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Invesco Perpetual select trust plc
Half-Yearly Financial Report
Six Months Ended 30 November 2010
Invesco Perpetual Select Trust plc (`the Company') is an investment trust which
is intended as a long-term investment vehicle for investors and has an
indefinite life.
The Company provides shareholders with a choice of investment policies and
objectives, each intended to generate attractive risk-adjusted returns from
segregated portfolios.
The Company's share capital comprises the following four classes of shares each
of which has its own separate portfolio of assets and liabilities:
- UK Equity;
- Global Equity;
- Hedge Fund; and
- Managed Liquidity.
Invesco Asset Management Limited manages the UK Equity, Global Equity and
Managed Liquidity Share Portfolios. The Hedge Fund Share Portfolio is advised
by Fauchier Partners, a hedge fund specialist.
Investment Policy
The Company's Investment Policy, which includes the investment objectives,
policies and risks and investment limits for the Company and the separate
Portfolios, is disclosed in full on pages 26 to 29 of the 2010 annual financial
report, a copy of which can be found at www.invescoperpetual.co.uk/
investmenttrusts. Within this report, the investment objective of each
Portfolio is shown at the start of the applicable Portfolio Manager's Report.
Share Class Conversion
The Company enables shareholders to tailor their asset allocation to reflect
their view of prevailing markets through the opportunity to convert capital
gains tax free between share classes every six months. PERFORMANCE STATISTICS
The Company commenced trading on 23 November 2006
UK Equity Share Portfolio
SIX MONTHS YEAR ENDED SIX MONTHS
ENDED 31 MAY ENDED
30 NOVEMBER 30 NOVEMBER
2010 2010 2010
TOTAL RETURN
Net asset value* - total return +9.5%
Share price* - total return +10.1%
Discount at period end 3.1% 3.4%
FTSE All-Share Index* - total +8.6%
return
Revenue return per share 1.8p 3.7p
Dividend - first interim 1.65p 1.65p
Dividend - second interim n/a 2.15p
Global Equity Share Portfolio
SIX MONTHS YEAR ENDED SIX MONTHS
ENDED 31 MAY ENDED
30 NOVEMBER 30 NOVEMBER
2010 2010 2010
TOTAL RETURN
Net asset value* - total return +0.8%
Share price* - total return +1.3%
Discount at period end 3.5% 3.8%
MSCI World Index (GBP)* - total +4.3%
return
Revenue return per share 0.7p 1.5p
Dividend - first interim 0.45p 0.45p
Dividend - second interim n/a 0.90p
Hedge Fund Share Portfolio
SIX MONTHS YEAR ENDED SIX MONTHS
ENDED 31 MAY ENDED
30 NOVEMBER 30 NOVEMBER
2010 2010 2010
TOTAL RETURN
Net asset value* - total return -0.1%
Share price* - total return -3.5%
Discount at period end 8.1% 4.8%
3 months LIBOR +5% pa - total +2.9%
return
Managed Liquidity Share Portfolio
SIX MONTHS YEAR ENDED SIX MONTHS
ENDED 31 MAY ENDED
30 NOVEMBER 30 NOVEMBER
2010 2010 2010
TOTAL RETURN
Net asset value* - total return +0.4%
Share price* - total return 0.0%
Discount at period end 2.6% 2.3%
Revenue return per share 0.1p 0.3p
Dividend - first interim - 0.4p
Dividend - second interim n/a -
* Source: Thomson Datastream
INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN'S STATEMENT
Investment Objective and Policy
The Company's investment objective is to provide shareholders with a choice of
investment strategies and policies, each intended to generate attractive
risk-adjusted returns.
The Company's share capital comprises four share classes: UK Equity Shares,
Global Equity Shares, Hedge Fund Shares and Managed Liquidity Shares, each of
which has its own separate portfolio of assets and attributable liabilities.
The Investment Policies of the Portfolios have not changed during the financial
period under review. However, the Board has decided, in conjunction with the
Manager, to change the Benchmark for the Global Equity Portfolio with effect
from the second half of the current year. The MSCI All Countries World Index
has been adopted in place of the MSCI World Index. The Board believes that this
more accurately reflects the universe of companies from which the Portfolio
Manager selects the Company's investments.
The Company enables shareholders to tailor their asset allocation to reflect
their view of prevailing market conditions. Shareholders have the opportunity
to convert between share classes capital gains tax free every six months.
Performance
The six month period to the end of November 2010 saw within it the beginning of
a substantial improvement in equity markets, which has carried through until
the time of writing. This did not start until July, after an initial decline,
so that for the period, the MSCI World Index rose by 4.3% and the FTSE
All-Share Index by 8.6%. The principal macro-economic worries of the first half
of 2010, specifically the possibility that the Eurozone would break up and a
renewed recession in the US, became less of a concern. Not only was there
considerable evidence of the determination of governments to prevent either of
these outcomes but economic and corporate news continued to be mostly upbeat
and ahead of recently subdued expectations. The presence of a very steep yield
curve with mostly real negative short-term interest rates also put a lot of
pressure on investors to take more risk in order potentially to achieve higher
returns. In NAV terms, the Company's more secure Managed Liquidity and Hedge
Fund Portfolios, whose objectives are derived from cash returns, did not
participate in this improvement rising by 0.4% and falling by 0.1%
respectively.
The Global Equity Portfolio returned 0.8% over the period which was slightly
disappointing from a relative point of view. The shortfall was largely due to
overweight positions in strong, less cyclical companies which did not excite a
market more interested in an improvement in the rate of economic growth.
However, the performance of the UK Equity Portfolio, which returned 9.5% helped
by good performance from an overweight position in utilities, was ahead of the
FTSE All-Share Index. The returns from the Hedge Fund Portfolio at 1.1% before
the costs of the structure were disappointing in a period which did provide a
number of opportunities of both a macro and asset class nature and was not
particularly different from many other periods in the past. The Managed
Liquidity Portfolio's returns simply reflected very low short-term interest
rates.
Board of Directors
John Martin retired as a Director of the Company with effect from 1 November
2010. John made a valuable contribution during his years of service as a
Director of both the Company and that of its predecessor, Merrill Lynch Asset
Allocator plc. He will be missed and his colleagues wish him the very best for
the future.
Until his retirement, John also acted as the Company's Senior Independent
Director. The Board has now appointed Alan Clifton as Senior Independent
Director, who is available to shareholders if they have concerns which contact
through the normal channels of Chairman, Manager or Company Secretary have
failed to resolve or for which such contact is inappropriate.
Dividends
It remains the Directors' policy to distribute substantially all net revenues
earned between each conversion date for each share class.
On 19 November 2010 first interim dividends were paid as follows:
UK Equity Shares: 1.65p
Global Equity Shares: 0.45p
In consequence of the very low interest rates prevailing in the period, the net
revenue of the Managed Liquidity Portfolio had been minimal. In view of the
administrative costs, the Directors decided not to declare a first interim
dividend on the Managed Liquidity Shares. Again, the net revenue earned will be
taken into account in considering the second interim dividend for the year
ending 31 May 2011, expected to be declared in April 2011.
Little or no net income is expected from the assets underlying the Hedge Fund
Shares and no dividends are expected to be paid.
Share Buy Backs
During the six months to 30 November 2010, the Company purchased and placed in
treasury 1,303,000 UK Equity Shares, 625,000 Global Equity Shares, 729,000
Hedge Fund Shares and 1,607,000 Managed Liquidity Shares.
Since the period end, a further 140,000 Managed Liquidity shares were purchased
and placed in treasury. The Board intends to use the Company's buy back
authorities when this will benefit existing shareholders as a whole, and will
ask shareholders to renew the authorities at the Company's AGM each year and at
other times should it be within shareholders' interests to do so.
At the AGM held in September 2010, the Company was authorised in accordance
with the Companies Act 2006 to make market purchases of ordinary shares up to a
maximum number of shares equating to 14.99% of the total shares then in issue
of each share class. This authority will be utilised when financial and stock
market conditions allow and in the best interests of the Company and of its
Shareholders as a whole.
Outlook
The mood of markets has improved and valuations have risen since the summer.
