco 18,456,963 2.64

18,456,963 2.64 2.12

Netherlands 0.00%– – 0.57

Switzerland 4.76%641,439 Nestle 33,333,035 4.76

33,333,035 4.76 9.66

United Kingdom 23.37%1,238,917 British American Tobacco 50,584,981 7.22818,511 Reckitt Benckiser 54,905,718 7.84746,361 RELX (London Listed) 9,680,302 1.38515,628 RELX (NL Listed) 6,309,628 0.90

1,332,809 Unilever 42,203,397 6.03163,684,026 23.37 23.97

United States 45.79%65,351 3M 7,567,027 1.08748,131 Altria 32,510,258 4.64301,053 Automatic Data Processing 18,636,807 2.66121,362 Intuit 8,695,318 1.24

1,539,921 Microsoft 58,865,790 8.41938,604 Mondelez International 26,370,325 3.7796,858 Moody's 6,447,333 0.91254,877 NIKE 10,980,185 1.57282,099 Philip Morris International 19,332,228 2.76903,088 Reynolds American 31,656,043 4.52324,245 Time Warner 16,247,144 2.32782,390 Twenty-First Century Fox 'A' Shares 15,163,182 2.17848,653 Twenty-First Century Fox 'B' Shares 16,618,295 2.37552,477 Visa 29,455,712 4.21322,673 Walt Disney 22,162,056 3.16

320,707,703 45.79 45.34

Portfolio of investments 683,416,310 97.58 97.33

Net other assets 16,938,415 2.42 2.67

Net assets 700,354,725 100.00 100.00

All holdings are ordinary shares unless otherwise stated.




Global Brands Fund

Statement of Total ReturnFOR THE PERIOD ENDED 31 MARCH 2016 (UNAUDITED)

31 Mar 2016 (£) 31 Mar 2016 (£) 31 Mar 2015 (£) 31 Mar 2015 (£)

IncomeNet capital gains 95,087,118 61,055,242Revenue 6,448,245 6,089,120

Expenses (3,038,356) (3,109,341)Interest payable and similar charges – –

Net revenue before taxation 3,409,889 2,979,779Taxation (486,715) (287,194)

Net revenue after taxation 2,923,174 2,692,585

Total return before distributions 98,010,292 63,747,827Distributions (2,923,240) (2,692,651)

Change in net assets attributable to shareholdersfrom investment activities 95,087,052 61,055,176

Statement of Change in Net Assets Attributable to ShareholdersFOR THE PERIOD ENDED 31 MARCH 2016 (UNAUDITED)

31 Mar 2016 (£) 31 Mar 2016 (£) 31 Mar 2015 (£) 31 Mar 2015 (£)

Opening net assets attributable to shareholders 590,525,669 586,922,651Amounts receivable on issue of shares 27,048,038 98,834,632Amounts payable on cancellation of shares (14,704,322) (71,460,607)

12,343,716 27,374,025

Dilution levy – 122,711Change in net assets attributable to shareholdersfrom investment activities 95,087,052 61,055,176

Retained distribution on accumulation shares 2,398,288 2,152,536

Closing net assets attributable to shareholders 700,354,725 677,627,099

Comparatives are for the six months to 31 March 2015.

Balance SheetAS AT 31 MARCH 2016 (UNAUDITED)

31 Mar 2016 (£) 31 Mar 2016 (£) 30 Sep 2015 (£) 30 Sep 2015 (£)

AssetsInvestment assets 683,416,310 574,730,241

Debtors 6,033,440 4,030,594Cash and bank balances 17,090,683 15,399,187

Total other assets 23,124,123 19,429,781

Total assets 706,540,433 594,160,022

LiabilitiesCreditors 5,656,321 2,637,498Distribution payable on income shares 529,387 996,855

Total liabilities 6,185,708 3,634,353

Net assets attributable to shareholders 700,354,725 590,525,669

The accompanying notes are an integral part of these Financial Statements.

The interim financial statements have been prepared in accordance with the Statement of Recommended Practice for Authorised Funds issued by the Investment Association in May 2014.

The accounting policies applied are consistent with those of the annual financial statement for the year ended 30 September 2015 and are described in those annual financial statements.




Global Brands

Distribution TableFOR THE PERIOD ENDED 31 MARCH 2016 (UNAUDITED)

INTERIM DISTRIBUTION IN PENCE PER SHARE

Group 1 – shares purchased prior to 1 October 2015Group 2 – shares purchased between 1 October 2015 and 31 March 2016

Distribution Distributionpayable paid

Revenue Equalisation 31 May 2016 31 May 2015(p) (p) (p) (p)

Share Class A – AccumulationGroup 1 3.2144 – 3.2144 1.2689Group 2 3.2123 0.0021 3.2144 1.2689

Share Class A – IncomeGroup 1 1.2168 – 1.2168 0.6514Group 2 1.2168 0.0000 1.2168 0.6514

Share Class I – AccumulationGroup 1 25.0858 – 25.0858 21.5292Group 2 19.5854 5.5004 25.0858 21.5292

Share Class I – IncomeGroup 1 7.3569 – 7.3569 6.4678Group 2 5.4035 1.9534 7.3569 6.4678

EQUALISATIONEqualisation applies only to shares purchased during the distribution period (Group 2 shares). It is the average amount of incomeincluded in the purchase price of all Group 2 shares and is refunded to holders of these shares as a return of capital. Being capital, it is not liable to income tax but must be deducted from the cost of shares for capital gains tax purposes.




Sterling Corporate Bond FundAs at 31 March 2016 (unaudited)

Fund ReviewINVESTMENT OBJECTIVEThe objective of the Fund is to provide an attractive rate of returnthrough investment primarily in sterling corporate and othersterling non-gilt fixed interest securities. A proportion of the Fund may also invest in non-sterling fixed interest securities aswell as UK Gilts.

RISK AND REWARD PROFILE

Lower risk Higher risk

Potentially lower rewards Potentially higher rewards

The risk and reward category shown is based on historic data.

• Historic figures are only a guide and may not be a reliableindicator of what may happen in the future.

• As such this category may change in the future.

• The higher the category, the greater the potential reward, but also the greater the risk of losing the investment. Category 1 does not indicate a risk free investment.

• The Fund is in this category because it invests in fixed incomesecurities and the Fund's simulated and/or realised return hasexperienced medium rises and falls historically.

This rating does not take into account other risk factors whichshould be considered before investing, these include:

• Your investment can go down as well as up. You may not get back the amount you have invested.

• The value of bonds are likely to decrease if interest rates rise and vice versa.

• Issuers may not be able to repay their debts, if this happensthe value of your investment will decrease. This risk is higherwhere the fund invests in a bond with a lower credit rating.Investors may be compensated for this with higher interestpayments.

