Half-yearly Report
The Edinburgh Investment Trust plc
Half-Yearly Financial Report
Six months to 30 September 2011
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
The Edinburgh Investment Trust plc (the `Company') is an investment trust
listed on the London Stock Exchange, which invests primarily in UK securities.
Investment Objective of the Company
The Company invests primarily in UK securities with the long term objective of
achieving:
1. an increase of the Net Asset Value per share by more than the growth in the
FTSE All-Share Index; and
2. growth in dividends per share by more than the rate of UK inflation.
Performance Statistics
AT AT
30 SEPTEMBER 31 MARCH %
2011 2011 CHANGE
Capital Return
Net asset value
(`NAV')
- debt at par 453.49p 456.66p -0.7
- debt at market 428.11p 434.02p -1.4
value
FTSE All-Share 2654.38 3067.73 -13.5
Index
Share price 448.70p 444.00p +1.1
(Premium)/discount
- debt at par 1.1% 2.8%
- debt at market (4.8)% (2.3)%
value
Gearing - net(1) 22.4% 22.4%
- gross(2) 22.5% 22.4%
FOR THE SIX MONTHS TO 30 SEPTEMBER
%
2011 2010 CHANGE
Revenue Return
Revenue Return(4)
- excluding VAT
recovered on
management fees 11.0p 11.0p -
- VAT recovered - 0.9p
First interim 5.0p 4.75p +5.3
dividend(3)
Special dividend(3) - 0.93p
(4)
Retail Price Index 2.3% 2.1%
Total Return (capital growth with income reinvested)
NAV - debt at par +1.9
- debt at market value +1.4
FTSE All-Share -11.8
Index
Share price, including income +3.8
reinvested
Notes:
1. Net gearing: borrowings less cash and investments in money market funds ÷
shareholders' funds.
2. Gross gearing: borrowings ÷ shareholders' funds.
3. Dividends declared in respect of the financial year.
4. VAT recovered on management fees of 0.93p was paid out as a special
dividend.
INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN'S STATEMENT
Dear Shareholder,
Against the backdrop of extremely challenging financial markets, the Company's
defensively positioned portfolio has delivered substantial investment
out-performance against the benchmark in the 6 month period to 30 September
2011. A first interim dividend of 5 pence per share will be paid on 30 November
2011 (2010: 4.75p).
Performance
Capital: The Company's Net Asset Value (`NAV') fell by 0.7% (debt at par) and
1.4% (debt at market), the latter being impacted by contracting bond market
yields. This performance of the equity portfolio represents strong
out-performance in the period compared to the Company's benchmark (the FTSE
All-Share Index) which fell by 13.5%. The key drivers of this out-performance
have been the portfolio's overweight positions in pharmaceutical and tobacco
companies and the lack of exposure to the banking and mining sectors. More
details are contained in the Manager's Report.
Total Return: The Company's NAV (debt at par) on a total return basis (capital
growth with income reinvested) increased by 1.9% compared to the FTSE All-Share
Index (the `Index') which fell by 11.8%.
Shareholders' Return: The Company's share price (including income reinvested)
increased over the 6 months by 3.8% and this compares very favourably to the
11.8% fall in the Index over the same period. The discount of the share price
to NAV (debt at par) reduced from 2.8% at 31 March 2011 to 1.1% at 30 September
2011; at the same date the shares traded at a premium of 4.8% valuing debt at
market, an increase from 2.3% at 31 March 2011 reflecting the movement in bond
yields referred to earlier.
Gearing
The Company continues to have long-term debt amounting to £200 million. This is
all deployed in the market for investment purposes. At the end of the period
the gearing level was 22.4%, unchanged from the level at 31 March 2011.
Dividend
Income from the portfolio in the 6 Months to 30th September 2011 was £26.0m
(2010:£25.8m).
The Board has declared a first interim dividend of 5 pence per share (2010:
4.75p). The increase in the first interim dividend is aimed principally at
spreading the dividend more evenly over the year rather than signaling the
order of magnitude of any increase in the total dividend for the year. This
will be paid on 30 November 2011 to shareholders on the register on 18 November
2011.
