Ethical Fund Interim Managers Report

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Unit Trusts Marks & Spencer Ethical Fund

Interim Manager’s Report March 2011 (unaudited) Contents

Page(s)

Manager’s Investment Report 2-4

Portfolio Statement 5-7

Net Asset Value per Unit & Comparative Table 8

Total Expense Ratio 9

Authorised Status 9

Certiﬁcation of Financial Statements by Directors of the Manager 9

Statement of Total Return 10

Statement of Change in Net Assets attributable to Unitholders 10

Balance Sheet 11 Marks & Spencer Ethical Fund

Manager, Registrar, Directors of the Manager Trustee Dealing, Administration Kenneth Culley (Chairman), State Street Trustees Limited and Marketing Christine Haslam 525 Ferry Road Marks and Spencer Unit (resigned February 2011), Edinburgh EH5 2AW Trust Management Limited Colin Kersley (Chief Executive), Authorised and regulated by Authorised and regulated Phillip Scott, the Financial Services Authority by the Financial Services Paul Shingler, Auditors Authority Justin Turner KPMG Audit Plc Investor Helpline: (appointed July 2010), Saltire Court 0808 005 55 55 or Steve Conley 20 Castle Terrace +44 1244 688632 if calling (appointed December 2010), Edinburgh EH1 2EG from abroad. Crawford Prentice Lines are open 8am to 8pm (appointed March 2011), Monday to Friday, 9am to 5pm David Wells on Saturdays and 10am to 4pm (Non-Exective Director) bank holidays. (Closed on (resigned October 2010) Sundays, Christmas Day, Boxing Day and New Year’s Investment Adviser Day). Please be aware that HSBC Global Asset opening hours may be Management (UK) Limited restricted over the Christmas 78 St James’s Street period. Please contact us for London SW1A 1EJ details. Calls recorded. HSBC Global Asset Head Ofﬁce and Management (UK) Limited Registered Ofﬁce: directly manage a proportion of Kings Meadow the fund and subdelegate the Chester CH99 9FB remaining fund management to Registered in England the following specialist adviser: No. 2253009 Jupiter Asset Management Limited 1 Grosvenor Place London SW1X 7JJ

The above-listed investment advisers are authorised and regulated by the Financial Services Authority

PAGE 1 Manage r’s Investment Report

This section gives you an opportunity to see whether we have made any changes to the objectives we give our investment managers. If no change has occurred it reiterates the objectives laid down for the manager.

Our Objectives and Methods We develop a close working partnership with our investment advisers, and their performance is The Fund’s objective is to provide investors regularly monitored by the HSBC Group with long-term capital growth by investing in Investment Committee. predominantly UK companies that meet the social, environmental and ethical criteria defined The percentage of the Fund allocated to each in the Investment Policy. investment adviser and in uninvested cash as at 31 March 2011 are shown below. The Investment Policy is to invest in companies HSBC Global Asset Management that make a positive contribution to the (UK) Limited 61.3 % community or environment and avoid investing in companies that have a poor environmental Jupiter Asset Management Limited 36.8 % record and companies that are primarily involved Cash 1.9 % in the following activities: armaments, gambling, the fur trade, tobacco and pornography. Review of the period to The Fund will also avoid investing in companies 31 March 2011 that conduct or commission animal testing for Economic and Market Review cosmetic or toiletry purposes or make use of child labour. During the last quarter of 2010, economic data was generally encouraging, with the US in The Fund may use derivative instruments particular seeing accelerating growth. Central (options, futures and contracts for difference) banks in the developed world maintained very and forward transactions in a currency for the loose monetary policies and the US resumed its purpose of efficient portfolio management. quantitative easing programme. Meanwhile, in These instruments can therefore be used to China, fears of rising inflation led to the first of a reduce risk, reduce costs, or generate additional series of rate rises. Sovereign debt worries capital or income with no, or low levels, of risk. re-emerged in Europe, this time centred on Ireland. Towards the end of November, the EU,

Percentage Growth

31/03/06 to 31/03/07 to 31/03/08 to 31/03/09 to 31/03/10 to 31/03/07 31/03/08 31/03/09 31/03/10 31/03/11

N/A -13.7% -31.2% 42.7% 8.3%

This information relates to the past, and past performance is not a reliable indicator of future results. All the above ﬁgures are on a bid to bid basis, net income reinvested. The performance ﬁgures exclude the initial charge of the Fund. Source: Lipper Hindsight.

