Invesco Perpetual Select Trust plc
Annual Financial Report Announcement
Year Ended 31 May 2014
.
FINANCIAL PERFORMANCE
CUMULATIVE TOTAL RETURNS TO 31 MAY 2014
UK Equity Portfolio
ONE THREE FIVE
YEAR YEARS YEARS
Net Asset Value 18.3% 67.3% 157.2%
Share Price 9.2% 72.4% 164.1%
FTSE All-Share Index 8.9% 30.3% 92.8%
Global Equity Income Portfolio
The name and objective of this Portfolio were changed with effect from 30
November 2011.
SINCE ONE THREE FIVE
30 NOVEMBER 2011 YEAR YEARS YEARS
Net Asset Value 51.1% 9.1% 33.9% 85.2%
Share Price 63.5% 8.3% 39.8% 90.2%
MSCI World Index (£) 43.4% 7.4% 32.6% 89.0%
Balanced Risk Portfolio
The name and objective of this Portfolio were changed with effect from 8
February 2012. The strategy followed for the last two years since 8 February
2012 is substantially different to the strategy in place prior to that date.
The three and five year figures below are presented for consistency.
SINCE ONE THREE FIVE
8 FEBRUARY 2012 YEAR YEARS YEARS
Net Asset Value 14.8% 5.5% 5.6% 12.7%
Share Price 27.5% 4.5% 10.5% 19.6%
3 month LIBOR +5% pa 13.1% 5.5% 17.2% 28.9%
Managed Liquidity Portfolio
ONE THREE FIVE
YEAR YEARS YEARS
Net Asset Value 0.2% 1.5% 4.9%
Share Price 0.4% 1.9% 3.4%
Source: Thomson Reuters Datastream.
YEAR END NET ASSET VALUE, SHARE PRICE AND DISCOUNT
NET ASSET SHARE
VALUE PRICE
SHARE CLASS (PENCE) (PENCE) DISCOUNT
UK Equity 155.6 153.0 1.7%
Global Equity 150.9 148.0 1.9%
Income
Balanced Risk 118.4 116.0 2.0%
Managed Liquidity 103.3 101.4 1.9%
.
CHAIRMAN'S STATEMENT
The Company
The Company's investment objective is to provide shareholders with a choice of
investment strategies and policies, each intended to generate attractive
risk-adjusted returns.
The Company's share capital comprises four share classes: UK Equity Shares,
Global Equity Income Shares, Balanced Risk Shares and Managed Liquidity Shares,
each of which has its own separate portfolio of assets and attributable
liabilities.
The investment objectives and policies of all of the Portfolios are set out on
pages 26 to 29.
The Company enables shareholders to tailor their asset allocation to reflect
their view of prevailing market conditions. As set out on the inside of the
front cover, shareholders have the opportunity to convert between share
classes, free of capital gains tax, every three months.
Performance
The NAV total return of the UK Equity Portfolio over the year was +18.3%, which
compares with the total return of +8.9%. posted by the FTSE All-Share Index.
The NAV total return of the Global Equity Income Portfolio over the year was
+9.1%, compared with the MSCI World Index (£) total return of +7.4%.
The Balanced Risk Portfolio returned +5.5% compared with the total return of
+5.5% for its benchmark of 3 months LIBOR plus 5% per annum.
The Managed Liquidity Portfolio continued to perform as expected in the
continuing low interest environment, with an NAV total return of +0.2%.
It is pleasing that, since the reorganisation of what are now the Global Equity
Income portfolio and the Balanced Risk portfolio, all the share classes have
performed ahead of their benchmarks and are therefore delivering appropriately
to shareholders. The UK Equity portfolio has built up a very solid record of
outperformance over the last five years with a total NAV return of 157.2%
compared with one of 92.8% for the FTSE All-Share Index. It is also heartening
that the Balanced Risk portfolio has delivered returns higher than its
benchmark of Libor plus 5% since its inception, something that has proved
difficult for many absolute return funds. In the last year it recovered from a
very difficult summer, when all the asset classes in which it invests were
highly correlated and falling, to produce returns which matched the benchmark.
The last year has seen very concentrated performance; developed market equities
and credit performed very well. However, many smaller equity markets,
commodities and major government bond markets failed to follow this lead. As
the portfolio managers' commentaries on the two equity portfolios make clear
this performance has stemmed largely from the rerating of equity markets and
not from significant profit growth, although our managers have certainly added
to returns through effective stock and sector selection.
Our managers have always stressed the importance of free cash flow and a
willingness to pay dividends as expressions of a company's commitment to its
shareholders. This has meant that per share net income before special dividends
on the UK Equity portfolio has risen from 4.65p to 4.82p, although including
special dividends there has been a fall from 5.48p to 5.40p. Net income on the
Global Equity Income portfolio grew by 29% to 4.22p per share, faster than the
growth of income on the benchmark MSCI World Index of 8%. Owing to the lags
imposed by the payment of quarterly dividends this increase will only fully be
reflected in the next financial year.
Outlook
Somehow there is never a shortage of things to worry about. If it isn't the
implosion of the Euro and possible Greek exit from it, it is civil war in both
Iraq and Ukraine. I fear that without such worries there would be no
possibility of positive surprises in markets. In the meantime, equity market
investors have to grapple with a basic problem that the valuation of many
equities has risen considerably without commensurate overall improvement in
corporate profits. To put this in perspective, looking at yearly average
values, corporate earnings in the UK have barely grown at all over the last
five years whereas share prices, represented by the FTSE All-Share Index, have
grown by more than 50%. The global picture is similar; earnings of the MSCI
World Index constituents have grown by little more than 10%, on average,
whereas the Index has increased by over 50% (in sterling terms). While the
overall economic conditions of very easy monetary policy and tight fiscal
policy are very helpful for securities markets, equity markets, at least, badly
need a stronger rise in profits to make much more progress. In an environment
where economic forecasting has been difficult and many trends short-lived, the
investment approach of the Balanced Risk portfolio is a relatively reliable and
conservative one.
Despite this rather downbeat view of markets we remain confident in our
portfolio managers and believe that this period of rather sluggish growth with
low inflation is likely to continue, providing a positive background for their
sector and stock selection skills.
The majority of investors in the Company came from three corporate transactions
of the predecessor company between 1999 and 2001. Since then there have been
three changes of structure and one change of investment manager, with this
successor Company launched in 2006. Although several of the original investors
have now sold, due principally to changes in their circumstances, many still
remain and we are delighted by their loyalty. There has, however, been a major
change in the pattern of demand and many new shareholders are "execution-only"
clients of investment "platforms" provided by investment intermediaries. We are
confident that all the classes of shares that we offer are appropriate
investments for such buyers and that the company as a whole is an attractive
proposition for them. However, they have so far only been significant buyers of
the two equity-based classes, even though the conservative approach of the
Balanced Risk class should suit many such investors. Our Manager is putting
much effort into finding more effective ways of communicating with such actual
and prospective investors, but it remains difficult to measure success.
Alternative Investment Fund Managers Directive (AIFMD)
The AIFMD required the Company to appoint an alternative investment fund
manager (AIFM) and a depositary by 22 July 2014. The Board has appointed
Invesco Fund Managers Limited, a sister company of Invesco Asset Management
Limited, as the Company's AIFM. Invesco Asset Management Limited was not
eligible to be appointed as AIFM due to certain technical aspects of the AIFMD,
but will continue to provide the same operational services it did previously as
the AIFM's delegate. The AIFM is separately responsible for certain additional
risk monitoring functions under the AIFMD. The Board has appointed BNY Mellon
Trust & Depositary (UK) Limited as the Company's depositary. Similar to the
investment management arrangements, the depositary has delegated custody
functions to its affiliate, The Bank of New York Mellon, London Branch, which
previously fulfilled this function for the Company. The depositary itself is
responsible for certain additional monitoring and reporting functions under the
AIFMD. Both of these appointments were effective from 22 July 2014.
Share Class Conversions
The Company enables shareholders to tailor their asset allocation to reflect
their views of prevailing market conditions. Shareholders have the opportunity
to convert their holdings of Shares into any other class of Share, without
incurring any tax charge (under current legislation). The conversion dates
available for the next twelve months are as follows: 3 November 2014; 2
February 2015; 1 May 2015; and 3 August 2015. Should you wish to convert shares
at any of these dates, conversion forms, which are available on the Manager's
website at www.invescoperpetual.co.uk/investmenttrusts, or CREST instructions
must be received at least 10 days before the relevant conversion date.
Dividend Policy
It is the Directors' policy to distribute substantially all net revenues earned
for each share class during the period between conversion dates. Accordingly,
dividends on the UK Equity, Global Equity Income and Managed Liquidity Shares,
which will vary from year to year depending on net portfolio income, are
declared quarterly. In order to maximise the capital return on the Balanced
Risk Shares, the Directors only intend to declare dividends on the Balanced
Risk Shares to the extent required, having taken into account the dividends
paid on the other Share classes, to maintain the Company's status as an
investment trust.
Discount Policy
The Company adopted a strict discount control policy for all four share classes
in January 2013, whereby the Company offers to issue or buy back shares of all
classes with a view to maintaining the market price of the Shares at close to
their respective net asset values. The policy has been successful to date and
the level of share buy backs since its adoption has been modest. The ongoing
implementation of this policy is dependent upon the Company's authority to buy
back shares, and the Directors' authority to issue shares on a non pre-emptive
basis, being renewed at general meetings of the Company.
Share Capital Movements
During the year to 31 May 2014, the Company purchased and placed in treasury
360,000 UK Equity Shares, 150,000 Global Equity Income Shares, 457,000 Balanced
Risk Shares and 696,000 Managed Liquidity Shares. The Company also sold 200,000
Global Equity Income Shares from treasury. No Shares were cancelled from
treasury in the financial year. The Company has purchased and placed in
treasury a further 100,000 Balanced Risk Shares and 49,569 Managed Liquidity
Shares since the year end. The Board intends to use the Company's buy back
authorities when this will benefit existing shareholders as a whole and to
operate the discount control policy mentioned above, and will ask shareholders
to renew the authorities as and when appropriate.
Corporate Governance
The Board remains committed to maintaining high 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 2014,
we have complied with the provisions of the latest AIC Code of Corporate
Governance, save in respect of matters disclosed in the Corporate Governance
Statement in the Directors' Report, on page 39. In the view of the Directors,
your Board has an appropriate balance of skills, experience and length of
service and they consider its size and composition to be effective in the
governance of the Company.
Annual General Meeting (AGM)
The business of the AGM is summarised in the Directors' Report on pages 49 and
50. The meeting will be held at Invesco's city office, 6th Floor, 125 London
Wall, London EC2Y 5AS at 11.30am on 25 September 2014 and shareholders are
cordially invited to attend. Refreshments will be provided. 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
31 July 2014
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STRATEGIC REPORT
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
The year under review showed evidence of the stock market's sensitivity to the
activities of central banks. The comment last June from Ben Bernanke, Chairman
of the US Federal Reserve, that "it would be appropriate to moderate the pace
of purchases later this year" prompted market volatility, mitigated by
subsequent reassurance that US interest rates would be kept low for some time.
There was also positive news on the UK economy. Improving forecasts for UK
economic growth were complemented by the Chancellor of the Exchequer's positive
assessment of the economic outlook in his March budget.
Thus far 2014 has been challenging as concerns have grown over the outlook for
economic growth in emerging markets, most notably China, but overall, the 12
months were positive for market returns as equity valuations re-rated relative
to fixed interest and cash.
Portfolio Performance
On a total return basis, the net asset value of the UK Equity Share class rose
by 18.3% during the 12 months to the end of May 2014, compared to a rise of
8.9% in the FTSE All-Share Index.
Portfolio Strategy and Review
Significant contributions to performance came from a broad spread of the
Portfolio's holdings. The largest individual positive impact came from the
holding in BT Group. BT Group has continued to deliver results above
expectations, with profit growth driven by cost cutting as well as by the
company's dominant position in fibre and broadband. Its final results, released
in May, were accompanied by a 13% rise in the dividend and a comment that its
recently introduced BT Sport package had made a "confident start". Also within
the fixed line telecoms sector, and again a strong contributor to performance,
was TalkTalk Telecom. This initially saw its shares underperform on fears of
the impact that BT might have on its broadband strategy, but subsequently saw
its shares rise very strongly on confirmation of accelerating revenue growth.
The Portfolio's holding in Thomas Cook continued to deliver impressive
outperformance. The company announced a fund raising via a rights issue early
last year, which was well received by the stock market and put the company on a
sounder financial footing. More recent news from the company has confirmed an
improved performance at the operating level, benefiting from new revenue
growth, cost cutting, web integration and profit improvement programmes.
The Portfolio also benefited from strong performance by its holdings in the
pharmaceutical sector, notably AstraZeneca, which successfully rebuffed a
takeover approach from Pfizer. Its drug pipeline has generated a number of
pieces of good news and an increased rate of drug approvals by the US Food and
Drug Administration (FDA) is positive for the sector as a whole. BTG saw its
shares rise on news that the FDA had approved its Varithena injectable foam
treatment (previously known as Varisolve) for the non-surgical treatment of
varicose veins.
Another positive has been the Portfolio's holdings in tobacco stocks, most
notably Imperial Tobacco and US listed Reynolds American. We continue to be
attracted by the sector's earnings resilience, cash generation and ability to
deliver a rising dividend stream.