Board
The AGM in July of this year saw the retirement of our former Chairman Scott
Dobbie. Scott joined the Company as a non-executive director in 1998 and became
Chairman in 2003. We thank him for his enormous contribution over these years
and wish him well for the future.
Max Ward joined the Board on 8 August 2011 and has extensive investment
management experience. He spent a major part of his career as a partner at
Baillie Gifford, and is currently Managing Director and portfolio manager of
the Independent Investment Trust plc.
Dick Barfield, who after 10 years on the Board, will retire at the AGM in July
2012. It is envisaged that over the next few years there will be further
refreshing of the Board and in this context we support the intention of the
Lord Davies Review `Women on Boards' to encourage diversity on the boards of
companies. When appointing a new Director, the Board takes into account the
diversity, balance of skills, knowledge and experience of the Board as a whole,
as well as the ability of a new Director to devote sufficient time to the
Company to carry out his or her duties effectively.
Outlook
The economic outlook and, in particular, the timing and pace of economic
recovery in the developed nations of the world remain very difficult to
predict. Until some clarity emerges on the resolution of the European sovereign
debt and banking crisis, and on the depth of the impact of the various
austerity measures on economic growth in the UK, Continental Europe and the
USA, concern and volatility in financial markets looks set to continue.
Political inertia is not helping in this regard and it seems likely that the
current period of sluggish economic growth in the developed world is set to
continue for some time. One encouraging note amongst all of this is that some
parts of the corporate sector are performing well and there are companies that
have significantly improved their financial positions since the global
financial crisis and are now at relatively attractive valuations. Against this
backdrop, the Board and the Manager see no reason to change the Company's
investment approach. Although this may continue to result in material short
term deviations from benchmark, we believe that the defensive and concentrated
nature of the portfolio, with a focus on companies that can deliver sustainable
earnings and dividend growth, should continue to provide resilience in weak
market environments whilst retaining the potential for attractive returns in
the long term.
Jim Pettigrew
Chairman
9 November 2011
MANAGER'S REPORT
Market Review
The buoyant mood of the start of 2011 quickly waned as the year unfolded and
the FTSE All-Share Index delivered a negative return over the six months. The
second half of the period witnessed its worst quarterly performance - a
negative return of 13.5% by the FTSE All-Share - since the third quarter of
2002. Global news, particularly the European sovereign debt and banking crisis,
dominated investor sentiment while forecasts for slower economic growth brought
downward revisions to profit estimates in the more cyclically-oriented parts of
the market.
The IMF cut its forecast for economic growth in 2011 for the UK from 1.5% to
1.1% as the Bank of England continued to keep interest rates on hold at 0.5% -
raising expectations for a further bout of quantitative easing, which has since
been confirmed. Meanwhile, the UK government's preferred measure of UK
inflation, the Consumers Price Index (CPI), remained stubbornly above its
target of 2.0%, but is expected to fall sharply in 2012.
Amidst all the doom and gloom there was, however, some positive corporate
newsflow, with share buy backs a growing theme and some businesses continuing
to deliver resilient operational performance.
Portfolio Strategy and Review
The Company's net asset value, including reinvested dividends, rose by 1.9%
during the period, compared with a fall of 11.8% (total return) for the FTSE
All-Share Index.
The stock market very rarely rewards investors in a straight line and the
significant outperformance of the market by the Company over the half masked
shorter term periods of underperformance. But the overall message from 2011 to
date is that market dynamics appear to have changed significantly. For much of
the previous two years, equity markets were driven by momentum with
fundamentals largely being ignored. In 2011 however, fundamentals appear to
have started to reassert themselves - valuation has again started to matter.
This change has been broadly positive for the investment strategy the Manager
has adopted and has allowed the Company's value to rise despite the market's
significant decline.