PERFORMANCESince inception

11/12/00 1 year 6 months% change % change % changecumulative cumulative cumulative

Bank of America - Merrill Lynch Sterling Non-Gilt All Stocks Index 148.45 0.42 3.52Sterling Corporate Bond Fund I Acc 137.87 0.15 3.15Sterling Corporate Bond Fund A Acc* 96.07 -0.36 2.88Sterling Corporate Bond Fund F Acc** 10.96 0.25 3.20

Source Index: FactSet as at 31 March 2016 on a bid to bid price basis with net incomereinvested.

Source Fund: Morgan Stanley Investment Management Ltd.

* Launched 3 February 2003.** Launched 3 March 2014.

Past performance is no guarantee of future returns. In particular, any returns illustratedhere will not necessarily continue at the levels shown.

NET ASSET VALUESNet Net

asset value Shares in asset valueDate of share class (£) issue per share (£)

Share Class A – Accumulation*31.03.16 3,344,256 150,137 22.2730.09.15 2,925,915 135,084 21.6630.09.14 4,328,329 205,790 21.0330.09.13 2,259,236 115,363 19.58

Share Class A – Income*31.03.16 660,352 44,858 14.7230.09.15 600,214 41,519 14.4630.09.14 836,834 58,475 14.3130.09.13 770,512 56,434 13.65

Share Class I – Accumulation*31.03.16 38,425,315 1,622,400 23.6830.09.15 32,967,599 1,435,109 22.9730.09.14 1,350,128 60,838 22.1930.09.13 4,109,617 199,794 20.57

Share Class I – Income*31.03.16 3,597,251 244,802 14.6930.09.15 2,898,331 200,860 14.4330.09.14 1,431,919 100,247 14.2830.09.13 1,664,545 122,155 13.63

Share Class F – Accumulation*31.03.16 32,118,045 29,069,505 1.1030.09.15 25,922,007 24,202,002 1.0730.09.14** 8,704,834 8,422,922 1.03

Share Class F – Income*31.03.16 68,109,411 65,070,068 1.0530.09.15 60,278,459 58,634,836 1.0330.09.14*** 32,039,032 31,479,168 1.02

* Valued at bid basis.** Launched 3 March 2014.*** Launched 4 March 2014.

1 2 3 4 5 6 7




Sterling Corporate Bond Fund

Fund Review (continued)SHARE PRICE AND INCOME RECORD

NetHighest Lowest incomeshare share per

Calendar Year price (£)* price (£)* share (p)

Share Class A – Accumulation2016 22.38(1) 21.62(1) 21.90772015 22.60 21.55 42.66302014 21.25 19.80 49.89062013 20.50 19.10 53.2066

Share Class A – Income2016 14.93(1) 14.43(1) 14.61602015 15.38 14.48 28.85892014 14.62 13.81 34.44862013 14.50 13.50 37.8896

Share Class I – Accumulation2016 23.79(1) 22.98(1) 29.12602015 23.89 22.82 56.67942014 22.41 20.83 62.41442013 21.49 20.03 65.5399

Share Class I – Income2016 14.94(1) 14.43(1) 18.29512015 15.38 14.47 36.33732014 14.63 13.80 41.78712013 14.24 13.27 44.5172

Share Class F – Accumulation**2016 1.11(1) 1.07(1) 1.19492015 1.11 1.06 2.74602014 1.04 0.97 2.0245

Share Class F – Income***2016 1.05(1) 1.02(1) 1.13902015 1.09 1.03 2.66342014 1.03 0.97 1.9870

* Highest and lowest share prices are valued at mid basis.** Launched 3 March 2014.*** Launched 4 March 2014.(1) 1 January to 31 March 2016.

ONGOING CHARGE FIGURE (“OCF”)The Total Ongoing Charge Figure (OCF) per share class are asfollows:

OngoingCharge

Date Class of Share Figure (OCF)

31.03.16 ‘A’ Class 1.00%‘I’ Class 0.37%‘F’ Class 0.22%

30.09.15 ‘A’ Class 1.00%‘I’ Class 0.37%‘F’ Class 0.22%

The OCF shows the annual expenses of the Sub-Fund as a percentage of the average netasset value.

PERFORMANCE REVIEWFor the 6-month period ending 31 March 2016, the Fund’s IAccumulation class shares underperformed the benchmark, Bankof America-Merrill Lynch Sterling Non-Gilt All Stocks Index by37 basis points (bps), returning 3.15% (net of fees in sterling)versus 3.52% for the Index.

The underperformance of the Fund was mainly due to theunderweight to duration which averaged 1.3 years over theperiod. During the period, five-year Gilts fell 35bps and ten-yearGilt yields also fell 35bps. This explains the bulk of the strongabsolute return, and the relative underperformance. The Fundcontinues to be underweight to duration, viewing the risks posed by Gilt yields to be as low as to be asymmetric, while theunderweight acts as a counterbalance to owning credit. The Fundis positioned to be underweight credit in spread duration terms,but is overweight in some of the higher beta sectors. Sterlingcredit spreads were wider over the period, with most of thewidening witnessed in the last quarter as concerns over globalgrowth surfaced. The overall impact of credit positioning was asmall positive.

MARKET REVIEWOver the last six months, the Bank of England (BoE) kept policy rates unchanged, with a broadly neutral to dovish tone.The decision was supported by inflation remaining low and anincreasingly dovish stance from the U.S. Federal Reserve (Fed)following their first rate rise in 9 years. Late in 1Q16, BoEGovernor Mark Carney made dovish comments, saying that nowis not the time to raise interest rates. Governor Carney would liketo see sustained above trend growth, firming of domestic costgrowth, and core inflation moving towards target before hikingrates. Gilts rallied, with yields pushed lower across the curve. UK employment growth continues to be robust, with some signsof a pickup in wage growth. We have seen additional stimulusfrom several major central banks, with the announcement of non-financial Investment Grade (IG) corporate bond purchase by the European Central Bank (ECB) being the most significantfor this portfolio. This announcement caused credit spreads toretrace some of the widening seen in January and February thisyear, however concerns over ‘Brexit’ meant that Sterling creditunderperformed relative to European credit. Leading up to theECB’s announcement of non-financial IG corporate bondpurchases, concerns over global and Chinese growth and theimplications of ‘Brexit’ had weighed on the sterling credit market.





Fund Review (continued)PORTFOLIO ACTIVITYThe Fund has remained active throughout the period,participating in new issues and actively rotating existing issues.During the period, the Fund increased its exposure to utilities(adding exposure to names like United Utilities and Scotland Gas Networks), moving from broadly neutral to overweight asvaluations became attractive. The allocation to financials hasremained broadly unchanged; however the Fund did increaseallocation to bonds higher up the capital structure. The Fund has increased its underweight to Industrials, due to increasingM&A risk, as well as the underweight to government relatedsecurities, securitised and covered bonds, driven by limited spread pick-up and the existence of more attractive investmentopportunities in other segments of the credit market. Exposure to corporate hybrids was broadly constant during the period.

STRATEGY & OUTLOOKOur base case remains for an economic backdrop of low growthand low inflation with central banks continuing to provideliquidity to markets, keeping default rates low. This is a positiveenvironment for corporate bonds and should ensure the Fundretains value as we move to the next stage in the rate cycle. We also believe that credit valuation remains attractive.