This still appears to leave equity markets in a good position even if more
expensive than before. Above all there are still plenty of economic problems to
worry about. It will be when everything looks rosy and equity valuations are
significantly higher than they are now, that this market strength will come to
an end. In the meantime its strongest supports are the strength of the
corporate sector and the absence of attractive alternatives. Its
vulnerabilities are the risk of renewed demand for credit, which will undermine
present low long-term rates of interest and the possibility that governments
will continue for too long to create money in order to support demand and
possibly surreptitiously to reduce their debts in real terms.
Patrick Gifford
Chairman
27 January 2011
Related Party
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Limited, acts as Manager and Company Secretary to the Company. Details of
IAML's services and fee arrangements can be found in the 2010 annual financial
report, a copy of which can be found on the Manager's website at
www.invescoperpetual.co.uk/investmenttrusts, and in note 2.
Principal Risks and Uncertainties
A detailed explanation of principal risks and uncertainties can be found on
pages 34 to 37 of the Company's 2010 annual financial report, which is
available on the Manager's website.
These are disclosed under the following headings:
* Investment Policy;
* Risks Applicable to the Company;
* Compulsory Conversion of a Class of Shares;
* Liability of a Portfolio for the Liabilities of Another Portfolio;
* Gearing;
* Market Movements and Portfolio Performance;
* Hedging;
* Regulatory and Tax Related;
* Additional Risks Applicable to Managed Liquidity Shares;
* Additional Risks Applicable to Hedge Fund Shares; and
* Reliance on Third Party Service Providers.
In the view of the Board these principal risks and uncertainties are equally
applicable to the remaining six months of the financial year as they were to
the six months under review.
Going Concern
The financial statements have been prepared on a going concern basis. The
Directors consider this the appropriate basis as the Company has adequate
resources to continue in operational existence for the foreseeable future. In
reaching this conclusion, the Directors took into account the Company's
Investment Policy; its risk management policies; the diversified portfolio of
readily realisable securities which can be used to meet funding commitments;
the credit facility and the overdraft which can be used for both long-term and
short-term funding requirements; the liquidity of the investments which can be
used to repay the overdraft in the event that the facility could not be renewed
or replaced; and the ability of the Company to meet all its liabilities and
ongoing expenses.
DIRECTORS' RESPONSIBILITY STATEMENT
in respect of the preparation of the half-yearly financial report
The Directors are responsible for preparing the half-yearly financial report
using accounting policies consistent with applicable law and UK Accounting
Standards.
The Directors confirm that, to the best of their knowledge:
* the condensed set of financial statements contained within the half-yearly
financial report have been prepared in accordance with the Accounting
Standards Board's Statement "Half-Yearly Financial Report";
* the interim management report includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R of the FSA's Disclosure and
Transparency Rules; and
* the interim management report includes a fair review of the information
required on related party transactions.
The half-yearly financial report has not been audited or reviewed by the
Company's auditors.
Signed on behalf of the Board of Directors.
Patrick Gifford
Chairman
27 January 2011
SHARE CLASS CONVERSION DETAILS
Shares are convertible at the option of holders into any other class of share
on or around 1 May and 1 November each year. Notice from a shareholder to
convert any class of share on any conversion date will be required up to a
maximum of ten business days prior to the relevant conversion date, save in the
case of the conversion of Hedge Fund shares in relation to which notice to
convert must be given approximately four months prior to the relevant
conversion date because of the less liquid nature of the underlying hedge fund
investments. However, Hedge Fund shareholders do not have to choose which class
of Share to convert into until ten days before the conversion date. Forms for
conversion will be despatched to shareholders for completion in time for each
respective share class conversion.
Conversion from one class of shares into another will be on the basis of a
ratio derived from the prevailing underlying net asset value of each class of
relevant share, calculated shortly before the date of conversion.
The Directors have been advised that conversion of one class of share into
another will not be treated as a disposal for the purposes of UK Capital Gains
Tax.
UK EQUITY SHARE PORTFOLIO
MANAGER'S REPORT
Investment Objective
The investment objective of the UK Equity Share Portfolio is to provide
shareholders with an attractive real long-term total return by investing
primarily in UK quoted equities.
Market and Economic Review
Despite occasional bursts of volatility, UK equity markets made solid progress
in the six months to the end of November 2010. Concerns about sovereign debt in
the Eurozone, together with worries about the outlook for economic growth, were
countered by positive corporate earnings and generally better than expected
domestic economic news.
Third quarter GDP growth in the UK of 2.8% year-on-year, came in comfortably
ahead of forecasts, helped by strong contributions from services and
construction. However, inflationary pressures were also evident, with the
consumer price measure remaining well above the Bank of England's 2% target.
Despite the current strength of inflation, the MPC held interest rates at 0.5%
over this period and continued to forecast that inflationary pressures will
subside over the next two years. Corporate sector newsflow was generally
positive and renewed merger and acquisition activity also lent support to stock
prices. International Power, SSL International and Tomkins were among the
companies to receive takeover approaches. Vodafone announced improvements in
service and data revenues and plans to sell minority holdings. British American
Tobacco and Imperial Tobacco boosted their dividends and Reckitt Benckiser
reported a 19% rise in third quarter profits.
Portfolio Strategy and Review
On a total return basis, the Portfolio's net asset value rose by 9.5% during
the 6 months to the end of November 2010, compared to a gain of 8.6% in the
FTSE All-Share Index - total return.
The Portfolio's performance was robust in the six months to the end of
November. The Portfolio's exposure to the utilities sector was positive,
including the holdings of Northumbrian Water and Pennon, with International
Power rising by 40% following its agreement to merge with French utility group
GDF Suez. The large allocation to BT was also positive, as the group continued
to demonstrate improving profitability and cash flow. The upbeat tone to the
group's results saw the shares rise by 33%. Also in the telecom sector Vodafone
was positive as the group made progress in disposing of minority stakes in
other businesses. Relative performance was also boosted by a small allocation
to the oil and gas sector.
Among the areas to detract from portfolio performance was the support services
sector. The holding in Capita was relatively weak following the group's
announcement that the impact on earnings of the government's austerity measures
would be greater than initially thought. Within the media sector the holding of
Yell was disappointing, following weak first quarter profits and a cautious
statement on the economic outlook. An absence of holdings in the mining sector
was a drag on relative performance.
In terms of portfolio strategy, the Portfolio Manager is seeking exposure to
companies that can continue to provide growth despite the weak outlook for the
economy. At the current time large cap stocks offer the strongest combination
of attractive valuations and healthy fundamentals. These businesses generally
have robust balance sheets, diversified revenues and low volatility of
earnings. In a number of cases, companies in sectors such as tobacco, support
services, utilities, pharmaceuticals and telecoms already offer healthy
dividend yields and they can also deliver sustainable dividend growth.
The Portfolio is also structured so that the majority of earnings come from
outside the UK and where the Portfolio does have UK exposure, it is largely in
companies that have reliable and dependable earnings and cash flows. A large
part of the earnings come from North America and from emerging markets and the
Portfolio Manager believes these businesses are well positioned to exploit the
opportunities being generated in some of the world's fastest growing economies.
While some of the most compelling stocks in the UK market are in the large cap
arena, the Portfolio also has exposure to both mid and small cap stocks where
the Portfolio Manager has identified businesses with strong long-term growth
potential. This includes names such as Chemring and Halfords, which were added
to the Portfolio during the period, while disposals of National Grid, Rolls
Royce and Sage took advantage of strong share price performances.
Overall, the Portfolio Manager believes that the Portfolio has a good balance
across market capitalisations and also in terms of earnings diversification.
Outlook
While the economy has stabilised in recent quarters, the Portfolio Manager
believes that we will not experience a straightforward recovery and that
substantial risks remain, as exemplified by very poor fourth quarter
preliminary GDP figures. These risks are centred on debt, both at the
government level and also in the household sector and as such a swift return to
trend-like levels of growth is not expected. Households remain over indebted
and although the process of deleveraging has started, it still has a long way
to go.