Over a quarter of the Company's assets are invested in the pharmaceutical
sector. Newsflow over the period was generally supportive for the sector - for
an industry that is priced for terminal decline the market was wrong-footed by
a string of new drug approvals by the FDA, including Horizant for
GlaxoSmithKline and Vandetanib for AstraZeneca. These drugs are likely to be
small in the context of each business as a whole but have been positive for
sentiment. The portfolio's holdings in Swiss pharmaceutical giants Roche and
Novartis further benefited from the strength of the Swiss franc against
sterling. The Manager remains convinced that over the longer term a large
exposure to the pharmaceutical sector should prove rewarding.
The Company's exposure to the tobacco sector also benefited its performance
through the turbulent second half of the period, delivering a positive absolute
return. The holdings in Altria and Reynolds American saw their returns further
boosted by the rise of the US dollar. Imperial Tobacco saw its shares rise on
news that the price war in Spain had ended while the shares were further
boosted by speculation regarding a possible take-over bid. The Manager
continues to believe that, even after its outstanding returns of the past 25
years, the tobacco sector's exceptional cash generation should underpin
superior share price performance and returns to shareholders.
The portfolio has no exposure to the mining sector and this too benefited
performance; the sector fell sharply over the period as reduced forecasts for
global economic growth and growing concerns about the possibility of a hard
landing in China hit both sector profit forecasts and valuations. The Company's
zero weighting in the Banks sector provided a further positive impact on
performance; fears over the worsening situation in the Eurozone led to a fall
in share prices across the sector.
During the quarter the Company further reduced its exposure to the utilities
sector, selling its position in Pennon. Following strong performance by the
shares the Manager believed that the attractions of the waste business were
offset by his concern that regulation prevents the water business from
providing an appropriate return. The Manager took advantage of share price
weakness to add to its holdings in BAE Systems and Rentokil Initial.
Outlook
The increasingly tough economic outlook is not a surprise to the Manager; he
maintains his view that the developed world faces a prolonged period of low
economic growth and the Company is positioned accordingly.
The Manager believes that there are certain types of companies that can thrive
in this environment, delivering sustainable dividends and earnings growth. He
believes the equity market sell-off has left many of these strongly placed
companies looking even more attractive and remains confident about the outlook
for long-term returns.
Neil Woodford
Investment Manager
9 November 2011
Related Party
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Limited, acts as Manager, Company Secretary and Administrator to the Company.
Details of the management fee arrangements are given in notes 2 and 3 of the
condensed financial statements.
There are no other related party transactions.
Principal Risks and Uncertainties
The principal risk factors relating to the Company can be summarised as
follows:
• Market Risk - a fall in the stock market as a whole will affect the
performance of the portfolio, as well as performance of individual portfolio
investments; it also includes interest rate and currency risks;
• Investment Performance Risk - this is the stock specific risk that the stock
selection process may not achieve the Company's published objectives;
• Gearing Risk - borrowing will amplify the affect on shareholders' funds of
portfolio gains and losses;
• Income/Dividend Risk - investment income may fail to reach the level required
to meet the Company's income objective;
• Shares Price Risk - the Company's prospects and NAV may not be fully
reflected in the share price;
• Control System Risk - the Board relies on the effectiveness of the Manager's
control systems which include control activities in fund management operations,
financial controls, meeting regulatory requirements and managing relations with
third parties;
• Reliance on Third Party Providers Risk - the Company has no employees, so is
reliant upon the performance of third party service providers for it to
function, particularly the Manager, Custodian and Registrars; and
• Other Risks - the Company may be affected by other risks such as business and
strategic risks, and the perceived impact of the designated Investment Manager
ceasing to be involved with the Company.
A detailed explanation of these principal risks and uncertainties can be found
on pages 17 to 20 of the 2011 annual financial report, which is available on
the Manager's website at www.invescoperpetual.co.uk/investmenttrusts
In the view of the Board these principal risks and uncertainties are as much
applicable to the remaining six months of the financial year as they were to
the six months under review. In addition, over the coming months, there is the
risk that European policy makers fail to restore market confidence by
implementing an effective and lasting solution to the Eurozone sovereign debt
crisis. Such failure could lead to a general curtailment of credit availability
in global banking and add significantly to market risk in the near term.
