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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Inv.Perp.Sel Hd | LSE:IVPH | London | Ordinary Share | GB00B1DQ6696 | HEDGE FD SHS 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 90.50 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
TIDMIVPG TIDMIVPH TIDMIVPM TIDMIVPU Invesco Perpetual Select Trust plc Annual Financial Report Announcement Year Ended 31 May 2009 FINANCIAL INFORMATION For the year ended 31 May The Company commenced trading on 23 November 2006 UK Equity Share Portfolio % 2009 2008 Change Net asset value - total return -20.0 Share price - total return -20.3 Discount at year end 3.4% 3.0% FTSE All-Share Index - total return -23.7 Revenue return per share 3.3p 3.3p Dividend 3.45p 2.7p Global Equity Share Portfolio % 2009 2008 Change Net asset value - total return -16.9 Share price - total return -16.8 Discount at year end 3.6% 3.2% MSCI World Index (GBP) - total return -19.6 Revenue return per share 2.1p 2.2p Dividend 2.25p 2.15p Hedge Fund Share Portfolio % 2009 2008 Change Net asset value - total return -20.9 Share price - total return -22.1 Discount at year end 7.7% 4.4% 3 months LIBOR +5% pa - total return +10.1 Managed Liquidity Share Portfolio % 2009 2008 Change Net asset value - total return +2.6 Share price - total return +4.8 Discount at year end 0.3% 2.0% Revenue return per share 3.6p 4.4p Dividend 4.1p 4.35p Chairman's Statement The turbulent and painful investment climate of your Company's year has provided an opportunity, which I hope never to see again, to stress-test the Company's structure. We have been able consistently to maintain the discount on the Managed Liquidity shares at a very narrow level which has underpinned the ratings of the other classes. The effect on the Hedge Fund class has been least strong because of the disappointment with the sector as a whole and the relative lack of liquidity in the underlying assets, which has made the Company prefer to reduce the capital in the class after notice of an intention to switch rather than through share buybacks in the market. The different classes continue to provide an effective way of gaining access to high quality management with the ability to vary investment objectives without incurring a tax penalty from the desire to be efficient in the management of savings. Performance The year to 31 May 2009 was one of the most extraordinary ever experienced in both financial markets and the economic and business world. I commented both in the Annual Financial Report for last year and at the interim stage but it is worth attempting to stand back and consider the period as a whole. It is now clear, to an extent that it wasn't as the smoke of the battlefield lingered, that there was a much bigger build-up of leverage in many countries, but most notably in the US, than was appreciated by regulators or most commentators. This applied to the banking system and its `shadow' but also to households, particularly in housing finance and credit cards. It is actually less clear, except perhaps in the US mortgage market, that the lending patterns were more reckless than in previous credit binges but they were conducted with a much smaller margin of safety. In autumn 2008 the financial system suffered a systemic seizure such that all liquidity drained out of the system towards governments and central banks. The collapse of Lehman Brothers was probably largely an effect of this though it certainly helped to exacerbate the problem to a great extent. Meanwhile, in the real world, demand for durables, and anything to do with houses, collapsed leading to a savage downturn in the inventory cycle. 2009 has, so far, seen a gradual reversal of these trends. Liquidity (blood) has been making its way into the financial system, even in the outer reaches of markets, so that the extraordinary pricing anomalies that appeared are being eliminated. The process is, however, far from complete. Final demand for goods and services has recovered somewhat and the inventory cycle downturn has overshot at least in the short term so that the news flow from companies is more varied and less dire. Equity and credit markets have taken heart from this with the MSCI World Index rising 22.8% and the FTSE-All Share Index rising 16.7% from their lows in early March to the end of May. Against this background, it proved very hard to preserve capital. The Global Equity and UK Equity long-only share classes fell by 16.9% and 20.0% respectively over the period but both outperformed their benchmark indices. In the case of the UK Equity Portfolio, this outperformance was achieved despite the use of gearing throughout the year. It is small comfort to report that this represents good performance against peers and was achieved by emphasis on high quality companies with strong balance sheets. Performance fees of GBP158,000 and GBP180,000 were accrued for the Global Equity and UK Equity Portfolios respectively, and will be paid when previous high watermarks have been exceeded. When the market began to improve, the UK share class gave up some relative performance as the market turned to more cyclical companies. The Global Equity share class, in contrast, benefited from its overweight position in emerging markets, especially in Asia, even though it did not hold many cyclical companies. The Hedge Fund class had the most disappointing year with a return of -20.9%. This did, however, disguise a recovery in the second half of the year as the specific problems of the sector died away and were gradually replaced by an environment much more favourable to the survivors. The Managed Liquidity share class continued to provide stable, cash-like returns. Outlook There is a risk that the apocalyptic pessimism of last winter has given way to a mood that is excessively sanguine and which believes that the recession will shortly be over and that business as usual will be resumed. At one level there is some justification for this. Government action to restore the health of the financial system has clearly been successful and a very steep yield curve at the short end ensures that it will continue to be. However, it remains the case that US and many other OECD consumers are still over-indebted and neither willing nor able to borrow to finance house or durables purchases at previous levels. Instead they are saving and will continue to do so. This is creating a serious risk that some equilibrium will indeed be found but at lower than desirable levels of activity. This can only really be averted if the US (and incidentally the UK) is allowed to become sufficiently competitive to earn current account surpluses, now an almost mythical event. Such a change requires the collaboration of the countries with balance of payments surpluses so that, for example, Chinese consumers need to have access to credit cards. If this doesn't happen alternative solutions to global imbalances are likely to be resolved in a less orderly way at considerable risk for the world economy. For markets the implications are that the risks remain considerable and a policy of investing in well-financed companies with a strong franchise, whether from geography, service or product, is likely to be relatively well rewarded. Although inflation doesn't appear to be an immediate concern, given the lack of pricing power, bonds still appear less attractive than equities in many cases, especially where default risk exists. Our investment managers are very aware of the climate in which they are investing and I am confident that, both in the long-only share classes and in the Hedge Fund class, the Company should enjoy good returns in the medium term. Dividend Policy The ability to convert shares of one class into another could lead to dilution or enhancement of revenue reserves per share for each of the share classes, depending on whether there are net conversions into or out of any particular class. In order to minimise the impact of this the Directors intend to distribute substantially all net revenues earned for each class during the period between conversion dates. Accordingly, dividends on the UK Equity, Global Equity and Managed Liquidity Shares will vary from year to year depending on net portfolio income; the Board aims to declare two dividends annually on these three share classes. Little or no net income is expected from the assets underlying the Hedge Fund Shares and, accordingly, no dividends are expected to be paid on those shares. Share Class Conversions The Company enables shareholders to tailor their asset allocation to reflect their view of prevailing market conditions. Shareholders have the opportunity to convert their holdings of shares into any other class of shares, without incurring any tax, on or around 1 May and 1 November of each year. Details of the share class conversions during the year under review are shown in note 12 (b) of the Annual Financial Report. Further information about the conversion mechanics can be found in note 12(f) of the Annual Financial Report. Share Capital Movements During the year to 31 May 2009, the Company purchased and placed in treasury 1,460,000 UK Equity Shares, 1,809,000 Global Equity Shares, 1,361,000 Hedge Fund Shares and 2,121,647 Managed Liquidity Shares. In addition, the Company cancelled 1,654,786 Global Equity Shares and 2,311,552 Managed Liquidity Shares from Treasury, and a further 3,827,959 Managed Liquidity Shares were bought back and cancelled. Since the year end a further 201,250 UK Equity Shares, 143,500 Global Equity Shares, 188,250 Hedge Fund Shares and 36,000 Managed Liquidity Shares were purchased and placed in treasury as share price discounts continue to drift. 