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Invesco Perpetual Enhanced Income Limited - Half-yearly Report

May 23, 2014

Invesco Perpetual Enhanced Income Limited Half-Yearly Financial Report for the Six Months to 31 March 2014 KEY FACTS Invesco Perpetual Enhanced Income Limited is a closed-end investment company with limited liability incorporated in Jersey. The Company's ordinary shares are listed on the London Stock Exchange. Investment Objective of the Company The Company's principal objective is to provide shareholders with a high level of income whilst seeking to maximise total return through investing in a diversified portfolio of high yielding corporate and Government bonds. The Company may also invest in equities and other instruments that Invesco Asset Management Limited (the Manager) considers appropriate. The Company seeks to balance the attraction of high yield securities with the need for protection of capital and to manage volatility. The Company generally employs gearing in its Investment Policy. Full details of the Company's Investment Policy (incorporating the Company's investment objective, investment policy and risk and investment limits) can be found on pages 9 and 10 of the Company's 2013 annual financial report. Performance Statistics AT AT 31 MAR 30 SEPT % 2014 2013 CHANGE Capital Shareholders' funds ('000) 81,982 79,809 +2.7 Net asset value per ordinary share 73.7p 71.7p +2.7 Mid-market price per ordinary share* 77.1p 67.0p +15.1 Premium/(discount) per ordinary share 4.6% (6.6)% Gross borrowing 41% 42% Net borrowing 33% 35% SIX SIX MONTHS MONTHS YEAR ENDED ENDED ENDED 31 MAR 31 MAR 30 SEPT 2014 2013 2013 Total Return 3 month LIBOR rate 0.5% 0.5% 0.5% Net asset value +6.3% +13.1% +17.8% Share price* +19.4% +13.2% +21.1% Revenue Net revenue return ('000) 2,851 3,062 6,056 Revenue return per ordinary share 2.6p 2.8p 5.5p Dividends per ordinary share: - first interim 1.25p 1.25p 1.25p - second interim 1.25p 1.25p 1.25p - third interim - - 1.25p - fourth interim - - 1.25p Total 2.50p 2.50p 5.00p *Source: Thomson Reuters Datastream . INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN'S STATEMENT CHAIRMAN'S STATEMENT The Company again delivered a positive capital NAV performance, returning 2.7% for the period which translates to a total return of 6.3% including the reinvestment of dividends. While this continuation of the steady recent progress is welcome, the really pleasing news concerns the share price return. The Company's shares rose 15.1% over the six months giving a total return including dividends of 19.4%. The share price moved to a premium to NAV early in the second quarter and this has been sustained since then. The premium stood at 4.6% at 31 March 2014 and this continues to be maintained at the time of writing. The re-rating of the shares is especially gratifying as it has fulfilled the hopes of the Directors that lay behind the amendment to the investment policy and associated change of name approved by shareholders in November 2013. We are delighted to welcome a significant number of new investors to the share register over the first half of 2014. The Directors remain confident in the Managers' ability to identify attractive investments and deliver returns for shareholders but the current full valuations suggest that income will make up much the largest component of return in the short to medium term. Donald Adamson Chairman . MANAGER'S REPORT Market Background High yield bonds achieved a strongly positive level of total return over the six months to the end of March, compared to the wider bond market. Returns were driven by capital appreciation as well as yield, as credit spreads tightened in an investment environment distinguished by a very strong demand for income. Investment grade spreads also tightened but yields were