From the perspective of the national finances, the government's comprehensive
spending review underlined the severity of the cuts that we are likely to see
in the years ahead. Inevitably, this will involve job losses, which will put
further pressure on the UK consumer. While addressing the deficit is
unavoidable, the policies being undertaken will act as a further headwind to
growth. The fall-out from the banking crisis is another reason why we will not
see a normal recovery. Banks that had become over-leveraged are now rebuilding
their balance sheets and the availability of credit is limited. This is at a
time when demand for credit is also muted as consumers seek to reduce debt and
as large corporates are able to raise cheap capital from the bond markets. In
the Portfolio Manager's view, the most likely outcome is a period of low growth
for the foreseeable future.
On the outlook for the market, current valuations are not expensive and
selectively there are quality companies trading on even more modest ratings.
Equities are also yielding close to the benchmark 10-year gilt and in many
cases more than their corporate bonds, which further strengthen the valuation
argument in favour of stocks. Whilst there is likely to be a degree of ongoing
volatility, as macro economic data continues to paint an uncertain picture, the
Portfolio Manager believes that the outlook for specific areas of the market is
positive.
Mark Barnett
Portfolio Manager
Invesco Asset Management Limited
27 January 2011
UK EQUITY SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 30 NOVEMBER 2010
Ordinary shares listed in the UK unless stated otherwise
MARKET % OF
VALUE
COMPANY SECTOR* GBP'000 PORTFOLIO
Reynolds American Tobacco 2,521 5.8
- US common stock
British American Tobacco Tobacco 2,324 5.4
Imperial Tobacco Tobacco 2,287 5.3
Vodafone Mobile Telecommunications 2,164 5.0
BT Fixed Line 2,129 4.9
Telecommunications
BG Oil and Gas Producers 2,095 4.8
AstraZeneca Pharmaceuticals and 2,082 4.8
Biotechnology
GlaxoSmithKline Pharmaceuticals and 2,047 4.7
Biotechnology
Tesco Food & Drug Retailers 1,700 3.9
International Power Electricity 1,497 3.5
Reckitt Benckiser Household Goods & Home 1,232 2.8
Construction
Centrica Gas, Water and 1,215 2.8
Multiutilities
Capita Support Services 1,213 2.8
BAE Systems Aerospace and Defence 1,203 2.8
Babcock International Support Services 1,052 2.4
Balfour Beatty Construction and Materials 1,048 2.4
Hiscox Non-Life Insurance 1,033 2.4
Scottish and Southern Energy Electricity 970 2.3
Compass Travel & Leisure 963 2.2
Pennon Gas, Water and 924 2.1
Multiutilities
Provident Financial Financial Services 759 1.8
Tate & Lyle Food Producers 722 1.7
BTG Pharmaceuticals and 719 1.7
Biotechnology
Drax Electricity 699 1.6
Chemring Aerospace and Defence 668 1.5
Wm Morrison Supermarkets Food & Drug Retailers 654 1.5
Homeserve Support Services 631 1.5
Kcom Fixed Line 615 1.4
Telecommunications
Bunzl Support Services 572 1.3
Beazley Non-Life Insurance 539 1.2
Ladbrokes Travel & Leisure 538 1.2
Rentokil Initial Support Services 524 1.2
Daily Mail Media 501 1.2
A J Bell - Unquoted Financial Services 500 1.2
Serco Support Services 398 0.9
Impax Environmental Markets Equity Investment 370 0.9
Instruments
Altria - US common stock Tobacco 368 0.8
Northumbrian Water Gas, Water and 308 0.7
Multiutilities
Vectura Pharmaceuticals and 225 0.5
Biotechnology
Ecofin Water and Power
Opportunities
- Ordinary and Subscription Equity Investment 180 } 0.5
Shares Instruments
40
- 6% Convertible Loan Stock
2016
UK Coal Mining 195 0.4
HaloSource Health Care Equipment and 171 0.4
Services
Halfords General Retailers 156 0.4
Landkom International Food Producers 153 0.4
Renovo Pharmaceuticals and 136 0.3
Biotechnology
Barclays Bank - Nuclear Power Electricity 119 0.3
Notes
28 February 2019**
Yell Media 101 0.2
Helphire Financial Services 55 0.1
XCounter Health Care Equipment and 31 0.1
Services
Total 43,346 100.0
* FTSE Industry Classification Benchmark.
**Contingent Value Rights (`CVRs') referred to as Nuclear Power Notes (`NPNs')
were offered by EDF as a partial cash alternative to its cash bid for British
Energy (`BE'). The NPNs were issued by Barclays Bank. The CVRs participate in
BE's existing business.
UK EQUITY SHARE PORTFOLIO
INCOME STATEMENT
YEAR
ENDED
SIX MONTHS ENDED SIX MONTHS ENDED 31 MAY
30 NOVEMBER 2010 30 NOVEMBER 2009 2010
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments - 2,586 2,586 - 3,784 3,784 5,093
Foreign exchange - - - - (3) (3) (11)
losses
Income 851 - 851 861 - 861 1,808
Management fees - (40) (93) (133) (6) (15) (21) (175)
note 2
Other expenses (79) - (79) (68) (3) (71) (134)
Net return before
finance
costs and taxation 732 2,493 3,225 787 3,763 4,550 6,581
Finance costs (19) (42) (61) (20) (47) (67) (133)
Return on ordinary 713 2,451 3,164 767 3,716 4,483 6,448
activities before tax
Tax on ordinary (13) - (13) (12) - (12) (25)
activities
Return on ordinary 700 2,451 3,151 755 3,716 4,471 6,423
activities after tax
for the financial
period
Basic return per
ordinary
share - note 4 1.8p 6.3p 8.1p 1.7p 8.2p 9.9p 15.1p
SUMMARY OF NET ASSETS
AT AT AT
30 NOVEMBER 30 NOVEMBER 31 MAY
2010 2009 2010
GBP'000 GBP'000 GBP'000
Fixed assets 43,346 41,669 39,987
Current assets 137 374 445
Creditors falling due within one year,
excluding borrowings (519) (288) (593)
Overdraft (52) - -
Bank loan (6,900) (7,200) (6,100)
Net assets 36,012 34,555 33,739
Net asset value per share - note 5 92.4p 82.7p 85.7p
Gearing:
Actual 119 121 118
Asset 120 121 119
GLOBAL EQUITY SHARE PORTFOLIO
MANAGER'S REPORT
Investment Objective
The investment objective of the Global Equity Share Portfolio is to deliver
long-term capital growth through investing principally in global securities
(including UK equities).
Market and Economic Review
European sovereign debt concerns dominated the financial landscape during the
six months to the end of November 2010. The bailout of Greece in May, followed
by Ireland's EUR85 billion EU-IMF rescue deal at the start of December, failed to
stem fears of contagion spreading to other troubled nations like Portugal and
Spain. Markets around the world worried intermittently about sovereign debt,
and were impacted by bouts of risk aversion and volatility. Despite the
macro-economic news flow, however, equities performed strongly over the review
period. After months of anticipation, the US Federal Reserve (`Fed') officially
announced the expansion of its quantitative easing programme (QE2) at the start
of November. The move to boost the US economy lifted investor sentiment and
markets rallied towards the end of the year. The Fed's QE2 programme was
accompanied by a pledge to keep interest rates at low levels for an `extended
period'.
Portfolio Performance
On a total return basis, the Portfolio's net asset value rose by 0.8% during
the six months to the end of November 2010, compared to a gain of 4.3% in the
MSCI World Index - total return.
Portfolio Strategy and Activity
Strong returns from the Asia Pacific ex-Japan portfolio saw the largest
contribution to absolute portfolio performance over the review period and the
Portfolio continues to be overweight in the region. The relatively high
exposure to Hong Kong and China versus the benchmark proved to be particularly
beneficial. The single biggest positive contributors to performance were
Hutchison Whampoa, benefiting from its extensive Asian retail exposure and from
expectations of an improving environment for its telecom interests, and HKR
International, a Hong Kong-based property company whose discount to NAV
narrowed.