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 each year. Corporate Governance The Board remains committed to maintaining the highest standards of Corporate Governance and is accountable to you as shareholders for the governance of the Company's affairs. The Directors believe that, during the year to 31 May 2009, they have complied with the provisions of the AIC Code of Corporate Governance as endorsed by the Financial Reporting Council, save in respect of matters discussed in the Corporate Governance statement contained on pages 44 to 49 in the Annual Financial Report. Annual General Meeting (`AGM') At the AGM there are four items of Special Business to be proposed: Share Issuance Your Directors are asking for the authority to issue up to GBP1,000,000 in UK Equity Shares, GBP1,000,000 in Global Equity Shares, GBP1,000,000 in Hedge Fund Shares and GBP1,000,000 in Managed Liquidity Shares. This will allow Directors to issue shares within the prescribed limits should any favourable opportunities arise to the advantage of shareholders. The powers authorised will not be exercised at a price below NAV of the relevant class share so that the interests of existing shareholders are not diluted. This authority will expire at the AGM in 2010. Pre-emption Rights Your Directors are also asking for the usual authority to issue new shares in each class pursuant to a rights issue or otherwise than in accordance with a rights issue of up to an aggregate nominal amount of GBP46,138 in UK Equity Shares, GBP35,813 in Global Equity Shares, GBP15,665 in Hedge Fund Shares and GBP 18,949 in Managed Liquidity Shares (10% of the issued share capital of each share class) disapplying pre-emption rights. This will allow shares to be issued to new shareholders without having to be offered to existing shareholders first, thus broadening the shareholder base of the Company. This authority will expire at the AGM in 2010. Share Buy Backs Your Directors are seeking to renew the authority to buy back up to 6,916,902 UK Equity Shares, 5,368,461 Global Equity Shares, 2,348,281 Hedge Fund Shares and 2,840,470 Managed Liquidity Shares (14.99% of the issued share capital of each share class) subject to the restrictions referred to in the notice of the AGM. This authority will expire at the AGM in 2010. Your Directors are proposing that shares bought back by the Company either be cancelled or, alternatively, be held as treasury shares with a view to their resale, if appropriate, or later cancellation. The holding of treasury shares is restricted to 10% of the Company's issued share capital of each share class and any resale of them will only take place on terms that are in the best interests of shareholders as a whole. Calling General Meetings at 14 Days' Notice New UK legislation implementing the EU Shareholder Rights Directive will, with effect from 3 August 2009, increase the notice period for a general meeting to 21 days (at present 14 days). However, companies are able to pass a special resolution permitting them to continue to call general meetings (other than AGMs) on a 14 day notice period if they allow voting by electronic means. Approval of Special Resolution 9 will therefore enable the Board to call any general meetings other than AGMs on 14 days' notice, should that be necessary. The Board recommends that shareholders vote in favour of all resolutions as each of the Directors intend to do in respect of their own shares. Patrick Gifford Chairman 20 July 2009 UK Equity Share Portfolio Manager's Report Investment Objective The investment objective of the UK Equity Portfolio is to provide shareholders with an attractive real long-term total return by investing primarily in UK quoted equities. Market and Economic Review In the 12 months to 31 May 2009, slowing UK economic growth coupled with uncertainty over the health of the banking system weighed on market sentiment. The mood was reflected by the volatile performance of the UK equity market, which, despite a strong rally in the final three months of the review period, registered a decline of 23.7% as measured by the FTSE All-Share index. One of the most remarkable events in the review period was the decision by the US government to allow Lehman Brothers to go bankrupt in September 2008. This led to a paralysis of economic activity around the world and very sharp declines in financial markets in the last quarter of 2008. Against this backdrop, policymakers acted to assist banks through nationalisations, capital injections or the issuance of state guarantees. The Bank of England's (`BoE') Monetary Policy Committee cut UK interest rates aggressively during the review period in an attempt to keep the economy from slowing. At the end of May 2009, the bank rate stood at 0.5%, the lowest level in the BoE's 315-year history. The UK economy, however, continued to deteriorate. Gross-domestic-product growth for the fourth quarter of 2008 confirmed that the economy had entered a recession, evidenced by data showing that unemployment started to rise sharply and that the government's fiscal position was deteriorating at a much faster pace than expected. The financial landscape has changed substantially over the last 12 months, with many of the world's largest financial institutions having disappeared or been restructured. Within the UK sector, the changes have been no less dramatic: HBOS was sold to Lloyds TSB following serious concerns about its viability and Bradford & Bingley's mortgage business was nationalised and its savings assets sold off to Spain's Santander. The UK government has assumed a much more prominent role in the financial services industry, part nationalising RBS and the newly formed Lloyds Banking Group, while Barclays opted not to accept government assistance, choosing instead to raise additional funding from Middle Eastern and other private sector investors. Portfolio Strategy and Review The Portfolio's net asset value, including reinvested dividends, fell by 20.0% during the 12 months to the end of May 2009, compared to a fall of 23.7% from the FTSE All Share index (total return). Borrowings were drawn down throughout the period reflecting our confidence in positive longer term returns fro the portfolio, but this has adversely impacted performance for the year. On a relative basis, the Portfolio recorded resilient performance, although it is always disappointing to report negative returns to our investors. There were a number of stocks which showed a positive return during the year, notably pharmaceutical companies Protherics (which was acquired by specialty pharmaceuticals company BTG) and AstraZeneca, non-life insurer Hiscox, and electricity company International Power. Elsewhere, the strong emphasis on defensive holdings with strong balance sheets and sustainable cashflows, delivered resilient performance despite the challenging equity-market environment. By contrast, telecommunications company BT was among the biggest negative contributors to performance as a result of contractual problems within its Global Services division. In terms of portfolio activity, several new positions were introduced into the Portfolio over the review period, with names such as International Power and Northumbrian Water now featuring in the portfolio. The holding in utility company International Power was initiated to take advantage of its sharply falling share price as a result of concerns towards a leveraged balance sheet and exposure to weakening electricity demand in its major markets of the UK, US and Australia. These factors forced the stock to fall to an attractive valuation from which a position was established in the portfolio. Elsewhere in the utility sector, Northumbrian Water was purchased as the water sector suffered in the general market move away from utilities during the review period, while the position in utility company Centrica was increased to reflect the view that the company is well-positioned to raise its prices in response to higher prices for wholesale energy. In addition, improved customer retention rates should afford Centrica a more stable earnings stream than in the past. In terms of disposals, utility company British Energy was acquired by French electricity company EDF. Retailer Marks & Spencer was sold to reflect our disappointment with its strategic initiatives, while the position in Bunzl, the global distribution services company, was sold following a period of strong performance. Outlook During the last three months, the market has staged a strong recovery led by economically sensitive sectors at the expense of defensive holdings. This rally has been based on the premise that the rate of decline in the global economy is slowing. Whilst acknowledging that some economic indicators have illustrated tentative signs of recovery, these may simply prove to