little changed and total returns were dominated by income. Gilt yields rose, resulting in only modestly positive total returns. According to data from Merrill Lynch, European high yield bonds returned 6.5% (in sterling terms). The aggregate yield of the market fell 106bps to 4.58%. This return compares to 2.8% for sterling investment grade corporate bonds and 0.8% for Gilts. Within investment grade, financials outperformed non-financials, but by a more modest margin than in immediately preceding periods. The Federal Reserve finally began to taper its programme of asset purchases and is set to wind it down completely over the course of 2014. The announcement (in December) of this first step towards tighter US monetary policy had been clearly flagged and came as little surprise to the market. Bonds have been supported by news on inflation and economic growth. The early months of 2014 have seen lower-than-expected inflation in the major developed economies. High yield bonds, typically the most credit-sensitive area of corporate bonds, have also benefitted from a trend of macroeconomic data that suggested strengthening recoveries in the US and the UK and the beginnings of improved growth performance in the economies of the eurozone. The credit market has been further supported by demand for income, which has seen many new bond issues heavily over-subscribed, despite some historically low coupons. Barclays estimate total European high yield supply of 34 billion across all currencies in the six months to the end of March. According to Moody's, the European 12 month trailing high yield default rate was 2.7% at the end of March, compared to 2.1% a year ago. Portfolio Strategy We hold a core of high yield corporate bonds, focused on seasoned issuers that we consider to be default-remote. In addition, we hold significant exposure to areas of the market which we believe still offer relatively attractive yield. Approximately one fifth of the portfolio is invested in bank capital, predominantly in the subordinated debt of large European banks. The valuations of these instruments have risen strongly but we think that this reflects the increased creditworthiness of a sector whose fundamentals have continued to improve. We also have holdings in hybrid capital instruments, across sectors including telecoms and utilities. We believe the subordination risk of these more junior debt instruments is attractive in the context of these companies' relatively strong balance sheets. Many of the securities we hold are in investment grade names. We continue to seek opportunities to add yield to the portfolio where we consider that the balance of reward to risk is attractive. Over the period under review, the Company's NAV rose from 71.7p to 73.7p, an increase of 2.7%. The total return was 6.3%. The value of the portfolio rose from 79.8 million to 81.9 million. The portfolio entered the period with gross borrowing of 42%. This was little changed at 41% by the end of the period. While we have continued to buy and sell individual positions over this period, the outline of the portfolio has remained broadly unchanged. The level of liquidity in the portfolio has increased slightly. Trading in the portfolio over this period included adding positions in HSBC 5.25% and HSBC 4.25% (bank) and ENEL 6.625% and ENEL 5% (utility). We sold our holdings in SSE 5.025% (utility) and Boparan Finance 9.875% (food). Outlook The high yield bond market has continued to deliver strongly positive returns in recent quarters, despite the weaker conditions we have seen across the wider bond market. The market is now quite fully valued, in our opinion, and we see little potential for further capital appreciation from current levels. Yields and spreads are low by historical standards. We are seeking to provide an attractive