The Fed has indicated that the future path of interest rate riseswill be very gradual, given that inflation remains below target and there are growth headwinds from abroad. The ECB cut rates again in March, has increased the size of its purchaseprogramme and will now buy corporate bonds. Against thisbackground, and given the uncertainty around “Brexit”, webelieve that the BoE will proceed cautiously to remove monetarypolicy accommodation.

We continue to see opportunities in Sterling Credit (in both IG and a small allocation in High Yield) providing we do notenter in to a recession that historically has been associated withdefaults. Economic data in the UK remains positive, withconsumption supported by low inflation. Although the tradeposition has deteriorated, other indicators do not point to a turn in the cycle and the fall in sterling should aid the exportsector. Monetary policy remains supportive, as discussed above.

“Brexit” is a risk for both the economy and asset prices. Our basecase is for the country to vote narrowly to remain within theEuropean Union.

All information is provided for informational purposes only and should not be deemed as a recommendation to purchase or sell the securities mentioned.





Portfolio StatementAS AT 31 MARCH 2016 (UNAUDITED)


Nominals Investments (£) 31 Mar 2016 30 Sep 2015

Corporate Bonds 78.95%500,000 Abbey National 1.875% 17/02/2020 496,330 0.34550,000 ABN AMRO 2.5% 18/12/2018 564,245 0.39700,000 ABN AMRO Bank 2.375% 07/12/2021 709,191 0.49200,000 ABP Finance 6.25% 14/12/2026 240,706 0.17200,000 Aegon 6.125% 15/12/2031 264,744 0.18300,000 Affinity Water Finance 5.875% 13/07/2026 383,292 0.26450,000 Affordable Housing Finance 3.8% 20/05/2044 546,142 0.37300,000 Altice Financing 6.5% 15/01/2022 251,178 0.17400,000 American Honda Finance 2.625% 14/10/2022 411,972 0.28350,000 Amgen 4% 13/09/2029 371,875 0.25250,000 Anglian Water Osprey Financing 5% 30/04/2023 250,925 0.17150,000 Anglian Water Services Financing 4.5% 22/02/2026 165,215 0.11400,000 Anglian Water Services Financing 6.875% 21/08/2023 518,904 0.35

1,775,000 Anheuser-Busch 3.65% 01/02/2026 1,289,250 0.881,100,000 Anheuser-Busch 0.875% 17/03/2022 877,711 0.601,900,000 Anheuser-Busch 2.75% 17/03/2036 1,578,831 1.08200,000 Anheuser-Busch 6.5% 23/06/2017 212,336 0.15600,000 Apple 3.6% 31/07/2042 622,890 0.43500,000 APT Pipelines 4.25% 26/11/2024 519,475 0.36100,000 Areva 3.5% 22/03/2021 69,216 0.05350,000 Areva 4.875% 23/09/2024 237,485 0.16100,000 Arqiva Financing 5.34% 30/12/2037 108,378 0.07590,000 ASR 5.125% 29/09/2045 474,244 0.32300,000 Aviva 5.125% 04/06/2050 273,558 0.19250,000 Aviva 6.125% 14/11/2036 259,770 0.18600,000 AXA 7.125% 15/12/2020 711,024 0.49600,000 Bank Nederlandse Gemeenten 0.875% 12/12/2016 600,258 0.41150,000 Bank of America 4.25% 10/12/2026 165,681 0.11

1,000,000 Bank of America 5.25% 09/11/2016 1,020,330 0.70250,000 Bank of America 5.5% 22/11/2021 278,807 0.19300,000 BASF 1.375% 15/12/2017 301,893 0.21900,000 BAT International Finance 4% 23/11/2055 946,773 0.65300,000 BAT International Finance 6% 29/06/2022 363,390 0.25700,000 Bayer 3.75% 01/07/2074 570,958 0.39

1,300,000 BHP Billiton 6.5% 22/10/2077 1,299,480 0.89350,000 BHP Billiton Finance 3.25% 25/09/2024 354,386 0.24650,000 BMW Finance 2.375% 01/12/2021 666,809 0.4650,000 BNP Paribas 3.5% 07/12/2016 50,782 0.04

1,000,000 BNP Paribas 5.75% 24/01/2022 1,111,770 0.76800,000 BPCE 5.25% 16/04/2029 820,408 0.56325,000 British Telecommunications 1.75% 10/03/2026 264,492 0.18100,000 BUPA Finance 3.375% 17/06/2021 103,835 0.07500,000 BUPA Finance 5% 25/04/2023 517,970 0.36150,000 Cambridgeshire Housing Capital 4.25% 15/09/2045 161,347 0.1150,000 Canary Wharf Finance II 5.952% 22/10/2037 62,751 0.04450,000 Centrica 5.25% 10/04/2075 407,498 0.28150,000 Cie de Financement Foncier 5.5% 26/01/2027 190,872 0.13300,000 Cie de Saint-Gobain 5.625% 15/12/2016 308,385 0.21225,000 Circle Anglia Social Housing 5.2% 02/03/2044 279,023 0.19

1,000,000 Citigroup 5.15% 21/05/2026 1,171,200 0.80150,000 Citigroup 7.375% 01/09/2039 226,534 0.16

1,000,000 CNP Assurances 7.375% 30/09/2041 1,072,525 0.73900,000 Comcast 5.5% 23/11/2029 1,143,648 0.78300,000 Commerzbank 4% 23/03/2026 240,911 0.16

1,000,000 Commonwealth Bank of Australia 2% 22/04/2027 755,220 0.52200,000 Commonwealth Bank of Australia 2.25% 07/12/2018 204,342 0.14250,000 Commonwealth Bank of Australia 3% 04/09/2026 264,008 0.18300,000 Commonwealth Bank of Australia 4.875% 19/12/2023 317,550 0.22200,000 Compass 3.85% 26/06/2026 223,218 0.15100,000 Constellium 4.625% 15/05/2021 60,852 0.04200,000 Constellium 7% 15/01/2023 129,339 0.09

1,000,000 Cooperatieve Centrale Raiffeisen-Boerenleenbank5.25% 14/09/2027 1,092,720 0.75

350,000 Cooperatieve Centrale Raiffeisen-Boerenleenbank2.25% 23/03/2022 351,158 0.24

200,000 Coventry Building Society 5.875% 28/09/2022 240,210 0.16600,000 CPUK Finance 2.666% 28/02/2042 603,852 0.41100,000 Credit Suisse Finance 7% 05/10/2020 115,291 0.08350,000 Credit Suisse Funding 3% 27/05/2022 348,191 0.24





Portfolio Statement (continued)AS AT 31 MARCH 2016 (UNAUDITED)