be the reversal of some of the extreme trends which were witnessed in reaction to the Lehman Brothers bankruptcy. There are some substantial challenges that remain unresolved as the process of deleveraging continues and the manager remains sceptical that developed economies can experience a strong recovery by the end of the current year. When the recession does end, the recovery is unlikely to feel much more robust as unemployment will still be rising, the housing market will be subdued and most importantly the banks will still make borrowing money difficult. Against this weak economic backdrop, corporate profitability will remain under pressure, particularly in cyclical areas of the market and sectors which are exposed to the consumer economy; areas which have been avoided in the recent past and which will continue to be avoided in the fund. The focus is therefore on the more defensive parts of the market, on companies that have robust business models, strong balance sheets, visible cash generation and growing dividend streams. The recent performance of the market has offered an extremely attractive opportunity to invest in these kinds of businesses, as a large valuation gap has opened up further undervaluing some of the strongest, most resilient and cheapest stocks in the market. It is not clear when the mood of the market will shift away from its current cyclical frame of mind but what is certain is that the importance of valuation in constructing this portfolio and analysing the stockmarket over the long term will continue to be the best way to generate superior returns from equity investing. Mark Barnett Portfolio Manager 20 July 2009 Global Equity Share Portfolio Manager's Report Investment Objective The investment objective of the Global Equity Portfolio is to deliver long-term capital growth through investing principally in global securities (including UK equities). Market and Economic Review The year under review was widely regarded as the most difficult for at least a generation. Economic deterioration accelerated as access to funding was inhibited by problems in the financial sector and companies and consumers cut back on spending. The financial system in the West laboured after certain bank assets turned out to be worth much less than had been first estimated. The assets, primarily linked to the US housing market or to other forms of consumer debt, were syndicated across the world, with the majority being taken on by banks in the United States and in Europe. As US house prices crashed, the market for these assets, which were difficult to price due to their complexity, dried up. Banks were unable to lend, or were unwilling to for fear of counterparties defaulting on their loans. In the United States, some of the most recognised names on Wall Street became unviable due to bad debts caused by owning these housing-related `toxic' assets and they either had to be rescued by the US government, taken over by rival institutions or, as in the case of investment bank Lehman Brothers, left to file for bankruptcy. The repercussions of Lehman's demise were wide-ranging, as its dealings touched nearly every area of finance, and credit markets were paralysed in the immediate aftermath. It was a similar situation in other developed economies and governments were forced to step in to provide support to banks and insurance companies, in order to head off a systemic financial breakdown. Economic stimulus packages, including quantitative easing, were introduced and interest-rate cuts were made the world over. Some tentative signs that they may be working appeared towards the end of the review period and the rate of economic deterioration began to slow. With a backdrop as difficult as this, global trade diminished, corporate profitability suffered and stockmarkets fell the world over. Emerging European and western developed markets were down the most, along with Russia which was hit by sharply lower oil prices. All sectors finished lower, but defensive sectors, those which have historically provided more stable and predictable earnings during the highs and lows of a business cycle - such as telecommunications, utilities and health care - showed some resilience before weakening in the end-of-period cyclical rally. Unsurprisingly financials was the worst performing sector, with basic materials and industrials also lagging. Portfolio Performance Review Over the review period the net assets of the Portfolio fell by 16.9%, while the MSCI World index, measured in sterling (total return), fell by 19.6%. Over the same period the Portfolio's share price decreased by 16.8%, to 86.5p. The fall in the net asset value of the Portfolio was comparable to that suffered by the market in a 12-month period that included extremes of volatility and sharp changes in market direction. Our position in Wharf Holdings provided the best real returns to the portfolio. The Hong Kong-based real estate company, with interests in hotels and shopping malls, benefited from rising Chinese consumer spending. We bought our holding when its shares were on a large discount to its Net Asset Value. Other stocks contributing well to performance were: Far Eastern Textile of Taiwan; Rentokil Initial, the UK hygiene and facilities management company; Datacraft Asia, an IT services and solutions company which was taken over at a premium price; and Ping An Insurance, one of the largest insurance companies in China. Detracting the most were Unibanco and ING negatively affected by the crisis in financials, and energy heavyweights Gazprom and Petrobras, the share prices of which suffered when oil and gas prices fell heavily during the second half of 2008. Investments chosen for the trust are stock specific, with no regard to sector or geographical weighting, but as an overview the trust's best real and relative performances came from the industrial and information technology sectors, where returns were ahead of the market. The biggest detractors in real terms were energy companies and financials, but our low exposure and good relative returns in the latter, when compared to the sector benchmark, helped to limit losses. Portfolio Strategy and Major Transactions The investment strategy of the Portfolio is stock driven, using a pragmatic investment approach, based on fundamental, valuation-driven analysis. All holdings in the portfolio reflect conviction in each company and its prospects as an investment. Our valuation focus means that we tend to reduce exposure to companies when we believe they are becoming fully valued, and reinvest in names where we see more upside potential. This may give the portfolio a contrarian stance as we find value in stocks not favoured by the majority of investors. We doubled our investment exposure in the US over the year as more stock-specific opportunities were found in the country. The US's investment outlook improved from the end of the 2008 calendar year in our view, when compared to other geographic regions, but our US weighting is still relatively low. We believe that much of the poor economic news and reductions in earnings forecasts has been factored into valuations of US cyclical stocks, giving them greater upside potential and allowing us to become more positive. In other regions: we have relatively moderate exposures to Japan and continental Europe; are prominent in Asia and the UK; and have become more modest with our exposures in Latin America and emerging Europe. We stress that weightings come as a result of stocks being selected for inclusion in the investment trust, rather than being set by any geographical or sector allocation process. Our already high relative weighting towards the Pacific region also increased over the period, partly because of the region's outperformance, but also due to the purchases of some large holdings in the region, including Wharf Holdings of Hong Kong and Samsung Electronics of South Korea. In the Pacific region generally, we have little cyclical exposure. Most of our holdings in the region were bought either because we believe they look excessively cheap relative to their future prospects, they are likely to benefit from industry consolidation or are what we consider to be the best in their business (or a combination of these factors). Our investments in the Pacific region take advantage of attractive valuations in an area which features sound finances and good potential for growth. Turning to individual holdings, our largest new addition over the year was the aforementioned Wharf Holdings but away from Asia we also added large holdings in Japanese companies Hoya and Nomura. Hoya specialises in the production of advanced optical-technology products, and its share price had fallen to a highly attractive level. Similarly, our holding in Japanese broker and wider financial company Nomura was added after its shares experienced a period of underperformance which left it with, in our view, an attractive valuation. We also added holdings in pharmaceuticals companies Roche and Teva to the portfolio. Teva Pharmaceuticals is a leading generic drug manufacturer, and looks set to benefit from initiatives to lower health care costs. In the US, we added new holdings in retail electronic payments company Visa, agro-tech major