level of income while focusing our portfolio on issuers that we see as default-remote and on bonds where we think the balance of reward to risk remains relatively good. Paul Read & Paul Causer Portfolio Managers 23 May 2014 . PRINCIPAL RISKS AND UNCERTAINTIES The principal risk factors relating to the Company can be summarised as follows: - Investment Policy - the adopted investment policy and process may not achieve the Company's published investment objective. - Market Risk - a fall in the stock markets and/or a prolonged period of decline in the stock markets relative to other forms of investments will affect the performance of the portfolio, as well as the performance of individual portfolio investments. - Investment Risk - the investment process employed by the Manager is likely to result, from time to time, in a more concentrated portfolio than those of other investment funds. - Foreign Exchange Risk - the movement of exchange rates may have an unfavourable or favourable impact on returns as the Company holds non-sterling denominated investments and cash. - Shares - share price is affected by market sentiment, supply and demand for the shares, dividends declared, portfolio performance as well as wider economic factors and changes in the law. The market value of, and the income derived from, the Company's ordinary shares can fluctuate and may go down as well as up. - Gearing Returns Using Borrowings - borrowing levels may change from time to time in accordance with the Manager's assessment of risk and reward. As a consequence, any reduction in the value of the Company's investments may lead to a correspondingly greater percentage reduction in its NAV (which is likely to adversely affect the Company's share price). Any reduction in the number of ordinary shares in issue (for example, as a result of buy backs) will, in the absence of a corresponding reduction in borrowings, result in an increase in the Company's gearing, however, net borrowing may not exceed 50% of shareholders' funds. - High Yield Corporate Bonds - corporate bonds are subject to credit, liquidity, duration and interest rate risk. Adverse changes in the financial position of the issuer of corporate bonds or in general economic conditions may impair the ability of the issuer to make payments of principal interest or may cause the liquidation or insolvency of the issuer. - Derivatives - the Company may enter into derivative transactions for the purpose of efficient portfolio management. The Company will not enter into derivative transactions for speculative purposes. - Reliance on External Service Providers - failure by any service provider to carry out its obligations to the Company could have a materially detrimental impact on the operation of the Company and affect the ability of the Company to successfully pursue its investment policy. - Regulatory - whilst compliance with rules and regulations is closely monitored, breaches could affect returns to shareholders. A detailed explanation of these principal risks and uncertainties can be found on pages 11 to 15 of the Company's 2013 annual financial report, which is available on the Manager's website at: www.invescoperpetual.co.uk/investmenttrusts In the view of the Board these principal risks and uncertainties are as much applicable to the remaining six months of the financial year as they were to the six months under review. GOING CONCERN The half-yearly financial report has been prepared on a going concern basis. The Directors consider that this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In considering this, the Directors took into account the Company's investment objective, risk management policies and capital management policies, the diversified portfolio, the liquidity of the securities which can be used to meet short-term funding commitments, and