The Portfolio's investments in the support services sector experienced mixed
fortunes over the year. News flow from Capita continues to impress the market
as its pipeline of tendered work grows - now up to £5.5 billion - and Bunzl
pleased investors with an improving rate of organic revenue growth, but
particularly with a rise in its operating margin. However, there was
disappointing news from Serco. The company warned that 2014 profits would miss
market forecasts by as much as 20%, due to a reduction in its largest contract
in Australia. More positive, was news that the company is now again eligible to
bid for UK public sector contracts after the government said that it was
reassured that Serco "had developed a thorough plan for corporate renewal", and
the appointment of Rupert Soames as the company's new CEO.
The continuing political debate over retail electricity prices had a negative
impact on the share prices of SSE and Centrica. SSE's own pricing initiative
and the referral by Ofgem of the industry to the Competition Commission for a
full review led to some recovery for both companies. In its referral, Ofgem
noted that there is no meaningful evidence of wrongdoing or excessive returns,
but just that some elements of the market are not functioning as they should.
We expect the review to conclude that industry returns are not excessive, while
moves such as that by SSE are already addressing the political agenda of
pricing and transparency of margins.
The market was surprised by Rolls-Royce's first profit warning in a decade,
confirming that this year will see no growth in sales or profits. This is
largely a result of defence spending cuts, but the company claims that this is
a pause, not a change in direction, and that growth will resume in 2015. BAE
Systems similarly warned that profits would be hit by defence cuts, but also
announced the good news that it had agreed pricing with Saudi Arabia over the
rising cost of a long running Eurofighter contract.
The UK Budget led to a fall in value of the holding in Ladbrokes, as a new duty
on fixed odds betting terminals was unveiled. This followed a warning from the
company earlier in the period that profits would not match expectations,
blaming challenging trading in its on-line business.
In terms of portfolio activity, new investments were made in BP, CLS, Derwent
London, NewRiver Retail, Nimrod Sea Assets, Macau Property, G4S and
Shaftesbury. The holding in Carnival was disposed of.
Outlook
2014 to date has seen the UK equity market struggle to find a convincing
direction. Despite the well publicised improvements in economic growth in the
UK and US economies, the current valuation of the market represents a level
that reflects this optimism, but which may struggle to be maintained if the
pace of earnings growth does not accelerate. Meanwhile, the outlook is likely
to remain challenging for the foreseeable future due to a combination of
elevated valuations and an environment of continued flat corporate profit
growth. The other significant reasons for caution over the near term are the
impact of a reduction in the scale of asset purchases under the policy of
quantitative easing in the US, uncertainty about the strength of economic
growth in the developing world, especially China, and a heightened level of
political risk both in a domestic context ahead of the UK General Election and
internationally due to the Ukrainian/Russian situation and Iraq. It is unlikely
that the last two years' market performance will be repeated in the coming
year.
Despite these concerns, there remain some pockets of value within the UK equity
market. The key to navigating the near term is to remain highly vigilant about
the strength of corporate performance and to remain judicious in portfolio
selection. The Portfolio's strategy remains largely unchanged from the recent
past, with a strong preference for companies that have proven ability to grow
revenues, profits and free cash flow in this low growth world, coupled with
management teams that are fully cognisant of the need to deliver sustainable,
long term, dividend growth. It is this type of investment opportunity that
forms the majority of the portfolio and that we believe offers the potential to
deliver good risk adjusted returns over the long term.
Mark Barnett
Portfolio Manager
Invesco Asset Management Limited
31 July 2014
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UK EQUITY SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 31 MAY 2014
Ordinary shares listed in the UK unless stated otherwise
MARKET
VALUE % OF
COMPANY SECTOR† £'000 PORTFOLIO
British American Tobacco Tobacco 3,479 4.9
Imperial Tobacco Tobacco 3,115 4.4
BT Group Fixed Line 3,079 4.4
Telecommunications
AstraZeneca Pharmaceuticals & 3,040 4.3
Biotechnology
Reynolds American - US common Tobacco 3,005 4.3
stock
Roche - Swiss common stock Pharmaceuticals & 2,626 3.7
Biotechnology
BAE Systems Aerospace & Defence 2,478 3.5
GlaxoSmithKline Pharmaceuticals & 2,340 3.3
Biotechnology
Reckitt Benckiser Household Goods & Home 2,097 3.0
Construction
Novartis - Swiss common stock Pharmaceuticals & 1,921 2.7
Biotechnology
Babcock International Support Services 1,902 2.7
Thomas Cook Travel & Leisure 1,847 2.6
SSE Electricity 1,785 2.6
Legal & General Life Insurance 1,732 2.5
BP Oil & Gas Producers 1,682 2.4
Provident Financial Financial Services 1,680 2.4
Rolls-Royce - Ordinary Shares Aerospace & Defence 1,583
Rolls-Royce - C Shares 19 2.3
Bunzl Support Services 1,492 2.1
BTG Pharmaceuticals & 1,404 2.0
Biotechnology
Beazley Non-life Insurance 1,400 2.0
Reed Elsevier Media 1,390 2.0
Amlin Non-life Insurance 1,354 1.9
Capita Support Services 1,350 1.9
Compass Travel & Leisure 1,343 1.9
Hiscox Non-life Insurance 1,327 1.9
Rentokil Initial Support Services 1,268 1.8
NewRiver Retail Real Estate Investment 1,188 1.7
Trusts
Centrica Gas, Water & Multiutilities 1,131 1.6
Drax Electricity 1,123 1.6
G4S Support Services 1,101 1.6
KCOM Fixed Line 1,056 1.5
Telecommunications
Shaftesbury Real Estate Investment 985 1.4
Trusts
London Stock Exchange Financial Services 937 1.3
TalkTalk Telecom Fixed Line 936 1.3
Telecommunications
Ladbrokes Travel & Leisure 921 1.3
N Brown General Retailers 913 1.3
Lancashire Non-life Insurance 908 1.3
Workspace Real Estate Investment 797 1.1
Trusts
A J Bell - Unquoted Financial Services 781 1.1
HomeServe Support Services 747 1.1
Derwent London Real Estate Investment 694 1.0
Trusts
Macau Property Opportunities Real Estate Investment & 661 0.9
Fund Services
Serco Support Services 616 0.9
Nimrod Sea Assets Investment Instruments 526 0.8
Vectura Pharmaceuticals & 519 0.7
Biotechnology
CLS Real Estate Investment & 430 0.6
Services
Doric Nimrod Air Two - Investment Instruments 359 0.5
Preference Shares
Doric Nimrod Air Three - Investment Instruments 342 0.5
Preference Shares
Sherborne Investors Guernsey B Financial Services 299 0.4
- A Shares
Chemring Aerospace & Defence 272 0.4
PuriCore Health Care Equipment & 248 0.4
Services
Coalfield Resources Mining 87 0.1
Barclays Bank - Nuclear Power Electricity 52 0.1
Notes 28 Feb 2019(1)
HaloSource Chemicals 6 -
70,373 100.0
(1) Contingent Value Rights (CVRs) referred to as Nuclear Power Notes (NPNs)
were offered by EDF as a partial alternative to cash in its bid for British
Energy. The NPN's were issued by Barclays Bank.
† FTSE Industry Classification Benchmark.
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GLOBAL EQUITY INCOME SHARE PORTFOLIO
MANAGER'S REPORT
Investment Objective
The investment objective of the Global Equity Income Portfolio is to provide an
attractive and growing level of income return and capital appreciation over the
long term, predominantly through investment in a diversified portfolio of
equities worldwide.
Market and Economic Review
Global equity markets rose modestly over the twelve months to 31 May 2014 on
signs that economic growth is accelerating, amid loose monetary policies in the
developed world. The lessening of a number of macroeconomic risks, notably the
European financial crisis, has served to support the upward trajectory.
For much of 2013, the sectors that saw the largest gains were typically
cyclical sectors, such as consumer discretionary, industrials, financials and
technology. Relative underperformance came from the typically defensive areas,
such as utilities, energy and consumer staples. However, 2014 has seen a
reversal of this. Global equity markets pulled back in January amid increasing
emerging market turbulence, precipitating a rotation out of the previously
high-performing cyclical areas and into more defensive areas. Markets have
regained the lost ground since January, against a backdrop of subdued economic
recovery in the developed world and heightened emerging market volatility.
However, there are two major risks to the global growth scenario - Chinese
growth concerns and the Russia-Ukraine crisis.
Portfolio Performance
On a total return basis the net asset value of the Global Equity Income Share
class increased by 9.1% over the 12 months to the end of May 2014, compared to
a return of 7.4% by the MSCI World Index (£, net of withholding tax).
Portfolio Strategy and Review
Europe has seen a return to favour with the share prices of European companies
rising above the broader market over the 12-month period. Strong stock picking
within the region and an overweight exposure versus the MSCI World index was a
strong contributor to the portfolio outperforming the benchmark index. In the
UK, at a macro level, economic growth expectations improved consistently over
the review period. Additionally, the portfolio benefited from strong stock
picking within the UK.
Political uncertainty continued to dominate within emerging markets. As
developed market equities pulled away from their emerging market counterparts,
Asia Pacific ex-Japan lagged the broader market, however stock picking within
the region was strong.
In terms of sector exposure, performance was mixed across defensives and
cyclicals, given the shift in sector leadership. Over the 12 months, stock
selection was particularly strong within industrials (Atlantia), financials
(Legal & General), consumer discretionary (RTL Group, Reed Elsevier) and
telecoms (BT Group).
The IT and energy sectors were strong performers at the broader market level,
however the portfolio had an underweight exposure to both versus the MSCI World
index, which detracted from relative returns.
Outlook
Our outlook remains one of slow and prolonged economic recovery, against a
backdrop of European sovereign debt concerns and fiscal austerity in the
developed world. Our strategy remains constant, to invest in high quality
companies at attractive valuations. We view high quality companies as those
that can sustain profit margins and deliver positive returns through the
economic cycle. We view growing and sustainable dividends as clear evidence of
these sorts of companies. In aggregate therefore, we target companies that
offer attractive yields, sustainable income and capital upside.
Nick Mustoe
Portfolio Manager
Invesco Asset Management Limited
31 July 2014
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GLOBAL EQUITY INCOME SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 31 MAY 2014
Ordinary shares unless stated otherwise
Market
Value % of
Company Industry group† Country† £'000 Portfolio
Novartis Pharmaceuticals, Switzerland 2,305 4.5
Biotechnology and Life
Sciences
Roche Pharmaceuticals, Switzerland 1,988 3.9
Biotechnology and Life
Sciences
BT Group Telecommunication Services UK 1,913 3.7
Reed Elsevier Media Netherlands 1,885 3.7
Nordea Banks Sweden 1,597 3.1
RTL Media Luxembourg 1,569 3.1
Legal & General Insurance UK 1,559 3.0
British American Food, Beverage and Tobacco UK 1,539 3.0
Tobacco
Microsoft Software and Services US 1,507 2.9
HSBC Banks UK 1,397 2.7
Pfizer Pharmaceuticals, US 1,395 2.7
Biotechnology and Life
Sciences
United Technologies Capital Goods US 1,271 2.5
Macy's Retailing US 1,205 2.3
Allianz Insurance Germany 1,200 2.3
Adecco Commercial and Professional Switzerland 1,179 2.3
Services
Atlantia Transportation Italy 1,146 2.1
Deutsche Boerse Diversified Financials Germany 1,094 2.1
Amgen Pharmaceuticals, US 1,085 2.1
Biotechnology and Life
Sciences
PNC Financial Banks US 1,045 2.0
Services
Canon Technology Hardware and Japan 1,035 2.0
Equipment
Statoil Energy Norway 1,031 2.0
Indra Sistemas - Software and Services Spain 1,009 2.0
Series A
Philip Morris Food, Beverage and Tobacco US 984 1.9
International
Baxter Health Care Equipment and US 980 1.9
International Services
Kellogg Food, Beverage and Tobacco US 946 1.9
BP Energy UK 946 1.9
UBS Diversified Financials Switzerland 880 1.7
Koninklijke Ahold Food and Staples Retailing Netherlands 879 1.7
Chevron Energy US 851 1.7
Hutchison Whampoa Capital Goods Hong Kong 823 1.6
Aon - A Shares Insurance US 805 1.6
United Parcel Transportation US 799 1.5
Service - B Shares
GlaxoSmithKline Pharmaceuticals, UK 773 1.5
Biotechnology and Life
Sciences
Honda Motor Automobiles and Components Japan 764 1.5
Rolls-Royce Capital Goods UK 712 1.4
Covidien Health Care Equipment and US 663 1.3
Services
BNP Paribas Banks France 661 1.3
Target Retailing US 660 1.3
Hiscox Insurance UK 620 1.2
Orkla Food, Beverage and Tobacco Norway 609 1.2
Ladbrokes Consumer Services UK 587 1.1
Standard Chartered Banks UK 583 1.1
Amcor Materials Australia 534 1.0
Nielsen Commercial and Professional US 522 1.0
Services
ComfortDelGro Transportation Singapore 521 1.0
Booker Food and Staples Retailing UK 512 1.0
Mead Johnson Food, Beverage and Tobacco US 487 1.0
Nutrition
Orora Materials Australia 487 1.0
DS Smith Materials UK 486 1.0
Yue Yuen Industrial Consumer Durables and Apparel Hong Kong 478 0.9
Catlin Insurance UK 448 0.9
Viacom - B Shares Media US 444 0.9
Non-Voting
51,398 100.0
† MSCI and Standard & Poor's Global Industry Classification Standard.