Corporate Bonds 78.95% (continued)700,000 Crh Finance UK 4.125% 02/12/2029 748,230 0.51350,000 Daimler 1.25% 01/12/2017 348,810 0.24150,000 Daimler 1.625% 02/12/2016 150,307 0.10250,000 Daimler 2.375% 16/07/2018 254,833 0.17350,000 Debenhams 5.25% 15/07/2021 352,681 0.24275,000 Deutsche Boerse 2.75% 05/02/2041 221,046 0.15260,000 Deutsche Telekom 7.625% 15/06/2030 380,401 0.26400,000 Dexia Credit Local 2.125% 12/02/2025 396,752 0.27150,000 East Japan Railway 4.5% 25/01/2036 178,788 0.12500,000 Eastern Power Networks 5.75% 08/03/2024 603,665 0.41

1,000,000 EDP Finance 8.625% 04/01/2024 1,305,060 0.89600,000 EE Finance 4.375% 28/03/2019 645,204 0.44200,000 Electricite de France 6% 23/01/2114 249,622 0.17500,000 Electricite de France 6.125% 02/06/2034 612,660 0.42500,000 Electricity North West 8.875% 25/03/2026 755,560 0.52700,000 Enel 7.75% 10/09/2075 753,382 0.52200,000 Enel Finance 5.75% 14/09/2040 246,068 0.17225,000 Experian Finance 3.5% 15/10/2021 239,468 0.16100,000 Experian Finance 4.75% 23/11/2018 108,024 0.07125,000 FCE Bank 2.625% 20/11/2018 126,881 0.09300,000 FCE Bank 2.759% 13/11/2019 305,229 0.21100,000 FCE Bank 3.25% 19/11/2020 103,474 0.0750,000 Firstgroup 6.875% 18/09/2024 60,611 0.04500,000 Fomento Economico Mexicano 1.75% 20/03/2023 393,046 0.27900,000 Friends Life 8.25% 21/04/2022 1,075,086 0.74350,000 G4S 7.75% 13/05/2019 401,537 0.27100,000 Gatwick Funding 4.625% 27/03/2036 112,793 0.08200,000 Gatwick Funding 5.75% 23/01/2039 258,786 0.18150,000 GDF Suez 7% 30/10/2028 215,223 0.15

1,000,000 GE Capital 5.125% 24/05/2023 1,185,940 0.81200,000 GlaxoSmithKline Capital 3.375% 20/12/2027 211,654 0.14300,000 Glencore Canada Financial 7.375% 27/05/2020 307,872 0.21

1,000,000 Goldman Sachs 4.25% 29/01/2026 1,089,540 0.74375,000 Goldman Sachs 6.125% 14/05/2017 391,672 0.27200,000 Grainger 5% 16/12/2020 207,144 0.14188,296 Greater Gabbard 4.137% 29/11/2032 207,482 0.14350,000 Grupo Isolux Corsan Finance 6.625% 15/04/2021 83,094 0.06778,225 Gwynt y Mor 2.778% 17/02/2034 763,220 0.52400,000 Hammerson 1.75% 15/03/2023 319,089 0.22

1,500,000 Hammerson 3.5% 27/10/2025 1,539,585 1.05100,000 Health Care 4.8% 20/11/2028 107,392 0.07

1,000,000 Heathrow Funding 6% 20/03/2020 1,129,790 0.77300,000 High Speed Rail Finance 4.375% 01/11/2038 334,470 0.23500,000 Hiscox 6.125% 24/11/2045 496,130 0.34

1,000,000 HP Enterprise 4.9% 15/10/2025 704,687 0.48400,000 HSBC 6.5% 20/05/2024 488,172 0.33500,000 HSBC 5.75% 20/12/2027 546,140 0.37

1,000,000 Iberdrola Finanzas 7.375% 29/01/2024 1,315,120 0.90300,000 Imperial Tobacco Finance 4.875% 07/06/2032 339,015 0.23300,000 Imperial Tobacco Finance 9% 17/02/2022 402,579 0.28200,000 ING Bank 6.875% 29/05/2023 217,000 0.15600,000 Instituto de Credito Oficial 1.875% 15/12/2017 601,908 0.41500,000 InterContinental Hotels 3.75% 14/08/2025 514,650 0.35250,000 InterContinental Hotels 3.875% 28/11/2022 262,230 0.18400,000 InterContinental Hotels 6% 09/12/2016 411,752 0.28

1,000,000 International Business Machines 2.625% 05/08/2022 1,031,670 0.71300,000 International Game Technology 4.75% 15/02/2023 239,980 0.16

1,000,000 Intesa Sanpaolo 5.25% 28/01/2022 1,100,380 0.75200,000 Investor 5.5% 05/05/2037 257,650 0.18200,000 IPIC GMTN 6.875% 14/03/2026 254,482 0.17200,000 Jaguar Land Rover Automotive 3.875% 01/03/2023 188,222 0.13300,000 Jerrold Finco 9.75% 15/09/2018 319,530 0.22300,000 John Lewis 4.25% 18/12/2034 297,636 0.20200,000 Johnson & Johnson 5.5% 06/11/2024 254,960 0.17

1,500,000 JPMorgan 3.5% 18/12/2026 1,559,850 1.07200,000 Kelda Finance 5.75% 17/02/2020 209,762 0.14300,000 Korea Development Bank 2% 20/12/2018 302,928 0.21750,000 Legal & General 5.375% 27/10/2045 754,980 0.52500,000 Legal & General 5.5% 27/06/2064 451,305 0.31








Corporate Bonds 78.95% (continued)500,000 Lloyds Bank 2.5% 01/06/2022 501,700 0.34300,000 Lloyds Bank 2.75% 09/12/2018 307,623 0.21150,000 Lloyds Bank 5.125% 07/03/2025 183,786 0.13

1,000,000 Lloyds Bank 7.625% 22/04/2025 1,249,730 0.85750,000 London Power Networks 5.125% 31/03/2023 869,453 0.59200,000 London Power Networks 5.375% 11/11/2016 204,842 0.14100,000 Macquarie Bank 3.5% 18/12/2020 104,603 0.07225,000 Manchester Airport 4.75% 31/03/2034 258,993 0.18200,000 Manchester Airport 4.125% 02/04/2024 218,792 0.15200,000 Marks & Spencer 6.125% 06/12/2021 234,808 0.16180,000 MEIF Renewable Energy 6.75% 01/02/2020 180,900 0.12400,000 Metropolitan Life Global 2.625% 05/12/2022 406,276 0.28200,000 Metropolitan Life Global Funding I 3.5% 30/09/2026 206,156 0.14750,000 Mondelez International 3.875% 06/03/2045 697,252 0.48