the ability of the Company to meet all of its liabilities, including its repo financing, and ongoing expenses from its assets. RELATED PARTY AND TRANSACTIONS WITH THE MANAGER Note 20 of the 2013 annual financial report gives details of related party transactions and transactions with the Manager. The basis of these has not changed for the six months being reported. The 2013 annual financial report, is available on the Manager's website at www.invescoperpetual.co.uk/ investmenttrusts. . STATEMENT OF DIRECTORS' RESPONSIBILITIES 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 International Financial Reporting 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 International Accounting Standards 34 `Interim Financial Reporting'; - the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the FCA'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 auditor. Signed on behalf of the Board of Directors. Donald Adamson Chairman 23 May 2014 . BOND RATING ANALYSIS AT 31 MARCH 2014 Standard and Poor's Ratings, investments grade is BBB- and above The definitions of these ratings are set out on page 64 of the 2013 annual financial report. 31 MAR 2014 30 SEPT 2013 % OF CUMULATIVE % OF CUMULATIVE PORTFOLIO TOTAL % PORTFOLIO TOTAL % Rating AAA 2.4 2.4 2.4 2.4 A+ - 2.4 1.7 4.1 A - 2.4 1.6 5.7 A- 2.7 5.1 0.8 6.5 AA- 1.0 6.1 1.0 7.5 BBB+ 5.2 11.3 3.6 11.1 BBB 12.9 24.2 12.0 23.1 BBB- 9.0 33.2 9.1 32.2 BB+ 13.4 46.6 12.2 44.4 BB 15.6 62.2 13.7 58.1 BB- 9.4 71.6 8.9 67.0 B+ 7.5 79.1 9.3 76.3 B 9.4 88.5 10.4 86.7 B- 1.4 89.9 2.4 89.1 CCC+ - 89.9 0.2 89.3 NR(1) 10.1 100.0 10.7 100.0 100.0 100.0 (1) Including any equities warrants and credit default swaps. . INVESTMENT PORTFOLIO AT 31 MARCH 2014 All investments are fixed interest bonds unless otherwise stated; floating rate notes are depicted by FRN. Bonds and Equity Investments AT MARKET VALUE % OF ISSUER ISSUE RATING '000 PORTFOLIO Euro UniCredit International Bank 8.125% FRN B1/BB 2,818 2.6 Perpetual Santos Finance 8.25% FRN 22 Sep NR/BBB 2,804 2.6 2070 UPC 7.625% 15 Jan Ba3/BB 1,776} 2.5 2020 9.5% 15 Mar 2021 B3/B 953} Abengoa 6.25% Cnv 17 Jan NR/NR 1,479} 2.2 2019 8.5% 31 Mar 2016 B2/B 894} Rexam 6.75% FRN 29 Jun Ba2/BB 2,116 2.0 2067 Commerzbank 7.75% 16 Mar 2021 Ba2/BB+ 1,959 1.8 Achmea 6% 04 Apr 2043 NR/BBB 1,839 1.7 Lottomatica 8.25% FRN 03 Mar Ba2/BB 1,793 1.7 2066 Origin Energy 7.875% 16 Jun Ba1/BB+ 1,767 1.7 2071 RWE 4.625% FRN Baa3/BBB- 1,694 1.6 Perpetual Aviva 6.875% FRN 22 May Baa1/BBB 954} 1.5 2038 4.7291% FRN Baa2/BBB 416} Perpetual 6.125% FRN 05 Jul Baa1/BBB 227} 2043 Telecom Italia 5.25% 17 Mar 2055 Ba1/BB+ 1,506 1.4 Intesa Sanpaolo 8.375% FRN Ba3/BB 1,441 1.3 Perpetual Vougeot Bidco FRN 18 Jul 2020 B2/B 1,337 1.3 Lloyds Banking Group - LBG 6.385% 12 May Ba1/BBB- 1,314 1.2 Capital No.2 (ECN) 2020 Wind Acquisition Finance 11.75% 15 Jul B3/B+ 956} 1.2 2017 7.375% 15 Feb Ba3/BB 349} 2018 Telefonica Europe 7.625% Perpetual Ba1/BB+ 1,297 1.2 Volkswagen International 4.625% Perpetual Baa2/BBB 1,014 1.0 Finance Levi Strauss 7.75% 15 May 2018 B1/BB 993 0.9 Algeco Scotsman Global 9% 15 Oct 2018 B1/NR 900 0.8 Finance Xefin 8% 01 Jun 2018 Ba3/B+ 882 0.8 Iberdrola International 5.75% Perpetual Baa3/BB+ 879 0.8 BPCE 9% FRN Perpetual Ba2/BBB- 876 0.8 Campofrio Food 8.25% 31 Oct 2016 B1/B+ 863 0.8 Matterhorn Mobile FRN 15 May 2019 B1/B+ 838 0.8 Picard FRN 01 Aug 2019 Ba3/BB- 742 0.7 Royal Bank of Scotland FRN 14 Jun 2022 Ba2/BBB- 702 0.7 Telekom Austria 5.625% Perpetual Ba1/BB 700 0.7 CNP Assurances FRN Perpetual NR/A- 644 0.6 TMF 5.599% FRN 03 Dec B1/B 628 0.6 2018 ENEL 5% 15 Jan 2075 Ba1/BB+ 598 0.6 Solvay Finance 4.199% Perpetual Ba1/BBB- 565 0.5 Ono Finance II 11.125% 15 Jul Caa1/B- 462 0.4 2019 Gategroup Finance 6.75% 01 Mar 2019 B1/BB- 445 0.4 ECO-BAT Finance 7.75% 15 Feb 2017 B2/B 430 0.4 Kerneos FRN Mar 2021 NR/B+ 417 