.
BALANCED RISK SHARE PORTFOLIO
MANAGER'S REPORT
Investment Objective
The investment objective of the Balanced Risk Portfolio is to provide
shareholders with an attractive total return in differing economic and
inflationary environments, and with low correlation to equity and bond market
indices by gaining exposure to three asset classes: debt securities, equities
and commodities.
Market and Economic Review
The year experienced a challenging start with all three asset classes (stocks,
bonds and commodities) selling off in unison in June 2013. As the calendar year
progressed, the third quarter saw better performance from the more risky asset
classes. Both equities and commodities experienced solid gains as the US
Federal Reserve (Fed) sought to allay fears around their proposed tapering of
asset purchases and a host of geopolitical and weather-related factors impacted
resource prices. Bonds trod water during the same period as reduced safe haven
demand and fears of increased interest rates was tempered by the surprise
"no-taper" announcement by the Fed in September.
Equity markets ended 2013 on an impressive note with further gains across most
developed markets as investor preference for risky assets elevated index
levels, even in the face of the Fed's tapering announcement. Commodities were
mixed as cyclical commodity complexes such as energy and industrial metals
posted gains while agricultural commodities and precious metals prices pulled
back. Bonds saw yields climb as demand for safe-haven assets continued to ebb.
The equity charge ended in the first quarter of 2014. Equity returns were
largely negative through mid-March and only select markets, such as Europe and
the US, broke into positive territory at the end of that month. Government
bonds - the least popular asset class coming into the year - generated
attractive gains as investors sought safe havens from equity and commodity
volatility and geopolitical issues. Commodities were mixed, with the precious
metals and agricultural complexes up strongly, while industrial metals prices
languished and energy-related commodities turned in a mixed performance.
The period ended with concerns about tensions between Russian separatists and
the Ukrainian government increasing and further weakness in US GDP on the first
revision of the initial estimate. Against this backdrop, government bond yields
contracted, perhaps signalling a combination of flight to safety behaviour
amongst investors and concerns over whether the global economy was set to slow.
Equity prices continued to grind higher, shrugging off the concerns that bonds
espoused. Commodities turned in a mixed performance as agricultural commodities
pulled back from their weather-induced rally and precious metals prices fell.
Crude oil, key distillates and copper prices were able to manage gains for the
period.
Portfolio Performance
The Balanced Risk Portfolio posted a positive net asset value total return for
the year of +5.5%, which matched the performance of the benchmark, 3 month
LIBOR plus 5%.
Portfolio Strategy and Update
The Balanced Risk strategy seeks to achieve returns through balancing risk
exposure between three asset classes, being equities, bonds and commodities.
The asset class weightings are determined using a proprietary investment
process, with assets being selected according to three key criteria: a
correlation matrix to ensure diversification; the ability to generate excess
returns; and specific liquidity and transparency criteria. Exposure to the
asset classes is principally obtained through highly liquid and transparently
priced exchange-traded futures contracts, with cash and cash equivalents being
held as collateral.
For the year to 31 May 2014, exposure to global equities was by far the largest
positive contributor to performance (+3.6%). Bonds posted a small positivereturn for the period (+0.6%) while commodities slightly detracted from
performance (-0.3%). The strategic allocations determined by our proprietary
analysis process are augmented by tactical active overlays, over or
underweighting exposures relative to those strategic allocations. From a
tactical standpoint, equities were the largest contributor during the year
(0.9%) while commodities, again, slightly detracted (-0.5%).
June 2013 was a difficult month for the strategy with all three asset classes
posting negative returns. The high correlation among stocks, bonds and
commodities is very rare and tends to be short-lived, so the strategy's process
was not altered and returned to positive territory in July 2013. Over the
following quarter, the strategy posted positive returns led by equities.
Tactical positioning benefited results as all six markets carried overweights
over the entire quarter, with positioning in Europe and US small caps proving
to be most rewarding. Commodities also aided results as all four commodity
complexes posted gains. Tactical positioning in commodities detracted from
results in the quarter as negative results from positioning in agriculture and
industrial metals slightly outweighed positive results from positioning in
precious metals and energy commodities. Bonds were marginally negative as gains
in Japanese and German government bonds were diluted by negative results from
the UK, US, Australia and Canada. Tactical positioning in bonds produced flat
results as positive returns from a general underweight to UK Gilts were negated
by losses from general overweights to Germany and the US.
The strategy also posted positive returns for the last quarter of 2013. Results
were led by US large caps which posted double digit returns, but price advances
in Japanese, US small cap and European equities were impressive as well.
Tactical positioning from equities helped results as we remained overweight
across all of the markets within the portfolio. With the exception of Japan,
government bond yields in the developed markets drifted higher on continued
fears of tapering of asset purchases by the Fed, improving economic data and
deteriorating investor sentiment towards safe haven assets. As a result,
strategic and tactical contributions from government bonds detracted from
returns. From an asset class perspective, commodities detracted from results
while performance was mixed at the complex level.
The strategy started off 2014 outperforming the benchmark. Government bond
markets led results for the first quarter of 2014 as investors sought to avoid
the volatility of equity and commodity markets. European government bond
markets posted impressive results, each returning over 2.5%, while Asian
markets generated smaller gains. Commodities added to performance over the
quarter mainly led by price appreciation across the soy complex. Equities were
the weakest asset class for the quarter, pulling back after impressive gains in
2013. Japan, which led all developed markets last year, is leading to the
downside this year as concerns are mounting as to whether the stimulus policy
in place is having the desired effects. Hong Kong and UK equity prices also
drifted lower while US large caps, small caps and European equities broke into
positive territory in March. The tactical allocation within bonds was
beneficial to returns during the quarter. Conversely, the contribution form the
tactical element within the equity segment detracted from results. Within
commodities, positive results from being underweight across the complexes early
in the period were reversed as prices rebounded strongly later.
Outperformance of the benchmark continued in both April and May of 2014. Bonds
rallied in April as investors sought safe haven assets on renewed concerns
about the Russia-Ukraine crisis. They also reacted positively to weak economic
data, seeming to be following the same pattern that emerged at the end of the
first and second quantitative easing (QE) programmes, where yields dropped as
they were wound down. This continued through May and tactical overweights of
bonds further improved results. Commodity results were mixed as price gains
seen in many agricultural commodities reversed course as weather turned more
favourable, alleviating concerns over poor crop yields. This shift in weather
produced notable weakness in cotton and elements of the soy complex. Equities
also produced mixed results in the two months, with pullbacks of Japanese and
US small cap equities offsetting continued growth in other markets.
Outlook
Investors will undoubtedly continue to focus on economic data to gauge whether
or not the weak GDP number from the first quarter will be repeated, or if
growth comes back to the fore. Also at issue is whether the weak economic data
puts a kink in the Fed's continued wind-down of QE3, and whether or not the
European Central Bank embarks on some type of easing programme as opposed to
simply continuing its narrative strategy of recent memory. If economic data
continues to come in weak, and the ECB disappoints on its "whatever it takes"
measures, risky assets prices may be vulnerable.
Tactical positioning for the year end continues to overweight all six
government bond markets, but those overweights have been tempered, especially
in Australia. All six equity markets also continue to carry a positive tactical
signal and the overweight to Hong Kong and Japan has been increased
month-over-month. Within commodities, exposure to soy beans and soy meal was
increased modestly while the underweight to soybean oil was flattened. In the
energy complex, the overweight to Brent crude was increased while the
overweights to WTI crude and unleaded gas have softened. Gas oil now carries an
underweight. In the metals complex, we have strengthened the overweight to
copper while maintaining an underweight to aluminium. Gold has been moved to
neutral from overweight and silver continues with an underweight.
Scott Wolle
Chief Investment Officer
Invesco Global Strategies
31 July 2014
.
BALANCED RISK SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 31 MAY 2014
YIELD MARKET % OF
% VALUE NET
£'000 ASSETS
Short-Term Investments
Short-Term Investment Company (Global Series) 0.322 2,750 29.5
UK Treasury Bill 1 Sep 2014 0.254 2,598 27.9
UK Treasury Bill 10 Nov 2014 0.315 2,995 32.1
Total Short Term Investments 8,343 89.5
Hedge Funds(1)
Harbinger Class PE Holdings 25 0.3
Harbinger Class L Holdings 2 -
Total Hedge Funds 27 0.3
Total Fixed Asset Investments 8,370 89.8
(1) The hedge fund investments are residual holdings of the previous investment
strategy, which are in process of disposal and/or liquidation.
Derivative instruments held in the Balanced Risk Share Portfolio are shown on
the following page. At the year end all the derivative instruments held in the
Balanced Risk Share Portfolio were exchange traded futures contracts. Holdings
in futures contracts that are not exchange traded are permitted as explained in
the investment policy on page 28.
BALANCED RISK SHARE PORTFOLIO
LIST OF DERIVATIVE INSTRUMENTS
AT 31 MAY 2014
NOTIONAL
NOTIONAL EXPOSURE
EXPOSURE AS % OF
£'000 NET ASSETS
Government Bonds
Australia 1,922 20.6
UK 1,883 20.2
Canada 1,864 20.0
Germany 1,792 19.2
Japan 1,279 13.7
US 901 9.7
Total Bond Futures 9,641 103.4
Equities
Europe 738 7.9
Hong Kong 705 7.6
UK 683 7.3
US large cap 515 5.5
Japan 493 5.3
US small cap 406 4.4
Total Equity Futures 3,540 38.0
Commodities
Energy
Brent crude 257 2.8
WTI crude 238 2.6
Gasoline 224 2.4
Gas oil 106 1.1
Agriculture
Soy meal 238 2.5
Sugar 230 2.5
Soy bean 223 2.4
Live cattle 33 0.4
Industrial Metals
Copper 622 6.6
Aluminium 81 0.9
Precious Metals
Gold 445 4.7
Silver 168 1.8
Total Commodities Futures 2,865 30.7
Total Derivative Instruments 16,046 172.1
The targeted annualised risk (volatility of monthly returns) for the portfolio
as listed above is analysed as follows:
ASSET CLASS RISK CONTRIBUTION
Bonds 3.6% 37.1%
Equities 3.7% 37.4%
Commodities 2.5% 25.5%
9.8% 100.0%
.
MANAGED LIQUIDITY SHARE PORTFOLIO
MANAGER'S REPORT
Investment Objective
The investment objective of the Managed Liquidity Share Portfolio is to produce
an appropriate level of income return combined with a high degree of security.
Market and Economic Review
The UK economy has been steadily recovering over the last 12 months. In the
first quarter of 2014, real GDP grew 0.8%. The annual rate of growth was 3.1%.
The total output of the economy has now recovered to a level just below its
pre-recession peak in the first quarter of 2008. Rising employment, retail
sales growth and business sentiment all indicate that this recovery in growth
can continue.
UK inflation (annual change in the Consumer Price Index) fell from 2.4% in
April 2013 to 1.8% in April 2014. In March this year, inflation moved below the
Bank of England's target of 2.0% for the first time since 2009. The bank's
Monetary Policy Committee (MPC) voted unanimously to maintain the bank's
interest rate at a record low of 0.5% throughout the period, stating recently
that any interest rate rises will be gradual and policy will be aimed at
supporting growth for some time yet. The committee also agreed to leave the
level of the bank's asset purchase programme (quantitative easing) at £375
billion.
In May 2013 the US Federal Reserve (Fed) announced that if economic data
followed its expected path, the Fed would begin to reduce its programme of
asset purchases. In response, core government bond yields rose sharply over the
summer months. However, they remain low by historical standards and have fallen
in recent months, partly in response to weaker-than-expected inflation in the
major developed economies. The yield on the 10 year Gilt closed May at 2.57%,
up 57 basis points (bps) from its level at the end of May 2013. The 2 year Gilt
yield also rose over the year, up 29 bps at 0.67%.
In interbank lending markets, over the 12 months to the end of May, sterling
three-month LIBOR, the interest rate at which the largest banks lend money to
one another, rose by 2.5bps to close on 0.53%.
Portfolio Strategy and Review
Our investment strategy is achieved by investing in the Invesco Perpetual Money
Fund and Short-Term Investments Company (Global Series), each of which invests
in a diversified portfolio of high quality sterling denominated short-term
money market instruments. We continue to believe that UK interest rates will
remain near their current low levels for a considerable time - because we think
any policy adjustments will be gradual and drawn out. The Invesco Perpetual
Money Fund has positions in a number of government, quasi-government and
corporate bonds. These have higher interest coupons than those currently
available on floating-rate notes (FRNs). In order to limit risk exposure, these
bonds are both short dated and of high quality.
Outlook
The MPC is showing willingness to keep interest rates low and inflationary
pressures are low at present in the UK economy. However, given the strength of
the economic recovery in recent quarters and the evidence from business
sentiment and employment data for further growth in coming quarters, the market
is now expecting that interest rates will start to rise within the next 12
months. We agree that such a move is likely in this timeframe, but continue to
envisage only modest tightening.
Stuart Edwards
Portfolio Manager
Invesco Asset Management Limited
31 July 2014
.