1,000,000 Motability Operations 3.625% 10/03/2036 1,047,300 0.7226,000 Motability Operations 5.25% 28/09/2016 26,512 0.02500,000 Muenchener Rueckversicherungs 6.625% 26/05/2042 569,950 0.39500,000 Muenchener Rueckversicherungs 7.625% 21/06/2028 549,655 0.38400,000 National Australia Bank 1.875% 20/02/2020 402,340 0.28200,000 National Australia Bank 3% 04/09/2026 212,354 0.1550,000 National Express 6.25% 13/01/2017 51,678 0.04150,000 National Express 6.625% 17/06/2020 174,669 0.12900,000 National Grid Electricity Transmission 4% 08/06/2027 1,007,802 0.69900,000 Nationwide Building Society 3.25% 20/01/2028 914,463 0.63700,000 Nestle 1.75% 09/12/2020 715,463 0.49500,000 NGG Finance 5.625% 18/06/2073 517,330 0.35250,000 NIE Finance 6.375% 02/06/2026 325,185 0.22600,000 Nordea Bank 2.375% 02/06/2022 607,950 0.42450,000 Northern Gas Networks Finance 4.875% 30/06/2027 527,791 0.36400,000 Northern Powergrid Holdings 7.25% 15/12/2022 510,932 0.35600,000 Northumbrian Water Finance 6.875% 06/02/2023 758,028 0.52200,000 Orange 5.375% 22/11/2050 250,096 0.17394,000 Origin Energy Finance 7.875% 16/06/2071 295,537 0.20600,000 PACCAR Financial Europe 1.513% 29/05/2018 601,230 0.41

1,100,000 Paragon Treasury 3.625% 21/01/2047 1,063,821 0.73100,000 PepsiCo 2.5% 01/11/2022 103,944 0.07250,000 Petrobras Global Finance 5.375% 01/10/2029 156,688 0.11300,000 Petroleos Mexicanos 8.25% 02/06/2022 338,994 0.23200,000 Pfizer 6.5% 03/06/2038 292,668 0.20275,000 Porterbrook Rail Finance 7.125% 20/10/2026 372,345 0.2580,000 Prudential 6.875% 20/01/2023 101,030 0.07350,000 Prudential 1.375% 19/01/2018 349,982 0.24400,000 Prudential 5% 20/07/2055 350,672 0.24100,000 QBE Capital Funding IV 7.5% 24/05/2041 107,801 0.07565,000 RCI Banque 2.125% 06/10/2017 567,559 0.39200,000 Reed Elsevier 2.75% 01/08/2019 206,760 0.14400,000 RHP Finance 3.25% 05/02/2048 360,664 0.25

1,200,000 Royal Bank of Scotland 2.5% 22/03/2023 940,174 0.64150,000 Royal Bank of Scotland 6.625% 17/09/2018 166,801 0.1150,000 RSA Insurance 9.375% 20/05/2039 58,048 0.04225,000 Santander 6.5% 21/10/2030 268,675 0.18

1,200,000 Santander Issuances 5.179% 2025 802,586 0.55700,000 Santander UK 3.625% 14/01/2026 694,967 0.48450,000 Scentre Trust 2.375% 08/04/2022 448,020 0.31300,000 Scentre Trust 3.875% 16/07/2026 321,780 0.22

1,000,000 Scotland Gas Networks 3.25% 08/03/2027 1,018,320 0.70550,000 Scotland Gas Networks 4.875% 21/12/2034 641,894 0.44100,000 Scottish Widows 5.5% 16/06/2023 101,756 0.07500,000 Segro 5.625% 07/12/2020 574,005 0.39450,000 Severn Trent Utilities Finance 6.125% 26/02/2024 559,301 0.38250,000 SGSP Australia Assets 5.125% 11/02/2021 280,053 0.19250,000 Shell International Finance 2% 20/12/2019 254,337 0.17100,000 Siemens Financieringsmaatschappij 3.75% 10/09/2042 107,415 0.07450,000 Siemens Financieringsmaatschappij 6.125% 14/09/2066 454,383 0.31500,000 SNCF Mobilites 5.375% 18/03/2027 635,560 0.43200,000 SNCF Reseau 5.25% 07/12/2028 259,086 0.18400,000 Societe Generale 5.4% 30/01/2018 421,236 0.29500,000 Southern Electric Power Distribution 4.625% 20/02/2037 572,835 0.39200,000 Southern Gas Networks 4.875% 21/12/2020 226,676 0.15








Corporate Bonds 78.95% (continued)250,000 Southern Gas Networks 2.5% 03/02/2025 243,850 0.17450,000 SP Manweb 4.875% 20/09/2027 520,916 0.36350,000 SSE 8.375% 20/11/2028 528,192 0.36500,000 Stagecoach 4% 29/09/2025 514,235 0.35200,000 Standard Chartered Bank 7.75% 03/04/2018 218,390 0.15300,000 Svenska Handelsbanken 2.75% 05/12/2022 311,289 0.21600,000 Swedbank 1.625% 15/04/2019 602,160 0.41200,000 Telecom Italia Finance 7.75% 24/01/2033 211,830 0.14150,000 Telefonica Emisiones 5.445% 08/10/2029 175,968 0.12200,000 Telefonica Emisiones 5.289% 09/12/2022 227,032 0.16250,000 Tesco 6.125% 24/02/2022 269,717 0.18278,598 Tesco Property Finance 7.6227% 13/07/2039 302,203 0.21500,000 Thames Water Utilities Cayman Finance 3.5% 25/02/2028 519,585 0.36100,000 Thames Water Utilities Cayman Finance 5.75% 13/09/2030 113,298 0.08300,000 Together Housing Finance 4.5% 17/12/2042 333,999 0.23700,000 Total Capital International 2.25% 09/06/2022 714,224 0.49500,000 Transport for London 2.125% 24/04/2025 500,330 0.34300,000 Transport for London 3.875% 23/07/2042 343,140 0.23250,000 Twinkle Pizza 6.625% 01/08/2021 254,750 0.17100,000 United Parcel Service 5.125% 12/02/2050 138,175 0.09250,000 Unitymedia Hessen 4% 15/01/2025 201,216 0.14125,000 Verizon Communications 4.75% 17/02/2034 137,871 0.09200,000 Virgin Media Finance 6.375% 15/10/2024 203,138 0.14100,000 Virgin Media Secured Finance 5.125% 15/01/2025 96,499 0.0790,000 Virgin Media Secured Finance 6% 15/04/2021 93,665 0.06500,000 Virgin Money 2.25% 21/04/2020 495,780 0.34400,000 Vodafone 5.375% 05/12/2017 424,104 0.29700,000 Volkswagen Financial Services 1.75% 17/04/2020 681,065 0.47125,000 Volkswagen Financial Services 2.375% 13/11/2018 125,489 0.09225,000 Volkswagen Financial Services 2.75% 02/10/2020 227,291 0.16200,000 Voyage Care Bondco 6.5% 01/08/2018 197,174 0.1350,000 Washington Mutual Bank 5.5% 10/06/2019 0.00 0.00

1,000,000 Wells Fargo 2.125% 22/04/2022 999,550 0.68150,000 Wells Fargo Bank 5.25% 01/08/2023 173,016 0.12325,000 Wessex Water Services Finance 4% 24/09/2021 355,690 0.24150,000 Wessex Water Services Finance 5.375% 10/03/2028 185,254 0.13

