3 Month Review

Premier Utilities Trust PLC
06 September 2004


Premier Utilities Trust



3 Month Review (unaudited) to August 2004



                                         30/08/2004  1 month    3 months    6 months   Since launch*

     PUT Net Assets (£m)                   40.94      40.42       39.56       36.06      36.80
     PUT Ords Price                        82.50      83.00       83.00       83.00     100.00
     PUT Ords NAV                          114.01     111.79     108.31      107.42      97.32
     PUT ZDP Price                         103.75     104.00     104.75      104.88     100.00
     PUT ZDP NAV                           105.80     105.20     104.02      102.27     100.00
     FTSE 100 Index                       4459.30    4413.10     4430.70     4492.20    4287.60
     FTSE World Index GBP                  268.21     265.30     266.41      270.44     257.82
     FTSE Utilities Index                 3876.23    3700.54     3607.98     3490.66    3156.97
     FTSE Global Utilities GBP            2205.13    2136.19     2072.42     2078.30    1957.82
     PUT Unit** Price                      93.41      93.78       94.17       94.23     100.00
     PUT Unit** NAV                        109.79

     PUT Ords Shares                       -27.6%              discount
     PUT ZDP Shares                        -1.9%               discount
     PUT Units**                           -14.9%              discount

                                              Hurdle Rate               Terminal Cover
     PUT Ords                               2.0%                    -
     PUT ZDP                               -4.2%                  1.31x

                 8.2% yield

     *launch: 03.11.03

     **Unit calculated as weighted average of Ords + ZDP shares in issue
     NB: Fund performance data restricted until after first anniversary (Trust launch: Nov 2003)



It has been a busy few months for UK utility regulation which has done much to
buoy the performance of UK utility stocks over this time. During June, the
electricity regulator OFGEM produced their draft regulation proposal for the
period 2005-2010. Foremost have been the price controls which propose an average
reduction for the distribution charge of 2% together with improvements in
service quality. Although the regulated return the companies can earn has yet to
be detailed, investment expenditure is expected to increase 30% from existing
levels in recognition of the need to replace network assets and improve network
performance.



August saw the UK water review conducted by the water regulator OFWAT, which in
the event proved much as expected. The price rise being asked for by the sector
was drastically reduced from 6.3% per annum to 3.3% per annum, the compensatory
factor being capital expenditures that were reduced from £21bn to £15.7bn. The
regulator believes that this is achievable from better efficiencies and reduced
environmental spend. The end result is that the allowed return is 5.1% post tax
real, generally in line with or slightly better than consensus estimates. The
regulator has also introduced a financeability element into its determination,
which may increase the allowed return from 5.1% in the early years of the review
to 5.5% by 2009/10.



The UK water sector now trades, after recent strong performance, at an average
discount of 2% to its regulated asset base to March 2005, although the exact
size of the individual asset bases will not be known until later this year.
Accordingly, we believe the water sector to be essentially fully valued, with
one or two exceptions. We have reduced the portfolio's limited exposure still
further through our disposal of Pennon after a very good performance. We have
however retained AWG, that remains amongst the Company's larger investments.



In July we purchased some stock in International Power on the belief that the
company was nearing the end of debt refinancing arrangements that should be a
spur to the shares. At the end of July, International Power reported the
conclusion of these talks together with the significant announcement of the
intent to acquire the international energy assets formerly belonging to the US
utility Mission Edison. Part of the acquisition will involve raising cash from
the equity markets via a rights issue which began trading at the end of August
with the bulk of the acquisition being funded by debt, dramatically increasing
International Power's balance sheet gearing. However, the acquisition does
diversify the geographical basis of the business and we believe this is a
potentially interesting deal for equity holders of International Power.
Nonetheless we are setting considerable store in the management of International
Power, as many of the details of the transaction are as yet unknown. The fact
remains that International Power has successfully refinanced its important US
assets and these remain, albeit diluted by the recent transaction, as an
important store of future value for its shareholders.



In Germany our investment in RWE has registered a near 50% profit since purchase
in November last year as a result of an improvement in German electricity
prices. We have always considered its sister Company E.ON to be a superior long
term investment for PUT and as such during August we sold our investment in RWE
and reinvested part of the proceeds in increasing our holding in E.ON. This
action was justified from an encouraging results announcement that followed
which proved ahead of expectations with an encouraging outlook as management
stated the intent to improve total returns for all shareholders.



During August month we sold several of the portfolio's more defensive utility
holdings in order to substantially increase investment in the European Telecoms
sector. The extent of the de-rating of telecoms company shares over the last
three years has been dramatic. Valuations in this sector are very low and share
prices are overcompensating for the supposedly gloomy outlook of increasing
competition. The fact remains that BT and others in the sector are producing
prodigious free cash flow - shares of France Telecom for example trade on a free
cash flow yield of over 17%, far higher than shares in the European utility
universe - and this affords telecoms companies significant flexibility to either
invest modestly in new growth opportunities or else return cash to shareholders
through share buy backs or increased dividends.



Our investment in the Australian airport operator Macquarie Airports has
performed well as traffic figures from its airports, principally Sydney Airport,
has exceeded expectation. Macquarie Airports' strategy is to take stakes in
investment grade airports around the world and then return all excess cash flow
from these airports to its shareholders. In addition, Macquarie Airport
investments are revalued every six months with performance of both capital and
income over the last six months exceeding expectations. Despite this, Macquarie
Airport shares yield prospectively 7% for next year whilst net asset value
growth should remain robust as long as airport traffic is sustained.



Amongst our best performing holdings over recent months has been our two
Brazilian investments Cemig and Copel. Whilst the latter investment had
registered a book loss, we had made a book profit of over 50% on Cemig and
whilst recent news flow from Brazil has been encouraging in terms of the utility
sector we are conscious of the historical volatility of the sector there. After
a considerable advance, realising a very substantial profit in a short period of
time seemed a sensible option. Notwithstanding this, Brazilian exposure has been
maintained with an earlier acquisition of Spanish utility Endesa toward the end
of July. This stock derives around 30% of its earnings from Brazil not fully
factored into the price, leaving the valuation looking attractive versus peers.




Although we do not follow an index for our investment allocation, we remain
notionally underweight in the US utility sector on the belief that it is
overvalued at least holistically. With valuations looking full, we have sold our
holdings of Dominion Resources, DTE Energy, Xcel Energy and Duquesne Light
Holdings during June and July. However, we do think that selective stocks, for
example our newly acquired investments in Teco Energy and FirstEnergy still
appear to offer some value. The one investment that we have permitted ourselves
some largesse on  - on account of some modestly good asset performance so far
this year - is the US generator Calpine, one of the great victims of the Enron
fallout and the subsequent evaporation of margins in gas fired generation in the
US. We are satisfied that Calpine has sufficient balance sheet liquidity at
least until a large bond maturity in 2008 and this improvement in liquidity
should afford the company sufficient time for generation margins to improve. If
margins do recover then Calpine's improvement in earnings will be significant.


2nd September 2004

Premier Fund Managers            Source: Premier Fund Managers Limited as at 03/09/04. MAF 3287/09/04


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