Half-yearly Report

MERRILL LYNCH GREATER EUROPE INVESTMENT TRUST plc Half yearly financial results for the six months ended 29 February 2008 For further information please contact: Jonathan Ruck Keene 020 7743 2178 Managing Director, Investment Company Division BlackRock Investment Management (UK) Limited James Macmillan 020 7743 2289 Fund Manager BlackRock Investment Management (UK) Limited Nigel Webb 020 7743 2302 Public Relations BlackRock Investment Management (UK) Limited OR William Clutterbuck 020 7379 5151 The Maitland Consultancy Chairman's Statement The volatility in European equity markets experienced towards the end of the Company's financial year continued during the period under review. The driving force behind much of this volatility was the impact on markets by the now familiar "credit crunch". Against this difficult background, the net asset value per share for the period fell by 5.4% (compared with a fall of 1.9% for the FTSE World Europe ex UK Index) and the share price fell by 5.2% (all percentages in sterling terms with income reinvested). These falls would have been greater but for the appreciation of the Euro against the pound during the period. Tender offer and discount The Directors exercised their discretion to operate the half yearly tender offer on 30 November 2007 which was undersubscribed with 4,726,178 shares (3.94% of the shares in issue excluding treasury shares) being tendered. The tender price calculated as at close of business on 30 November 2007 was 186.23p per share. It was announced on 11 March 2008 that the Directors will implement the May tender offer which on this occasion will have a calculation date of 2 June 2008, being the first business day following 31 May. The tender will be for up to 20% of the shares in issue at the prevailing net asset value subject to a discount of 2%. A circular will be posted on 28 April 2008. During a volatile six month period when investment trust discounts have widened, the Company's has averaged 3.5% reflecting the benefit of regular tender offers. Company name At a General Meeting held on 15 April 2008, shareholders resolved to change the Company's name to BlackRock Greater Europe Investment Trust plc with effect from 25 April 2008. The change follows the merger of Merrill Lynch Investment Managers with BlackRock. BlackRock has borne the costs in changing the Company's name. VAT As reported last October, the Board welcomed the success of the Association of Investment Companies ("AIC") and JPMorgan Claverhouse Investment Trust plc who won their lengthy test case against HM Revenue and Customs ("HMRC") challenging the imposition of VAT on management services supplied to investment trusts. HMRC has now accepted the European Court of Justice's judgement on 28 June 2007 that management services supplied to investment trusts should be exempt from VAT. Total VAT incurred by the Company on management fees since inception is estimated at Â£400,000 and the prospective saving for the Company is estimated at Â£136,000 per annum. The Investment Manager has submitted claims to recover from HMRC any amounts repayable as a result of the AIC and JPMorgan Claverhouse case. Given the volume of claims HMRC has to process, it is likely to be many months before any amounts are refunded. The amounts involved are not expected to have a significant impact on the Company's net asset value. Outlook The problems in global credit markets provide for a particularly uncertain outlook at the present time. The Board has a positive view with regard to European equity values in the medium term. John Walker-Haworth 16 April 2008 Interim Management Report and Responsibility Statement Principal risks and uncertainties The principal risks faced by the Company can be divided into various areas as follows: * Performance; * Income/dividend; * Regulatory; * Operational; and * Financial. The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Accounts for the year ended 31 August 2007. A detailed explanation can be found on pages 14 and 15 of the Annual Report and Accounts which is available on the website maintained by the Investment Manager, BlackRock Investment Management (UK) Limited, at www.blackrock.co.uk/ its. In the view of the Board, there have not been any changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review. Related party transactions The Investment Manager is regarded as a related party and details of the management fees payable are set out in note 4. As a result of the Company's performance relative to the FTSE World Europe ex UK Index, a performance fee of Â£201,000 has been accrued in the period. Directors' responsibility statement The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements. The Directors confirm to the best of their knowledge that: * the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half Yearly Financial Reports'; and * 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. The half yearly financial report was approved by the Board on 15 April 2008 and the above responsibility statement was signed on its behalf by the Chairman, John