Japan was a drag on performance as the market continued to be marginalised,
though there were signs that performance was improving towards the end of the
year as the yen began to weaken. There continues to be significant latent value
in parts of the Japanese market, particularly in financials, where the
Portfolio has most of its Japanese exposure. The UK was also negative for
performance against the Index as some of the holdings in areas like
pharmaceuticals and tobacco proved too defensive in a firm market.
Outlook
Although the economic backdrop is difficult at the moment, especially for
indebted developed economies, there are stylistic themes running through the
Portfolio giving the Portfolio Manager confidence in its performance outlook.
Economic growth is gaining momentum from subdued levels but remains most
abundant in emerging markets. This has led to some inflation concerns,
particularly in South Asia, which has kept the Portfolio's exposure to the
region more focused on North Asian markets and Japan, where valuations are also
more attractive. As well as exposure to a slowly improving economic
environment, tilted more to a recovery in corporate spend than to consumption,
the Portfolio finds many of its most attractive opportunities in sustainable
growth companies in all markets. These are typically companies with sustainable
franchises, defendable margins and strong cash flow, which is often reflected
in growing dividends. Strong cash flow generation is important and there are a
number of high quality companies at the moment with the ability to be re-rated
higher by the market, particularly in areas like pharmaceuticals and
technology.
Bob Yerbury
Portfolio Manager
Invesco Asset Management Limited
27 January 2011
GLOBAL EQUITY SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 30 NOVEMBER 2010
Market
Value % of
Company Sector Country* GBP'000 Portfolio
Samsung Electronics Semiconductors and South Korea 1,392 3.8
Semiconductor Equipment
Novartis Pharmaceuticals, Switzerland 1,351 3.7
Biotechnology
and Life Sciences
Hutchison Whampoa Capital Goods Hong Kong 1,314 3.6
Imperial Tobacco Food, Beverage & Tobacco UK 1,300 3.6
Jardine Matheson Capital Goods Hong Kong 1,201 3.3
Oracle Software and Services US 1,137 3.1
Mitsubishi Estate Real Estate Japan 1,052 2.9
Obrascon Huarte Lain Capital Goods Spain 1,051 2.9
GS - United Phosphorus Materials India 1,037 2.9
P/N 22 April 2011**
China Taiping Insurance Hong Kong 1,018 2.8
Viacom Media US 1,011 2.8
Sumitomo Mitsui Banks Japan 983 2.7
Financial
Nomura Holdings Diversified Financials Japan 954 2.6
Rentokil Initial Commercial & UK 923 2.6
Professional Services
Bilfinger Berger Capital Goods Germany 915 2.5
Stanley Black & Decker Consumer Durables & US 913 2.5
Apparel
Safran Capital Goods France 908 2.5
America Movil Telecommunication Mexico 900 2.5
Services
Roche Pharmaceuticals, Switzerland 894 2.5
Biotechnology
and Life Sciences
Teva Pharmaceutical Pharmaceuticals, Israel 892 2.5
Industries Biotechnology
and Life Sciences
Schlumberger Energy US 885 2.5
Emerson Electric Capital Goods US 865 2.4
GlaxoSmithKline Pharmaceuticals, UK 847 2.3
Biotechnology
and Life Sciences
Hewlett Packard Technology Hardware & US 841 2.3
Equipment
ING Diversified Financials Netherlands 811 2.2
HKR International Real Estate Hong Kong 797 2.2
Taiwan Semiconductor Semiconductors & Taiwan 786 2.2
Semiconductor
Manufacturing Equipment
Yamaha Motor Automobiles & Components Japan 774 2.1
Gold Fields Materials South 764 2.1
Africa
JPMorgan Chase Diversified Financials US 745 2.1
Visa Diversified Financials US 743 2.0
Automatic Data Support Services US 732 2.0
Processing
HSBC Banks UK 715 2.0
BBVA Banks Spain 704 2.0
Foster's Food, Beverage & Tobacco Australia 688 1.9
Telefonica Telecommunication Spain 634 1.7
Services
Cobham Capital Goods UK 627 1.7
BAE Systems Capital Goods UK 578 1.6
PDG Realty Real Estate Brazil 522 1.4
Julio Simoes Logistica Transportation Brazil 410 1.1
TSKB Banks Turkey 365 1.0
Gran Tierra Energy Oil & Gas Producers Canada 340 0.9
Total 36,319 100.0
* MSCI and Standard & Poor's Global Industry Classification Standard.
** Participation notes (`P/N') reflecting the performance of the underlying
security.
GLOBAL EQUITY SHARE PORTFOLIO
INCOME STATEMENT
YEAR
ENDED
SIX MONTHS ENDED SIX MONTHS ENDED 31 MAY
30 NOVEMBER 2010 30 NOVEMBER 2009 2010
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments - 172 172 - 5,149 5,149 7,721
Foreign exchange - (14) (14) - (20) (20) 28
(losses)/gains
Income 364 - 364 360 - 360 814
Management fees - (39) (92) (131) (41) (96) (137) (280)
note 2
Other expenses (76) (1) (77) (65) (2) (67) (138)
Net return before
finance
costs and taxation 249 65 314 254 5,031 5,285 8,145
Finance costs - - - - (1) (1) (1)
Return on ordinary 249 65 314 254 5,030 5,284 8,144
activities before tax
Tax on ordinary (27) - (27) (21) - (21) (56)
activities
Return on ordinary
activities after tax
for
after tax for the fi 222 65 287 233 5,030 5,263 8,088
nancial period
Basic return per
ordinary
share - note 4 0.7p 0.2p 0.9p 0.7p 14.1p 14.8p 22.9p
SUMMARY OF NET ASSETS
AT AT AT
30 NOVEMBER 30 NOVEMBER 31 MAY
2010 2009 2010
GBP'000 GBP'000 GBP'000
Fixed assets 36,319 36,208 36,278
Current assets 617 1,091 472
Creditors falling due within one year,
excluding borrowings (115) (236) (283)
Net assets 36,821 37,063 36,467
Net asset value per share - note 5 112.4p 104.2p 111.7p
Gearing:
Actual 100 100 100
Asset 99 98 99
HEDGE FUND SHARE PORTFOLIO
INVESTMENT ADVISER'S REPORT
Investment Objective
The investment objective of the Hedge Fund Share Portfolio is to achieve an
absolute return of 3-month sterling LIBOR plus 5% per annum over a rolling five
year period, coupled with low volatility. Capital preservation is a priority.
Portfolio
From 1 June 2010 the principal hedge fund assets underlying the Portfolio have
been shares in Paragon Capital Appreciation Fund (`PCAF'), which replaced the
Fauchier Allocator Funds I and II (`FAFs') following the transfer on 31 May
2010 of the substantial majority of the FAFs' assets to PCAF. In order to allow
the FAFs to commence winding-up, the Company acquired during the period the
residual holdings of the FAFs, which are now held directly. The remainder of
this report describes the activities of PCAF in the period.
Performance
Against the background of turbulence in the EU, and lingering nervousness about
financial stability, financial markets have witnessed rapid changes in
sentiment from one month to the next. These conditions have proved very
difficult for hedge fund managers who aim to take advantage of changes in
relative valuations between individual securities or markets, rather than
betting outright on market direction.
For the six months to 30 November 2010, PCAF produced a return of 1.1%, net of
fees. Since 30 November 2006, the Funds(1) have achieved an average annual
compound return of 3.5%. Over the same period the annualised volatility of the
Funds has been approximately 9.7%, and their "beta" to the FTSE All-Share Index
(Total Return) some 0.32 and to the Citigroup UK Gilt Index (greater than 5
years) -0.24.