MANAGED LIQUIDITY SHARE PORTFOLIO
LIST OF INVESTMENTS
AS AT 31 MAY
2014 2013
MARKET MARKET
VALUE % OF VALUE % OF
£'000 PORTFOLIO £'000 PORTFOLIO
Invesco Perpetual Money Fund† 4,870 83.2 7,600 84.5
Short-Term Investments Company 980 16.8 1,396 15.5
(Global Series)
5,850 100.0 8,996 100.0
† At the year end the Managed Liquidity Share Portfolio held 10.3% (2013:
12.8%) of the outstanding shares in the Invesco Perpetual Money Fund.
.
BUSINESS REVIEW
Invesco Perpetual Select Trust plc is a UK investment company with four Share
classes, each of which has separate investment objectives, as set out below,
and is represented by a separate Portfolio (as defined by note 1(a)(ii) on page
63). The strategy the Board follows to achieve its overall objective and those
of each Share class is to set investment policy and risk guidelines, together
with investment limits, and to monitor how they are applied. These are also set
out below and have been approved by shareholders.
The business model the Company has adopted to achieve its objectives has been
to contract the services of a third party Manager to manage the portfolios in
accordance with the Board's strategy and under its oversight. The Manager also
provides company secretarial, marketing and general administration services.
During the financial year to 31 May 2014 the contracted Manager was Invesco
Asset Management Limited. As explained in the Chairman's Statement, subsequent
to the year end this changed to Invesco Fund Managers Limited. This is purely
an administrative change consequent to implementation of the Alternative
Investment Fund Managers Directive and does not change the business model of
the Company.
Investment Policy
The Company's and respective Share classes' investment objectives, investment
policies and risk and investment limits combine to form the `Investment Policy'
of the Company.
The Company
Investment Objective and Policy
The Company's investment objective is to provide shareholders with a choice of
investment strategies and policies, each intended to generate attractive
risk-adjusted returns.
The Company's share capital comprises four Share classes: UK Equity Shares,
Global Equity Income Shares, Balanced Risk Shares and Managed Liquidity Shares,
each of which has its own separate portfolio of assets and attributable
liabilities. The investment objectives, policies and risks and limits of the
Portfolios for these classes are explained below. With the exception of
borrowings, the limits for the Company and the four Share classes are measured
at the point of acquisition of investments, unless otherwise stated.
Investment Limits of the Company
The Board has prescribed limits on the Investment Policy of the Company, among
which are the following:
- no more than 15% of the gross assets of the Company may be invested in a
single investment; and
- no more than 10% of the gross assets of the Company may be invested in other
listed investment companies.
UK Equity Share Portfolio (`UK Equity Portfolio')
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.
Investment Policy and Risk
The UK Equity Portfolio is invested primarily in UK equities and equity-related
securities of UK companies across all market sectors.
The Manager invests the UK Equity Portfolio so as to maximise exposure to the
most attractive sectors and securities, within a portfolio structure that
reflects the Manager's view of the macroeconomic environment. The Manager does
not set out to manage the risk characteristics of the UK Equity Portfolio
relative to the FTSE All-Share Index (the `benchmark index') and the investment
process may result in potentially very significant over or underweight
positions in individual sectors versus the benchmark. The size of weightings
will reflect the Manager's view of the attractiveness of a security and the
degree of conviction held. If a security is not considered to be a good
investment, it will not be held in the UK Equity Portfolio, irrespective of its
weight in the benchmark index.
The Manager controls the stock-specific risk of individual securities by
ensuring that the UK Equity Portfolio is always diversified across market
sectors. In-depth and continual analysis of the fundamentals of investee
companies allows the Manager to assess the financial risks associated with any
particular security.
It is expected that, typically, the Portfolio will hold between 45 and 80
securities.
The Directors believe that the use of borrowings can enhance returns to
shareholders and the UK Equity Portfolio will generally use borrowings in
pursuing its investment objective.
Investment Limits
The Board has prescribed limits on the investment policy of the UK Equity
Portfolio, among which are the following:
- no more than 12% of the gross assets of the UK Equity Portfolio may be held
in a single investment;
- no more than 10% of the gross assets of the UK Equity Portfolio may be held
in other listed investment companies;
- no more than 20% of the gross assets of the UK Equity Portfolio may be held
in overseas assets; and
- borrowings may be used to raise equity exposure up to a maximum of 25% of the
net assets of the UK Equity Portfolio where it is considered appropriate.
Global Equity Income Share Portfolio (`Global Equity Income Portfolio')
Investment Objective
The investment objective of the Global Equity Income Portfolio is to provide an
attractive and growing level of income return and capital appreciation over the
long term, predominantly through investment in a diversified portfolio of
equities worldwide.
Investment Policy and Risk
The Portfolio will be invested predominantly in a portfolio of listed, quoted
or traded equities worldwide, but may also hold other securities from time to
time including, inter alia, fixed interest securities, preference shares,
convertible securities and depositary receipts. Investment may also be made in
regulated or authorised collective investment schemes. The Portfolio will not
invest in companies which are not listed, quoted or traded at the time of
investment, although it may have exposure to such companies where, following
investment, the relevant securities cease to be listed, quoted or traded. The
Manager will at all times invest and manage the Portfolio's assets in a manner
that is consistent with spreading investment risk, but there will be no rigid
industry, sector, region or country restrictions.
The Portfolio may utilise derivative instruments including index-linked notes,
contracts for differences, covered options and other equity-related derivative
instruments for efficient portfolio management and investment purposes. Any use
of derivatives for investment purposes will be made on the basis of the same
principles of risk spreading and diversification that apply to the Portfolio's
direct investments, as described above.
It is expected that, typically, the Portfolio will hold between 45 and 80
securities.
The Directors believe that the use of borrowings can enhance returns to Global
Equity Income shareholders, and the Global Equity Income Portfolio may use
borrowings in pursuing its investment objective.
The Company's foreign currency investments will not be hedged to sterling as a
matter of general policy. However, the Manager may employ currency hedging,
either back to sterling or between currencies (i.e. cross hedging of portfolio
investments).
The Board has prescribed the following limits on the investment policy of the
Global Equity Income Portfolio:
- no more than 20% of the gross assets of the Global Equity Income Portfolio
may be invested in fixed interest securities;
- no more than 10% of the gross assets of the Global Equity Income Portfolio
may be held in a single investment;
- no more than 10% of the gross assets of the Global Equity Income Portfolio
may be held in other listed investment companies; and
- borrowings may be used to raise equity exposure up to a maximum of 20% of the
net assets of the Global Equity Income Portfolio, when it is considered
appropriate to do so.
Balanced Risk Share Portfolio (`Balanced Risk Portfolio')
Investment Objective
The investment objective of the Balanced Risk Portfolio is to provide
shareholders with an attractive total return in differing economic and
inflationary environments, and with low correlation to equity and bond market
indices by gaining exposure to three asset classes: debt securities, equities
and commodities.
Investment Policy and Risk
The Portfolio utilises two main strategies: the first seeks to balance the risk
contribution from each of three asset classes (equities, bonds and
commodities), with the aim of reducing the probability, magnitude and duration
of capital losses, and the second seeks to shift tactically the allocation
among the assets with the aim of improving expected returns.
The Portfolio is constructed so as to balance risk: by asset class (bonds,
equities and commodities) and by asset within each asset class. Neutral
weighting is achieved when each asset class contributes an equal proportion of
the total Portfolio risk and each asset contributes an equal proportion of the
total risk for its respective asset class. The Manager is permitted to actively
vary asset class weightings, subject to a maximum of 150% and a minimum of 50%
of each asset class' neutral weight. The Manager is also permitted to actively
vary individual asset weightings, provided the asset class guidelines are not
violated. Asset weights may not be less than zero (short) and may on occasion
exceed twice the neutral weight.
The Portfolio will be mainly invested directly in highly liquid and
transparently priced exchange-traded futures contracts, with cash and cash
equivalents being held as collateral. However, the Portfolio may also be
invested in equities, equity-related securities and debt securities (including
floating rate notes). Financial derivative instruments (including but not
limited to futures and total return swaps) are used only to achieve additional
long exposure to the three asset classes. The Portfolio may also use financial
derivative instruments, including currency futures and forwards, for efficient
portfolio management, hedging and investment purposes. Financial derivative
instruments will not be used to create net short positions in any asset class.
The derivatives portfolio will comprise between 20 and 30 investment positions,
typically around 25.
It is expected that the Portfolio's investments will mainly be denominated in
sterling. Any non-sterling derivative investments may be hedged back into
sterling at the discretion of the Manager when it is economic to do so.
The Board has prescribed the following limits on the investment policy of the
Balanced Risk Portfolio:
- the aggregate notional amount of financial derivative instruments positions
may not exceed 250% of the net assets of the Balanced Risk Portfolio; and
- no more than 10% of the gross assets of the Balanced Risk Portfolio may be
held in other listed investment companies.
Managed Liquidity Share Portfolio (`Managed Liquidity Portfolio')
Investment Objective
The investment objective of the Managed Liquidity Portfolio is to produce an
appropriate level of income return combined with a high degree of security.
Investment Policy and Risk
The Managed Liquidity Portfolio invests in a range of sterling-based or related
money market fund assets (which may include transferable securities, money
market instruments, warrants, collective investment schemes and deposits),
either directly or indirectly through money market funds, including funds
managed by Invesco Perpetual or its associated companies.
The Managed Liquidity Portfolio generally invests in money market funds
authorised as UCITS schemes, which are required under governing regulations to
provide a prudent spread of risk. In the event that the Managed Liquidity
Portfolio is invested directly in securities and instruments, the Manager will
observe investment restrictions and risk diversification policies that are
consistent with UCITS regulations.
Investment Limits
The Board has prescribed limits on the investment policy of the Managed
Liquidity Portfolio, among which are the following:
- no more than 10% of the gross assets of the Managed Liquidity Portfolio may
be held in a single investment, other than authorised money market funds or
high quality sovereign debt securities; and
- no more than 5% of the gross assets of the Managed Liquidity Portfolio may be
held in unquoted investments, other than authorised money market funds.
Performance
The Board reviews the performance of the Company by reference to a number of
Key Performance Indicators, at either a Company or Portfolio level, which
include the following:
• Investment Performance
• Dividends
• Discount/Premium
• Ongoing Charges Ratio
Investment Performance
To assess investment performance the Board monitors the net asset value (NAV)
performance of the individual Share classes relative to that of benchmark
indices it considers to be appropriate. However, given the requirements and
constraints of the investment objectives and policies followed, no index can be
expected to fully represent the performance that might reasonably be expected
from any one or all of the Company's Share classes.
The NAV total return performance of each of the Portfolios over the year to 31
May 2014 and of relevant benchmark indices were as follows:
UK Equity Portfolio 18.3%
FTSE All-Share Index 8.9%
Global Equity Income Portfolio 9.1%
MSCI World Index (£) 7.4%
Balanced Risk Portfolio 5.5%
3 month LIBOR plus 5% 5.5%
Managed Liquidity Portfolio 0.2%
Source: Thomson Reuters Datastream.
Other performance periods, together with share price total returns, are shown
on page 2.
Dividends
UK Equity Portfolio
The Board aims to distribute by way of dividend substantially all of the net
income of the UK Equity Portfolio after attributable expenses and taxation. The
Manager aims to maximise total returns from the UK Equity Portfolio, which
typically commands a yield premium to the market. However, the pursuit of
income is not a prime objective and dividend yields do not constrain investment
decisions. The Board intends to declare dividends on the UK Equity Portfolio
prior to each conversion.
Net revenue for the year for the UK Equity Portfolio was £2,110,000 (2013: £
2,080,000).
The Directors have declared and paid four interim dividends for the year ended
31 May 2014 totalling 5.30p per UK Equity Share (2013: 5.55p). In 2014, income
was enhanced by the receipt of £227,000 (2013: £314,000) of non-recurring
special dividends, equivalent to 0.58p (2013: 0.83p).
Global Equity Income Portfolio
The investment objective of the Global Equity Income Portfolio is to provide an
attractive and growing level of income return and capital appreciation and the
Board aims to distribute by way of dividend substantially all of the net income
of the Global Equity Income Portfolio after attributable expenses and taxation.
The Board intends to declare dividends on the Global Equity Income Portfolio
prior to each conversion.
Net revenue for the year for the Global Equity Income Portfolio was £1,322,000
(2013: £1,002,000).
The Directors have declared and paid four interim dividends for the year ended
31 May 2014 totalling 3.55p (2013: 3.4p) per Global Equity Income Share.
Balanced Risk Portfolio
In order to maximise the capital return on the Balanced Risk Shares, the
Directors only intend to declare dividends on the Balanced Risk Shares to the
extent required, having taken into account the dividends paid on the other
Share classes, to maintain the Company's status as an investment trust under
section 1158 of the Corporation Tax Act 2010. Accordingly, no dividends are
required to be declared or paid for the year.
Managed Liquidity Portfolio
The Board intends to declare dividends on the Managed Liquidity Portfolio prior
to each conversion, subject to the level of income available. Net revenue for
the year for the Managed Liquidity Portfolio was £2,000 (2013: £9,000).
As a consequence of continued very low interest rates and in view of the
administrative costs involved, no interim dividend was declared on the Managed
Liquidity Shares for the year ended 31 May 2014 (2013: nil).