Going Concern
The financial statements have been prepared on a going concern basis. The
Directors consider this is the appropriate basis as the Company has adequate
resources to continue in operational existence for the foreseeable future. In
considering this, the Directors took into account the diversified portfolio of
readily realisable securities which can be used to meet funding commitments,
and the ability of the Company to meet all its liabilities and ongoing expenses
from its assets and revenue.
DIRECTORS' RESPONSIBILITY STATEMENT
IN RESPECT OF THE PREPARATION OF THE HALF-YEARLY FINANCIAL REPORT
The Directors are responsible for preparing the half-yearly financial report
using accounting policies consistent with applicable law and UK Accounting
Standards.
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements contained within the half-yearly
financial report have been prepared in accordance with the Accounting Standards
Board's Statement `Half-Yearly Financial Reports';
- the interim management report includes a fair review of the information
required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules;
and
- the interim management report includes a fair review of the information
required on related party transactions.
Signed on behalf of the Board of Directors.
Jim Pettigrew
Chairman
9 November 2011
TOP TWENTY HOLDINGS
AT 30 SEPTEMBER 2011
UK listed and ordinary shares unless otherwise stated
Market
Company SECTOR Value % OF 
£'000 PORTFOLIO
GlaxoSmithKline Pharmaceuticals & 109,299 10.0
Biotechnology
AstraZeneca Pharmaceuticals & 102,092 9.4
Biotechnology
British American Tobacco 79,594 7.3
Tobacco
Reynolds American
  - US common stock Tobacco 66,318 6.1
BT Fixed Line 59,613 5.5
Telecommunications
Vodafone Mobile 59,564 5.5
Telecommunications
Imperial Tobacco Tobacco 55,934 5.1
BG Oil & Gas Producers 49,569 4.6
Roche
  - Swiss common Pharmaceuticals & 47,347 4.4
stock Biotechnology
Reckitt Benckiser Household Goods 39,855 3.7
Top ten holdings 669,185 61.6
Altria
- US common stock Tobacco 38,056 3.5
Tesco Food & Drug 37,033 3.4
Retailers
BAE Systems Aerospace & Defence 35,308 3.2
Capita Support Services 31,775 2.9
Centrica Gas, Water & 27,416 2.5
Multiutilities
Rolls Royce Aerospace & Defence 26,353 2.4
SSE Electricity 24,726 2.3
Novartis
  - Swiss common Pharmaceuticals & 23,798 2.2
stock Biotechnology
Morrison (W) Food & Drug 21,144 1.9
Supermarkets Retailers
Drax Electricity 19,902 1.8
Top twenty holdings 954,696 87.7
Aggregate value of other investments 133,540 12.3
Total investments 1,088,236 100.0
INDEPENDENT REVIEW REPORT
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2011 which comprises the condensed income statement, condensed
reconciliation of movements in shareholders' funds, condensed balance sheet,
condensed cash flow statement and the related explanatory notes. We have read
the other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Disclosure
and Transparency Rules (the `DTR') of the UK's Financial Services Authority
(the `UK FSA'). Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company for our review work, for
this report, or for the conclusions we have reached.
Directors' Responsibilities
The half-yearly report is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the half-yearly
financial report in accordance with the DTR of the UK FSA. As disclosed in note
1, the annual financial statements of the Company are prepared in accordance
with UK Accounting Standards and applicable law (UK Generally Accepted
Accounting Practice). The condensed set of financial statements included in
this half-yearly financial report has been prepared in accordance with the
Statement `Half-Yearly Financial Reports' as issued by the UK Accounting
Standards Board.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 `Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and consequently does
not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2011 is not prepared, in
all material respects, in accordance with the Statement `Half-Yearly Financial
Reports' as issued by the UK Accounting Standards Board and the DTR of the UK
FSA.