The table below gives details of the Funds' monthly net asset value performance
since the launch of the Company.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2010 0.20% -0.14% 1.57% 0.50% -3.42% -1.44% 0.32% -0.17% 1.26% 0.94% 0.16% -0.31%
2009 1.18% -1.06% 0.61% 2.23% 4.62% 0.58% 2.62% 1.96% 2.41% 0.30% 0.64% -0.08% 17.08%
2008 -1.25% 3.10% -3.42% 1.33% 3.92% 1.26% -3.27% -2.56% -7.90% -10.13% -2.74% -2.09% -22.11%
2007 1.32% 2.48% 1.17% 1.65% 1.73% 1.88% 3.88% -0.53% 1.88% 5.08% -0.16% 1.68% 24.28%
2006 1.50% 1.50%
Market Review
The six months under review have been a rollercoaster for markets, witnessing
erratic price movements across most asset classes. The year started with
markets struggling to come to terms with the magnitude of Greece's fiscal
problems and weighing up the ramifications for other sovereign borrowers and
the holders of their debt. These concerns were not alleviated by the Security
Exchange Commission's legal action against Goldman Sachs, BP's oil spill in the
Gulf of Mexico, political tensions in Korea, nor the Australian government's
proposal to impose a heavy tax on mining companies. The upshot of these
gyrations was ultimately positive for global equities and the MSCI World Total
Return Index ended the six months period up 8.4% in dollar terms.
Throughout the summer a pattern of "risk on, risk off" dominated markets. By
the end of the period, however, markets were again falling with renewed
eurozone sovereign concerns requiring an EUR85 billion bail-out of Ireland,
inflationary pressures from the Fed's announced second round of quantitative
easing and tightening monetary policy in China.
From the highs reached during June, Equity market volatility declined from
around 36 to end at 23.5. Treasury yields fell across maturity ranges and the
yield curve flattened. The yield on two year Treasuries set a record low in
September at 0.42%. By the end of the period, investors were worrying about
inflationary pressures and yields had started to rise across all maturities.
Liquidity in credit markets continued to improve throughout the period, thanks
to sustained levels of new issuance. High Yield credits tended to outperform
investment grade assets with spreads as measured by the DLJ High Yield Spread
tightening to end at 627 basis points, down from 704 at the end of May 2010.
The US dollar weakened against Sterling, Euro and the Yen over the period.
September saw the Bank of Japan intervening in currency markets, selling yen
for the first time in six years to slow the appreciation of the Japanese
currency which had reached a 15-year high against the US dollar.
Hedge Fund Strategies
Macro managers were up slightly in aggregate, although returns varied
considerably across managers. Gains tended to derive from fixed income
positions, where despite a seemingly unattractive risk/return profile, long
positions in long-dated government bonds positions performed well, as did
certain foreign exchange and commodity-related trades. Managers were generally
well positioned to profit from renewed concerns over eurozone debt but had more
mixed success anticipating the reaction to a second round of US quantitative
easing.
The Equity Hedged strategies as a whole were up over the period. June was a
difficult month for most managers as short books failed to provide adequate
protection in the sell-off during which correlation between stocks spiked near
all-time highs. Intra-stock correlation remained high for some time, making a
difficult environment for the majority of our managers who are well-hedged and
focus on fundamental company valuations. Despite stocks moving largely in
lock-step, some managers with low net exposures were able to produce positive
returns through stock-picking, particularly in Technology and Healthcare stocks
where more idiosyncratic price movements were evident. For the second half of
the period conditions were improving considerably and Equity Hedged managers
performed well, capturing some of the market's upside as well as generating
alpha from both long and short positions.
Short Bias managers were down over the period. Rising equity markets inevitably
make hard going for these managers who were further frustrated as longer term
themes, notably around mid cap Consumer Discretionary and Chinese economic
overheating, failed to play out.
The Event Driven strategy made a modest contribution as a whole. The small
gains that managers were able to eke out from certain situation-specific equity
positions were substantially offset by losses of one manager's long-held
bearish CDS positions on mortgage insurers which suffered as the companies'
credit spreads tightened appreciably.
The Specialist Credit strategy also made a small positive contribution to
overall performance. The allocation to this area has been underweight as a
result of certain manager-specific redemptions at the end of last year. After
an extensive search, new managers have been identified and cleared for
investment and the Specialist Credit strategy is expected to provide good
investment opportunities in the near to mid term.
The allocation to Volatility Trading continues to decline as we gradually
withdraw capital from this area.
The Fixed Income manager ended up overall for the period, benefiting from a
more dynamic approach to foreign exchange and fixed income trading. In recent
months, two principal themes have dominated performance: yield curve flattening
and long interest rate volatility. Both these themes lost money initially only
to recover in August as volatility increased and the yield on the ten year US
Treasury reached historic lows.
Multiple Strategy managers were up slightly for the period. They generated
gains from a wide range of asset classes and geographies, including equity,
credit and commodity-related investments although these were largely offset in
the sell-off months. Event driven and relative value situations have been
successful and more recently positions intended to profit from a more
inflationary environment have worked well.
The Portfolio
As at 30 November 2010 PCAF had holdings in 31 hedge funds across ten different
strategies. Approximately 70% of the Funds' assets were invested in Absolute
Value strategies with the balance in Relative Value strategies.
Outlook
The high correlation amongst stocks that dominated the opening months of the
fiscal year has been falling for the past few months, and we expect the more
discriminating market to favour our managers' fundamental style of long/short
investing.
The rally in credit markets appears now to be abating. The risk/reward
proposition of shorting is looking increasingly attractive resulting in an
enhanced opportunity set for our hedged Specialist Credit managers.
Opportunities in event-driven equity and credit situations are also set to
continue. Despite active primary debt markets, for many companies, the problems
of an over-extended balance sheet are, at best, only postponed. Bank asset
disposal programmes are likely to move up a pace in 2011 with around $750
billion of sales already announced in the US and $1.4 trillion in Europe(2). We
expect our Specialist Credit and Event Driven managers to be active in this
space.
Mergers and acquisition activity has steadily been picking up throughout 2010.
Low funding costs and high levels of cash reserves should give rise to more
activity. This should create a rich environment for our Event Driven and
Multiple Strategy managers who are able to exploit these arbitrage
opportunities.
Equity Hedged remains one of our preferred strategies as our managers can take
company-specific risk without taking an implicit view on the market. Share
prices have been moving in lock-step and yet the variability in individual
companies' underlying business performance is extremely high. This suggests
that markets are not operating efficiently and that opportunities to make money
abound.
Fauchier Partners LLP
27 January 2011
(1)The `Funds' are, from November 2006 to 31 May 2010, the Fauchier Allocator
Funds I and II and, from 1 June 2010, PCAF.
(2)Source: Goldman Sachs and Morgan Stanley.
HEDGE FUND SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 30 NOVEMBER 2010
% OF
STRATEGY FUND NAME PORTFOLIO
Underlying investments of
PCAF
Macro Fortress Macro Fund 3.8
COMAC Global Macro Fund 3.2
Wexford Offshore Spectrum Fund 3.2
Clarium Capital Fund 1.0
11.2
Equity Long Bias Bay Resource Partners Offshore 3.2
Fund
Egerton European Dollar Fund 2.9
6.1
Equity Hedged High Volatility Lansdowne UK Equity Fund 4.3
SCP Ocean Fund 4.3
Elm Ridge Value Partners 4.1
Offshore Fund
Lansdowne Global Financials 3.8
Fund
Visium Balanced Offshore Fund 3.8
Criterion Capital Partners 3.5
Miura Global Fund 3.4
27.2
Equity Hedged Low Volatility Ascend Partners Fund II 4.1
Alydar Fund 3.5
7.6
Short Bias Fauchier Partners Counterpoint 3.8
Fund
3.8
Specialist Credit CFIP Overseas Fund 2.7
Knighthead Offshore Fund 1.8
Riva Ridge Overseas Fund 1.8
Claren Road Credit Fund 0.7
7.0
Event Driven OZ Europe Overseas Fund II 3.7
Harbinger Capital Partners 2.8
Offshore Fund I
Pershing Square International 2.6
Empyrean Capital Overseas Fund 1.3
RoundKeep Icho Global Fund 1.3
Perry Partners International 0.1
11.8
Volatility Trading Vicis Capital Fund 1.2
(International)
1.2
Fixed Income Brevan Howard Fund 3.8
3.8
Multiple Strategy Highbridge Asia Opportunities 3.5
Fund
Sunbeam Opportunities Offshore 3.5
Shepherd Select Asset 0.8
7.8
Incubator FP Incubator Fund 3.1
3.1
Other Jubilee Special Situations Fund 2.3
2.3
Cash 3.4
3.4
Assets held directly Plainfield Liquidating Class 2.4
Harbinger Class PE Holdings 0.6
CCM SPV II LLC 0.3
Visium Special Holdings 0.2
Indus Pacific Oppportunities 0.1
Distribution
Harbinger Class L Holdings 0.1
3.7
Total Fixed Assets 100.0
Hedge Fund Investments
At 30 November 2010 the investments of the Hedge Fund Share Portfolio consisted
principally of two Certificates, the performance of each of which is linked to
the performance of Paragon Capital Appreciation Fund (`PCAF'). PCAF is an
open-ended investment company domiciled in Guernsey and listed on the Irish
Stock Exchange. Fauchier Partners act as investment manager to PCAF.