Walker-Haworth. Investment Manager's Report The Company's results were disappointing in the six months to 29 February 2008, as markets have entered a new phase characterised by greater risk aversion and concern over the health of the global financial system. The Company's share price decreased by 5.2%, predominantly reflecting a 5.4% decline in the underlying net asset value. By comparison the FTSE World Europe ex UK Index declined by 1.9% in sterling, falling by almost 14% in local currency but countered by an average 12% increase in the value of European currencies, predominantly the Euro, against the pound. During the period, the Company benefited from its ability to invest in the stock markets in Emerging Europe as the MSCI Emerging Europe Index returned 9.3% in sterling terms, significantly ahead of returns in developed Europe. Over the period, on average, around 15% of the Company's net assets were invested in Emerging Europe, and the Company's holding in the BlackRock Eurasian Frontiers Hedge Fund had a positive contribution to performance, along with selected investments in Israel and Russia. The Company continued to make use of flexible gearing but suffered due to modest gearing in a declining market. The market environment has become much more challenging in the wake of the deepening gloom emanating from the US financial sector, as market participants come to grips with the degree of write-downs and losses resulting from the credit crisis. The US sub-prime mortgage market caused the initial setbacks over a year ago but in the last six months the knock-on effects have been felt throughout the entire global financial system, predominantly due to the interconnected nature of the credit markets. This has meant that European financial institutions are directly impacted, whether as owners of underlying assets that have become impaired, or because their sources of funding have dried up, or due to changing behaviour on the part of their underlying clients. Despite the significant challenge to the global economy, growth rates have so far only moderated slightly in most of the developed markets. The US has seen the greatest slowdown in activity, and more recently evidence has been building of a deceleration in European activity. Growth in the emerging economies has remained robust, helped partly by the fact that they enjoy positive demographics, increasing wealth effects, but also because they have access to large natural resources. European companies have reported reasonable earnings growth in 2007 with non-financial profits driven by robust global economies, while financial institutions have reported a wide variety of outcomes, ranging from substantial dollar losses to material profits. The oil price has continued to defy gravity and any concerns about a slowing global economy, with Brent crude rising almost US$30 per barrel during the six month period and breaching the US$100 per barrel mark at the end of February. During the period, stock selection has had a negative impact on performance. This was predominantly down to the exposure to financial stocks, notably Fortis, SociÃ©tÃ© GÃ©nÃ©rale, Credit Suisse and Intesa Sanpaolo, which were affected by the malaise in the credit markets. Additionally, selected names in the DIY, technology hardware and telecom sectors detracted from performance due to company specific profit warnings. Stocks which contributed positively to performance included ArcelorMittal, which continued to deliver stronger than expected earnings due to robust steel prices and the benefits of its global presence, Telefonica whose earnings mix showed the benefit of its geographical diversification, especially in Latin America, and Fresenius SE, which demonstrated strong results, a rarity in a health care sector that has seen continued downwards revisions to earnings. Investment Activity During the period, the Company increased exposure to the Benelux countries, Italy and Switzerland, reducing holdings in Germany, France and Greece. Within Emerging Europe, the Company added fresh positions in Poland and Turkey, increasing the exposure to the region to over 16% of net assets. From a sectoral perspective the Company's key exposures were to banks, materials, telecoms, oil & gas and pharmaceuticals. Over the last six months the main changes have been an increase in exposure to the telecoms sector, where valuations are attractive, and energy, especially in Emerging Europe. These have been funded by a reduction in the Company's exposure to banks, materials and automobiles. At the end of the period the Company continued to have a bias towards Germany, Switzerland, France and Italy. Within Emerging Europe key country exposures were Russia and Turkey, along with the BlackRock Eurasian Frontiers Hedge Fund which provides diversified exposure to the region. Outlook In the current unsettled climate it is difficult to have any certainty about the near term direction of corporate earnings, and it is probable that market estimates for the current year are too high and will be subject to downward revision as the