Salim Tharani
for and on behalf of KPMG Audit Plc
Chartered Accountants
London
9 November 2011
CONDENSED INCOME STATEMENT
SIX MONTHS TO 30 SEPTEMBER 2011
(UNAUDITED)
REVENUE CAPITAL TOTAL
£'000 £'000 £'000
Gains on - 11,598 11,598
investments
Foreign exchange - (4) (4)
losses
Income
  UK dividends 22,363 - 22,363
  Scrip dividends 423 - 423
  Overseas 3,191 - 3,191
dividends
  Income from 5 - 5
money market funds
  Interest on VAT - - -
recovered on
management fees
  Deposit interest 18 - 18
  Underwriting and 13 - 13
other income
   26,013 11,594 37,607
Operating costs
Investment (818) (1,908) (2,726)
management fee -
note 2
Performance fee - - (6,010) (6,010)
note 3
VAT recovered on
management fees
  - note 4 - - -
Other expenses (406) - (406)
Net return before
finance costs
and taxation 24,789 3,676 28,465
Finance costs - (2,944) (6,871) (9,815)
note 2
Return on ordinary 21,845 (3,195) 18,650
activities before
tax
Tax on ordinary (446) - (446)
activities
Return on ordinary 21,399 (3,195) 18,204
activities after
tax
Return per 11.0p (1.7)p 9.3p
ordinary share -
note 5
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 presented for information purposes 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 year.
CONDENSED INCOME STATEMENT - continued
YEAR ENDED
31 MARCH
SIX MONTHS TO 30 SEPTEMBER 2010 2011
(UNAUDITED) (AUDITED)
REVENUE CAPITAL TOTAL TOTAL
£'000 £'000 £'000 £'000
Gains on - 26,441 26,441 70,285
investments
Foreign - (94) (94) (131)
exchange losses
Income
  UK dividends 22,110 - 22,110 39,841
  Scrip 404 - 404 689
dividends
  Overseas 3,122 - 3,122 9,314
dividends
  Income from 3 - 3 9
money market
funds
  Interest on - - - 2,459
VAT recovered
on management
fees
  Deposit - - - -
interest
  Underwriting 148 - 148 148
and other
income
   25,787 26,347 52,134 122,614
Operating costs
Investment (692) (1,615) (2,307) (4,881)
management fee
- note 2
Performance Fee - - - -
- note 3
VAT recovered
on management
fees
  - note 4 1,809 1,367 3,176 3,176
Other expenses (375) (1) (376) (776)
Net return
before finance
costs
and taxation 26,529 26,098 52,627 120,133
Finance costs - (2,938) (6,853) (9,791) (19,506)
note 2
Return on
ordinary
activities
before tax 23,591 19,245 42,836 100,627
Tax on ordinary (430) - (430) (1,305)
activities
Return on
ordinary
activities
after tax 23,161 19,245 42,406 99,322
Return per 11.9p 9.8p 21.7p 50.9p
ordinary share
- note 5
CONDENSED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
CAPITAL
SHARE SHARE REDEMPTION CAPITAL REVENUE
CAPITAL PREMIUM RESERVE RESERVE RESERVE TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
FOR THE SIX MONTHS ENDED
30 SEPTEMBER 2011
(UNAUDITED)
At 31 March 2011 48,779 6,639 24,676 752,448 61,364 893,906
Dividend paid
- third interim - - - - (9,268) (9,268)
- second special - - - - (2,458) (2,458)
- final - - - - (12,780) (12,780)
Net return on
ordinary activities - - - (3,195) 21,399 18,204
At 30 September 2011 48,779 6,639 24,676 749,253 58,257 887,604
FOR THE YEAR ENDED
31 MARCH 2011 (AUDITED)
At 31 March 2010 48,779 6,639 24,676 698,000 49,231 827,325
Dividends paid
- final - - - - (12,390) (12,390)
Net return on
ordinary activities - - - 54,448 44,874 99,322
Dividends paid
- first interim - - - - (9,268) (9,268)
- first special - - - - (1,815) (1,815)
- second interim - - - - (9,268) (9,268)
At 31 March 2011 48,779 6,639 24,676 752,448 61,364 893,906
FOR THE SIX MONTHS ENDED
30 SEPTEMBER 2010
(UNAUDITED)
At 31 March 2010 48,779 6,639 24,676 698,000 49,231 827,325
Dividends paid