Discount/(Premium)
The Company has a strict discount control policy in place for all four Share
classes, whereby the Company offers to issue or buy back Shares of all classes
with a view to maintaining the market price of the shares at close to their
respective net asset values, and by so doing, avoid significant overhangs or
shortages in the market. It is the Board's policy to buy back shares and to
sell shares from treasury on terms that do not dilute the net asset value
attributable to existing shareholders at the time of the transaction.
The ongoing implementation of this policy is dependent upon the authorities to
buy back and issue shares being renewed by shareholders. Notwithstanding the
intended effect of this policy, there can be no guarantee that the Company's
shares will trade at close to their respective net asset values. Shareholders
should also be aware that there is a risk that this discount policy may lead to
a reduction in the size of the Company over time.
The Manager and the Board closely monitor movements in the Company's share
prices and dealings in the Company's shares. Shares bought back and sold from
treasury in the year are summarised on page 32. At 31 May 2014, the share
prices, net asset values (NAV) and the discount or premium of the four Share
classes were as follows:
2014 2013
NET ASSET SHARE NET ASSET SHARE
VALUE PRICE VALUE PRICE DISCOUNT/
SHARE CLASS (PENCE) (PENCE) DISCOUNT (PENCE) (PENCE) (PREMIUM)
UK Equity 155.6 153.0 1.7% 136.3 145.3 (6.6)%
Global Equity 150.9 148.0 1.9% 141.0 140.0 0.7%
Income
Balanced Risk 118.4 116.0 2.0% 112.2 111.0 1.1%
Managed Liquidity 103.3 101.4 1.9% 103.1 101.0 2.0%
Ongoing Charges Ratio
The expenses of managing the Company are reviewed by the Board at every
meeting. The Board aims to minimise the ongoing charges ratio, which provides a
guide to the effect on performance of all annual operating costs of the
Company. The ongoing charges ratio is calculated by dividing the annualised
ongoing charges, including those charged to capital, by the average undiluted
net asset value during the year.
At the year end the ongoing charges ratios of the Company and the different
Share classes, excluding any performance fees, were as follows:
GLOBAL
UK EQUITY BALANCED MANAGED
COMPANY EQUITY INCOME RISK LIQUIDITY
2014 1.02% 1.07% 1.04% 1.15% 0.31%
2013 1.05% 1.12% 1.10% 1.18% 0.36%
The additional impact of performance fees of £561,000 (2013: £431,000) for the
UK Equity Portfolio was:
UK
COMPANY EQUITY
2014 0.47% 0.98%
2013 0.42% 0.97%
During the year the Global Equity Income Portfolio outperformed its benchmark
by more than the 1% hurdle to earn a performance fee of £56,000 (2013: £
88,000). However, the Portfolio must earn further performance fees of £259,000
(2013: £315,000) to offset past underperformance before a fee will become
payable.
Financial Position
Assets and Liabilities
At 31 May 2014 the Company's total net assets were £124.1 million (2013: £114.7
million). These comprised portfolios of equity investments, debt securities,
derivative instruments, cash and other debtors and liabilities. The Company has
a £20 million multi currency revolving credit facility of which £12.6 million
(2013: £7.7 million) was drawn at the year end.
Due to the readily realisable nature of the Company's assets, cash flow does
not have the same significance as for an industrial or commercial company. The
Company's principal cash flows arise from the purchase and sales of investments
and the income from investments against which must be set the costs of
borrowing and management expenses.
Borrowing Policy
Borrowing policy is under the control of the Board, which has established
effective parameters for the Portfolios. Borrowing levels are regularly
reviewed. As part of the Company's Investment Policy, the approved borrowing
limits are 25% of the net assets of the UK Equity Portfolio and 20% of net
assets of the Global Equity Income Portfolio.
Issued Share Capital
All Share classes have a nominal value of 1p per Share.
The following table summarises the Company's share capital at the year end and
movements during the year and subsequently.
GLOBAL
UK EQUITY BALANCED MANAGED
NUMBER OF SHARES EQUITY INCOME RISK LIQUIDITY
Shares in issue at the year end:
- excluding treasury 39,509,336 31,443,444 7,876,821 5,699,509
- held in treasury 6,523,000 4,438,000 4,050,000 6,638,216
Movements during the year:
Increase/(decrease) arising from 1,618,864 441,158 (595,277) (2,246,260)
conversions
Shares bought back into treasury (360,000) (150,000) (457,000) (696,000)
Average price thereon 149.8p 142.7p 110.1p 101.3p
Shares issued from treasury - 200,000 - -
Average price thereon n/a 142.0p n/a n/a
Movement since the year end:
Shares bought back - - 100,000 49,569
Average price thereon n/a n/a 115.0p 100.75p
Further details on net changes in issued share capital are set out in note 13
to the financial statements. No treasury shares were cancelled in the year.
Current and Future Developments
As part of the Company's overall strategy, the Company seeks to manage its
affairs so as to maximise returns for shareholders. The Board also has a
longer-term objective to increase the size of the Company in the belief that
increasing the assets of the Company in this way will make the Company's Shares
more attractive to investors and improve the liquidity of the Shares.
Details of trends and factors likely to affect the future development,
performance and position of the Company's business can be found in the
portfolio managers' reports and further details as to the risks affecting the
Company are set out under `Principal Risks and Uncertainties' starting on the
next page.
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 will provide
the returns sought by the Company. There can be no guarantee, therefore, that
the Company will achieve its investment objective.
The Board has established guidelines to ensure that the Investment Policy of
the Company is pursued by the Manager.
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 mid-market price.
The market value of a Share, as well as being affected by its NAV, is also
influenced by its dividend yield, where applicable, and prevailing interest
rates, amongst other things. As such, the market value of a Share can fluctuate
and may not reflect its underlying NAV. Shares may therefore trade at discounts
to their NAVs. However, the Board has adopted a strict discount control policy
that applies to all Share classes and the Board and the Manager monitor the
market rating of each Share class.
While it is the intention of the Directors to pay dividends to holders of the
UK Equity, Global Equity Income 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 FCA 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.
Accordingly, if at any time the Board considers that the listing of any class
of Shares on the Official List is likely to be cancelled and the loss of such
listing would mean that the Company would no longer be able to qualify for
approval as an investment trust under section 1158 of the Corporation Tax Act
2010, the Board may serve written notice on the holders of the relevant Shares
requiring them to convert their Shares into another Share class.
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.
Market Movements and Portfolio Performance
Individual Portfolio performance is substantially dependent on the performance
of the securities (including derivative instruments) held within the 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 Manager
strives to maximise the total return from Portfolios, but the investments held
are influenced by market conditions and the Board acknowledges the external
influences on the performance of each Portfolio. Further risks specifically
applicable to the Balanced Risk Shares are set out on page 35.
The performance of the Manager is carefully monitored by the Board, and the
continuation of the Manager's mandates is reviewed each year. The Board has
established guidelines to ensure that the investment policies of each class of
Share are pursued by the Manager.
The Company is 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 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 on pages 3 to 5 and the
portfolio managers' reports starting on page 7.
Gearing
Performance may be geared by use of the £20 million 364 day multicurrency
revolving credit facility. There is no guarantee that this facility will be
renewed at maturity or on terms acceptable to the Company. If it were not
possible to renew this facility or replace it with one from another lender, the
amounts owing by the Company would need to be funded by the sale of securities.
The Company also has an uncommitted overdraft facility of up to 10% of net
assets.
The Balanced Risk Portfolio may also be geared (by up to 250%, according to the
investment policy set out on page 28) by means of the derivative instruments in
which it invests. This is discussed separately below, under the heading:
Additional Risks Applicable to Balanced Risk Shares.
Gearing levels of the different Portfolios will change from time to time in
accordance with the respective portfolio 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
NAV (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 those investments.
Hedging
The Company may use derivatives to hedge its exposure to currency or other
risks and for the purpose of efficient portfolio management. There may be a
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 hedging 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 public limited investment Company registered under the Companies Act 2006,
its status as an investment trust and its listing on the London Stock Exchange.
Loss of investment trust status 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 London Stock Exchange, a
fine or a qualified Audit Report. Other control failures, either by the Manager
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 the Corporation Tax Act 2010
and other financial regulatory requirements on a daily basis. All transactions,
income and expenditure are reported to the Board. The Board regularly considers
the risks to which the Company is exposed, the measures in place to control
them and the potential for other risks to 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 risks and risk management policies and procedures as they relate to the
financial assets and liabilities of the Company are also detailed in note 17 to
the financial statements.
Additional Risks Applicable to Balanced Risk Shares
The use of financial derivative instruments forms part of the investment policy
and strategy of the Balanced Risk Portfolio. The Portfolio's ability to use
these instruments may be limited by market conditions, regulatory limits and
tax considerations. Such strategies might be unsuccessful and incur losses for
the Portfolio, due to market conditions. Since the financial derivative
instruments may be geared instruments, their use may result in greater
fluctuations in the net asset value of the Portfolio. However, the range of
exposures held is designed to mitigate this effect. The absence of a liquid
market for any particular instrument at any particular time may inhibit the
ability of the Manager to liquidate a financial derivative instrument at an
advantageous price. However, the Manager actively seeks the most liquid means
of obtaining the required exposures. The degree of leverage inherent in futures
trading potentially means that a relatively small price movement in a futures
contract may result in an immediate and substantial loss to the Portfolio and
possible impediments to efficient portfolio management or the ability to meet
repurchase requests or other short term obligations because of the margin
required to be deposited to cover such loss. Financial derivative instruments
will not be used to create net short positions in any asset class.
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.
Reliance on Third Party Service Providers
The Company has no employees and the Directors have all been appointed on a
non-executive basis. The Company is therefore reliant upon the performance of
third party service providers for its executive function. In particular, the
Manager performs services that are integral to the operation of the Company and
the Depositary holds assets on its behalf. Failure by any service provider to
carry out its obligations to the Company in accordance with the terms of its
appointment could have a materially detrimental impact on the operation of the
Company and could affect the ability of the Company to successfully pursue its
Investment Policy.
The Manager may be exposed to reputational risks. In particular, the Manager
may be exposed to the risk that litigation, misconduct, operational failures,
negative publicity and press speculation, whether or not it is valid, will harm
its reputation. Any damage to the reputation of the Manager could result in
potential counterparties and third parties being unwilling to deal with the
Manager and by extension the Company. This could have an adverse impact on the
ability of the Company to successfully pursue its Investment Policy.
Corporate Governance
The Board is committed to maintaining high standards of Corporate Governance.
The Corporate Governance Statement required by the UKLA Listing Rules is set
out in the Directors' Report on page 39.
Audit Committee Report
The extended audit committee report required by the UK Corporate Governance
Code is included in the Directors' Report on pages 42 to 44. There are no areas
of concern in relation to the financial statements to bring to the attention of
shareholders.
Board Diversity
The Company's policy on diversity is set out on page 42. The Board comprises
four non-executive directors. All served throughout the year and their summary
biographical details are shown on page 37. There are no female directors on the
Board and no target has been set in this respect. However, although Directors
see no immediate need to refresh or enlarge the Board, diversity, including
gender, forms part of the Board's deliberations on succession planning.
Social and Environmental Matters
As an investment company with no employees, property or activities outside
investment, environmental policy has limited application. The Manager considers
various factors when evaluating potential investments. While a company's policy
towards the environment and social responsibility, including with regard to
human rights, is considered as part of the overall assessment of risk and
suitability for the portfolio, the Manager does not make investment decisions
on environmental and social grounds alone. The Manager applies the United
Nations Principles for Responsible Investment.
This Strategic Report was approved by the Board on 31 July 2014
Invesco Asset Management Limited
Company Secretary
.
DIRECTORS' RESPONSIBILITY STATEMENT
in respect of the preparation of the annual financial report
The 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 the law the Directors have elected to prepare financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice. Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and of the profit or loss and cash flows 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 judgements 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 adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and which
enable them to ensure that the financial statements comply with the Companies
Act 2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, a Directors' Report, which includes a Corporate
Governance Statement, and a Directors' Remuneration Report that comply with
that law and those regulations.
The Directors who held office at the date of approval of the Directors' Report
confirm that:
• in so far as they are aware, there is no relevant audit information of which
the Company's Auditor is unaware; and
• each Director has taken all the steps that he ought to have taken as a
Director in order to make himself aware of any relevant audit information and
to establish that the Company's Auditor is aware of that information.
The Directors of the Company each confirm to the best of their knowledge that:
• the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position, net return and cash flows of the Company;
• this annual financial report 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.; and
• this annual financial report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Company's performance, business model and strategy.
Signed on behalf of the Board of Directors
Patrick Gifford
Chairman
31 July 2014
.
INCOME STATEMENT
FOR THE YEAR ENDED 31 MAY
2014 2013
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
NOTES £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments 9 - 11,398 11,398 - 24,869 24,869
Gains on derivative 10 135 506 641 83 946 1,029
instruments
Foreign exchange losses - (77) (77) - (68) (68)
Income 2 4,258 204 4,462 3,828 - 3,828
Management fees 3 (257) (598) (855) (219) (499) (718)
Performance fees 3 - (561) (561) - (431) (431)
Other expenses 4 (377) (5) (382) (356) (4) (360)
Net return before finance 3,759 10,867 14,626 3,336 24,813 28,149
costs and taxation
Finance costs 5 (42) (96) (138) (38) (87) (125)
Return on ordinary 3,717 10,771 14,488 3,298 24,726 28,024
activities before tax
Tax on ordinary 6 (183) - (183) (165) - (165)
activities
Return on ordinary 3,534 10,771 14,305 3,133 24,726 27,859
activities after tax for
the financial year
Basic return per ordinary 7
share:
- UK Equity Share 5.40p 19.19p 24.59p 5.48p 36.29p 41.77p
Portfolio
- Global Equity Income 4.22p 9.23p 13.45p 3.28p 32.88p 36.16p
Share Portfolio
- Balanced Risk Share 1.15p 4.46p 5.61p 0.42p 8.80p 9.22p
Portfolio
- Managed Liquidity Share 0.02p (0.01)p (0.01)p 0.10p 0.03p 0.13p
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.