Monsanto, and United Technologies. Our largest disposal saw British Energy leave the portfolio after it was taken over by French power company EDF. We took up EDF's cash offer. Outlook The profound impact of the economic contraction is changing the global corporate landscape. We expect to see further corporate failures and an upturn in M&A activity as strong companies take over their competitors. Looking longer-term, those companies which were well financed and market leading when entering the slowdown are likely to emerge even stronger as competition is eroded. They are also likely to benefit from programmes of cost cutting, improving operating performance and by focusing on profitable parts of their business. The impact of the measures introduced to stabilise the financial system, as well as monetary and fiscal stimulus, is uncertain, but recent global co-ordination is encouraging and measures to strengthen the IMF and support trade finance are combining to reduce the likelihood of its collapse. However, the process of deleveraging is ongoing and we believe that it will subdue growth for an extended period. With this perspective we continue to assess the sustainability of companies that we invest into, but we are reassured that we continue to find companies across the world that are worthy of investment. Many are less susceptible to the downturn, with resilient businesses, strong cashflow, low levels of debt and high-quality management. Despite the recent rally, the sharp declines over the latter part of 2008 and into 2009 have left many stockmarkets either looking inexpensive or at fair value and we continue to find high-quality companies trading at attractive levels. Bob Yerbury Portfolio Manager Invesco Asset Management Limited 20 July 2009 Hedge Fund Share Portfolio Manager'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 5-year period, coupled with low volatility. Capital preservation is a priority. Performance For the year to 31 May 2009, Fauchier Allocator Funds I and II (collectively the `FAF Funds') produced a negative return of 19.5%, net of fees. Since 30 November 2006, they have achieved an average annual compound return of 2.3%, compared to approximately 5.6% for the three month Sterling LIBOR. Over the same period the FAF Funds' annualised volatility has been some 11.7% and its `beta', namely the extent to which its returns are driven by a particular market or index, to the FTSE All-Share Index has been approximately 0.4 and to the Citigroup UK Gilt Index -0.3, both of which are very low. The `credit crisis' provided the backdrop to the year, and the FAF Funds' performance was dominated by the months of September and October (down 7.9% and 10.1% respectively) at the height of the crisis, during which the global financial system had to be bailed out by taxpayers and central bank initiatives. This period has resulted in the FAF Funds experiencing their first negative twelve month period since launch. The table below gives details of the FAF 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 2009 1.18% -1.06% 0.61% 2.23% 4.62% 7.71%* 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% * 5 months period to 31 May 2009 The Portfolio It is the policy of the FAF Funds to invest in a diversified portfolio of hedge funds. As at 31 May 2009 the two funds had holdings in 20 hedge funds, invested across nine different strategies. During the year one fund was purchased and one sold. At year end, the proportion of Absolute Value funds included in the FAF Funds' portfolio was approximately 75% as at 31 May 2009 compared with 76% a year earlier. Market Review The year under review saw some of the most difficult market conditions in living memory, with extreme levels of volatility in all asset classes and Central Bank intervention across the globe on an unprecedented scale. Equities - as measured by the MSCI World Index - were down by some 31%. Spreads on high-yield bonds more than trebled to all-time highs of over 1900 basis points and the VIX Volatility index touched 90 (from mid to low teens earlier in the year), reflecting the highest level of volatility on record. Having reached record highs in the summer, commodities were down sharply with the price of Brent Crude down by almost 50%. After a very volatile year, the price of Gold ended the period up by just over 10% at around $980. There were extraordinary swings in currency markets too, with the dollar and yen rising sharply against the euro and especially sterling. At the start of the year under review, market conditions initially appeared to be improving following the earlier bail-out of Bear Stearns in March 2008. Over the following months, however, conditions became increasingly difficult, culminating in September and October when almost every market and sector went into freefall. The market's distress was led by Financials with the prices of quoted securities of many major banks and other financial institutions gyrating wildly following the failure of Lehman Brothers. At this point, the viability of the financial system itself was brought into question. A number of long-established institutions were unable to withstand the strain; text books on the Great Depression and the role of the lender of last resort were dusted down as liquidity evaporated and banks proved unwilling or unable to lend to one another. To compound these problems, hedge fund managers had to contend both with severe doubt over the viability of market counterparties and with restrictions on their short-selling activities. These months were two of the most volatile for equity markets in recent times, with many investors selling across the board in a flight to the safe haven of Government Bonds. The widespread sell-off was punctuated with fierce bear market rallies, for example, in September following the announcement of the US Government's plans to purchase mortgage securities from the banking system. None of these rallies lasted longer than a few days. There was no solace to be found in commodities which, for much of the previous twelve months had been strong. Fearing a world wide recession, commodity-related stocks were sold across the board and suffered significant diminution in value. In the last quarter of the period, some rationality started to return to the markets as much of the forced de-leveraging that had caused so much trouble in the previous months was completed. The Bank of England and the Federal Reserve initiated stimulus programmes of `Quantitative Easing' via large buybacks of government securities, reversing the steep sell-off in government bonds in January and February from their December highs. Equity markets, having continued to fall steeply throughout the period rallied strongly in the final quarter. Equity market volatility subsided somewhat, but still remained at elevated levels, whilst high yield credit spreads narrowed from their all time wide levels to stand at around 1500 basis points at the end of May. Hedge Fund Strategies This was one of the worst periods ever for hedge fund investing. The combination of the crisis in the global financial system and the various policy responses created one of the most hostile environments in which hedge funds have ever had to operate. The collapse of Lehmans brought into question the viability of the entire prime broking system, as no bank looked immune, and highlighted the counterparty risk inherent in hedge fund investing. Managers' operations were severely tested as they transferred assets to the perceived stronger counterparties although fortunately the managers in the FAF funds did not have material exposure. The hastily introduced short-selling ban also created challenges. Although the `short Financials' theme in the portfolio had been declining over the period, the short-selling ban inevitably resulted in some losses. The area most adversely affected was convertible bond arbitrage, as the price of convertible bonds collapsed in part due to investors' inability to hedge the equity risk in these securities issued primarily by Financials companies. The overall result was that, for the first time since industry statistics have been compiled, a diversified hedge fund portfolio failed to protect capital in a bear market. As can be seen, most strategies included in the portfolio struggled to make positive contributions to FAF's performance during the year to 31 May 2009 with the exceptions of Short Bias and Event Driven. Given the back drop of the equity markets, there were great opportunities for our Short Bias managers who managed to generate substantial gains despite the imposition of the temporary short selling ban on Financials and other stocks in September and the strong rally in equity markets in the final quarter of the period. The year saw poor performance by our Macro managers, despite some excellent opportunities in the Macro space. September and October saw the largest of their falls as managers were overwhelmed by the extreme market volatility and violent swings in the technically-driven markets. The bulk of losses came in equity-related trades as well as Emerging Market debt and commodities. As a whole our Macro funds have disappointed and we are in the process of making substantial changes within this strategy. The