- final - - - - (12,390) (12,390)
Net return on
ordinary activities - - - 19,245 23,161 42,406
At 30 September 2010 48,779 6,639 24,676 717,245 60,002 857,341
CONDENSED BALANCE SHEET
Registered number SC1836
AT AT AT
30 September 30 September 31 March
2011 2010 2011
(UNAUDITED) (UNAUDITED) (AUDITED)
£'000 £'000 £'000
Fixed assets
  Investments at fair
value
  through profit or loss 1,088,236 1,052,493 1,088,478
Current assets
  VAT recoverable on
management
  fees - 3,176 -
  Prepayments and accrued 4,973 4,332 6,843
income
  Tax recoverable 689 87 663
  Cash and cash funds 1,296 3,959 184
6,958 11,554 7,690
Creditors: amounts falling
due within one year
  Amounts due to brokers (830) (4,589) -
  Accruals (3,512) (3,419) (3,439)
(4,342) (8,008) (3,439)
Net current assets 2,616 3,546 4,251
Total assets less current 1,090,852 1,056,039 1,092,729
liabilities
Creditors: amounts falling
due after more than one
year
  Debenture Stock (197,238) (196,987) (197,112)
Provision for performance (6,010) (1,711) (1,711)
fee
Net assets 887,604 857,341 893,906
Capital and reserves
Share capital 48,779 48,779 48,779
Share premium 6,639 6,639 6,639
Capital redemption reserve 24,676 24,676 24,676
Capital reserve 749,253 717,245 752,448
Revenue reserve 58,257 60,002 61,364
Shareholders' funds 887,604 857,341 893,906
Net asset value per
ordinary share
  Basic - note 7 453.49p 437.86p 456.66p
CONDENSED CASH FLOW STATEMENT
SIX MONTHS SIX MONTHS
TO TO YEAR TO
30 SEPTEMBER 30 SEPTEMBER 31 MARCH
2011 2010 2011
(UNAUDITED) (UNAUDITED) (AUDITED)
£'000 £'000 £'000
Net return before finance 28,465 52,627 120,133
costs and taxation
Scrip dividends (423) (404) (689)
Gains on investments (11,598) (26,441) (70,285)
Foreign exchange losses 4 94 131
Decrease/(increase) in 1,844 (362) (273)
debtors
Increase/(decrease) in 4,309 (45) 13
creditors
Overseas tax paid (446) (430) (1,305)
Net cash inflow from
operating
activities 22,155 25,039 47,725
Servicing of finance (9,626) (9,625) (19,253)
Financial investment
  Purchase of investments (40,290) (82,800) (167,992)
  Sale of investments 53,383 83,598 172,345
Equity dividends paid (24,506) (12,390) (32,741)
Net cash inflow before 1,116 3,822 84
management of liquid
resources and financing
Net cash outflow from (1,275) (3,950) -
management of liquid
resources
(Decrease)/increase in (159) (128) 84
cash
  Cashflow from movement
in
  liquid resources 1,275 3,950 -
  Exchange movements (4) (94) (131)
  Debenture stock non-cash
  movement (126) (128) (253)
Net debt at beginning of (196,928) (196,628) (196,628)
period
Net debt at end of period (195,942) (193,028) (196,928)
Analysis of changes in net
debt:
Brought forward:
  Cash and cash funds 184 231 231
  Debenture stock (197,112) (196,859) (196,859)
Net debt brought forward (196,928) (196,628) (196,628)
Movements in the period:
  Cash inflow from cash
and
  cash funds 1,116 3,822 84
  Exchange movements (4) (94) (131)
  Debenture stock non-cash
  movement (126) (128) (253)
Net debt carried forward (195,942) (193,028) (196,928)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Preparation
These condensed financial statements of the Company have been prepared using
the same accounting policies as those adopted in the 2011 annual financial
report, which are consistent with applicable United Kingdom Accounting
Standards, and with the Statement of Recommended Practice `Financial Statements
of Investment Trust Companies and Venture Capital Trusts'. These financial
statements are prepared on a going concern basis.