Income statements for the different Share classes are shown on pages 11, 16, 22
and 25 for the UK Equity, Global Equity Income, Balanced Risk and Managed
Liquidity Share Portfolios respectively.
.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED 31 MAY
SHARE SHARE SPECIAL CAPITAL CAPITAL REVENUE TOTAL
CAPITAL PREMIUM RESERVE REDEMPTION RESERVES RESERVE £'000
£'000 ACCOUNT £'000 RESERVE £'000 £'000
£'000 £'000
At 31 May 2012 1,071 1,290 87,160 324 2,101 50 91,996
Cancellation of (1) - (7) 8 - - -
deferred shares
Shares bought back - - (2,006) - - - (2,006)
and held in
treasury
Realised gains on - - - - 5,374 - 5,374
disposal of
investments
Movement in - - - - 19,495 - 19,495
investment holding
gains
Gains on - - - - 946 - 946
derivative
instruments
Foreign exchange - - - - (68) - (68)
losses
Charged to
capital:
- management fees - - - - (499) - (499)
- performance fees - - - - (431) - (431)
- other expenses - - - - (4) - (4)
- finance costs - - - - (87) - (87)
Revenue return on - - - - - 3,133 3,133
ordinary
activities per the
income statement
Dividends - note 8 - - - - - (3,160) (3,160)
At 31 May 2013 1,070 1,290 85,147 332 26,827 23 114,689
Cancellation of (8) - - 8 - - -
deferred shares
Shares issued from - - 284 - - - 284
treasury
Shares bought back - - (1,964) - - - (1,964)
and held in
treasury
Realised gains on - - - - 7,758 - 7,758
disposal of
investments
Movement in - - - - 3,640 - 3,640
investment holding
gains
Gains on - - - - 506 - 506
derivative
instruments
Foreign exchange - - - - (77) - (77)
losses
Special dividend - - - - 204 - 204
taken to capital
Charged to
capital:
- management fees - - - - (598) - (598)
- performance fees - - - - (561) - (561)
- other expenses - - - - (5) - (5)
- finance costs - - - - (96) - (96)
Revenue return on - - - - - 3,534 3,534
ordinary
activities per the
income statement
Dividends - note 8 - - - - - (3,185) (3,185)
As at 31 May 2014 1,062 1,290 83,467 340 37,598 372 124,129
.
BALANCE SHEET
AS AT 31 MAY 2014
GLOBAL
UK EQUITY BALANCED MANAGED
EQUITY INCOME RISK LIQUIDITY TOTAL
NOTES £'000 £'000 £'000 £'000 £'000
Fixed assets
Investments held at fair 9 70,373 51,398 8,370 5,850 135,991
value through profit or loss
Current assets
Derivative assets held at 10 - - 357 - 357
fair value through profit or
loss
Debtors 11 394 266 8 56 724
Cash, short-term deposits 364 298 696 141 1,499
and cash held at brokers
758 564 1,061 197 2,580
Creditors: amounts falling
due within one year
Derivative liabilities held 10 - - (54) - (54)
at fair value through profit
or loss
Other creditors 12 (9,647) (4,529) (54) (158) (14,388)
Net current (liabilities)/ (8,889) (3,965) 953 39 (11,862)
assets
Net assets 61,484 47,433 9,323 5,889 124,129
Shareholders' funds
Share capital 13(a) 460 359 120 123 1,062
Share premium 14 - - 1,290 - 1,290
Special reserve 14 40,879 31,165 6,079 5,344 83,467
Capital redemption reserve 14 73 78 22 167 340
Capital reserves 14 19,913 15,424 2,020 241 37,598
Revenue reserve 14 159 407 (208) 14 372
Shareholders' funds 61,484 47,433 9,323 5,889 124,129
Net asset value per ordinary 15 155.6p 150.9p 118.4p 103.3p
share
These financial statements were approved and authorised for issue by the Board
of Directors on 31 July 2014.
Signed on behalf of the Board of Directors
Patrick Gifford
Chairman
.
BALANCE SHEET
AS AT 31 MAY 2013
GLOBAL
UK EQUITY BALANCED MANAGED
EQUITY INCOME RISK LIQUIDITY TOTAL
NOTES £'000 £'000 £'000 £'000 £'000
Fixed assets
Investments held at fair 9 60,741 42,856 9,300 8,996 121,893
value through profit or loss
Current assets
Derivative assets held at 10 - - 366 - 366
fair value through profit or
loss
Debtors 11 611 207 8 69 895
Cash, short-term deposits 107 689 563 12 1,371
and cash held at brokers
718 896 937 81 2,632
Creditors: amounts falling
due within one year
Derivative liabilities held 10 - - (191) - (191)
at fair value through profit
or loss
Other creditors 12 (9,330) (121) (29) (165) (9,645)
Net current (liabilities)/ (8,612) 775 717 (84) (7,204)
assets
Net assets 52,129 43,631 10,017 8,912 114,689
Shareholders' funds
Share capital 13(a) 444 354 126 146 1,070
Share premium 14 - - 1,290 - 1,290
Special reserve 14 39,074 30,463 7,259 8,351 85,147
Capital redemption reserve 14 73 78 20 161 332
Capital reserves 14 12,415 12,540 1,630 242 26,827
Revenue reserve 14 123 196 (308) 12 23
Shareholders' funds 52,129 43,631 10,017 8,912 114,689
Net asset value per ordinary 15 136.3p 141.0p 112.2p 103.1p
share
.
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MAY
NOTES 2014 2013
£'000 £'000
Net cash inflow from operating activities 16(a) 2,630 2,629
Servicing of finance 16(b) (140) (125)
Taxation (7) (31)
Capital expenditure and financial investment 16(b) (2,312) 1,957
Equity dividends paid 8 (3,185) (3,160)
Net cash inflow before management of liquid (3,014) 1,270
resources and financing
Financing 16(b) 3,219 (1,942)
Increase/(decrease) in cash 205 (672)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
FOR THE YEAR ENDED 31 MAY
NOTES 2014 2013
£'000 £'000
Increase/(decrease) in cash 205 (672)
Exchange movements (77) (6)
Cash movements from changes in debt (4,900) (62)
Movement in year (4,772) (740)
Net debt at beginning of year (6,329) (5,589)
Net debt at end of year 16(c) (11,101) (6,329)
.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
Accounting policies describe the Company's approach to recognising and
measuring transactions during the year and the position of the Company at the
year end.
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 (the `SORP') `Financial Statements of Investment Trust
Companies and Venture Capital Trusts' issued by the Association of Investment
Companies in January 2009.
(ii) Definitions used in the financial statements
`Portfolio' the UK Equity Share Portfolio, the Global Equity Income Share
Portfolio, the Balanced Risk Share Portfolio and/or the Managed Liquidity Share
Portfolio (as the case may be). Each comprises, or may include, an investment
portfolio, derivative instruments, cash, loans, debtors and other creditors,
which together make up the net assets as shown in the balance sheet.
`Share' UK Equity Share, Global Equity Income Share, Balanced Risk Share,
Managed Liquidity Share and/or Deferred Share (as the case may be).
The financial statements for the Company comprise the income statement,
reconciliation of movements in shareholders' funds, the total column of the
balance sheet, the cash flow statement and the company totals shown in the
notes to the financial statements.
The UK Equity, Global Equity Income, Balanced Risk and Managed Liquidity Share
Portfolios' income statements and summaries of net assets do not represent
statutory accounts, are not required under UK Generally Accepted Accounting
Practice or the SORP, and are not audited. These 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.
(iii) Functional and presentational currency
The Company's functional currency is 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.
(iv) Transactions and balances
Transactions in foreign currency, whether of a revenue or capital nature, are
translated to sterling at the rates of exchange ruling on the dates of such
transactions. Foreign currency assets and liabilities are translated to
sterling at the rates of exchange ruling at the balance sheet date. Any gains
or losses, whether realised or unrealised, are taken to the capital reserve or
to the revenue account, depending on whether the gain or loss is of a capital
or revenue nature. All gains and losses are recognised in the income statement.
(b) Financial instruments
(i) Recognition of financial assets and financial liabilities
The Company recognises financial assets and financial liabilities when the
Company becomes a party to the contractual provisions of the instrument. The
Company will offset financial assets and financial liabilities if the Company
has a legally enforceable right to set off the recognised amounts and interests
and intends to settle on a net basis.
(ii) Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the
cash flows from the asset expire or it transfers the right to receive the
contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are
transferred. Any interest in the transferred financial asset that is created or
retained by the Company is recognised as an asset.
(iii) Derecognition of financial liabilities
The Company derecognises financial liabilities when its obligations are
discharged, cancelled or expired.
(iv) Trade date accounting
Purchases and sales of financial assets are recognised on trade date, being the
date on which the Company commits to purchase or sell the assets.
(v) Classification and measurement of financial assets and financial
liabilities
Financial assets
The Company's investments, including financial derivative instruments, are
classified as held at fair value through profit or loss.
Financial assets held at fair value through profit or loss are initially
recognised at fair value, which is taken to be their cost, with transaction
costs expensed in the income statement, and are subsequently valued at fair
value.
Fair value for investments, including financial derivative instruments, that
are actively traded in organised financial markets is determined by reference
to stock exchange quoted bid prices at the balance sheet date. For investments
that are not actively traded or where active stock exchange quoted bid prices
are not available, fair value is determined by reference to a variety of
valuation techniques including broker quotes and price modelling. Where there
is no active market, unlisted/illiquid investments are valued by the Directors
at fair value with regard to the International Private Equity and Venture
Capital Valuation Guidelines and on recommendations from Invesco's Pricing
Committee, both of which use valuation techniques such as earnings multiples,
recent arm's length transactions and net assets.
Financial liabilities
Financial liabilities, excluding financial derivative instruments but including
borrowings, are initially measured at fair value, net of transaction costs and
are subsequently measured at amortised cost using the effective interest
method.
(c) Hedging and derivatives
Forward currency contracts entered into for hedging purposes are valued at the
appropriate forward exchange rate ruling at the balance sheet date. Profits or
losses on the closure or revaluation of positions are included in capital
reserves.
Futures contracts may be entered into for hedging purposes and any profits and
losses on the closure or revaluation of positions are included in capital
reserves. Where futures contracts are used for investment exposure any net
income/expense is included within revenue in the income statement.
Derivative instruments are valued at fair value in the balance sheet.
Derivative instruments may be capital or revenue in nature and, accordingly,
changes in their fair value are recognised in revenue or capital in the income
statement as appropriate.
(d) Income
Dividend income from investments is recognised when the shareholders' right to
receive payment has been established, normally the ex-dividend date. UK
dividends are stated net of related tax credits. Interest income arising from
cash is recognised on an accruals basis and underwriting commission is
recognised as earned. Income from fixed income securities is recognised in the
income statement using the effective interest method.
(e) Expenses and finance costs
All expenses are accounted for on an accruals basis. Expenses are charged to
the income statement and shown in revenue except where expenses are presented
as capital items when a connection with the maintenance or enhancement of the
value of the investments held can be demonstrated and thus management fees and
finance costs are charged to revenue and capital to reflect the Directors'
expected long-term view of the nature of the investment returns of each
Portfolio.
Finance costs are accounted for on an accruals basis using the effective
interest rate method.
The management fees and finance costs are charged in accordance with the
Board's expected split of long-term returns, in the form of capital gains and
income, to the applicable Portfolio as follows:
PORTFOLIO REVENUE CAPITAL
RESERVE RESERVE
UK Equity 30% 70%
Global Equity Income 30% 70%
Balanced Risk 30% 70%
Managed Liquidity 100% -
Any entitlement to any investment performance fee which is attributable to the
UK Equity and/or the Global Equity Income Portfolio is allocated 100% to
capital as it is directly attributable to the capital performance of the
investments in that Portfolio.
(f) Dividends
Dividends are accrued in the financial statements when there is an obligation
to pay the dividends at the balance sheet date.
(g) Taxation
Tax expense represents the sum of tax currently payable and deferred tax. Any
tax payable is based on taxable profit for the period. Taxable profit differs
from profit before tax as reported in the income statement because it excludes
items of income or expenses that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The Company's
liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the balance sheet date.
For the Company, any allocation of tax relief to capital is based on the
marginal basis, such that tax allowable capital expenses are offset against
taxable income. Where individual Portfolios have extra tax capacity arising
from unused tax allowable expenses which can be used by a different Portfolio,
this extra tax capacity is transferred between the Portfolios at a valuation of
1% of the amount transferred.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are recognised for all taxable temporary differences.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Investment trusts which have approval under the appropriate tax regulations are
not liable for taxation on capital gains.
(h) Cash and cash funds
Cash and cash funds in the balance sheet comprise cash at bank, short-term
deposits, cash held at brokers and, for the UK Equity and Global Equity Income
Portfolios, investments in Short-Term Investments Company (Global Series), all
with a maturity of three months or less.