HEDGE FUND SHARE PORTFOLIO
INCOME STATEMENT
YEAR
ENDED
SIX MONTHS ENDED SIX MONTHS ENDED 31 MAY
30 NOVEMBER 2010 30 NOVEMBER 2009 2010
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Losses)/gains on - (44) (44) - 1,486 1,486 1,256
investments
Income - - - - - - -
Management fees - - (18) (18) - (22) (22) (40)
note 2
Other expenses (41) (29) (70) (43) - (43) (79)
Net return before
finance
costs and taxation (41) (91) (132) (43) 1,464 1,421 1,137
Finance costs - (8) (8) - (6) (6) (14)
Return on ordinary (41) (99) (140) (43) 1,458 1,415 1,123
activities before
tax
Tax on ordinary - - - - - - -
activities
Return on ordinary
activities after
tax for
the financial (41) (99) (140) (43) 1,458 1,415 1,123
period
Basic return per
ordinary
share - note 4 (0.3)p (0.7)p (1.0)p (0.3)p 9.4p 9.1p 7.5p
SUMMARY OF NET ASSETS
AT AT AT
30 NOVEMBER 30 NOVEMBER 31 MAY
2010 2009 2010
GBP'000 GBP'000 GBP'000
Fixed assets 14,647 17,868 15,933
Current assets 1,005 - 8
Creditors falling due within one year,
excluding borrowings (47) (49) (27)
Bank loan (1,525) (1,225) (300)
Net assets 14,080 16,594 15,614
Net asset value per share - note 5 111.8p 114.5p 112.4p
Gearing:
Actual 111 107 102
Asset 104 108 102
MANAGED LIQUIDITY SHARE PORTFOLIO
MANAGER'S REPORT
Investment Objective
The investment objective of the Managed Liquidity Share Portfolio is to produce
an appropriate level of income return combined with a high degree of security.
Market and Economic Review
The UK's Monetary Policy Committee held interest rates at 0.5% throughout the
six months to the end of November 2010. However, the minutes following June's
meeting caused a surprise by revealing a 7-1 split in the vote after one member
voted for a 25bp hike in the rate - the first vote for a hike seen since August
2008 - although the decision to keep asset purchases held at GBP200 billion was
unanimous. The MPC's August Quarterly Inflation Report saw the MPC lower its
GDP forecast in light of the additional austerity measures announced in June's
emergency Budget. However, the January 2011 VAT increase means that the MPC now
expects inflation to stay above target in the short term. Rather than
suggesting a bias to tighten or loosen policy, the MPC stressed the unusually
high degree of uncertainty that surrounds the economic outlook and the
possibility that the next move in policy could be in either direction. The
report also noted that there was a `wider than usual range of views' among MPC
members about the growth and inflation outlooks, implying that the MPC vote
could be split for some time. UK inflation remained more than 1% above the 2%
target throughout the period. In his November letter of explanation to the
Chancellor, Bank of England Governor Mervyn King reiterated the MPC's view that
above target inflation largely reflects temporary influences such as the
restoration of the standard rate of VAT in January 2010 and the effects of
sterling's depreciation.
Sterling three-month interbank lending rates rose marginally over the period
from 0.71% to 0.74%. Despite some modest spread widening, corporate bonds
benefited from the ongoing decline in government bond yields to post positive
returns.
Portfolio Strategy and Review
In terms of strategy, holdings in floating-rate notes (`FRNs'), where yields
are reset every three months to reflect changes in the London Interbank Offered
Rate (`LIBOR'), the rate at which the largest banks lend money to one another,
have been maintained. As UK interest rates are widely expected to remain near
their current low level for a considerable time, a number of government,
quasi-government and corporate bonds have been added to the Portfolio. These
have higher interest coupons than those currently available on FRNs. In order
to limit risk exposure, these bonds are both short dated and of high quality.
Outlook
Looking ahead, although inflation may remain stubbornly high in the short term,
the lack of credit availability, ongoing concerns about fiscal consolidation
and a desire to reduce debt will most likely see it begin to moderate.
Therefore, while it is possible that there will be a modest increase in
short-term UK interest rates from the current historic low levels, they are
unlikely to move significantly higher over the next couple of years.
Stuart Edwards
Portfolio Manager
Invesco Asset Management Limited
27 January 2011
MANAGED LIQUIDITY SHARE PORTFOLIO
INVESTMENTS
AT AT AT
30 NOVEMBER 30 NOVEMBER 31 MAY
2010 2009 2010
MARKET MARKET MARKET
VALUE VALUE VALUE
FUND GBP'000 GBP'000 GBP'000
Invesco Perpetual Money Fund 9,998 14,954 12,969
AIM Short-Term Investments Company 415 4,083 -
10,413 19,037 12,969
MANAGED LIQUIDITY SHARE PORTFOLIO
INCOME STATEMENT
YEAR
ENDED
SIX MONTHS ENDED SIX MONTHS ENDED 31 MAY
30 NOVEMBER 2010 30 NOVEMBER 2009 2010
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on - - - - 209 209 202
investments
Income 39 - 39 99 - 99 130
Management fees - (1) - (1) (5) - (5) (5)
note 2
Other expenses (21) - (21) (47) - (47) (83)
Net return before
finance costs and
taxation 17 - 17 47 209 256 244
Tax on ordinary - - - - - - -
activities
Return on ordinary
activities after
tax for the
financial
period 17 - 17 47 209 256 244
Basic return per
ordinary
share - note 4 0.1p - 0.1p 0.2p 1.1p 1.3p 1.4p
SUMMARY OF NET ASSETS
AT AT AT
30 NOVEMBER 30 NOVEMBER 31 MAY
2010 2009 2010
GBP'000 GBP'000 GBP'000
Fixed assets 10,413 19,037 12,969
Current assets 80 224 826
Creditors falling due within one year,
excluding borrowings (329) (178) (907)
Net assets 10,164 19,083 12,888
Net asset value per share - note 5 102.2p 101.1p 101.8p
CONDENSED INCOME STATEMENT
YEAR
ENDED
SIX MONTHS ENDED SIX MONTHS ENDED 31 MAY
30 NOVEMBER 2010 30 NOVEMBER 2009 2010
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments - 2,714 2,714 - 10,628 10,628 14,272
Foreign exchange - (14) (14) - (23) (23) 17
(losses)/gains
Income 1,254 - 1,254 1,320 - 1,320 2,752
Management fees - note (80) (203) (283) (52) (133) (185) (500)
2
Other expenses (217) (30) (247) (223) (5) (228) (434)
Net return before
finance
costs and taxation 957 2,467 3,424 1,045 10,467 11,512 16,107
Finance costs (19) (50) (69) (20) (54) (74) (148)
Return on ordinary
activities before tax 938 2,417 3,355 1,025 10,413 11,438 15,959
Tax on ordinary (40) - (40) (33) - (33) (81)
activities
Return on ordinary
activities after tax
for
the financial period 898 2,417 3,315 992 10,413 11,405 15,878
Basic return per
ordinary
share - note 4
UK Equity Share 1.8p 6.3p 8.1p 1.7p 8.2p 9.9p 15.1p
Portfolio
Global Equity Share 0.7p 0.2p 0.9p 0.7p 14.1p 14.8p 22.9p
Portfolio
Hedge Fund Share (0.3)p (0.7)p (1.0)p (0.3)p 9.4p 9.1p 7.5p
Portfolio
Managed Liquidity
Share
Portfolio 0.1p - 0.1p 0.2p 1.1p 1.3p 1.4p
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with UK Accounting Standards. The supplementary
revenue and capital columns are both prepared in accordance with the Statement
of Recommended Practice issued by the Association of Investment Companies. All
items in the above statement derive from continuing operations and the Company
has no other gains or losses, therefore no statement of recognised gains or
losses is presented. No operations were acquired or discontinued in the period.