year progresses. However, in the absence of a global recession, we believe that valuations are low enough in an absolute and historical sense to enable stock markets to develop favourably, especially when attention turns towards reductions in interest rates. This is likely to be a feature later in 2008 when the European Central Bank should be in a position to focus less on the threats of inflation and more on the need to stimulate domestic demand. The strength of the Euro is easing a good deal of the current inflationary pressure and is acting as a brake on economic growth for the Eurozone region; this is likely to be alleviated in the medium term as the relative growth rates for the major economies become more balanced and the Euro's strength moderates. We remain positive on the medium term prospects for Emerging Europe, although we are mindful of the potential for more volatility in the months ahead. The global credit market remains tight, and economic data from the US supports the argument for a slowdown. While the region is relatively insulated from any direct contagion from the US, increased risk aversion may weigh on sentiment. Fundamentally, regional equities remain attractive. Valuations are particularly compelling in Russia and Turkey. Although high risk, the outlook for both countries is good for 2008, and we see the current weakness as an ideal buying opportunity. We also continue to look for value in Central Europe. James Macmillan & Sam Vecht BlackRock Investment Management (UK) Limited 16 April 2008 Key Holdings 29 February 2008 Seven Largest European Investments Intesa Sanpaolo - 3.6% (2007: 3.6%) is the leading bank in Italy, created last year following the merger of Intesa and San Paolo. In our view the Italian banking sector offers compelling risk/reward in the context of a more challenging environment for banks in general. We see considerable upside in the value of the group as it benefits from ongoing structural growth in the underdeveloped Italian banking market as well as the realisation of merger synergies over the next two years. The bank has one of the strongest management teams in the sector, a conservative risk profile and a very strong balance sheet which supports above average dividend paying potential over the medium term. Novartis - 3.5% (2007: 3.3%) is a Swiss based pharmaceutical company engaged in the development and manufacture of pharmaceuticals and nutritional products. After a couple of product setbacks, expectations are now low for future growth relative to what the company expects to deliver. The valuation is attractive relative to the growth prospects and relative to history. Nokia - 3.4% (2007: 3.7%) is the world's leader in mobile handset devices, based in Finland. It has recently pulled away from competition, due to a significantly superior product portfolio and mis-execution by others. This has led to rising profits and valuation. The company has also started to benefit from the rise in mobile data spending, mainly by selling more 3G phones. It also operates a smaller network infrastructure business, which is undergoing a restructuring. Roche - 3.4% (2007: 2.7%) is a Swiss based pharmaceuticals and diagnostics company. Roche has the best earnings growth in the sector but only trades at a small premium to its peers. Roche is strong in specialty pharmaceuticals with lower risk of pricing pressure and limited patent risk. Banco Santander - 3.1% (2007: 2.4%) is a leading bank in Spain and Latin America, especially Brazil, which accounts for around 40% of its earnings. We see considerable scope for earnings growth from the group's Brazilian banking business. Following the acquisition of ABN Amro's business, Santander has become one of the leading banks in Brazil, a market which offers considerable long term growth potential given the currently low penetration of banking services. The outlook for the group's Spanish businesses is more challenging as that country sees a slowdown in activity levels but Santander has manageable exposure to the more problematic areas and a very strong balance sheet. Eni - 3.1% (2007: 2.3%) is an Italian based company and a unique asset in the European oil sector as its conglomerate structure comprises a utilities-style downstream gas division, a first class oil service company (Saipem) and an integrated standard oil and gas business. The company's recent strategy presentation reaffirmed our positive view on the stock. The company should be able to show production growth of 3% to 4% per annum for 2008-2011 underpinned by a solid exploration and production (E&P) project portfolio which should increase the visibility of Eni's production growth over the coming years. Lastly, we view Eni as attractively valued and the shares offer an attractive dividend yield. Allianz - 2.8% (2007: 2.6%) is one of Europe's leading insurance groups which in our view is materially undervalued. We see considerable resilience in the earnings power of this German company arising from the strength of the group's non-life franchise and ongoing execution of efficiency programmes. We