PAGE 2 supported by the IMF and the UK, signed off an this was mainly attributed to the adverse weather €85bn bailout package for Ireland to support the conditions. Stockmarkets were surprisingly country’s banks and public finances. This led to resilient over the period, and generally continued fears of contagion to other European countries, in their upward trend. particular Spain and Portugal, and there were threats of further downgrades from the rating Portfolio Review agencies. Despite this, global equity markets In HSBC Global Asset Management’s part of the performed very strongly in the final quarter of the Fund, sector allocation was positive, largely due year, as economic data improved and investor to the overweight position in general financials. risk appetite returned. Company results generally The Fund’s performance was helped by shares in met expectations and the rally was led by cyclical food producers and life insurance whereas stock sectors, particularly basic industries and selection in the oil & gas producers made a negative resources, while financial stocks were also strong. contribution. The main positive contributors were Premier Foods, Schroders and John Wood The beginning of 2011 was more volatile, and the Group. The main negative contributors were the markets were driven by non-economic events. zero holdings in Royal Dutch Shell, Anglo The year began with unrest in the Middle East, American and Rio Tinto. The Fund does not hold where protests spread across the region, leading these stocks due to investment constraints. to the resignation of President Mubarak in Egypt and turmoil in Libya. Apart from political In Jupiter’s part of the Fund the majority of the uncertainty, fears about disruption to energy relative underperformance also came from the supplies led to record oil prices. In March, a huge zero holding in the strongly performing BHP earthquake and tsunami devastated the north Billiton, Anglo American, Rio Tinto and east coast of Japan, causing widespread loss of AstraZeneca. The overweight position in Bunzl life and economic disruption. There was also also had a negative impact on performance. continuing uncertainty in the Eurozone about the Positive contribution since the start of 2011 came debt levels of the peripheral nations and this led from the overweight positions in BG Group, to the collapse of the Portuguese government Morgan Crucible Company and Ricardo. During and the start of negotiations for a possible bailout the period under review a new investment was of the country by the EU. Elsewhere, the focus made in Compass Group, where good growth was on rising inflation, leading the European prospects are expected, while elsewhere profit Central Bank to signal a rate rise in April, and was taken in Vodafone Group, GlaxoSmithKline many emerging nations to raise rates, most and HSBC Holdings following strong notably China. In the UK, the Bank of England performance. kept interest rates unchanged at 0.5%, although The largest purchases in the period were in March three members of the Monetary Policy Compass Group and Tullow Oil in Jupiter’s Committee voted to increase rates. Inflation portfolio and Fresnillo and Tullow Oil in HSBC remained a concern, as CPI inflation was 4.4% in Global Asset Management’s portfolio. The largest February, well above the Bank of England’s sales were Xstrata plc and Croda for Jupiter and target. UK GDP growth unexpectedly moved into Croda International plc and Xstrata plc for HSBC. negative territory in the fourth quarter of 2010, but PAGE 3 Outlook The UK corporate sector remains in good shape with modest increases in sales and rising cash flows. Many companies have increased dividends, reduced debt or are investing in developing their business. We expect that returns for share owners will continue to be positive in 2011 with continued modest sales growth and cash flow gains from operational gearing, and lower finance costs resulting from debt being repaid and existing bonds being refinanced at lower yields. Analysts are expecting good earnings growth in 2011 and 2012. Inflation has risen and has a mixed impact with some companies that have commodity inputs facing cost pressures.

The investment advisers in the period under review were: HSBC Global Asset Management (UK) Limited HSBC invest in companies with attractive valuations in the FTSE® 350 index (excluding investment trusts) which have passed the environmental, social and ethical criteria of the Fund.

Jupiter Asset Management Limited Jupiter invest in ‘good governance’ companies that are actively managing their environmental and social impacts and in companies providing solutions to clean energy, waste management, water management, sustainable living, green transport and environmental services.