sentiment-driven equity markets were particularly hazardous for our fundamental stock-picking Equity Hedged Managers. September and October were particularly difficult for the strategy as Financials experienced extreme volatility following the collapse of Lehman Brothers and the temporary short selling ban. Prompt de-leveraging by some managers however, reducing both net and gross exposures, meant that they were able to avoid the worst of the equity market fall out. The worst hit inevitably were those with higher net exposures and those invested in small cap stocks that suffered the most from the markets' sell-off. The year witnessed some of the worst panic and forced-selling of credit securities in memory and despite relatively low exposure levels our Specialist Credit managers struggled to protect capital. Gains tended to come from short positions, but were more than offset by losses from long positions, especially from managers with exposure to leveraged loans or commodity-related names. The Volatility Trading strategy, represented by our solitary Convertible Bond Arbitrage manager performed extremely poorly. The manager was overwhelmed by the collapse in the convertible bond market, partly driven by the short-selling ban and increased concerns about the security of convertible instruments in the wake of the collapse of certain financial institutions. Outlook After several years of concern about the risk/return characteristics of the opportunities in the area, we are now planning to increase our allocation to the Specialist Credit strategy. The period of wholesale de-leveraging by investment banks and other players who employed gearing has meant that there are some extremely attractive opportunities available. It is still dangerous to be bullish on corporate debt generically, but our managers believe that investments in specific instruments will be profitable even in the event of a severe economic recession resulting in corporate default. For the past year, share prices have been driven by sentiment, not fundamentals, making life very difficult for Equity Hedged managers. Intra-stock correlation has been close to all-time highs but is now beginning to subside as liquidity improves and investors re-focus on corporate cash flows, earnings and valuations. This development should present excellent conditions for fundamental stock pickers. We are less optimistic than before about the outlook for Macro hedge funds. The Central Bank policy cycle is mature, with less scope for further cuts in interest rates in 2009 and beyond. Although major asset classes will likely remain volatile, we do not expect to see pronounced directional trends of the magnitude and velocity of last year. Most importantly, we believe that the systemic issues facing the hedge fund industry have significantly abated and that excellent returns can be achieved in each of our favoured areas without the need for substantial balance-sheet leverage. Fauchier Partners LLP Portfolio Manager 20 July 2009 ManagedLiquidityS harePortfolioM anagers' 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 ongoing credit crisis caused interbank lending rates to remain elevated throughout much of the period, as banks continued to be wary of lending money to each other, as well as to other institutions. In an attempt to restore order, central banks made available billions of dollars worth of loans and cut interest rates aggressively. The Bank of England's Monetary Policy Committee (`MPC') cut the bank rate from 5% to just 0.5% by the end of the period, the lowest ever level. In several countries, including the UK and US, central banks have commenced quantitative easing by buying up government and corporate bonds. By doing so, they hope to inject more cash into the system and, crucially, bring down long-term interest rates. Interbank lending markets improved from mid October with the margin over the base rate reducing significantly. Sterling three-month LIBOR fell from 5.87% to 1.28% over the review period, having peaked at 6.31% in October. Households have also felt the effects as banks and building societies increased lending rates and tightened their lending criteria. The UK housing market weakened with both mortgage lending and house prices falling sharply, although more recently there have been tentative signs of stabilisation. In terms of inflation, although the annual CPI measure remained stubbornly above the government set 2% target, ending the period at 2.3%, the RPI measure fell to -1.2% following the impact of sharp falls in mortgage rates over the past year. Performance The Porfolio delivered a net asset value total return of 2.6% and a share price total return of 4.8%. Portfolio Strategy and Review In terms of strategy, we have maintained 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. These holdings should help to increase the investment trust's return as, although interbank lending rates have been falling, they have been significantly higher than the underlying bank rate. As UK interest rates are widely expected to remain near their current low level for a considerable time, we have added a small number of corporate bonds to the fund. These have higher interest coupons than those currently available on FRNs. In order to limit risk exposure, these corporate bonds are both short dated and of high quality. Outlook Looking ahead, we expect interest rates to be held close to 0% for sometime as we expect that economic recovery will be a slow and drawn out process with inflation remaining under control in the near term. Signs of recovery are only tentative to date and we do not believe that the MPC world risk derailing this by raising interest rates. Furthermore, with public finances under pressure there is no room for former fiscal expansion, leaving the onus on monetary policy. As things currently stand, it is difficult to envisage rate increases before mid 2010. This view appears to coincide with that of the MPC. May's Inflation Report dampened expectations of interest rate increases in 2009 and 2010 as, even on the assumption that bank rate is held at 0.5%, the MPC saw inflation below target in two year's time. Paul Read and Paul Causer Portfolio Managers Invesco Asset Management Limited 20 July 2009 UK Equity Share Portfolio - List of Investments At 31 May 2009 Ordinary shares listed in the UK unless stated otherwise Market Value % of Company Sector GBP'000 Portfolio BG Oil and Gas Producers 2,428 6.0 Imperial Tobacco Tobacco 2,247 5.7 AstraZeneca Pharmaceuticals and 2,152 5.3 Biotechnology BP Oil and Gas Producers 2,100 5.2 British American Tobacco Tobacco 1,951 4.8 Reynolds American - US common stock Tobacco 1,884 4.7 GlaxoSmithKline Pharmaceuticals and 1,831 4.5 Biotechnology Vodafone Mobile Telecommunications 1,828 4.5 Tesco Food & Drug Retailers 1,734 4.3 Royal Dutch Shell - Ordinary B Shares Oil and Gas Producers 1,577 3.9 National Grid Gas, Water and Multiutilities 1,491 3.7 Capita Support Services 1,168 2.9 BT Fixed Line Telecommunications 1,128 2.8 Centrica Gas, Water and Multiutilities 1,123 2.8 Hiscox Non-Life Insurance 1,061 2.6 International Power Electricity 1,055 2.6 Rolls Royce - Ordinary & C Shares Aerospace and Defence 1,038 2.6 Scottish & Southern Energy Electricity 1,003 2.5 Drax Electricity 943 2.3 Balfour Beatty Construction and Materials 802 2.0 BAE Systems Aerospace and Defence 734 1.8 Pennon Gas, Water and Multiutilities 730 1.8 Provident Financial General Financial 723 1.8 Northumbrian Water Gas, Water and Multiutilities 620 1.5 BTG Pharmaceuticals and 610 1.5 Biotechnology Sage Software & Computer Services 519 1.3 Homeserve Support Services 510 1.3 Tate & Lyle Food Producers 473 1.2 Beazley Non-Life Insurance 442 1.1 Just Retirement Life Insurance 425 1.1 British Airways Travel and Leisure 407 1.0 Impax Environmental Markets Equity Investment Instruments 383 1.0 UK Coal Mining 376 0.9 Rentokil Initial Support Services 360 0.9 A J Bell - Unquoted General Financial 344 0.8 Vectura Pharmaceuticals and 318 0.8 Biotechnology ARM Technology Hardware and 272 0.7 Equipment ITV Media 268 0.7 Barclays Bank - Nuclear Power Notes 28 February 2019 Electricity 223 0.6 (1) Climate Exchange Equity Investment Instruments 215 0.5 Ecofin Water & Power Opportunities - Ordinary & Subscription Equity Investment Instruments 185 0.5 Shares Helphire General Financial 145 0.4 Landkom International Food Producers 134 0.3 KCOM Fixed Line Telecommunications 133 0.3 DSG International - Ordinary & Rights June 2009 General Retailers 103 0.3 Renovo Pharmaceuticals and 87 0.2 Biotechnology XCounter AB Health Care Equipment and 16 - Services 40,299 100.0 1. Contingent Value Rights (`CVRs') referred to as Nuclear Power Notes (`NPNs') were offered by EDF as a partial alternative to its cash bid for British Energy (`BE'). The NPNs were issued by Barclays Bank. The CVRs participate in BE's existing business at the time of the takeover. Global Equity Share Portfolio - List of Investments At 31 May 2009 Market Ordinary shares unless stated otherwise Value % of Company Sector Country GBP'000 Portfolio Wharf Real Estate Hong Kong 1,153 3.8 GS-United Phosphorus P/N 22 May 2011* Materials India 1,127 3.7 Imperial Tobacco Food, Beverage & Tobacco United Kingdom 1,103 3.6 