also see ample strategic optionality within the group as management seek to optimise returns in the banking business. Allianz enjoys strong and improving free cash flow which we believe offers scope for above average dividend growth in the medium term. Three Largest Emerging European Investments BlackRock Eurasian Frontiers Hedge Fund - 3.7% (2007: 3.1%) is a hedge fund generating its returns from Eastern European, Middle Eastern and "frontier" markets through a variety of strategies. The fund has returned -3.8% during the review period. Surgutneftegaz - 1.4% (2007: nil) is one of Russia's largest oil producers which trades at a discount to peers and has a strong reserve replacement record. The company is closely aligned with the Russian government which we believe will be beneficial. Integra - 1.1% (2007: nil) is Russia's second largest independent oil services company and is a direct beneficiary of increasing capital expenditure by Russian oil companies. The company is currently seeing revenue growth of 30% per year, which is well above that for the sector. All percentages reflect the value of the holding as a percentage of total investments. Percentages in brackets represent the value of the holding as at 31 August 2007. INCOME STATEMENT for the six months ended 29 February 2008 Revenue Return Â£'000 Capital Return Â£'000 Total Â£'000 Six months Six months Year Six months Six months Year Six months Six months Year ended ended ended ended ended ended ended ended ended 29 28 31 29 28 31 29 28 31 February February August February February August February February August Notes 2008 2007 2007 2008 2007 2007 2008 2007 2007 (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (Losses)/ gains on investments held at fair value through profit or loss - - - (10,396) 23,116 34,318 (10,396) 23,116 34,318 Income from investments held at fair value through profit or loss 3 1,037 956 6,642 - - - 1,037 956 6,642 Other income 3 17 3 7 - - - 17 3 7 Investment management and performance fees 4 (105) (117) (252) (565) (936) (1,472) (670) (1,053) (1,724) Operating expenses 5 (346) (366) (775) - - - (346) (366) (775) ---- ---- ---- ----- ----- ---- ----- ----- ----- Net return before finance costs and taxation 603 476 5,622 (10,961) 22,180 32,846 (10,358) 22,656 38,468 Finance costs (70) (94) (212) (280) (378) (850) (350) (472) (1,062) ---- ---- ---- ----- ----- ---- ----- ----- ----- Return on ordinary activities before taxation 533 382 5,410 (11,241) 21,802 31,996 (10,708) 22,184 37,406 Taxation on ordinary activities (143) (71) (1,587) (152) 219 310 (295) 148 (1,277) ---- ---- ---- ----- ----- ---- ----- ----- ----- Return on ordinary activities after taxation 7 390 311 3,823 (11,393) 22,021 32,306 (11,003) 22,332 36,129 === ==== ===== ====== ====== ====== ====== ====== ====== Return per ordinary share - basic and diluted 7 0.33p 0.24p 3.06p (9.70p) 17.28p 25.87p (9.37p) 17.52p 28.93p ===== ===== ===== ====== ====== ====== ====== ====== ====== The total column of this statement represents the Income Statement of the Company. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies. The Company had no recognised gains or losses other than those disclosed in the Income Statement and the Reconciliation of Movements in Shareholders' Funds. All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Share Capital Capital Capital Share premium redemption Special reserve - reserve - Revenue capital account reserve reserve realised unrealised reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 For the six months ended 29 February 2008 At 31 August 2007 125 151 39 103,213 86,050 26,504 5,249 221,331 Return for the period - - - - 17,233 (28,626) 390 (11,003) Shares purchased (5) - 5 (8,802) - - - (8,802) Share purchase costs - - - (143) - - - (143) Dividends paid ** - - - - - - (2,876) (2,876) ---- ---- ---- ------ ------- ------ ----- ------- At 29 February 2008 120 151 44 94,268 103,283 (2,122) 2,763 198,507 ==== ==== === ====== ======= ====== ===== ======= For the six months ended 28 February 2007 At 31 August 2006 134 151 30 121,679 54,039 26,209 4,031 206,273 Return for the period - - - - 21,049 972 311 22,332 Shares purchased (4) - 4 (8,934) - - - (8,934) Share purchase costs - - - (136) - - - (136) Dividends paid * - - - - - - (2,605) (2,605) ---- ---- ---- ------- ------ ------ ----- ------- At 28 February 2007 130 151 34 112,609 75,088 27,181 1,737 216,930 ==== ==== === ======= ====== ====== ===== ======= For the year ended 31 August 2007 At 31 August 2006 134 151 30 121,679 54,039 26,209 4,031 206,273 Return for the year - - - - 32,011 295 3,823 36,129 Shares purchased (9) - 9 (18,187) - - - (18,187) Share purchase costs - - - (279) - - - (279) Dividends paid * - - - - - - (2,605) (2,605) ---- ---- ---- ------- ------ ------ ----- ------- At 31 August 2007 125 151 39 103,213 86,050 26,504 5,249 221,331 ==== ==== === ======= ====== ====== ===== ======= * Final dividend in respect of the year ended 31 August 2006 of 2.00p per share declared on 16 October 2006 and paid on 30 November 2006. ** Final dividend in respect of the year