1,000,000 Western Power Distribution 3.625% 06/11/2023 1,019,950 0.70500,000 Western Power Distribution East Midlands 5.25% 17/01/2023 578,410 0.40150,000 Western Power Distribution South West 5.875% 25/03/2027 188,015 0.13500,000 Western Power Distribution West Midlands 3.875% 17/10/2024 539,715 0.37700,000 Westpac Banking 2.625% 14/12/2022 712,586 0.49450,000 Westpac Securities 2.5% 13/01/2021 454,666 0.31

1,000,000 Whitbread 3.375% 16/10/2025 1,009,150 0.69200,000 William Hill 4.25% 05/06/2020 200,950 0.14100,000 Wind Acquisition Finance 4% 15/07/2020 78,074 0.05300,000 Wind Acquisition Finance 7% 23/04/2021 225,933 0.15300,000 Wm Morrison Supermarkets 4.75% 04/07/2029 292,776 0.20835,526 Wods Transmission 3.446% 24/08/2034 863,516 0.59600,000 Yorkshire Building Society 4.125% 20/11/2024 591,198 0.40350,000 Yorkshire Building Society 4.75% 12/04/2018 375,235 0.26525,000 Yorkshire Housing Finance 4.125% 31/10/2044 550,898 0.38

1,000,000 Yorkshire Water Services Bradford Finance 3.75% 22/03/2046 1,018,560 0.70190,000 Yorkshire Water Services Bradford Finance 6% 24/04/2025 197,306 0.13300,000 ZF North America Capital 2.75% 27/04/2023 237,883 0.16

115,468,364 78.95 75.80

Floating Bonds 2.77%200,000 ASB Finance 1.17063% 13/03/2017 200,214 0.14200,000 Bank of Nova Scotia 0.78125% 02/11/2017 199,528 0.14650,000 Barclays Bank 0.77975% 12/02/2018 647,803 0.4475,000 BNP Paribas 1.18975% 16/05/2016 75,033 0.05125,000 Chestnut Financing 1.34031% 123,323 0.0831,697 E-CARAT 0.981% 31,657 0.02759,000 Logistics 1.84% 755,584 0.52325,000 Logistics 3.99% 313,553 0.21

1,300,000 Skandinaviska Enskilda Banken 0.99063% 19/11/2018 1,299,051 0.89200,000 Toronto-Dominion Bank 0.79% 20/11/2017 199,528 0.14200,000 Toronto-Dominion Bank 0.96938% 19/01/2018 199,354 0.14

4,044,628 2.77 2.61








Government Bonds 4.68%175,000 Bailiwick of Jersey 3.75% 09/06/2054 206,801 0.14250,000 Export Development Canada 1.875% 17/12/2018 256,858 0.17300,000 Export-Import Bank of Korea 2% 07/12/2017 302,496 0.21700,000 Italy Government International Bond 6% 04/08/2028 863,345 0.59100,000 Japan Bank for International Cooperation 2.625% 15/12/2020 105,427 0.07

2,100,000 KFW 1.125% 23/12/2019 2,112,537 1.44750,000 KFW 1.625% 05/06/2020 768,998 0.53600,000 KFW 6% 07/12/2028 873,870 0.60225,000 Mexico Government International Bond 5.625% 19/03/2114 202,500 0.14

1,000,000 Spain Government International Bond 5.25% 06/04/2029 1,149,830 0.796,842,662 4.68 5.38

Perpetual Call Bonds 6.36%500,000 Assicurazioni Generali 6.416% 484,640 0.33100,000 Aviva 6.125% 101,212 0.07500,000 AXA 6.772% 525,925 0.36600,000 Banco Bilbao Vizcaya Argentaria 6.75% 432,040 0.30500,000 Banco Santander 6.25% 356,474 0.2450,000 Barclays Bank 14% 63,052 0.0450,000 Barclays Bank 8.25% 53,751 0.04200,000 Coventry Building Society 6.375% 177,382 0.12500,000 Credit Agricole 7.875% 328,283 0.22200,000 DNB Bank 6.0116% 201,618 0.14300,000 Electricite de France 5% 224,646 0.15300,000 Electricite de France 6% 273,918 0.19

1,000,000 Gas Natural Fenosa Finance 3.375% 707,387 0.48300,000 GDF Suez 3.875% 247,154 0.17100,000 Generali Finance 6.214% 100,125 0.07500,000 J Sainsbury 6.5% 512,280 0.3550,000 Legal & General 5.875% 51,030 0.04600,000 Lloyds Banking 6.375% 458,593 0.31100,000 National Westminster Bank 7.125% 104,825 0.07450,000 Nationwide Building Society 6.875% 421,196 0.29300,000 Repsol International Finance 3.875% 208,199 0.14500,000 RWE 7% 478,850 0.33500,000 Santander Holdings 7.375% 458,490 0.31500,000 Swiss Reinsurance 6.3024% 511,650 0.35800,000 Telefonica Europe 4.2% 629,923 0.43700,000 Veolia Environnement 4.85% 716,863 0.49450,000 Zurich Finance 6.625% 483,593 0.33

9,313,099 6.36 6.82

Supra-national Borrowers 3.57%400,000 European Bank for Reconstruction & Development 5.125%

07/06/2032 547,424 0.37400,000 European Bank for Reconstruction & Development 5.625%

07/12/2028 557,340 0.38650,000 European Investment Bank 2.5% 31/10/2022 690,294 0.47200,000 European Investment Bank 4.625% 12/10/2054 308,252 0.21500,000 European Investment Bank 5.5% 15/04/2025 653,280 0.45

1,700,000 European Investment Bank 5.625% 07/06/2032 2,473,500 1.695,230,090 3.57 3.52

Futures Contracts (0.01)%(1) US 5 Year Note Futures June 2016 (7) 0.00(34) US 10 Year Note Futures June 2016 9,222 0.01(36) Euro Bobl Futures June 2016 3,871 0.00(57) Euro Bund Futures June 2016 (33,339) (0.02)

(20,253) (0.01) 0.00







Forward Contracts 0.03%Bought EUR15,720,000 for GBP12,352,886 Settlement05/04/2016 110,930 0.08

Bought EUR1,000,000 for GBP786,345 Settlement 05/04/2016 6,518 0.00Sold EUR1,200,000 for GBP946,920 Settlement 05/04/2016 (4,516) 0.00Sold EUR3,000,000 for GBP2,350,452 Settlement 05/04/2016 (28,139) (0.02)Sold EUR12,220,000 for GBP9,662,965 Settlement 05/04/2016 (25,828) (0.02)Sold EUR300,000 for GBP234,438 Settlement 05/04/2016 (3,421) 0.00Sold EUR15,720,000 for GBP12,364,110 Settlement09/05/2016 (110,984) (0.08)

Sold USD4,360,000 for GBP3,130,493 Settlement 12/04/2016 97,100 0.0741,660 0.03 0.00

Portfolio of investments 140,920,250 96.35 94.13

Net other assets 5,334,380 3.65 5.87

Net assets 146,254,630 100.00 100.00

Market ValueRating Block (£)

AAA 15,126,442AA+ 3,367,763AA– 7,528,930AA 1,770,453A+ 5,718,365A– 19,215,939A 15,023,607BBB+ 26,100,456BBB– 7,646,851BBB 24,558,958BB+ 6,089,476BB– 2,296,677BB 2,117,015B+ 1,119,053B– 83,094B 683,821CCC+ 190,191Unrated 2,261,752

Portfolio of investments* 140,898,843

* Excludes Futures and Forward contracts.Source: Bloomberg composite.