2. Investment management fee and finance costs
Invesco Asset Management Limited (`IAML') acts as Manager and Secretary to the
Company under an investment management agreement dated 15 September 2008. The
agreement is terminable by either party by giving not less than 3 months'
notice.
The management fee is payable monthly in arrears and is equal to 0.05% of the
market capitalisation of the Company's ordinary shares at each month end.
Investment management fee and finance costs are allocated 30% to revenue and
70% to capital.
3. Performance Fee
IAML is entitled to a performance fee of 15% of the out-performance of the NAV
(with debt at par), up to a maximum of 1% of net assets in any one year, in
respect of each rolling three year period in which the Company outperforms its
benchmark (the FTSE All-Share Index) plus a hurdle rate, being the equivalent
of 1.25% per annum, as adjusted for shorter periods.
A performance fee provision of £6,010,000 is provided for in these accounts. No
performance fee was due for the half-year 30 September 2010, or for the year
ended 31 March 2011. Performance fees are allocated wholly to capital.
4. VAT recoverable on management fees
An amount of £3,176,000 was recognised in the 2011 annual financial accounts in
respect of VAT recovered on management fees paid to a previous manager,
Aberdeen Asset Management (`Aberdeen'). The recovered VAT has been credited £
1,809,000 to revenue and £1,367,000 to capital, in the same proportion as
originally charged to the income statement. Interest recovered thereon of £
2,459,000 was credited wholly to revenue.
5. Return per ordinary share
The basic revenue, capital and total returns per share are based on the returns
after tax and the average number of shares in issue during the period as
follows:
Six months to Six Months to Year ended to
30 September 30 September 31 March
2011 2010 2011
Returns after tax:
Revenue 21,399 23,161 44,874
Capital (3,195) 19,245 54,448
Total return after 18,204 42,406 99,322
tax
Weighted average 195,116,734 195,116,734 195,116,734
number of ordinary
shares in issue
during the period
6. Dividends
A first interim dividend of 5p (2011: 4.75p) for the year ended 31 March 2012,
will be paid on 30 November 2011 to shareholders on the register on 18 November
2011.
7. Net asset value (`NAV') per ordinary share
(a) Debt at par
The shareholders' funds in the balance sheet are accounted for in accordance
with accounting standards, however, this does not reflect the rights of
shareholders on a return of assets under the Articles of Association. These
rights are reflected in the net assets with debt at par and the corresponding
NAV per share.
30 September 30 September 31 March
2011 2010 2011
(PENCE) (PENCE) (PENCE)
NAV per ordinary 454.91 439.40 458.14
share
Less: unamortised
discount
  and expenses (1.42) (1.54) (1.48)
arising from
debenture issue
  
NAV - debt at par 453.49 437.86 456.66
(b) Debt at market
value
30 September 30 September 31 March
2011 2010 2011
(PENCE) (PENCE) (PENCE)
NAV - debt at par 453.49 437.86 456.66
Debt at par 102.50 102.50 102.50
Debt at market value (127.88) (131.70) (125.14)
NAV - debt at market 428.11 408.66 434.02
value
8. Share capital
30 September 30 September 31 March
2011 2010 2011
Allotted, called-up and
fully paid
Number of ordinary
shares
  of 25p each 195,116,734 195,116,734 195,116,734
9. It is the intention of the Directors to conduct the affairs of the Company
so that is satisfies the conditions for approval as an investment trust company
set out in the section 1158 of the Corporation Tax Act 2010.
10. The financial information contained in this half-yearly financial report,
which has not been audited, does not constitute statutory accounts as defined
in section 434 of the Companies Act 2006. The financial information for the
half years ended 30 September 2011 and 2010 has not been audited. The figures
and financial information for the year ended 31 March 2011 are extracted and
abridged from the latest published accounts and do not constitute the statutory
accounts for that year. Those accounts have been delivered to the Register of
Companies and included the Report of the Independant Auditors, which was
unqualified.
By order of the Board
Invesco Asset Management Limited
Company Secretary
9 November 2011
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