FTSE ® is a trademark of the London Stock Exchange plc and The Financial Times Limited and is used by FTSE ® International Limited (FTSE ®) under licence. The FTSE ® indices are calculated by FTSE ® and all rights in and to these indices vest in FTSE ® and its licensors. FTSE ® does not sponsor, endorse or promote our products.

PAGE 4 Portfolio Statement

This section details all the different companies in which the Fund invests, by sector. It also shows the number of shares held, the percentage each company represents of the Fund as a whole and the value of those shares at the end of the period (shown under bid value).

As at 31 March 2011

HOLDING OR NOMINAL BID % OF HOLDING OR NOMINAL BID % OF VALUE OF POSITIONS VALUE TOTAL NET VALUE OF POSITIONS VALUE TOTAL NET AS AT 31 MARCH 2011 (£) ASSETS AS AT 31 MARCH 2011 (£) ASSETS

UK EQUITIES & CONVERTIBLE Smith (David S) 15,200 30,248 0.21 (91.35% ; 30/09/10 91.07%) Smiths Group 4,100 53,136 0.37

OIL & GAS Electronic & Electrical Equipment 1.81 (11.61% ; 30/09/10 9.23%) Halma 10,000 35,000 0.24 Morgan Crucible 44,658 132,500 0.91 Alternative Energy 0.04 Spectris 6,998 95,383 0.66 Hydrodec Group 93,909 5,635 0.04 Industrial Engineering 1.63 Oil & Gas Producers 8.79 Hamworthy KSE 14,642 76,138 0.52 BG Group 50,220 778,912 5.36 IMI 7,200 74,160 0.51 Cairn Energy 19,200 88,704 0.61 Rotork 1,700 29,665 0.20 JKX Oil & Gas 32,400 101,768 0.70 Spirax-Sarco Engineering 1,850 35,871 0.25 Premier Oil 5,990 119,321 0.82 TEG Environmental 85,254 22,592 0.15 Tullow Oil 13,040 188,819 1.30 Industrial Transportation 0.21 Oil Equipment & Services 2.78 BBA Group 14,800 30,059 0.21 AMEC 10,400 123,968 0.85 Hunting 17,000 131,920 0.91 Support Services 6.81 John Wood Group 23,200 147,784 1.02 Aggreko 4,890 77,066 0.53 Atkins (WS) 14,023 98,301 0.68 BASIC MATERIALS Augean 72,394 18,641 0.13 (6.46% ; 30/09/10 7.18%) Bunzl 25,462 189,437 1.30 Capita Group 1,000 7,430 0.05 Chemicals 0.98 Carillion 9,500 36,100 0.25 Johnson Matthey 2,697 50,164 0.34 Electrocomponents 12,100 32,307 0.22 Victrex 6,895 93,014 0.64 Hyder Consulting 9,193 33,279 0.23 Forestry & Paper 1.15 Intertek Group 8,827 179,453 1.23 Mondi 27,940 167,361 1.15 Mitie Group 8,900 17,480 0.12 Premier Farnell 11,500 31,188 0.21 Industrial Metals 0.21 RPS Group 46,533 99,488 0.68 Ferrexpo 7,100 30,672 0.21 Shanks Group 58,240 66,394 0.46 Mining 4.12 SIG 22,462 31,334 0.22 BHP Billiton 16,790 413,034 2.84 Travis Perkins 2,980 30,247 0.21 Fresnillo 2,800 43,176 0.30 WSP Group 11,586 41,941 0.29 Lonmin 8,336 141,879 0.98 CONSUMER GOODS INDUSTRIALS (5.79% ; 30/09/10 6.17%) (12.84% ; 30/09/10 12.23%) Beverages 2.11 Construction & Materials 0.98 Diageo 14,650 173,602 1.19 Balfour Beatty 12,200 41,931 0.29 SABMiller 6,040 133,303 0.92 Keller 8,867 54,887 0.38 Food Producers 2.07 Latchways 4,376 44,635 0.31 Romag Holdings 14,504 - - Associated British Foods 4,400 43,648 0.30 Cranswick 11,928 99,062 0.68 General Industrials 1.40 Dairy Crest Group 17,255 61,963 0.43 Cookson Group 6,996 48,202 0.33 Premier Foods 85,200 23,796 0.16 Rexam 19,830 72,023 0.49 Tate & Lyle 12,564 72,494 0.50