Samsung Electronics Semiconductors & Semiconductor Equipment Korea 1,030 3.4 Jardine Matheson Capital Goods Hong Kong 1,029 3.4 GlaxoSmithKline Pharmaceuticals, Biotechnology and Life Sciences United Kingdom 1,007 3.3 Novartis Pharmaceuticals, Biotechnology and Life Sciences Switzerland 976 3.2 Obrascon Huarte Capital Goods Spain 899 3.0 Lain Hoya Technology Hardware and Japan 893 3.0 Equipment Nomura Diversified Financials Japan 848 2.8 Roche Pharmaceuticals, Biotechnology and Life Sciences Switzerland 822 2.7 National Grid Utilities United Kingdom 795 2.6 Teva Pharmaceutical Pharmaceuticals, Biotechnology and Life Sciences Israel 788 2.6 Murata Technology Hardware and Japan 778 2.6 Equipment Rentokil Initial Commercial & Professional United Kingdom 755 2.5 Services Tokyo Electron Semiconductors & Semiconductor Equipment Japan 734 2.4 United Technologies Capital Goods United States 727 2.4 Reed Elsevier Media Netherlands 708 2.3 Praxair Materials United States 699 2.3 America Movil Telecommunication Services Mexico 687 2.3 Rolls Royce - Ordinary & C Capital Goods United Kingdom 686 2.3 Shares Oracle Software & Services United States 684 2.3 Visa Software & Services United States 645 2.1 Ecolab Materials United States 619 2.0 Wal-Mart Stores Food & Staples Retailing United States 599 2.0 China Insurance Insurance Hong Kong 578 1.9 Monsanto Materials United States 569 1.9 BP Energy United Kingdom 559 1.8 GS-Housing Development Finance P/N 18 November 2010* Diversified Financials India 559 1.8 Gazprom Energy Russia 557 1.8 OTE (Hellenic Telecommunication Services Greece 538 1.8 Telecom) Deere & Co Capital Goods United States 526 1.7 Telekom Austria Telecommunication Services Austria 516 1.7 Hewlett Packard Technology Hardware and United States 515 1.7 Equipment HKR International Real Estate Hong Kong 503 1.7 Vodafone Telecommunication Services United Kingdom 469 1.5 Schlumberger Energy United States 455 1.5 Home Depot Retailing United States 453 1.5 Far Eastern Textile Capital Goods Taiwan 447 1.5 Zurich Financial Insurance Switzerland 441 1.5 Services Endesa Utilities Spain 440 1.5 Google Software & Services United States 352 1.2 ABN-Bharti Airtel P/N 30 June 2011* Telecommunication Services India 331 1.1 Petroleo Brasileiro Energy Brazil 323 1.1 Amvig Capital Goods Hong Kong 252 0.9 Sterling Energy Energy United Kingdom 88 0.3 30,262 100.0 * Participation notes reflecting the performance of the underlying equity. HEDGE FUND SHARE PORTFOLIO - LIST OF INVESTMENTS At 31 May 2009 Value % of Strategy Fund Name GBP'000 Portfolio Macro Wexford Offshore Spectrum 1,026 7.4 Explorer Global 686 4.9 Drawbridge Global Macro 588 4.2 Drawbridge Global Alpha Fund 379 2.7 V Clarium Capital 270 1.9 Equity Long Bias Bay Resource Partners 742 5.3 Offshore CCM Small Cap Value 545 3.9 Equity Hedged High Volatility Visium Balanced Offshore Fund 1,530 11.0 Lansdowne UK Equity 745 5.3 Indus Pacific Smaller 600 4.3 Companies Criterion Horizons Offshore 383 2.8 Equity Hedged Low Volatility Elm Ridge Value Partners 687 4.9 Offshore Short Bias Fauchier Partners 461 3.3 CounterPoint Specialist Credit Plainfield Special Situations 960 6.9 Offshore Feeder Paulson Advantage Plus 648 4.7 Claren Road Credit Fund 257 1.8 Event Driven Harbinger Capital Partners 882 6.3 Offshore Fund I OZ Europe Overseas Fund II 669 4.8 Volatility Trading Lydian Global Opportunities 876 6.3 Fund Multiple Strategy Shepherd Investments 1,019 7.3 Total underlying hedge fund 13,953 100.0 assets Net current assets 3,171 Total underlying hedge fund 17,124 net asset value Net amount attributable to (145) note issuers Hedge fund fixed assets 16,979 MANAGED LIQUIDITY SHARE PORTFOLIO - LIST OF INVESTMENTS At 31 May 2009 2008 Market Market Value % of Value % of GBP'000 Portfolio GBP'000 Portfolio Invesco Perpetual Money Fund 14,677 78.2 18,311 82.6 AIM Short-Term Investments Company 4,081 21.8 3,865 17.4 18,758 100.0 22,176 100.0 Principal Risks and Uncertainties The Board has an ongoing process for identifying, evaluating and managing significant risks. This process is regularly reviewed by the Board and was in place throughout the year under review. The principal risk factors relating to the Company can be divided into various areas: Investment Policy There is no guarantee that the Investment Policy of the Company and its different share classes will provide the returns sought by the Company. There can be no guarantee, therefore, that the Company or its different share classes will achieve their investment objectives. Risks Applicable to the Company Shares in the Company are designed to be held over the long-term and may not be suitable as short-term investments. There can be no guarantee that any appreciation in the value of the Company's investments will occur and investors may not get back the full value of their investments. Due to the potential difference between the mid-market price of the shares and the prices at which they are sold, there is no guarantee that their realisable value will reflect their market price. The market value of a share, as well as being affected by its NAV, also takes into account its dividend yield, where applicable, and prevailing interest rates. As such, the market value of a share can fluctuate and may not always reflect its underlying NAV. The market price of a share may therefore trade at a discount to its NAV. While it is the intention of the Directors to pay dividends to holders of the UK Equity, Global Equity and Managed Liquidity Shares, the ability to do so will depend upon the level of income received from securities and the timing of receipt of such income by the Company. Accordingly, the amount of dividends paid to shareholders may fluctuate. Any change in the tax or accounting treatment of dividends or other investment income received by the Company may also affect the level of dividend paid on the shares in future years. Compulsory Conversion of a Class of Shares The continued listing on the Official List of each class of share is dependent on at least 25% of the shares in that class being held in public hands. This means that if more than 75% of the shares of any class were held by, inter alia, the Directors, persons connected with Directors or persons interested in 5% or more of the relevant shares, the listing of that class of shares might be suspended or cancelled. The Listing Rules state that the FSA may allow a reasonable period of time for the Company to restore the appropriate percentage if this rule is breached, but in the event that the listing of any class of shares were cancelled the Company would lose its investment trust status. Liability of a Portfolio for the Liabilities of Another Portfolio The Directors intend that, in the absence of unforeseen circumstances, each Portfolio will effectively operate as if it were a stand-alone company. However, investors should be aware of the following factors: * As a matter of law, the Company is a single entity. Therefore, in the event that any of the Portfolios has insufficient funds or assets to meet all of its liabilities, on a winding-up or otherwise such a shortfall would become a liability of the other Portfolios and would be payable out of the assets of the other Portfolios in such proportions as the Board may determine; and * The Companies Act 2006 prohibits the Directors from declaring any dividends in circumstances where the Company's assets represent less than one and a half times the aggregate of its liabilities. If the Company were to incur material liabilities in the future, a significant fall in the value of the Company's assets as a whole may affect the Company's ability to pay dividends on a particular class of shares, even though there are distributable profits attributable to the relevant Portfolio. Gearing Performance may be geared by use of the GBP20 million credit facility. In current market conditions, there is no guarantee that this facility could be renewed at maturity or on terms acceptable to the Company. If it were not possible to renew this facility or replace it with another lender, the amounts owing by the Company would need to be funded by the sale of securities. Gearing levels of the different Portfolios will change from time to time in accordance with the investment managers' assessments of risk and reward. As a consequence, any reduction in the value of a Portfolio's investments may lead to a correspondingly greater percentage reduction in its net asset value (which is likely to affect share prices adversely). Any reduction in the number of 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 a Portfolio's gearing. Whilst the use of borrowings by the Company should enhance the total return on a particular class of shares where the return on the underlying securities is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is falling, further reducing the total return on the shares. Similarly, the use of gearing by investment companies or funds in which the Company invests increases the volatility of the NAV of the Company's shares. Market Movements and Portfolio Performance Individual Portfolio performance is substantially dependent on the performance of the types of securities held within the investment portfolio. The prices of these securities are influenced