0.4 KBC 8% Perpetual Ba2/BBB- 415 0.4 Mobile Challenger 8.75% 15 Mar 2019 NR/B- 342 0.3 Intermediate Sisal 7.25% 30 Sep 2017 B1/B 340 0.3 BNP Paribas Fortis Cnv FRN Perpetual Ba3/BB 318 0.3 Sanitec FRN 15 May 2018 B1/BB- 293 0.3 KM Germany 8.75% 15 Dec 2020 B2/B- 222 0.2 47,197 44.0 Sterling Lloyds Banking Group - 7.625% 22 Apr Baa3/BBB 2,430} 3.3 Lloyds Bank 2025 Lloyds Banking Group - LBG 7% 31 Dec NR/BB- 1,080} Capital No.2 (ECN) Perpetual Virgin Media Finance 7% 15 Jan 2018 Ba3/BB- 2,071} 3.2 8.875% 15 Oct B2/B 718} 2019 6% 15 Apr 2021 Ba3/BB- 689} Enterprise Inns 6.5% 06 Dec 2018 NR/BB- 2,630 2.5 (SNR) ENW Finance 5.875% 21 Jun NR/BB+ 2,514 2.3 2021 Electricite De France 6% Perpetual A3/BBB+ 1,354} 2.3 5.875% Perpetual A3/BBB+ 1,019} ENEL 7.75% 10 Sep 2075 Ba1/BB+ 1,565} 2.1 6.625% 15 Sep Ba1/BB+ 784} 2076 NGG Finance 5.625% FRN 18 Jun Baa3/BBB 2,236 2.1 2073 Arqiva Broadcast Finance 9.5% 31 Mar 2020 B3/NR 2,230 2.1 SociÉtÉ GenÉrale 8.875% FRN Ba2/BBB- 1,675 1.6 Perpetual Aviva 6.125% Perpetual Baa1/BBB 1,558 1.4 DFS Furniture FRN 15 Aug 2018 B2/B 757} 1.2 7.625% 15 Aug B2/B 504} 2018 Telefonica Europe 6.75% Perpetual Ba1/BB+ 1,145 1.1 Orange 5.875% 29 Dec Baa3/BBB- 1,139 1.1 2019 Southern Water (Greensands) 8.5% 15 Apr 2019 NR/BB- 1,089 1.0 Thames Water 7.75% 01 Apr 2019 B1/NR 1,080 1.0 General Electric Capital 5.5% FRN 15 Sep A2/AA- 1,050 1.0 2066 Pipe 9.5% 01 Nov 2015 B3/B 1,046 1.0 Equiniti Newco 2 FRN 15 Dec 2018 B3/B 1,018 0.9 InterGen Services 7.5% 30 Jun 2021 B1/B+ 905 0.8 Scottish Widows 5.5% 16 Jun 2023 Baa2/BBB+ 817 0.8 Pendragon 6.875% 01 May B1/B+ 592 0.6 2020 Koninklijke KPN 6.875% FRN 14 Mar Ba2/BB 588 0.5 2073 Jaguar Land Rover 8.25% 15 Mar 2020 Ba2/BB 567 0.5 Verizon Communications 4.75% 17 Feb 2034 Baa1/BBB+ 547 0.5 UniCredit International Bank 8.5925% FRN B1/BB 537 0.5 Perpetual Gala Finance 8.875% 01 Sep B2/B+ 535 0.5 2018 AXA 6.6666% FRN Baa1/BBB- 531 0.5 Perpetual Legal & General 6.385% FRN Baa2/BBB+ 526 0.5 Perpetual Odeon & UCI Finco 9% 01 Aug 2018 B3/B- 524 0.5 Matalan Finance 8.875% 29 Apr B1/B 513 0.5 2016 Galaxy Bidco FRN 15 Nov 2019 B2/B 505 0.5 Premier Farnell 89.2p Convertible NR/NR 468 0.4 Preference Care UK Health and Social 9.75% 01 Aug 2017 Caa1/B 398 0.4 Care Standard Life 5.5% 04 Dec 2042 Baa2/BBB 365 0.3 AA Bond 9.5% 31 Jul 2043 NR/BB 339 0.3 Bupa Care Homes 11.8% 30 Jun 2014 NR/NR 254 0.2 42,892 40.0 US Dollar General Motors Wts 10 Jul 2019 NR/NR 3,173} Wts 10 Jul 2016 NR/NR 244} 3.2 Ord NR/NR 19} US Treasury 2.75% 15 Nov 2042 Aaa/AAA 2,553 2.4 Vedanta Resources 6.75% 07 Jun 2016 Ba3/BB 1,259 1.2 Catlin Insurance 7.249% FRN NR/BBB+ 1,238 1.1 Perpetual CGG Veritas 7.75% 15 May 2017 Ba3/BB- 1,217 1.1 Standard Chartered 5.7% 26 Mar 2044 A3/A- 1,175 1.1 Stora Enso 7.25% 15 Apr 2036 Ba2/BB 1,135 1.1 SociÉtÉ GenÉrale 8.75% Perpetual Ba2/BBB- 630} 0.9 7.875% FRN Ba3/BB+ 349} Perpetual HSBC 4.25% 14 Mar 2024 A3/A- 383} 0.7 5.25% 14 Mar 2044 A3/A- 369} CEMEX Espana 9.25% 12 May 2020 NR/B+ 741 0.7 Nara Cable Funding 8.875% 01 Dec B1/B+ 653 0.6 2018 (SNR) Aperam 7.75% 01 Apr 2018 B3/B+ 630 0.6 BBVA 9% Perpetual NR/NR 390 0.4 Rothschilds Continuation 1% FRN Perpetual NR/NR 369 0.3 Finance Prudential 6.5% Perpetual Baa1/A- 303 0.3 Peabody Energy 4.75% Cnv 15 Dec NR/NR 240 0.2 2066 Motors Liquidation Units NR/NR 74} 0.1 8.375% 15 Jul NR/NR -} 2033 17,144 16.0 Total investments 107,233 100.0 . CONDENSED STATEMENT OF COMPREHENSIVE INCOME YEAR ENDED SIX MONTHS TO 31 MARCH SIX MONTHS TO 31 MARCH 30 SEPTEMBER 2014 2013 2013 REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL TOTAL '000 '000 '000 '000 '000 '000 '000 Profit on - 2,806 2,806 - 9,526 9,526 10,440 investments at fair value Exchange - 54 54 - (960) (960) (641) differences Profit/(loss) on - 518 518 - (1,564) (1,564) (1,267) derivative instruments - currency hedges Income UK bond