PAGE 5 Portfolio Statement

As at 31 March 2011

HOLDING OR NOMINAL BID % OF HOLDING OR NOMINAL BID % OF VALUE OF POSITIONS VALUE TOTAL NET VALUE OF POSITIONS VALUE TOTAL NET AS AT 31 MARCH 2011 (£) ASSETS AS AT 31 MARCH 2011 (£) ASSETS Household Goods 1.21 Travel & Leisure 4.90 Berkeley Group Holdings 3,500 36,400 0.25 Carnival (London listed) 1,000 24,510 0.17 Reckitt Benckiser 4,370 139,884 0.96 Compass Group 33,996 190,548 1.31 Domino's Pizza 5,300 22,679 0.16 Personal Goods 0.40 FirstGroup 41,718 136,084 0.94 Burberry Group 5,000 58,700 0.40 Go-Ahead Group 5,199 69,667 0.48 HEALTHCARE Intercontinental Hotels 3,220 41,152 0.28 (7.07% ; 30/09/10 8.01%) Mitchells & Butlers 7,695 23,193 0.16 National Express 22,411 54,974 0.38 Healthcare Equipment & Services 0.32 Stagecoach Group 49,846 107,368 0.74 Smith & Nephew 6,680 46,927 0.32 Whitbread 2,450 40,425 0.28 Pharmaceuticals & Biotechnology 6.75 TELECOMMUNICATIONS AstraZeneca 13,381 383,098 2.63 (6.91% ; 30/09/10 6.32%) GlaxoSmithKline 50,376 598,971 4.12 Fixed Line Telecommunications 1.62 CONSUMER SERVICES British Telecom Group 108,555 201,261 1.38 (12.74% ; 30/09/10 11.62%) Cable & Wireless Food & Drug Retailers 2.84 Communications 54,900 25,012 0.17 Booker 32,700 19,685 0.13 Cable & Wireless Greggs 3,760 19,138 0.13 Worldwide 20,300 10,637 0.07 Morrison (Wm) 21,600 59,616 0.41 Mobile Telecommunications 5.29 Sainsbury (J) 16,100 53,983 0.37 Vodafone Group 435,479 768,620 5.29 Tesco 68,714 261,800 1.80 UTILITIES General Retailers 2.04 (6.36% ; 30/09/10 6.62%) Debenhams 45,195 26,733 0.18 Dignity 7,245 50,425 0.35 Electricity 2.10 Dunelm 2,300 8,814 0.06 Drax Group 8,300 32,910 0.23 Halfords Group 6,600 22,955 0.16 International Power 39,293 120,787 0.83 Home Retail Group 22,376 43,186 0.30 Scottish & Southern 12,039 151,691 1.04 Kesa Electricals 15,000 18,090 0.12 Gas, Water & Multiutilities 4.26 Marks & Spencer* 18,600 62,626 0.43 Centrica 94,010 305,815 2.10 Next 2,340 46,285 0.32 National Grid 18,490 109,831 0.75 WH Smith 4,030 17,482 0.12 Northumbrian Water Media 2.96 Group 9,900 32,888 0.23 Aegis Group 25,600 36,557 0.25 Severn Trent 9,747 142,404 0.98 British Sky 6,560 54,120 0.37 United Utilities 4,800 28,392 0.20 Daily Mail & General Trust 6,100 30,146 0.21 FINANCIALS ITV 14,000 10,829 0.07 (18.23% ; 30/09/10 19.89%) Pearson 18,838 207,406 1.43 Reed Elsevier 6,200 33,480 0.23 Banks 11.13 Rightmove 3,470 32,965 0.23 Barclays 103,738 287,925 1.98 Wilmington 17,177 25,422 0.17 HSBC Holdings* 124,685 799,231 5.50 Lloyds Banking Group 410,032 238,188 1.64 Royal Bank of Scotland Group 60,826 24,811 0.17 PAGE 6 Standard Chartered 16,587 268,212 1.84 Portfolio Statement