2. Income
This note shows the income generated from the portfolio (investment assets) of
the Company and income received from any other source.
2014 GLOBAL
UK EQUITY BALANCED MANAGED COMPANY
EQUITY INCOME RISK LIQUIDITY TOTAL
£'000 £'000 £'000 £'000 £'000
Income from investments
UK dividends:
- ordinary dividends 1,815 341 - - 2,156
- special dividends 227 - - - 227
2,042 341 - - 2,383
UK scrip dividends 27 - - - 27
Overseas dividends
- ordinary dividends 426 1,268 10 3 1,707
- special dividends - 97 - - 97
Unfranked investment income - - - - 22 22
interest
Interest from Treasury bills - - 20 - 20
2,495 1,706 30 25 4,256
Other income
Deposit interest 1 - 1 - 2
Total income 2,496 1,706 31 25 4,258
2013
Income from investments
UK dividends:
- ordinary dividends 1,765 239 - - 2,004
- special dividends 314 3 - - 317
2,079 242 - - 2,321
UK scrip dividends 9 - - - 9
Overseas dividends 332 1,088 10 8 1,438
Unfranked investment income - - 1 - 36 37
interest
Interest from Treasury bills - - 22 - 22
2,420 1,331 32 44 3,827
Other income
Deposit interest - - 1 - 1
Total income 2,420 1,331 33 44 3,828
Special dividends of £60,000 (2013: nil) on UK Equity and £144,000 (2013: nil)
on Global Equity Income have been recognised in capital.
3. Management and performance fees
This note shows the fees paid to the Manager. These are made up of the
individual Portfolio management fees calculated quarterly on the basis of the
value of the assets being managed and the performance fees of the UK Equity and
Global Equity Income Portfolios.
2014 GLOBAL
UK EQUITY BALANCED MANAGED COMPANY
EQUITY INCOME RISK LIQUIDITY TOTAL
£'000 £'000 £'000 £'000 £'000
Management fee:
- charged to revenue 133 103 21 - 257
- charged to capital 309 240 49 - 598
Total management fee 442 343 70 - 855
Performance fee charged to 561 - - - 561
capital
2013
Management fee:
- charged to revenue 104 87 24 4 219
- charged to capital 242 203 54 - 499
Total management fee 346 290 78 4 718
Performance fee charged to 431 - - - 431
capital
Details of the investment management agreement, are given on page 46 in the
Directors' Report.
During the year, the Global Equity Income Portfolio outperformed its benchmark
by more than the 1% hurdle to earn a performance fee of £56,000 (2013: £
88,000). However the Portfolio must earn further performance fees of £259,000
(2013: £315,000) to offset past underperformance before a fee will become
payable.
4. Other expenses
The other expenses of the Company are presented below; those paid to the
Directors and the auditor are separately identified.
2014 GLOBAL
UK EQUITY BALANCED MANAGED COMPANY
EQUITY INCOME RISK LIQUIDITY TOTAL
£'000 £'000 £'000 £'000 £'000
Charged to revenue:
Directors' fees (i) 49 40 8 7 104
Auditor's fees (ii):
- for the audit of the 14 10 2 1 27
financial statements
- for other services 4 2 1 - 7
relating to tax compliance
Other expenses 108 82 34 15 239
175 134 45 23 377
Charged to capital:
Custodian transaction charges 1 4 - - 5
Total 176 138 45 23 382
2013
Charged to revenue:
Directors' fees (i) 40 34 10 10 94
Auditor's fees (ii):
- for the audit of the 11 11 2 2 26
financial statements
- for other services 3 2 1 1 7
relating to taxation
Other expenses 98 76 37 18 229
152 123 50 31 356
Charged to capital:
Custodian transaction charges - 4 - - 4
Total 152 127 50 31 360
(i) The Directors' Remuneration Report provides further information on
Directors' fees. Included within other expenses is £10,000 (2013: £9,000) of
employer's national insurance payable on Directors' fees. As at 31 May 2014,
the amounts outstanding on Directors' fees and employer's national insurance
was £19,000 (2013: £17,000).
(ii) Auditor's fees are shown excluding VAT, which is included in other
expenses.
5. Finance costs
Finance costs are the cost of borrowing facilities. These are made up of costs
incurred to have the facility in place and any interest charged when the
facility is used.
2014 GLOBAL
UK EQUITY BALANCED MANAGED COMPANY
EQUITY INCOME RISK LIQUIDITY TOTAL
£'000 £'000 £'000 £'000 £'000
Interest payable on
borrowings
repayable within one year as
follows:
Charged to revenue 32 10 - - 42
Charged to capital 74 22 - - 96
Total 106 32 - - 138
2013
Interest payable on
borrowings
repayable within one year as
follows:
Charged to revenue 37 1 - - 38
Charged to capital 86 1 - - 87
Total 123 2 - - 125
6. Taxation
As an investment trust, the Company pays no tax on capital gains. However, the
Company suffers tax on certain overseas dividends which is irrecoverable and
this note shows details of the tax charge. In addition, this note clarifies the
basis for the Company to have no deferred tax asset or liability.
(a) Current tax charge
2014 GLOBAL
UK EQUITY BALANCED MANAGED COMPANY
EQUITY INCOME RISK LIQUIDITY TOTAL
£'000 £'000 £'000 £'000 £'000
Overseas tax 46 137 - - 183
2013
Overseas tax 47 118 - - 165
The accounting policy for taxation is disclosed in note 1(g).
(b) Reconciliation of current tax charge
2014 GLOBAL
UK EQUITY BALANCED MANAGED COMPANY
EQUITY INCOME RISK LIQUIDITY TOTAL
£'000 £'000 £'000 £'000 £'000
Return on ordinary 9,654 4,343 490 1 14,488
activities before taxation
UK Corporation Tax rate of 2,189 985 111 - 3,285
22.67%
Effect of:
- Non taxable gains on (1,900) (684) (115) - (2,699)
investments and
derivatives
- Non taxable losses/ - 2 15 - 17
(gains) on foreign
exchange
- Non taxable scrip (6) - - - (6)
dividends
- UK dividends which are (397) (77) - - (474)
not taxable
- Special dividends which (65) (33) - - (98)
are not taxable
- Overseas dividends which (97) (309) - - (406)
are not taxable
- Overseas tax 46 137 - - 183
- Disallowable expenses - 1 - - 1
- Excess of allowable 276 115 (12) - 379
expenses over taxable
income
- Excess of allowable - - 1 - 1
expenses over taxable
offshore fund gains
Tax charge for the year 46 137 - - 183
2013
Return on ordinary 15,914 11,184 914 12 28,024
activities before taxation
UK Corporation Tax rate of 3,794 2,666 218 3 6,681
23.84%
Effect of:
- Non taxable gains on (3,466) (2,465) (222) (1) (6,154)
investments and
derivatives
- Non taxable losses/ (1) 16 1 - 16
(gains) on foreign
exchange
- Non taxable scrip (2) - - - (2)
dividends
- UK dividends which are (496) (58) - - (554)
not taxable
- Overseas dividends which (79) (259) - - (338)
are not taxable
- Overseas tax 47 118 - - 165
- Disallowable expenses - 1 - - 1
- Excess of allowable 248 99 3 - 350
expenses over taxable
income
- Transfer of expenses
between Portfolios:
- revenue expenses at 2 - - (2) -
22.84%
Tax charge for the year 47 118 - - 165
Given the Company's status as an investment trust, and the intention to
continue meeting the conditions required to maintain this status for the
foreseeable future, the Company has not provided any UK corporation tax on any
realised or unrealised capital gains or losses arising on investments.
(c) Factors that may affect future tax charges
The Company has excess management expenses and loan relationship deficits of £
6,598,000 (2013: £4,933,000) that are available to offset future taxable
revenue. A deferred tax asset of £1,320,000 (2013: £1,135,000), measured at the
standard corporation tax rate of 20% (2013: 23%) has not been recognised in
respect of these expenses since they are recoverable only to the extent that
the Company has sufficient future taxable revenue for it to be set against.
7. Basic return per Ordinary Share
Return per share is the amount of gain generated for each share class in the
financial year divided by the weighted average number of the shares in issue.
Basic revenue, capital and total return per ordinary share is based on the
returns on ordinary activities after taxation as shown by the income statement
for the applicable Share class and on the following number of Shares being the
weighted average number of Shares in issue throughout the year for each
applicable Share class:
WEIGHTED AVERAGE
NUMBER OF SHARES
SHARE 2014 2013
UK Equity 39,077,545 37,988,843
Global Equity Income 31,262,679 30,606,208
Balanced Risk 8,742,185 9,910,525
Managed Liquidity 6,956,381 9,527,002
8. Dividends
Dividends represent income less expenses remitted to shareholders. Dividends
are paid as an amount per share held.
Dividends paid for each applicable Share class, which represent distributions
for the purpose of s1159 of the Corporation Tax Act 2010, are as follows:
2014 2013
NUMBER DIVIDEND TOTAL NUMBER DIVIDEND TOTAL
OF SHARES RATE £'000 OF SHARES RATE £'000
(PENCE) (PENCE)
UK Equity
First interim 38,250,272 0.85 325 38,941,883 1.15 448
Second interim 39,045,387 1.10 429 38,716,784 1.00 387
Third interim 39,123,268 0.90 352 36,805,777 0.95 350
Fourth interim 39,497,608 2.45 968 37,719,977 2.45 924
5.30 2,074 5.55 2,109
Global Equity
Income
First interim 30,952,286 0.80 248 31,236,703 1.00 312
Second interim 31,261,451 0.75 234 31,166,298 0.65 203
Third interim 31,340,725 0.35 110 29,163,994 0.35 102
Fourth interim 31,464,956 1.65 519 31,000,257 1.40 434
3.55 1,111 3.40 1,051
Total paid in 3,185 3,160
respect of the year
No dividends have been paid to Balanced Risk and Managed Liquidity shareholders
during the year (2013: nil).
9. Investments held at fair value
The portfolio is made up of investments which are listed, i.e. traded on a
regulated stock exchange. Gains and losses in the year are either:
• realised, usually arising when investments are sold; or
• unrealised, being the difference from cost of those investments still held at
the year end.
(a) Analysis of investments by listing status
2014 2013
£'000 £'000
UK listed investments 84,577 71,119
UK unlisted investments 781 750
Overseas listed investments(i) 50,606 49,911
Overseas unlisted investments - 72
Unquoted hedge fund investments 27 41
135,991 121,893
(i) Includes the Short-Term Investments Company (Global Series) investment held
by the Managed Liquidity Portfolio of £980,000 (2013: £1,396,000) and Balanced
Risk Portfolio of £2,750,000 (2013: £3,300,000).
(b) Analysis of investment gains/(losses)
2014 2013
£'000 £'000
Opening valuation 121,893 98,602
Movements in year:
Purchases at cost 56,485 63,490
Sales - proceeds (53,785) (65,068)
Sales - net realised gains on sales 7,758 5,374
Movement in investment holding gains in year 3,640 19,495
Closing valuation 135,991 121,893
Closing book cost 108,804 98,346
Closing investment holding gains 27,187 23,547
Closing valuation 135,991 121,893
Realised gains based on historical cost 7,758 5,374
Movement in investment holding gains in year 3,640 19,495
Gains on investments 11,398 24,869
(c) Transaction costs
Transaction costs were £140,000 (2013: £99,000) on purchases and £38,000 (2013:
£51,000) on sales.
10. Derivative instruments
Derivative instruments are contracts whose price is derived from the value of
other securities or indices. The Balanced Risk Portfolio uses futures, which
represent agreements to buy or sell commodities or financial instruments at a
pre-determined price in the future.
Excluding forward currency contracts used for currency hedging purposes.
2014 2013
£'000 £'000
Opening derivative assets held at fair value through 366 374
profit and loss
Opening derivative liabilities held at fair value (191) (658)
through profit and loss
Opening net derivative liabilities held at fair value 175 (284)
shown in balance sheet
Closing derivative assets held at fair value through 357 366
profit and loss
Closing derivative liabilities held at fair value (54) (191)
through profit and loss
Closing net derivative assets held at fair value 303 175
shown in balance sheet
Movement in derivative holding gains 128 459
Net realised gains on derivative instruments 378 487
Net capital gain on derivative instruments as shown 506 946
in the income statement
Net income arising on derivatives 135 83
Total gain on derivatives instruments 641 1,029
The derivative assets/liabilities shown in the balance sheet are the unrealised
gains/losses arising from the revaluation to fair value of futures contracts
held in the Balanced Risk Share Portfolio, as shown on page 21.
11. Debtors
Debtors are amounts due to the Company, such as monies due from brokers for
investments sold and income which has been earned (accrued) but not yet
received.
2014 2013
£'000 £'000
Amounts due from brokers - 331
Taxation recoverable 210 203
Prepayments and accrued income 514 361
724 895
12. Other creditors
Creditors are amounts which must be paid by the Company, and include any
amounts due to brokers for the purchase of investments or amounts owed to
suppliers, such as the Manager and auditor.