interest 1,310 - 1,310 1,165 - 1,165 2,531 UK dividends 13 - 13 13 - 13 27 Overseas bond 2,020 - 2,020 2,295 - 2,295 4,342 interest Deposit interest 2 - 2 3 - 3 5 Investment (207) (207) (414) (197) (197) (394) (794) management fee - note 2 Performance fee - - (992) (992) - (259) (259) (1,072) note 2 Other expenses (190) (3) (193) (140) - (140) (292) Profit before 2,948 2,176 5,124 3,139 6,546 9,685 13,279 finance costs and taxation Finance costs (72) (72) (144) (66) (66) (132) (272) Profit before tax 2,876 2,104 4,980 3,073 6,480 9,553 13,007 Taxation - note 3 (25) - (25) (11) - (11) (25) Profit after tax 2,851 2,104 4,955 3,062 6,480 9,542 12,982 Return per ordinary 2.6p 1.9p 4.5p 2.8p 5.8p 8.6p 11.7p share - note 4 The total column of this statement represents the Company's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards. The profit after tax is the total comprehensive income. 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. No operations were acquired or discontinued in the period. . CONDENSED BALANCE SHEET Registered number 75059 AT AT AT 31 MARCH 31 MARCH 30 SEPTEMBER 2014 2013 2013 '000 '000 '000 Non-current assets Investments held at fair value through profit or loss 107,233 101,200 106,230 Current assets Other receivables 2,779 2,683 2,353 Derivative instruments - unrealised gain 84 510 802 Cash and cash equivalents 6,649 3,901 5,482 9,512 7,094 8,637 Total assets 116,745 108,294 114,867 Current liabilities Other payables (340) (253) (284) Performance fee payable - note 2 - - (1,072) Securities sold under agreements to repurchase (33,431) (28,631) (33,702) (33,771) (28,884) (35,058) Provision for performance fee - note 2 (992) (259) - Net assets 81,982 79,151 79,809 Issued capital and reserves attributable to equity holders Share capital 5,565 5,565 5,565 Share premium 113,634 113,634 113,634 Capital reserve (50,209) (52,759) (52,313) Revenue reserve 12,992 12,711 12,923 Shareholders' funds 81,982 79,151 79,809 Net asset value per ordinary share - note 6 73.7p 71.1p 71.7p . CONDENSED STATEMENT OF CASH FLOW SIX MONTHS SIX MONTHS YEAR ENDED ENDED ENDED 31 MARCH 31 MARCH 30 SEPTEMBER 2014 2013 2013 '000 '000 '000 Cash flow from operating activities Profit before tax 4,980 9,553 13,007 Taxation (25) (11) (25) Adjustments for: Purchases of investments (12,812) (21,180) (36,651) Sales of investments 14,615 20,924 32,279 1,803 (256) (4,372) (Decrease)/increase from securities sold under agreement to repurchase (271) 859 5,930 Profit on investments (2,806) (9,526) (10,440) Exchange differences (54) 960 641 Decrease/(increase) in derivative instruments - currency hedges 718 (614) (906) Finance costs 144 132 272 Operating cash flows before movements in working capital 4,489 1,097 4,107 Increase in receivables (426) (418) (88) (Decrease)/increase in payables (60) 241 1,082 Net cash flows from operating activities before and after tax 4,003 920 5,101 Cash flows from financing activities Interest paid (108) (145) (282) Equity dividends paid - note 4 (2,782) (2,782) (5,564) Net cash used in financing activities (2,890) (2,927) (5,846) Net increase/(decrease) in cash and cash equivalents 1,113 (2,007) (745) Exchange differences 54 (960) (641) Cash and cash equivalents at the beginning of the period 5,482 6,868 6,868 Cash and cash equivalents at the end of the period 6,649 3,901 5,482 . CONDENSED STATEMENT OF CHANGES IN EQUITY SHARE SHARE CAPITAL REVENUE CAPITAL PREMIUM RESERVE RESERVE TOTAL '000 '000 '000 '000 '000 For the six months ended 31 March 2014 At 1 October 2013 5,565 113,634 (52,313) 12,923 79,809 Total comprehensive income for the - - 2,104 2,851 4,955 period Dividend paid - note 5 - - - (2,782) (2,782) At 31 March 2014 5,565 113,634 (50,209) 12,992 81,982 For the six months ended 31 March 2013 At 1 October 2012 5,565 113,634 (59,239) 12,431 72,391 