by many factors including the general health of worldwide economies; interest rates; inflation; government policies; industry conditions; political and diplomatic events; tax laws; environmental laws; and by the demand from investors for income. The Managers strive to maximise the total return from the stocks in which they invest, but these securities are influenced by market conditions and the Board acknowledges the external influences on the performance of each Portfolio. The performance of the Managers is carefully monitored by the Board, and the continuation of the Managers' mandates is reviewed each year. The Board has established guidelines to ensure that the investment policies that are approved are pursued by the Managers. The Board and the Managers maintain an active dialogue with the aim of ensuring that the market rating of the Portfolios' shares reflects the underlying NAV; and that buy back and issuance facilities help the management of this process. The Company and the investee hedge funds are able to invest in emerging market securities. Securities of this nature involve certain risks and special considerations not typically associated with investing in other more established economies or securities markets. Past performance of the Company, and all of the securities managed by the Managers, is not necessarily indicative of future performance. For a fuller discussion of the economic and market conditions facing the Company and the current and future performance of the different Portfolios of the Company, please see both the Chairman's Statement and Managers' Reports. Hedging The Company may use derivatives for the purpose of efficient portfolio management. There may be a price correlation between price movements in the underlying securities, currency or index, on the one hand, and price movements in the investments, which are the subject of the hedge, on the other hand. In addition, an active market may not exist for a particular derivative instrument at any particular time. Regulatory and Tax Related The Company is subject to various laws and regulations by virtue of its status as a Company registered under the Companies Act 2006 and as an investment trust and its listing on the London Stock Exchange. A breach of the Income and Corporation Taxes Act 1988 (`ICTA') s842 could lead to the Company being subject to capital gains tax on the sale of its investments. A serious breach of other regulatory rules could lead to suspension from the Stock Exchange, a fine or a qualified Audit Report. Other control failures, either by the Managers or any other of the Company's service providers, could result in operational or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations. The Manager reviews the level of compliance with ICTA s842 and other financial regulatory requirements on a daily basis. All transactions, income and expenditure are reported to the Board. The Board regularly considers all risks, the measures in place to control them and the possibility of any other risks that could arise. The Board ensures that satisfactory assurances are received from service providers. The Manager's Compliance and Internal Audit Officers produce regular reports for review by the Company's Audit Committee. The hedge funds in which Fauchier invests, including managed accounts, may not be subject to any form of authorisation or regulatory supervision. Investment in such vehicles carries a higher potential risk and this should be taken into account in any investment decision. The risks and risk management policies and procedures as they relate to the financial assets and liabilities of the Company are also detailed in note 16 to the financial statements in the Annual Financial Report. Additional Risks Applicable to Managed Liquidity Shares Investors should note that the Managed Liquidity Shares are not designed to replicate the returns or other characteristics of a bank or building society deposit or money market fund. Additional Risks Applicable to Hedge Fund Shares The Fauchier Managed Funds may be indirectly exposed to gearing to the extent that investee funds are themselves geared. This can result in the hedge fund controlling more assets than it has equity. The use of leverage exposes the hedge fund to additional levels of risk from investments than would have been the case had the hedge fund not borrowed to make the investments. Hedge funds in which Fauchier Managed Funds invest may engage in short selling, which involves selling securities which are not owned at that point in time (i.e. selling borrowed securities). These transactions could expose the investee hedge fund to the risk of uncapped losses until the position is `closed-out'. Investee hedge funds may purchase put and call options, commodities and futures contracts, derivative instruments and high-yield securities. These are specialised activities and entail greater than ordinary investment risks. It is also possible that investee hedge funds invest in companies involved in acquisition attempts or tender offers or companies involved in work-outs, liquidations, spin-offs, reorganisations, bankruptcies and similar transactions, the uncertainty of which can increase the potential risk for losses by such funds. Investee hedge funds may not be subject to any form of authorisation or regulatory supervision and investment in such vehicles carries a higher potential risk. Fauchier Managed Funds may invest in hedge funds that do not permit frequent redemptions, including hedge funds that may have `lock-up' periods. This means that an investment may be relatively illiquid. DIRECTORS' RESPONSIBILITY STATEMENT in respect of the preparation of the annual financial report Directors are responsible for preparing the annual financial report in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare financial statements in accordance with United Kingdom Generally Accepted Accounting Practice. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: * select suitable accounting policies and then apply them consistently; * make judgments and estimates that are reasonable and prudent; and * state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with Company Law (as updated by the Companies Act 2006). They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors, to the best of their knowledge, state that: * the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and * the Report of the Directors includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces. Signed on behalf of the Board of Directors Patrick Gifford Chairman 20 July 2009 Income Statement for the year ended 31 May 2009 2008 Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 (Losses)/gains on - (22,521) (22,521) - 104 104 investments Gains/(losses) on currency hedges - 14 14 - (20) (20) Foreign exchange (losses)/ - (689) (689) - 59 59 gains Income - note 2 3,764 - 3,764 4,421 - 4,421 Management fees (141) (376) (517) (218) (584) (802) Performance fees - (438) (438) - (140) (140) Other expenses (488) (50) (538) (424) (30) (454) Net return before finance costs and taxation 3,135 (24,060) (20,925) 3,779 (611) 3,168 Finance costs (67) (166) (233) (109) (254) (363) Return on ordinary activities before tax 3,068 (24,226) (21,158) 3,670 (865) 2,805 Tax on ordinary activities (216) 103 (113) (368) 116 (252) Return on ordinary activities after tax for the 2,852 (24,123) (21,271) 3,302 (749) 2,553 financial year Basic return per ordinary share (note 3): - UK Equity Share Portfolio 3.3p (23.2)p (19.9)p 3.3p (10.3)p (7.0) p - Global Equity Share 2.1p (21.3)p (19.2)p 2.2p (0.1)p 2.1p Portfolio - Hedge Fund Share Portfolio (0.5)p (27.7)p (28.2)p (0.3)p 19.5p 19.2p - Managed Liquidity Share 3.6p (1.1)p 2.5p 4.4p (0.1)p 4.3p Portfolio 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 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. Reconciliation of Moments in Shareholders Funds for the year ended 31 May Share Capital Share Premium Special Redemption Capital Revenue Capital Account Reserve Reserve Reserves Reserve Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 At 31 May 2007 1,312 - 129,586 50 10,182 1,260 142,390 Cancellation of - - (4) 4 - - - deferred shares Net proceeds from issue of new shares 10 1,290 - - - - 1,300 Shares bought back and cancelled/ held in treasury (1) - (5,428) - - - (5,429) Realised gains on disposal of investments - - - - 2,749 - 2,749 Decrease in unrealised appreciation on - - - - (2,645) - (2,645) investments Losses on forward currency hedges - - - - (20) - (20) Foreign exchange gains - - - - 59 - 59 Charged to capital: - management fees - - - - (584) - (584) - performance fees - - - - (140) - (140) - other expenses - - - - (30) - (30) - finance costs - - - - (254) - (254) Tax credited to capital - - - - 116 - 116 Revenue return on ordinary activities per the income statement - - - - - 3,302 3,302 Dividends - - - - - (4,176) (4,176) At 31 May 2008 1,321 1,290 124,154 54 9,433 386 136,638 Cancellation of - - (2) 2 - - - deferred shares Shares bought back and cancelled/ held in treasury (68) - (9,828) 78 - - (9,818) Realised losses on disposal of investments - - - - (6,913) - (6,913) Increase in unrealised depreciation on - - - - (15,608) - (15,608) investments Gains on forward currency hedges - - - - 14 - 14 Foreign exchange losses - - - - (689) - (689) Charged to capital: - management fees - - - - (376) - (376) - performance fees - - - - (438) - (438) - other expenses - - - - (50) - (50) - finance costs - - - - (166) - (166) Tax credited to capital - - - - 103 - 103 Revenue return on ordinary activities per the income statement - - - - - 2,852 2,852 Dividends - - - - - (3,185) (3,185) As at 31 May 2009 1,253 1,290 114,324 134 (14,690) 53 102,364 Balance Sheet as at 31 May 2009 UK Global Hedge Managed Equity Equity Fund Liquidity Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Fixed assets Investments held at fair value 40,299 30,262 16,979 18,758 106,298 Current assets Debtors 301 121 3 364 789 Cash and short-term deposits - 2,224 - 2 2,226 301 2,345 3 366 3,015 Creditors: amounts falling due within one year (6,098) (352) (320) (179) (6,949) Net current (liabilities)/ (5,797) 1,993 (317) 187 (3,934) assets Net assets 34,502 32,255 16,662 18,945 102,364 Shareholders' funds Share capital 495 386 173 199 1,253 Share premium account - - 1,290 - 1,290 Special reserve 45,487 35,496 14,756 18,585 114,324 Capital redemption reserve 22 33 9 70 134 Capital reserves (11,709) (3,676) 647 48 (14,690) Revenue reserve 207 16 (213) 43 53 Shareholders' funds 34,502 32,255 16,662 18,945 102,364 Net asset value per ordinary Share (note 5) - basic 74.5p 89.7p 105.1p 99.8p Balance Sheet as at 31 May 2008 UK Global Hedge Managed Equity Equity Fund Liquidity Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Fixed assets Investments held at fair value 49,306 40,304 29,573 22,176 141,359 Current assets Debtors 4,011 127 - 209 4,347 Cash and short-term deposits - - 47 - 47 4,011 127 47 209 4,394 Creditors: amounts falling due within one year (8,412) (512) (77) (114) (9,115) Net current (liabilities)/assets (4,401) (385) (30) 95 (4,721) Net assets 44,905 39,919 29,543 22,271 136,638 Shareholders' funds Share capital 476 386 227 232 1,321 Share premium account - - 1,290 - 1,290 Special reserve 45,311 35,533 21,702 21,608 124,154 Capital redemption reserve 19 17 9 9 54 Capital reserves (1,172) 3,889 6,421 295 9,433 Revenue reserve 271 94 (106) 127 386 Shareholders' funds 44,905 39,919 29,543 22,271 136,638 Net asset value per ordinary Share (note 5) - basic 97.9p 110.6p 130.2p 101.0p Cash Flow Statement for the year ended 31 May 2009 2008 GBP'000 GBP'000 Net cash inflow from operating activities 2,319 2,748 Servicing of finance (256) (237) Taxation 51 22 Capital expenditure and financial investment 15,867 (6,133) Equity dividends paid (3,185) (4,175) Net cash inflow/(outflow) before management of liquid resources and financing 14,796 (7,775) Management of liquid resources (1,368) 9,607 Financing (11,927) (2,730) Increase/(decrease) in cash 1,501 (898) Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash 1,501 (898) Cashflow from movement in liquid resources 1,368 (9,607) Exchange movements (690) 78 Cash movements from changes in debt 2,109 (1,400) Movement of debt in year 4,288 (11,827) Net (debt)/funds at beginning of year (8,097) 3,730 Net debt at end of year (3,809) (8,097) Notes to the Financial Statements 1. Accounting Policies The principal accounting policies, all of which have been consistently applied throughout this year and the preceding year, are set out below. (a) Basis of preparation (i) Accounting Standards applied The financial statements have been prepared in accordance with applicable United Kingdom law and Accounting Standards and with the Statement of Recommended Practice (`SORP') `Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies in January 2009. (ii) Changes to presentation Following the publication of the new SORP, capital reserves are now shown in aggregate in the balance sheet and reconciliation of movements in shareholders' funds. This has no effect on either the net assets or earnings of the Company or the four Portfolios. (iii) Definitions used in the financial statements `Portfolio' the UK Equity Share Portfolio, the Global Equity Share Portfolio, the Hedge Fund Share Portfolio and/or the Managed Liquidity Share Portfolio (as the case may be). Comprising investment portfolio, cash, loans, debtors and other creditors, which together make up the net assets as shown in the balance sheet. `Shares' UK Equity Shares, Global Equity Shares, Hedge Fund Shares, Managed Liquidity Shares and/or Deferred Shares (as the case may be). The financial statements for the Company comprise the Income Statement, Reconciliation of Movements on Shareholders' Funds, the Total Column of the Balance Sheet, the Cash Flow Statement and the Total or Company Notes to the Financial Statements. The UK Equity, Global Equity, Hedge Fund and Managed Fund Share Portfolios' Income Statements and Balance Sheets are not required under UK Generally Accepted Accounting Practice or the SORP, but have been disclosed to assist shareholders' understanding of the assets and liabilities, and income and expenses of the different share classes. In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. In accordance with the Company's status as a UK investment company under Section 833 of the Companies Act 2006, net capital returns may not be distributed by way of a dividend. Additionally, the net revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 842 of the Income and Corporation Taxes Act 1988. (iv) Functional currency The Company's functional currency is pounds sterling as its operating activities are based in the UK and a majority of its assets, liabilities, income and expenses are in sterling, which is also the currency in which these accounts are prepared. 2. Income UK Global Hedge Managed Company Equity Equity Fund Liquidity Total 2009 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Income from investments UK dividends 1,600 329 - - 1,929 UK scrip dividends 19 - - - 19 Overseas dividends 176 644 - 144 964 Overseas scrip dividends - 61 - - 61 Unfranked investment income - - 3 741 744 - interest 1,795 1,034 3 885 3,717 Other income Deposit interest 6 31 1 4 42 Underwriting and sundry 5 - - - 5 Total income 1,806 1,065 4 889 3,764 2008 Income from investments UK dividends 1,790 377 - - 2,167 Overseas dividends 142 823 7 240 1,212 Unfranked investment income - - - 913 913 - interest 1,932 1,200 7 1,153 4,292 Other income Deposit interest 10 95 1 3 109 Underwriting and sundry 8 7 3 2 20 Total income 1,950 1,302 11 1,158 4,421 3. Basic return per ordinary Share Basic revenue, capital and total return per ordinary share is based on each of the returns 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: Average Number of Shares Share 2009 2008 UK Equity 45,354,581 47,115,373 Global Equity 35,618,724 37,842,061 Hedge Fund 20,855,531 21,334,560 Managed 20,300,485 22,062,528 Liquidity 4. Dividends Dividends paid for each applicable Share follow: 2009 2008 Number Dividend Total Number Dividend Total of Shares Rate GBP'000 of Shares Rate GBP'000 (pence) (pence) UK Equity First interim 44,997,509 1.80 810 47,935,519 1.45 695 Second interim 44,876,839 1.65 740 45,737,619 1.25 572 3.45 1,550 2.70 1,267 Global Equity First interim 35,613,603 1.20 428 37,937,789 0.90 342 Second interim 34,424,275 1.05 361 37,465,247 1.25 468 2.25 789 2.15 810 Managed Liquidity First interim 21,286,581 2.70 575 21,526,401 2.45 527 Second interim 19,348,802 1.40 271 21,872,767 1.90 416 4.10 846 4.35 943 Total paid in respect of the year 3,185 3,020 Total paid in respect of the period ended 31 - 1,156 May 2007 3,185 4,176 5. Net asset values per Share The net asset value per Share and the net assets attributable at the year end were as follows: Ordinary shares 2009 2008 Net Asset Net Asset Value per Net Assets Value per Net Assets Share Attributable Share Attributable pence GBP'000 pence GBP'000 UK Equity 74.5 34,502 97.9 44,905 Global Equity 89.7 32,255 110.6 39,919 Hedge Fund 105.1 16,662 130.2 29,543 Managed Liquidity 99.8 18,945 101.0 22,271 Net asset value per Share is based on net assets at the year end and on the number of relevant shares in issue at the year end. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 May 2009 or the year ended 31 May 2008. The financial information for 2008 is derived from the statutory accounts for 2008, which have been delivered to the Registrar of Companies. The auditors have reported on the 2008 accounts; their report was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under section 498 of the Companies Act 2006. The statutory accounts for the year ended 31 May 2009 have not yet been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 May 2009 have been finalised on the basis of the information presented by the directors in this Annual Financial Report announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The audited Annual Financial Report will be available to shareholders shortly. Copies may be obtained during normal business hours from the Company's Registered Office, 30 Finsbury Square, London, EC2A 1AG or the Company's website at www.invescoperpetual.co.uk/investmenttrusts. The Annual General Meeting will be held on 22 September 2009 at 11.30a.m. at 30 Finsbury Square, London, EC2A 1AG. By order of the Board Invesco Asset Management Limited 20 July 2009 END
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