2014 2013
£'000 £'000
Bank loan 12,600 7,700
Shares bought back - 1
Taxation payable 149 149
Amounts due to brokers 28 376
Performance fee accrued 1,280 1,110
Accruals 331 309
14,388 9,645
At the year end the Company had a maximum uncommitted overdraft facility of 10%
of net assets and a £20 million committed 364 day multicurrency revolving
credit facility, which is due for renewal on 23 April 2015, both with The Bank
of New York Mellon.
The performance fee accrued is solely in respect of the UK Equity Portfolio.
This includes an amount of £460,000 (2013: £391,000) that is now payable as the
UK Equity Portfolio's year end net asset value was above that Portfolio's high
water mark.
13. Share capital and reserves
Share capital represents the total number of shares in issue, for which
dividends accrue.
All shares have a nominal value of 1 penny.
(a) Movements in Share Capital During the Year
Issued and fully paid:
GLOBAL
UK EQUITY BALANCED MANAGED TOTAL
EQUITY INCOME RISK LIQUIDITY CAPITAL
ORDINARY SHARES (NUMBER)
At 31 May 2013 38,250,472 30,952,286 8,929,098 8,641,769 86,773,625
Shares bought back into (360,000) (150,000) (457,000) (696,000) (1,663,000)
treasury
Shares issued from - 200,000 - - 200,000
treasury
Arising on share
conversion:
- August 2013 795,115 109,165 (44,229) (1,192,355) (332,304)
- November 2013 77,881 229,274 (97,218) (320,746) (110,809)
- February 2014 374,340 124,231 (18,631) (705,592) (225,652)
- May 2014 371,528 (21,512) (435,199) (27,567) (112,750)
At 31 May 2014 39,509,336 31,443,444 7,876,821 5,699,509 84,529,110
TREASURY SHARES (NUMBER)
At 31 May 2013 6,163,000 4,488,000 3,593,000 5,942,216 20,186,216
Shares bought back into 360,000 150,000 457,000 696,000 1,663,000
treasury
Shares issued from - (200,000) - - (200,000)
treasury
At 31 May 2014 6,523,000 4,438,000 4,050,000 6,638,216 21,649,216
ORDINARY SHARES OF 1
PENCE EACH (£'000)
At 31 May 2013 382 309 90 87 868
Shares bought back into (3) (2) (5) (7) (17)
treasury
Shares issued from - 2 - - 2
treasury
Arising on share
conversion:
- August 2013 8 1 (1) (12) (4)
- November 2013 1 2 (1) (4) (2)
- February 2014 4 2 - (7) (1)
- May 2014 3 - (4) - (1)
At 31 May 2014 395 314 79 57 845
TREASURY SHARES OF 1
PENCE EACH (£'000)
At 31 May 2013 62 45 36 59 202
Shares bought back into 3 2 5 7 17
treasury
Shares issued from - (2) - - (2)
treasury
At 31 May 2014 65 45 41 66 217
TOTAL SHARE CAPITAL (£
'000)
Ordinary share capital 395 314 79 57 845
Treasury share capital 65 45 41 66 217
Total share capital 460 359 120 123 1,062
Average buy back price 149.8p 142.7p 110.1p 101.3p
Average issue price - 142.0p - -
The total cost of share buy backs was £1,964,000 (2013: £2,006,000) and the
proceeds from share issues was £284,000 (2013: £nil). As part of the conversion
process 804,618 (2013: 701,435) deferred shares of 1p each were created and
subsequently cancelled during the year. No deferred shares were in issue at the
start or end of the year.
(b) Movements in Share Capital after the Year End to 31 July 2014
GLOBAL
UK EQUITY BALANCED MANAGED
EQUITY INCOME RISK LIQUIDITY
ordinary shares
Shares bought back into treasury - - 100,000 49,569
Average buy back price n/a n/a 115.0p 100.75p
(c) Dividend and Voting Rights
Each of the classes of Shares have the right to receive the revenue profits of
the Company attributable to the Portfolio relating to that class of Shares as
determined to be distributed by way of interim and/or final dividend at such
times as the Board determines.
Shares do not carry a fixed number of votes. At general meetings of the Company
the voting rights of each Share are determined by reference to the NAV of the
Shares of the relevant class. The relative voting power of each class of Share
at the general meeting depends on the number of Shares of that class in issue
and the NAV of the Portfolio attributable to that class of Shares. In relation
to dividends, each class of Shares is only able to vote on dividends for that
class.
As the Portfolios are not legal entities in their own right, if the assets of
one of the Portfolios were insufficient to meet its liabilities, any shortfall
would have to be met from assets of the other Portfolio(s).
(d) Deferred Shares
The Deferred shares do not carry any rights to participate in the Company's
profits, do not entitle the holder to any repayment of capital on a return of
assets (except for the sum of 1p) and do not carry any right to receive notice
of or attend or vote at any general meeting of the Company. Any Deferred shares
that arise as a result of conversions of Shares are cancelled in the same
reporting period.
(e) Future Convertibility of the Shares
Shares are convertible at the option of the holder into any other class of
Share. Further conversion details are given on the inside front cover and in
the Shareholder Information on page 93.
14. Reserves
This note explains the different reserves attributable to shareholders. The
aggregate of the reserves and share capital (see previous note) make up total
shareholders' funds.
The special reserve is available as distributable profits to be used for all
purposes under the Companies Act 2006, including buy back of shares and payment
of dividends. The capital redemption reserve arises from the nominal value of
shares bought back and cancelled; this and the share premium are
non-distributable. The revenue reserve is distributable by way of dividend.
The capital reserve includes unrealised investment holding gains, being the
difference between cost and fair value, of £27,187,000 (2013: £23,547,000). It
also includes realised net gains of £10,411,000 (2013: £3,280,000) which are
distributable.
15. Net asset value per Share
The total net assets (total assets less total liabilities) attributable to a
share class are often termed shareholders' funds and are converted into net
asset value per share by dividing by the number of shares in issue.
The net asset value per Share and the net assets attributable at the year end
were as follows:
ORDINARY SHARES 2014 2013
NET ASSET NET ASSET
VALUE PER NET ASSETS VALUE PER NET ASSETS
SHARE ATTRIBUTABLE SHARE ATTRIBUTABLE
PENCE £'000 PENCE £'000
UK Equity 155.6 61,484 136.3 52,129
Global Equity Income 150.9 47,433 141.0 43,631
Balanced Risk 118.4 9,323 112.2 10,017
Managed Liquidity 103.3 5,889 103.1 8,912
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.
19. Related party transactions and transactions with the Manager
A related party is a company or individual who has direct or indirect control
or who has significant influence over the Company. Under accounting standards,
the Manager is not a related party.
Under UK GAAP, the Company has identified the Directors as related parties. The
Directors' remuneration and interests have been disclosed on page 52 with
additional disclosure in note 4. No other related parties have been identified.
Invesco Fund Managers Limited and Invesco Asset Management Limited are wholly
owned subsidiaries of Invesco Limited. They act as Manager, Company Secretary
and Administrator to the Company. Details of their services and fees are
disclosed in the Directors' Report.
.
NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS GIVEN that the Annual General Meeting (AGM) of Invesco Perpetual
Select Trust plc will be held at 6th Floor, 125 London Wall, London EC2Y 5AS at
11.30am on 25 September 2014 for the following purposes:
Ordinary Business
1. To receive the Annual Financial Report for the year ended 31 May 2014.
2. To approve the Directors' Remuneration Policy.
3. To approve the Chairman's Annual Statement and Report on Remuneration.
4. To re-elect Sir Michael Bunbury a Director of the Company.
5. To re-elect David Rosier a Director of the Company.
6. To reappoint Ernst & Young LLP as Auditor to the Company and authorise the
Directors to determine the Auditor's remuneration.
Special Business
To consider and, if thought fit, to pass the following resolution which will be
proposed as an Ordinary Resolution:
7. THAT:
the Directors be and they are hereby generally and unconditionally authorised,
for the purpose of section 551 of the Companies Act 2006 as amended from time
to time prior to the date of passing this resolution (`2006 Act') to exercise
all the powers of the Company to allot relevant securities (as defined in
sections 551(3) and (6) of the 2006 Act) up to an aggregate nominal amount
equal to £1,000,000 of UK Equity Shares, £1,000,000 of Global Equity Income
Shares, £1,000,000 of Balanced Risk Shares and £1,000,000 of Managed Liquidity
Shares, provided that this authority shall expire at the conclusion of the next
AGM of the Company or the date falling fifteen months after the passing of this
resolution, whichever is the earlier, but so that such authority shall allow
the Company to make offers or agreements before the expiry of this authority
which would or might require relevant securities to be allotted after such
expiry and the Directors may allot relevant securities in pursuance of such
offers or agreements as if the power conferred hereby had not expired.
To consider and, if thought fit, to pass the following resolutions which will
be proposed as Special Resolutions:
8. THAT:
the Directors be and they are hereby empowered, in accordance with sections 570
and 573 of the Companies Act 2006 as amended from time to time prior to the
date of the passing of this resolution (`2006 Act') to allot Shares in each
class (UK Equity, Global Equity Income, Balanced Risk and Managed Liquidity)
for cash, either pursuant to the authority given by resolution 7 set out above
or (if such allotment constitutes the sale of relevant Shares which,
immediately before the sale, were held by the Company as treasury shares)
otherwise, as if section 561 of the 2006 Act did not apply to any such
allotment, provided that this power shall be limited:
(a) to the allotment of Shares in connection with a rights issue in favour of
all holders of a class of Share where the Shares attributable respectively to
the interests of all holders of Shares of such class are either proportionate
(as nearly as may be) to the respective numbers of relevant Shares held by them
or are otherwise allotted in accordance with the rights attaching to such
Shares (subject in either case to such exclusions or other arrangements as the
Directors may deem necessary or expedient in relation to fractional
entitlements or legal or practical problems under the laws of, or the
requirements of, any regulatory body or any stock exchange in any territory or
otherwise);
(b) to the allotment (otherwise than pursuant to a rights issue) of equity
securities up to an aggregate nominal amount of £39,509 of UK Equity Shares, £
31,443 of Global Equity Income Shares, £7,776 of Balanced Risk Shares and £
5,649 of Managed Liquidity Shares; and
(c) to the allotment of equity securities at a price of not less than the net
asset value per Share as close as practicable to the allotment or sale.
and this power shall expire at the conclusion of the next AGM of the Company or
the date fifteen months after the passing of this resolution, whichever is the
earlier, but so that this power shall allow the Company to make offers or
agreements before the expiry of this power which would or might require equity
securities to be allotted after such expiry as if the power conferred by this
resolution had not expired; and so that words and expressions defined in or for
the purposes of Part 17 of the 2006 Act shall bear the same meanings in this
resolution.
9. THAT:
the Company be generally and subject as hereinafter appears unconditionally
authorised in accordance with section 701 of the Companies Act 2006 as amended
from time to time prior to the date of passing this resolution (`2006 Act') to
make market purchases (within the meaning of section 693(4) of the 2006 Act) of
its issued Shares in each Share class (UK Equity, Global Equity Income,
Balanced Risk and Managed Liquidity).
PROVIDED ALWAYS THAT
(i) the maximum number of Shares hereby authorised to be purchased shall be
14.99% of each class of the Company's share capital at 25 September 2014, the
date of the Annual General Meeting (equivalent, at 30 July 2014, to 5,922,449
UK Equity Shares, 4,713,372 Global Equity Income Shares, 1,165,745 Balanced
Risk Shares and 846,926 Managed Liquidity Shares);
(ii) the minimum price which may be paid for a Share shall be 1p;
(iii) the maximum price which may be paid for a Share in each Share class shall
be an amount equal to 105% of the average of the middle market quotations for a
Share taken from and calculated by reference to the London Stock Exchange Daily
Official List for five business days immediately preceding the day on which the
Share is purchased;
(iv) any purchase of Shares will be made in the market for cash at prices below
the prevailing net asset value per Share (as determined by the Directors);
(v) the authority hereby conferred shall expire at the conclusion of the next
AGM of the Company or, if earlier, on the expiry of 15 months from the passing
of this resolution unless the authority is renewed at any other general meeting
prior to such time; and
(vi) the Company may make a contract to purchase Shares under the authority
hereby conferred prior to the expiry of such authority which will be executed
wholly or partly after the expiration of such authority and may make a purchase
of Shares pursuant to any such contract.
10. THAT:
the period of notice required for general meetings of the Company (other than
AGMs) shall be not less than 14 days'.
All Resolutions are explained further in the Directors' Report on pages 49 and
50.
Dated 31st July 2014
By order of the Board
Invesco Asset Management Limited
Company Secretary
.
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 May 2014. The financial information
for 2013 is derived from the statutory accounts for the year ended 31 May 2013,
which have been delivered to the Registrar of Companies. The auditors have
reported on the 2013 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 2014 have been finalised and audited but have not yet been
delivered to the Registrar of Companies.
The audited annual financial report will be available to shareholders, and will
be delivered to the Registrar of Companies, shortly. Copies may be obtained
during normal business hours from the Company's Registered Office, from its
correspondence address, 6th Floor, 125 London Wall, London EC2Y 5AS, and via
the web pages of all of the Share classes on the Manager's website at
www.invescoperpetual.co.uk/investmenttrusts .
The Annual General Meeting will be held on 25 September 2014 at 11.30am at 6th
Floor, 125 London Wall, London EC2Y 5AS.
By order of the Board
Invesco Asset Management Limited
31 July 2014
Contacts:
Angus Pottinger 020 3753 1000
Paul Griggs 020 3753 1000