Total comprehensive income for the - - 6,480 3,062 9,542 period Dividend paid - note 5 - - - (2,782) (2,782) At 31 March 2013 5,565 113,634 (52,759) 12,711 79,151 For the year ended 30 September 2013 At 1 October 2012 5,565 113,634 (59,239) 12,431 72,391 Total comprehensive income for the year - - 6,926 6,056 12,982 Dividends paid - note 5 - - - (5,564) (5,564) At 30 September 2013 5,565 113,634 (52,313) 12,923 79,809 . NOTES TO THE CONDENSED FINANCIAL STATEMENTS 1. Basis of Preparation The condensed financial statements have been prepared using the same accounting policies as those adopted in the 2013 annual financial report. They have been prepared on an historical cost basis, except for the measurements at fair value of investments and derivatives, and in accordance with the applicable International Financial Reporting Standards (IFRS) and interpretations issued by the International Financial Reporting Interpretations Committee as adopted by the European Union. Where presentational guidance set out in the Statement of Recommended Practice (SORP) Financial Statements of Investment Trust Companies and Venture Capital Trusts' is consistent with the requirements of IFRS, the Directors have prepared the financial statements on a basis compliant with the recommendations of the SORP. 2. Management and Performance Fees Investment management fees and finance costs are allocated equally to revenue and capital. The management fee rate is 1.0% per annum of net assets. A performance fee is payable at the end of the Company's financial year if the Company's total return in a year exceeds the hurdle return for the year and will equal 20% of the outperformance, adjusted for any changes in share capital in the year. The hurdle return is the average sterling 3 month LIBOR plus 1% plus any underperformance in previous years. The performance fee is allocated wholly to capital. 3. Taxation The Company is subject to Jersey income tax at the rate of 0% (2013: 0%). The overseas tax charge consists of irrecoverable withholding tax. 4. Basis of Earnings SIX MONTHS SIX MONTHS YEAR TO TO 31 MAR TO 31 MAR 30 SEPT 2014 2013 2013 Profit after tax: Revenue 2,851,000 3,062,000 6,056,000 Capital 2,104,000 6,480,000 6,926,000 Total 4,955,000 9,542,000 12,982,000 Weighted average number of shares in issued during the period 111,292,526 111,292,526 111,292,526 5. Dividends Paid SIX MONTHS SIX MONTHS YEAR TO TO 31 MAR TO 31 MAR 30 SEPT 2014 2013 2013 '000 '000 '000 Fourth interim of 1.25p 1,391 1,391 1,391 First interim of 1.25p 1,391 1,391 1,391 Second interim of 1.25p - - 1,391 Third interim of 1.25p - - 1,391 Total paid 2,782 2,782 5,564 The first interim dividend for the quarter ended 31 December 2013 was paid on 31 January 2014 to Shareholders on the register on 10 January 2014. The second interim dividend for the quarter ended 31 March 2014 was paid on 30 April 2014 to Shareholders on the register on 11 April 2014. 6. Basis of Net Asset Value per Ordinary share AT AT AT 31 MAR 2014 31 MAR 2013 30 SEPT 2013 Shareholders' funds 81,982,000 79,151,000 79,809,000 Ordinary shares in issue at period end 111,292,526 111,292,526 111,292,526 7. Status of Half-yearly Financial Report The financial information contained in this half-yearly report, which has not been reviewed or audited, does not constitute statutory accounts as defined in Article 104 of Companies (Jersey) Law 1991. The financial information for the half years ended 31 March 2013 and 2014 have not been audited. The figures and financial information for the year ended 30 September 2013 are extracted and abridged from the latest published accounts and do not constitute the statutory accounts for that year. By order of the Board R&H Fund Services (Jersey) Limited Company Secretary



23 May 2014


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