As at 31 March 2011

HOLDING OR NOMINAL BID % OF HOLDING OR NOMINAL BID % OF VALUE OF POSITIONS VALUE TOTAL NET VALUE OF POSITIONS VALUE TOTAL NET AS AT 31 MARCH 2011 (£) ASSETS AS AT 31 MARCH 2011 (£) ASSETS

Non-Life Insurance 1.02 UNITED STATES Admiral Group 3,250 50,440 0.35 (0.61% ; 30/09/10 0.55%) 0.61 Amlin 25,602 97,518 0.67 Virgin Media 5,122 88,047 0.61 Life Insurance 3.17 BELGIUM Aviva 24,062 104,092 0.72 (0.21% ; 30/09/10 0.22%) 0.21 Legal & General 161,706 186,124 1.28 Hansen Transmissions 62,821 30,154 0.21 Old Mutual 17,500 23,782 0.16 Prudential 20,844 147,263 1.01 BERMUDA (0.43% ; 30/09/10 0.19%) 0.43 Real Estate Investment Services 1.45 Catlin Group 9,500 34,200 0.23 British Land Company 15,871 87,608 0.60 Lancashire Holdings 4,800 28,680 0.20 Derwent London REIT 2,190 35,872 0.25 Great Portland Estates 4,000 15,428 0.11 CHANNEL ISLANDS Land Securities REIT 7,500 55,012 0.38 (3.94% ; 30/09/10 3.11%) 3.94 Savills 4,570 16,361 0.11 Beazley Group 13,700 16,878 0.12 Charter International 2,430 19,634 0.14 Financial Services 1.03 Experian Group 9,827 75,864 0.52 ICAP 9,260 48,893 0.34 Petrofac 8,300 123,587 0.85 IG Group Holdings 6,900 31,478 0.22 Resolution 22,000 65,098 0.45 London Stock Exchange Shire 3,980 72,078 0.50 Group 4,210 35,048 0.24 United Business Media 20,287 121,418 0.84 Schroders 910 15,798 0.11 WPP 9,900 76,032 0.52 Tullett Prebon 4,200 17,191 0.12 LUXEMBOURG Equity Investment Instruments 0.43 (0.07% ; 30/09/10 0.06%) 0.07 Jupiter Green IT 63,991 62,071 0.43 Colt Telecom Group 7,000 10,437 0.07 Jupiter Green IT Warrants 31/7/2011 11,556 347 0.00 SWITZERLAND (0.95% ; 30/09/10 1.01%) 0.95 TECHNOLOGY Informa 33,329 138,815 0.95 (3.34% ; 30/09/10 3.80%) Software & Computer Services 2.49 Portfolio of investments 14,182,352 97.56 Invensys 13,800 47,638 0.33 Net other assets 355,363 2.44 Logica CMG 77,456 101,467 0.70 Micro Focus International 20,473 64,654 0.44 Net assets 14,537,715 100.00 Sage Group 41,556 115,567 0.79 Telecity Group 6,500 32,923 0.23 The securities held are approved and are admitted to Technology Hardware & Equipment 0.85 an ofﬁcial listing unless otherwise stated. ARM Holdings 6,700 38,525 0.26 * Related party Pace 13,200 20,077 0.14 Spirent Communications 47,127 64,800 0.45 Total purchases for the period, including transaction charges, were £1,094,152. OVERSEAS EQUITIES & CONVERTIBLES Total sales proceeds for the period, net of transaction (6.21% ; 30/09/10 5.14%) charges, were £1,346,720.

PAGE 7 Net Asset Value per Unit & Comparative Table

This section details in concise ﬁgures how the Fund has performed in terms of the size of the Fund, the price of units and the Income Distributions made.