ended 31 August 2007 of 2.40p per share declared on 16 October 2007 and paid on 6 December 2007. The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserve and amounted to Â£554,000 for the six months ended 29 February 2008 (six months ended 28 February 2007: Â£450,000; year ended 31 August 2007: Â£800,000). BALANCE SHEET as at 29 February 2008 29 February 28 February 31 August 2008 2007 2007 Notes Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Fixed assets Investments held at fair value through profit or loss 214,197 240,890 237,326 ------- ------- ------- Current assets Debtors 10,277 1,689 7,121 Cash 259 - 49 ------ ----- ----- 10,536 1,689 7,170 ------ ----- ----- Creditors - amounts falling due within one year Bank overdrafts (12,997) (19,335) (19,783) Other creditors (12,622) (6,314) (2,954) ------- ------ ------- (25,619) (25,649) (22,737) ------- ------ ------- Net current liabilities (15,083) (23,960) (15,567) ------- ------ ------- Total assets less current liabilities 199,114 216,930 221,759 Provision for liabilities and charges (607) - (428) ------- ------- ------- Net assets 198,507 216,930 221,331 ======= ======= ======= Capital and reserves Share capital 8 120 130 125 Share premium account 151 151 151 Capital redemption reserve 44 34 39 Special reserve 94,268 112,609 103,213 Capital reserve - realised 103,283 75,088 86,050 Capital reserve - unrealised (2,122) 27,181 26,504 Revenue reserve 2,763 1,737 5,249 ------- ------- ------- Total equity shareholders' funds 198,507 216,930 221,331 ======= ======= ======= Net asset value per ordinary share 7 172.44p 173.92p 184.68p ======= ======= ======= SUMMARISED CASH FLOW STATEMENT for the six months ended 29 February 2008 Six months Six months Year ended ended ended 29 February 28 February 31 August 2008 2007 2007 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Net cash (outflow)/inflow from operating activities (283) (9) 3,354 Returns on investment and servicing of finance (290) (496) (1,086) Taxation (paid)/recovered (127) 46 (455) Capital expenditure and financial investment Purchase of investments (92,297) (136,656) (230,290) Proceeds from sale of investments 112,101 137,101 237,238 Realised (losses)/gains on foreign currency transactions (339) (73) 138 ---- ---- ---- Net cash inflow from capital expenditure and financial investment 19,465 372 7,086 ------ ------ ------ Equity dividends paid (2,876) (2,605) (2,605) ------ ------ ------ Financing Purchase of ordinary shares (8,802) (8,934) (18,187) Share purchase costs (91) (44) (176) ------ ------ ------ Net cash outflow from financing (8,893) (8,978) (18,363) ------ ------ ------ Increase/(decrease) in cash 6,996 (11,670) (12,069) ===== ======= ======= RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW FROM OPERATING ACTIVITIES Six months Six months Year ended ended ended 29 February 28 February 31 August 2008 2007 2007 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Net return before finance costs and taxation (10,358) 22,656 38,468 Losses/(gains) on investments held at fair value 10,396 (23,116) (34,318) Decrease in accrued income 128 106 104 Decrease in other debtors 57 - 10 (Decrease)/increase in creditors (331) 461 81 Tax on investment income included within gross income (175) (116) (991) ---- ---- ---- Net cash (outflow)/inflow from operating activities (283) (9) 3,354 ==== ==== ===== Notes to the HALF YEARLY FINANCIAL announcement 1. Principal activity The principal activity of the Company is that of an investment trust company within the meaning of section 842 of the Income and Corporation Taxes Act 1988. 2. Basis of preparation The half yearly financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements as at 31 August 2007. The accounts have been prepared under the historical cost convention, modified to include the revaluation of investments and in accordance with applicable Accounting Standards, pronouncements on half yearly reporting issued by the Accounting Standards Board and the Statement of Recommended Practice "Financial Statements of Investment Trust Companies" ("SORP" dated January 2003, revised in December 2005). 3. Income Six months Six months Year ended ended ended 29 February 28 February 31 August 2008 2007 2007 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Investment income: - UK dividends 57 33 33 - Overseas dividends 980 923 6,609 ----- --- ----- 1,037 956 6,642 Other income: - Deposit interest 17 3 7 ----- --- ----- Total income 1,054 959 6,649 ===== === ===== 4. Investment management and performance fees Six months ended 29 February 2008 (unaudited) Revenue Capital return return Total Â£'000 Â£'000 Â£'000 Investment management fees 105 417 522 Performance fees - 201 201 VAT (Written back)/charged - (53) (53) --- --- --- Total 105 565 670 === === === Six months ended 28 February 2007 (unaudited) Revenue Capital return return Total Â£'000 Â£'000 Â£'000 Investment management fees 103 414 517 Performance fees - 412 412 VAT (Written back)/charged 14 110 124 --- --- ----- Total 117 936 1,053 === === ===== Year ended 31 August 2007 (audited) Revenue