CONDENSED RECONCILIATION OF MOVEMENTS
IN SHAREHOLDERS' FUNDS
CAPITAL
SHARE SHARE SPECIAL REDEMPTION CAPITAL REVENUE
CAPITAL PREMIUM RESERVE RESERVE RESERVE RESERVE TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
SIX MONTHS ENDED
30 NOVEMBER 2010
At 31 May 2010 1,071 1,290 96,896 323 (872) - 98,708
Cancellation of (1) - - 1 - - -
deferred shares
Share buy backs - - (4,170) - - - (4,170)
Net return on - - - - 2,417 898 3,315
ordinary
activities
Interim dividend - - - - - (776) (776)
for 2011
At 30 November 1,070 1,290 92,726 324 1,545 122 97,077
2010
YEAR ENDED
31 MAY 2010
At 31 May 2009 1,253 1,290 114,324 134 (14,690) 53 102,364
Cancellation of - - (10) 10 - - -
deferred shares
Shares bought
back and
cancelled/held (182) - (17,401) 179 - - (17,404)
in treasury
Realised losses - - - - 2,360 - 2,360
on disposal on
investments
Movement in - - - - 11,912 - 11,912
investment
holding gains
Foreign exchange - - - - 17 - 17
losses
Charged to
capital:
-management fees - - - - (358) - (358)
-other expenses - - - - (5) - (5)
-finance costs - - - - (108) - (108)
Revenue return - - - - - 2,060 2,060
on ordinary
activities per
the income
statement
Dividends - - (17) - - (2,113) (2,130)
At 31 May 2010 1,071 1,290 96,896 323 (872) - 98,708
SIX MONTHS ENDED
30 NOVEMBER 2009
At 31 May 2009 1,253 1,290 114,324 134 (14,690) 53 102,364
Share buy backs (12) - (5,499) 16 - - (5,495)
Net return on - - - - 10,413 992 11,405
ordinary
activities
Interim dividend - - - - - (979) (979)
for 2010
At 30 November 1,241 1,290 108,825 150 (4,277) 66 107,295
2009
CONDENSED BALANCE SHEET
REGISTERED NUMBER 5916642
UK GLOBAL HEDGE MANAGED
EQUITY EQUITY FUND LIQUIDITY TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
AT 30 NOVEMBER 2010
Fixed assets
Investments held at fair 43,346 36,319 14,647 10,413 104,725
value
Current assets
Debtors 137 140 61 72 410
Cash and short-term deposits - 477 944 8 1,429
137 617 1,005 80 1,839
Creditors: amounts falling
due
within one year (7,471) (115) (1,572) (329) (9,487)
Net current (liabilities)/ (7,334) 502 (567) (249) (7,648)
assets
Net assets 36,012 36,821 14,080 10,164 97,077
Shareholders' funds
Share capital 441 360 144 125 1,070
Share premium - - 1,290 - 1,290
Special reserve 39,627 32,281 11,210 9,608 92,726
Capital redemption reserve 73 78 19 154 324
Capital reserve (4,394) 3,939 1,750 250 1,545
Revenue reserve 265 163 (333) 27 122
Shareholders' funds 36,012 36,821 14,080 10,164 97,077
Net asset value per ordinary
share
Basic - note 5 92.4p 112.4p 111.8p 102.2p
AT 31 MAY 2010
Fixed assets
Investments held at fair 39,987 36,278 15,933 12,969 105,167
value
Current assets
Debtors 286 167 6 220 679
Cash and short-term deposits 159 305 2 606 1,072
445 472 8 826 1,751
Creditors: amounts falling
due
within one year (6,693) (283) (327) (907) (8,210)
Net current (liabilities)/ (6,248) 189 (319) (81) (6,459)
assets
Net assets 33,739 36,467 15,614 12,888 98,708
Shareholders' funds
Share capital 432 352 150 137 1,071
Share premium - - 1,290 - 1,290
Special reserve 39,883 32,077 12,598 12,338 96,896
Capital redemption reserve 73 78 19 153 323
Capital reserve (6,845) 3,874 1,849 250 (872)
Revenue reserve 196 86 (292) 10 -
Shareholders' funds 33,739 36,467 15,614 12,888 98,708
Net asset value per ordinary
share
Basic - note 5 85.7p 111.7p 112.4p 101.8p
CONDENSED BALANCE SHEET
REGISTERED NUMBER 5916642
UK GLOBAL HEDGE MANAGED
EQUITY EQUITY FUND LIQUIDITY TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
AT 30 NOVEMBER 2009
Fixed assets
Investments held at fair value 41,669 36,208 17,868 19,037 114,782
Current assets
Debtors 264 77 - 210 551
Cash and short-term deposits 110 1,014 - 14 1,138
374 1,091 - 224 1,689
Creditors: amounts falling due
within one year (7,488) (236) (1,274) (178) (9,176)
Net current (liabilities)/ (7,114) 855 (1,274) 46 (7,487)
assets
Net assets 34,555 37,063 16,594 19,083 107,295
Shareholders' funds
Share capital 464 393 157 227 1,241
Share premium - - 1,290 - 1,290
Special reserve 41,837 35,193 13,282 18,513 108,825
Capital redemption reserve 30 33 16 71 150
Capital reserve (7,993) 1,354 2,105 257 (4,277)
Revenue reserve 217 90 (256) 15 66
Shareholders' funds 34,555 37,063 16,594 19,083 107,295
Net asset value per ordinary
share
Basic - note 5 82.7p 104.2p 114.5p 101.1p
CONDENSED CASH FLOW STATEMENT
SIX MONTHS SIX MONTHS YEAR
ENDED ENDED ENDED
30 NOVEMBER 30 NOVEMBER 31 MAY
2010 2009 2010
GBP'000 GBP'000 GBP'000
Total return before finance 3,424 11,512 16,107
costs and tax
Adjustment for gains on (2,714) (10,628) (14,272)
investments
Adjustment for exchange losses/ 14 23 (17)
(gains)
Scrip dividends received as (6) - (62)
income
Decrease in debtors 175 107 16
Decrease in creditors (121) (126) (84)
Tax on unfranked investment (7) (24) (23)
income
Overseas tax (40) (33) (81)
Net cash inflow from operating 725 831 1,584
activities
Servicing of finance (69) (72) (145)
Taxation 151 155 135
Net financial investment 3,252 2,105 15,463
Equity dividends paid (776) (979) (2,130)
Net cash inflow before 3,283 2,040 14,907
management of liquid resources
and financing
Management of liquid resources - 1,415 1,415
Financing
Shares bought back (4,989) (5,495) (16,443)
Movement in bank borrowings 2,077 2,390 365
Increase in cash 371 350 244
Reconciliation of net cash flow
to movement in net debt
Increase in cash 371 350 244
Cashflow from movement in liquid - (1,415) (1,415)
resources
Exchange movements (14) (23) 17
Cash movement from changes in (2,077) (2,390) (365)
debt
Movement of debt in period (1,720) (3,478) (1,519)
Net debt at beginning of year (5,328) (3,809) (3,809)
Net debt at end of period (7,048) (7,287) (5,328)
Analysis of changes in net debt
31 MAY EXCHANGE CASH 30 NOVEMBER
2010 MOVEMENTS FLOW 2010
GBP'000 GBP'000 GBP'000 GBP'000
Cash 1,072 (14) 371 1,429
Overdrafts - - (52) (52)
Bank loan (6,400) - (2,025) (8,425)
Net debt (5,328) (14) (1,706) (7,048)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Accounting Policy
The condensed financial statements have been prepared using the same accounting
policies as those adopted in the 2010 annual financial report, which are
consistent with applicable United Kingdom Accounting Standards and with the
Statement of Recommended Practice `Financial Statements of Investment Trust
Companies and Venture Capital Trusts' issued by the Association of Investment
Companies, in January 2009.