FUND SIZE YEAR NET ASSET NET ASSET VALUE NO OF UNITS VALUE £M PER UNIT (PENCE) IN ISSUE 2008 Accumulation 8.9 77.83 11,454,980 2009 Accumulation 12.3 80.59 15,300,980 2010 Accumulation 14.1 89.67 15,766,980 2011* Accumulation 14.5 95.57 15,212,280 * The Fund size as at 31/03/11

UNIT PRICE RANGE YEAR ACCUMULATION UNITS HIGH (PENCE) LOW (PENCE) 2007* 109.60 93.40 2008 96.84 57.27 2009 84.52 55.72 2010 97.57 78.53 2011** 100.00 91.31 High = Highest Offer Pric e Low = Lowest Bid Price * Over the period 14/02/07 – 31/12/07 ** Over the period 01/01/11 – 31/03/11

NET INCOME DISTRIBUTION (CALENDAR YEARS ON A PAID BASIS) YEAR ACCUMULATION UNITS PENCE PER UNIT 2007 1.4051 2008 1.9121 2009 1.6117 2010 1.2614 2011 -

Please remember that the value of units and the income from them can go down as well as up. Also, past performance is no guarantee of future performance.

PAGE 8 Total Expense Ratio

Ex-distribution XD date: 1 October Income payment date: 30 November For the 12 month period to 31 March 2011 : Total Expense Ratio* 1.59 % For the 12 month period to 30 September 2010 : Total Expense Ratio* 1.68% *The Total Expense Ratio measures the total annual charges and expenses of an investment fund that impact on any returns to the investor. Most European investment funds highlight the Total Expense Ratio to help you compare the annual charges and expenses of different funds. Authorised Status The Fund is an authorised unit trust under Section 243 of the Financial Services and Markets Act 2000 (authorisation orders) and the Financial Services Authority Handbook and is categorised as an Undertakings for Collective Investment in Transferable Securities (UCITS) scheme.

Certification of Financial Statements by Directors of the Manager

This report has been prepared in accordance with the requirements of the Collective Investment Schemes Sourcebook as issued and amended by the Financial Services Authority.

Colin Kersley (Chief Executive) Phillip Scott (Director) 11 May 2011 11 May 2011

PAGE 9 Statement of Total Return

This section details the income of the Fund over the period of the report and explains how this income is distributed to the investors. It also provides an analysis of increases and decreases in net assets over the accounting period.

For the period ended 31 March 2011

2011 2010 ££ ££ Income Net capital gains 867,154 965,484 Revenue 187,593 179,419 Expenses (120,222) (104,414) Finance costs: Interest (8) (34) Net revenue before taxation 67,363 74,971 Taxation (28) (1,344) Net revenue after taxation 67,335 73,627 Total return before distributions 934,489 1,039,111 Finance costs: Distributions (1,630) 2,572 Change in net assets attributable to unitholders 932,859 1,041,683

Statement of Change in Net Assets attributable to Unitholders For the period ended 31 March 2011

2011 2010 ££ ££ Opening net assets attributable to shareholders 14,138,771 12,331,481 Movement due to sales and repurchases of units: Amounts receivable on issue of units 695,200 1,397,714 Less: Amounts payable on cancellation of units (1,225,838) (1,263,558) (530,638) 134,156 Stamp duty reserve tax (3,277) (2,872) Change in net assets attributable to unitholders from investment activities (see above) 932,859 1,041,683 Closing net assets attributable to unitholders 14,537,715 13,504,448

PAGE 10 Balance Sheet

As at 31 March 2011 2011 2010 ££ £ £ ASSETS Investment assets 14,182,352 13,603,164 Debtors 47,286 108,856 Cash and bank balances 540,789 469,462 Total other assets 588,075 578,318 TOTAL ASSETS 14,770,427 14,181,482

LIABILITIES Creditors (232,712) (42,711)

TOTAL LIABILITIES (232,712) (42,711) Net assets attributable to Unitholders 14,537,715 14,138,771

Other Information

Accounting policies

The interim financial statements have been prepared in accordance with the Statement of Recommended Practice for Authorised Funds issued by the Investment Management Association in November 2008. The accounting policies applied are consistent with those of the annual financial statements for the year ended 30 September 2010 and are described in those annual financial statements.

Marks & Spencer Money and Your M&S are trading names of Marks and Spencer Unit Trust Management Limited. Registered in England No: 2253009. Registered Ofﬁce: Kings Meadow, Chester, CH99 9FB. Authorised and regulated by the Financial Services Authority. A wholly owned subsidiary of HSBC Bank plc. Marks & Spencer, M&S Money and Your M&S are registered trademarks of Marks & Spencer plc and are used under licence. © Marks and Spencer Unit Trust Management Limited 2011. All rights reserved.

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