Financial derivative instrument risk exposureThe exposure obtained through financial derivative instruments and identity of counterparties as at 31 March 2016 was as follows:

Future ContractsNotional value Value of exposure

Counterparty Contracts £ £

Goldman Sachs 128 (14,246,603) (20,253)

Total 128 (14,246,603) (20,253)






Forward Currency Exchange ContractsUnrealised

Maturity Amount Amount gain/lossdate bought Ccy sold Ccy Counterparty (£)

05/04/2016 15,720,000 EUR 12,352,886 GBP HSBC 110,93005/04/2016 1,000,000 EUR 786,345 GBP HSBC 6,51812/04/2016 3,130,493 GBP 4,360,000 USD HSBC 97,100

Unrealised gain on Forward Currency Contracts 214,548

05/04/2016 946,920 GBP 1,200,000 EUR UBS (4,516)05/04/2016 2,350,452 GBP 3,000,000 EUR Royal Bank of Canada (28,139)05/04/2016 9,662,965 GBP 12,220,000 EUR HSBC (25,828)05/04/2016 234,438 GBP 300,000 EUR UBS (3,421)05/04/2016 12,364,110 GBP 15,720,000 EUR HSBC (110,984)

Unrealised loss on Forward Currency Contracts (172,888)

Total unrealised gain on Forward Currency Contracts 41,660






Statement of Total ReturnFOR THE PERIOD ENDED 31 MARCH 2016 (UNAUDITED)

31 Mar 2016 (£) 31 Mar 2016 (£) 31 Mar 2015 (£) 31 Mar 2015 (£)

IncomeNet capital gains 2,455, 903 3,181,575Revenue 2,362,808 1,103,734

Expenses (194,899) (91,530)Interest payable and similar charges – –

Net revenue before taxation 2,167,909 1,012,204Taxation (319) (364)

Net revenue after taxation 2,167,590 1,011,840

Total return before distributions 4,623,493 4,193,415Distributions (2,167,967) (1,012,105)

Change in net assets attributable to shareholdersfrom investment activities 2,455,526 3,181,310

Statement of Change in Net Assets Attributable to ShareholdersFOR THE PERIOD ENDED 31 MARCH 2016 (UNAUDITED)

31 Mar 2016 (£) 31 Mar 2016 (£) 31 Mar 2015 (£) 31 Mar 2015 (£)

Opening net assets attributable to shareholders 125,592,525 48,691,076Amounts receiveable on issue of shares 19,877,628 27,468,400Amounts payable on cancellation of shares (2,555,528) (2,863,615)

17,322,100 24,604,785

Dilution levy – 32,711Change in net assets attributable to shareholders from investment activities 2,455,526 3,181,310

Retained distribution on accumulation shares 884,479 296,284

Closing net assets attributable to shareholders 146,254,630 76,806,166

Comparatives are for the six months to 31 March 2015.

Balance SheetAS AT 31 MARCH 2016 (UNAUDITED)

31 Mar 2016 (£) 31 Mar 2016 (£) 30 Sep 2015 (£) 30 Sep 2015 (£)

AssetsInvestment assets 141,126,484 118,299,987

Debtors 44,917,761 2,578,652Cash and bank balances 3,194,410 6,115,331

Total other assets 48,112,171 8,693,983

Total assets 189,238,655 126,993,970

LiabilitiesInvestment liabilities 206,234 75,287

Creditors 42,431,435 748,306Distribution payable on income shares 346,356 577,852

Total other liabilities 42,777,791 1,326,158

Total liabilities 42,984,025 1,401,445

Net assets attributable to shareholders 146,254,630 125,592,525

The accompanying notes are an integral part of these Financial Statements.

The interim financial statements have been prepared in accordance with the Statement of Recommended Practice for Authorised Funds issued by the Investment Association in May 2014.

The accounting policies applied are consistent with those of the annual financial statement for the year ended 30 September 2015 and are described in those annual financial statements.





Distribution TablesFOR THE PERIOD ENDED 31 MARCH 2016 (UNAUDITED)

INTERIM DISTRIBUTION IN PENCE PER SHARE

Group 1 – shares purchased prior to 1 October 2015Group 2 – shares purchased between 1 October 2015 and 31 March 2016

Distribution DistributionGross Income Net payable paid

Income Tax Income Equalisation 31 May 2016 31 May 2015(p) (p) (p) (p) (p) (p)

Share Class A – AccumulationGroup 1 27.3846 5.4769 21.9077 – 21.9077 21.8200Group 2 9.4085 1.8817 7.5268 14.3809 21.9077 21.8200

Share Class A – IncomeGroup 1 18.2700 3.6540 14.6160 – 14.6160 14.8585Group 2 8.6144 1.7229 6.8915 7.7245 14.6160 14.8585

Share Class I – AccumulationGroup 1 36.4075 7.2815 29.1260 – 29.1260 28.8244Group 2 15.0103 3.0021 12.0082 17.1178 29.1260 28.8244

Share Class I – IncomeGroup 1 22.8689 4.5738 18.2951 – 18.2951 18.5998Group 2 12.1989 2.4398 9.7591 8.5360 18.2951 18.5998

Group 1 – shares purchased prior to 1 October 2015Group 2 – shares purchased between 1 October 2015 and 31 October 2015

Distribution DistributionGross Income Net paid paid

Income Tax Income Equalisation 31 Dec 2015 31 Dec 2014(p) (p) (p) (p) (p) (p)

Share Class F – AccumulationGroup 1 0.2829 0.0566 0.2263 – 0.2263 0.2490Group 2 0.1245 0.0249 0.0996 0.1267 0.2263 0.2490

Share Class F – IncomeGroup 1 0.2720 0.0544 0.2176 – 0.2176 0.2470Group 2 0.1731 0.0346 0.1385 0.0791 0.2176 0.2470

Group 1 – shares purchased prior to 1 November 2015Group 2 – shares purchased between 1 November 2015 and 30 November 2015


Income Tax Income Equalisation 31 Jan 2016 31 Jan 2015(p) (p) (p) (p) (p) (p)







Distribution Tables (continued)FOR THE PERIOD ENDED 31 MARCH 2016 (UNAUDITED)

Group 1 – shares purchased prior to 1 December 2015Group 2 – shares purchased between 1 December 2015 and 31 December 2015