2. Management Fees
(a) Basis of Management and Performance Fees
Invesco Asset Management Limited (`IAML'), is entitled to a basic fee (payable
quarterly) in respect of each Portfolio (0.75% per annum of net assets in the
case of the UK Equity and Global Equity Portfolios and 0.25% per annum of net
assets in the case of the Hedge Fund and Managed Liquidity Portfolios).
IAML is also entitled to receive performance fees in respect of the UK Equity
and Global Equity Portfolios of 12.5% of the increase in net assets per
relevant Share in excess of a hurdle of the relevant benchmark plus 1% per
annum. The amount of the performance fee payable in any one year is limited to
0.75% of the net assets of the relevant Portfolio. Any underperformance of the
benchmark, or performance above the cap, is carried forward to subsequent
periods.
No performance fees arose in the six months ended 30 November 2010 (six months
ended 30 November 2009 and year ended 31 May 2010: none).
Fauchier Partners Management Limited charges the Fauchier Managed Funds an
annual management fee of 1% of those funds' net asset values. In addition, the
managers of the underlying hedge funds in which Fauchier Managed Funds invest
will typically charge an annual management fee (generally 1 to 1.5% of assets)
plus a performance fee (generally 20% of any outperformance, subject to a high
watermark).
Further details of the above fees are disclosed in the 2010 annual financial
report.
(b) Adjustment to Management Fee
The UK Equity Portfolio management fee from the date of inception in 2006 to 31
May 2009 was corrected in the year ended 31 May 2010.
3. Tax expense represents the sums of tax currently payable and any deferred
tax, with any tax payable being based on the taxable profit for the period.
Investment trusts which have been approved under Section 1158 of the
Corporation Tax Act 2010 are not liable for taxation on capital gains.
4. Basic Return per Ordinary Share
Basic revenue, capital and total return per ordinary share is based on each of
the return on ordinary activities after taxation as shown by the income
statement for the applicable Share and on the following number of shares being
the weighted number of shares in issue throughout the period for each
applicable Share:
WEIGHTED AVERAGE NUMBER OF SHARES
SIX MONTHS SIX MONTHS YEAR
ENDED ENDED ENDED
30 NOVEMBER 30 NOVEMBER 31 MAY
SHARE 2010 2009 2010
UK Equity 38,837,982 45,004,410 42,528,103
Global Equity 32,402,548 35,668,852 35,278,074
Hedge Fund 13,290,668 15,488,836 14,910,221
Managed Liquidity 11,585,057 19,216,145 17,867,313
5. Net Asset Values per Share
The net asset values per share were based on the following Shareholders' funds
and shares (excluding treasury shares) in issue at the period end:
AT AT AT
30 NOVEMBER 30 NOVEMBER 31 MAY
2010 2009 2010
GBP'000 GBP'000 GBP'000
PORTFOLIO SHAREHOLDERS' FUNDS
UK Equity 36,012 34,555 33,739
Global Equity 36,821 37,063 36,467
Hedge Fund 14,080 16,594 15,614
Managed Liquidity 10,164 19,083 12,888
AT AT AT
30 NOVEMBER 30 NOVEMBER 31 MAY
2010 2009 2010
PORTFOLIO SHARES IN ISSUE AT PERIOD END
UK Equity 38,979,957 41,794,705 39,359,201
Global Equity 32,759,274 35,558,756 32,643,164
Hedge Fund 12,599,287 14,494,574 13,895,086
Managed Liquidity 9,946,029 18,875,050 12,663,480
6. Movements in Share Capital and Share Class Conversion
IN THE SIX MONTHS ENDED 30 NOVEMBER 2010
UK GLOBAL HEDGE MANAGED
EQUITY EQUITY FUND LIQUIDITY
Ordinary 1p shares (number)
At 31 May 2010 39,359,201 32,643,164 13,895,086 12,663,480
Shares bought back into (1,303,000) (625,000) (729,000) (1,607,000)
treasury
October 2010 conversion 923,756 741,110 (566,799) (1,110,451)
At 30 November 2010 38,979,957 32,759,274 12,599,287 9,946,029
Treasury shares 5,104,000 3,225,000 1,829,000 2,602,500
Total shares in issue 30 44,083,957 35,984,274 14,428,287 12,548,529
November 2010
Treasury Shares (number)
At 31 May 2010 3,801,000 2,600,000 1,100,000 995,500
Shares bought back into 1,303,000 625,000 729,000 1,607,000
treasury
At 30 November 2010 5,104,000 3,225,000 1,829,000 2,602,500
Average buy back price 86.8p 106.3p 103.0p 98.9p
after 30 November 2010
Buy backs after the period
end:
Number bought back into - - - 140,000
treasury
Average buy back price 99.2p
7. Share Prices
UK GLOBAL HEDGE MANAGED
PERIOD END EQUITY EQUITY FUND LIQUIDITY
30 November 2009 79.8p 99.8p 106.3p 99.0p
31 May 2010 82.8p 107.5p 107.0p 99.5p
30 November 2010 89.5p 108.5p 103.3p 99.5p
8. Dividends on Ordinary Shares
The following interim dividends were paid on 19 November 2010:
NUMBER DIVIDEND TOTAL
PORTFOLIO OF SHARES RATE GBP'000
UK Equity 38,249,001 1.65p 631
Global Equity 32,203,164 0.45p 145
776
9. It is the intention of the Directors to conduct the affairs of the Company
so that it satisfies the conditions for approval as an investment trust company
set out in section 1158 of the Corporation Tax Act 2010.
10. The financial information contained in this half-yearly financial report,
which has not been reviewed or audited by the independent auditors, does not
constitute statutory accounts within the meaning of section 434 of the
Companies Act 2006. The financial information for the half years ended 30
November 2010 and 30 November 2009 have not been audited. The figures and
financial information for the year ended 31 May 2010 are extracted and abridged
from the latest published accounts and do not constitute the statutory accounts
for that year. Those accounts have been delivered to the Registrar of Companies
and include the Report of the Independent Auditors, which was unqualified and
did not include a statement under section 498 of the Companies Act 2006.
By order of the Board
Invesco Asset Management Limited
Company Secretary
27 January 2011
DIRECTORS, MANAGERS AND ADMINISTRATION
Directors
Patrick Gifford (Chairman of the Board and Nomination Committee)
Sir Michael Bunbury (Chairman of the Audit and Management Engagement
Committees)
Alan Clifton (Senior Independent Director)
David Rosier
All the Directors are, in the opinion of the Board, independent of the
management company and all Directors are members of the Audit, Management
Engagement and Nomination Committees.
Manager, Company Secretary and Registered Office
Invesco Asset Management Limited
30 Finsbury Square
London EC2A 1AG
020 7065 4000
Company Secretarial contact: Karina Bryant
Investment Adviser to the Paragon Capital Appreciation Fund
Fauchier Partners LLP
72 Welbeck Street
London W1G 0AY
Company Number
Registered in England and Wales No. 5916642
Registrars
Capita Registrars, Northern House, Woodsome Park
Fenay Bridge, Huddersfield, West Yorkshire HD8 0LA
If you hold your shares directly rather than through an ISA or savings scheme,
and have any queries relating to your shareholding you should contact Capita
on: 0871 664 0300 between 8.30 am and 5.30 pm every working day. Calls cost 10p
per minute plus network extras.
Shareholders holding shares directly can also access their holding details via
Capita's website www.capitaregistrars.com or www.capitashareportal.com
Capita Registrars provide an on-line and telephone share dealing service to
existing shareholders who are not seeking advice on buying or selling. This
service is available at www.capitadeal.com or
0871 664 0364 (lines are open 8 am to 4.30 pm every working day). Calls cost
10p per minute plus network extras.
Invesco Perpetual Investor Services
Invesco Perpetual has an Investor Services Team available to assist you from
8.30 am to 6 pm every working day. Please feel free to take advantage of their
expertise.
0800 085 8677
www.invescoperpetual.co.uk/investmenttrusts
The contents of websites referred to in this document, or accessible from
links within those websites are not incorporated into, nor do they form part
of, this document.
END
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