Income Tax Income Equalisation 29 Feb 2016 28 Feb 2015(p) (p) (p) (p) (p) (p)



Group 1 – shares purchased prior to 1 January 2016Group 2 – shares purchased between 1 January 2016 and 31 January 2016


Income Tax Income Equalisation 31 Mar 2016 31 Mar 2015(p) (p) (p) (p) (p) (p)



Group 1 – shares purchased prior to 1 February 2016Group 2 – shares purchased between 1 February 2016 and 29 February 2016


Income Tax Income Equalisation 30 Apr 2016 30 Apr 2015(p) (p) (p) (p) (p) (p)



Group 1 – shares purchased prior to 1 March 2016Group 2 – shares purchased between 1 March 2016 and 31 March 2016


Income Tax Income Equalisation 31 May 2016 31 May 2015(p) (p) (p) (p) (p) (p)


Share Class F – IncomeGroup 1 0.2843 0.0569 0.2274 – 0.2274 0.2171 Group 2 0.1240 0.0248 0.0992 0.1282 0.2274 0.2171

EQUALISATIONEqualisation applies only to shares purchased during the distribution period (Group 2 shares). It is the average amount of incomeincluded in the purchase of all Group 2 shares and is refunded to holders of these shares as a return of capital. Being capital, it is notliable to income tax but must be deducted from the cost of shares for capital gains tax purposes.




Further information

REPORTS & ACCOUNTSEach period, you will be sent the short form report in accordancewith the requirement of the Financial Conduct Authority’s (FCA)regulations. The annual and semi-annual report is available at ourwebsite www.morganstanleyfunds.co.uk or by writing to MorganStanley Investment Management (ACD) Limited, 25 CabotSquare, Canary Wharf, London E14 4QA.

UCITS VThe Company is an Undertaking for Collective Investment inTransferable Securities (“UCITS V”) for the purpose of theCouncil Directive 2009/65/EC as amended by Directive2014/91/EU and transposed into UK law on 18 March 2016.

PROSPECTUSThe Fund Prospectus, an important document describing eachFund in detail, is available from the ACD, which is responsiblefor the management and administration of the Funds.

The ACD for Morgan Stanley Funds (UK) is Morgan StanleyInvestment Management (ACD) Limited, located at 25 CabotSquare, Canary Wharf, London E14 4QA.

TYPES OF SHARE AVAILABLEEach of the Funds of Morgan Stanley Funds (UK) offers threeclasses of shares: Class A shares, Class I shares and Class N shares.

In addition, Sterling Corporate Bond Fund offers Class F shares.The share classes are differentiated in terms of minimum initial andsubsequent investment required and the annual management charge.

The Funds may issue Income and Accumulation shares in eachClass.

With effect from 30 November 2012, the A share class of theGlobal Brands Fund was closed to new subscriptions for theforeseeable future.

MINIMUM INVESTMENTFor Class A shares, a minimum initial investment of £1,000 isrequired; additional investments may be subject to a £500minimum injection. For Class I shares a minimum initialinvestment of £50,000 is required; additional investments may besubject to a £2,500 minimum injection.

For Class N shares, there is no minimum investment norminimum subsequent investments. Class N shares are onlyavailable for subscription by collective investment schemesmanaged or operated by the Investment Manager or an affiliate ofthe Investment Manager.

For Class F shares, a minimum initial investment of£150,000,000 is required, with no minimum additionalinvestments.

MINIMUM REDEMPTIONThe ACD may refuse a redemption request if the total value ofthe shares to be redeemed falls below £500 in respect of any shareclass. Redemption for Class A below £500 can be refused on anyshare class. In addition, no partial redemption may be madewhich would reduce the value of shares held in Class A below£1,000 and Class I below £50,000.

SWITCHINGInvestors may sell their shares and transfer the proceeds into anyof the other Funds by calling our dealing desk on 0800 328 1571.

DISTRIBUTIONSIncome distributions of A, I and N share classes are allocated toshareholders at the end of each accounting period (31 March and30 September) and paid within 2 months following the end ofeach accounting period.

Income distributions of F share class are allocated to shareholdersat the end of each month and paid within 2 months following theincome allocation.

Income allocated in respect of Income and Accumulation Shares isautomatically reinvested at no charge unless a shareholder elects toreceive all the income allocation from the income share class incash.

PUBLICATION OF PRICESThe most recent share prices will be published daily on ourwebsite www.morganstanleyfunds.co.uk.

CHARGESA preliminary charge of 5.00% may be levied on the purchase ofA shares in all Funds. Part or all of the preliminary charge may bewaived at the Authorised Corporate Director’s (ACD’s) discretion.

No preliminary charge is, or will be, levied in respect of I, F or Nshares.

On an exchange of Shares of one Class or Fund for Shares inanother Class or Fund, the ACD may take a charge not exceedingthe excess of the amount of the prevailing preliminary charge forthe new shares being acquired over the preliminary charge leviedon the acquisition of the original shares. There are no exit chargesfor Morgan Stanley Funds (UK). A proportion of the annualmanagement charge is deducted from the net assets of each Fundon a daily basis. Charges for items such as administration,custody, and auditors fees are also deducted from each Fund.




Further information (continued)

SWING PRICINGTo the extent that the ACD consider that it is in the best interestsof Shareholders, taking into account factors including theprevailing market conditions, the level of subscriptions andredemptions in a particular Fund and the size of the Fund, theACD may decide to adjust the net asset value of a Fund to reflectthe estimated dealing spreads, costs and charges (“Swing Factor”)to be incurred by the Fund in liquidating or purchasinginvestments to satisfy the net transactions received in respect of aparticular day.

Under normal market circumstances, the Swing Factor shall notexceed 1% of the Net Asset Value of the relevant Fund on therelevant day. When net subscriptions in a Fund exceed a certainthreshold on a given day, the Net Asset Value is adjusted upwardsby the Swing Factor. Similarly, when net redemptions in a Fundexceed a certain threshold on a given day, the net asset value of aFund is adjusted downwards by the Swing Factor.

IMPORTANT INFORMATIONRecipients of this document should not treat the contents asadvice relating to legal, taxation or investment matters and shouldconsult their own professional advisers concerning the acquisition,holding or disposing of investments in the Funds.

Past performance is not necessarily indicative of futureperformance and the value of the shares and income from themmay fall as well as rise. On redemption of shares, the investor mayreceive back an amount less than the original amount of theirinvestment. The assets of the Funds will be in a variety ofcurrencies and therefore movements in the value of currenciesmay affect the value of an investor’s holdings and the incomefrom the holdings may fluctuate in value in money terms.

Issued by Morgan Stanley Investment Management (ACD)Limited, 25 Cabot Square, Canary Wharf, London E14 4QA,authorised and regulated by the Financial Conduct Authority.


Job No.: 21965 Proof Event: 15 Park Communications Ltd Alpine Way London E6 6LACustomer: Morgan Stanley Project Title: Semi-Annual Report T: 020 7055 6500 F: 020 7055 6600

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