Capital return return Total Â£'000 Â£'000 Â£'000 Investment management fees 223 891 1,114 Performance fees - 409 409 VAT (Written back)/charged 29 172 201 --- ----- ----- Total 252 1,472 1,724 === ===== ===== The investment management fee is levied quarterly, based on the value of the market capitalisation of the Company on the last day of each month. The investment management fee is allocated 80% to the capital reserve - realised and 20% to the revenue reserve. A performance fee of Â£201,000 (six months ended 28 February 2007: Â£412,000; year ended 31 August 2007: Â£409,000) has also been accrued, which has been calculated based on the outperformance of the Company's share price relative to the FTSE World Europe ex UK Index over a three year rolling period. The performance fee has been allocated 100% to the capital reserve - realised, as performance has been predominantly generated through capital returns of the investment portfolio. The credit of Â£53,000 relates to VAT arising on the performance fee accrued at 31 August 2007. Subsequent to the outcome of the JPMorgan Claverhouse case, management fees are now exempt from VAT, and VAT on the performance fee has been written back accordingly, as this amount had not been invoiced at the date HMRC ceded the case. 5. Operating expenses Six months Six months Year ended ended ended 29 February 28 February 31 August 2008 2007 2007 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Administration fee 149 176 318 Custody fee 48 28 89 Other administration costs 149 162 368 --- --- --- 346 366 775 === === === 6. Dividend The Board has not declared an interim dividend, as dividends are considered and paid annually in respect of each accounting year. 7. Net asset value and return per ordinary share Six months Six months Year ended ended ended 29 February 28 February 31 August 2008 2007 2007 (unaudited) (unaudited) (audited) Net revenue return attributable to ordinary shareholders (Â£'000) 390 311 3,823 Net capital return attributable to ordinary shareholders (Â£'000) (11,393) 22,021 32,306 ------- ------ ------ Net total return (Â£'000) (11,003) 22,332 36,129 ------- ------ ------ Equity shareholders' funds (Â£'000) 198,507 216,930 221,331 ------- ------- ------- The weighted average number of ordinary shares in issue during the period, on which the return per ordinary share was calculated, was: 117,480,880 127,468,768 124,871,436 ----------- ----------- ----------- The actual number of ordinary shares in issue at the end of each period, on which the net asset value was calculated, was: 115,117,791 124,729,045 119,843,969 ----------- ----------- ----------- The number of ordinary shares in issue, including treasury shares, on which the fully diluted net asset value was calculated, was: 119,843,969 130,238,932 124,729,045 ----------- ----------- ----------- Net asset value per share 172.44p 173.92p 184.68p ======= ======= ======= Return per share Calculated on weighted average shares: Revenue return 0.33p 0.24p 3.06p Capital return (9.70p) 17.28p 25.87p ------ ------ ------ Total (9.37p) 17.52p 28.93p ====== ====== ====== Calculated on actual shares: Revenue return 0.34p 0.25p 3.19p Capital return (9.90p) 17.66p 26.96p ------ ------ ------ Total (9.56p) 17.91p 30.15p ====== ====== ====== As at 29 February 2008, the Company had 4,726,178 shares held in treasury. As the Company's share price at this date stood at a discount of greater than 2%, shares could not be sold out of treasury and consequently there was no dilution to the Company's net asset value or return per share. No fully diluted return per share has been disclosed as the calculations for all periods indicate that the treasury shares do not have a potentially dilutive effect. 8. Share capital and shares held in treasury Number of Number of ordinary treasury Nominal shares shares Total value in issue in issue shares Â£ Authorised share capital comprised: Ordinary shares of 0.1p each 900,000,000 - 900,000,000 900,000 ----------- --------- ----------- ------- At 31 August 2007 119,843,969 4,885,076 124,729,045 124,729 Shares transferred into treasury pursuant to tender offer on 30 November 2007 (4,726,178) 4,726,178 - - Shares cancelled from treasury on 3 December 2007 - (4,885,076) (4,885,076) (4,885) ----------- --------- ----------- ------- At 29 February 2008 115,117,791 4,726,178 119,843,969 119,844 =========== ========= =========== ======= 9. Publication of non statutory accounts The financial information contained in this half yearly financial report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the six months ended 29 February 2008 and 28 February 2007 has not been audited. The information for the year ended 31 August 2007 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the Auditors on those accounts contained no qualification or statement under sections 237(2) or (3) of the Companies Act 1985. 10. Annual Results The Company expects to announce the results for the year ending 31 August 2008 in October 2008. The annual report should be available by the end of October 2008, with the Annual General Meeting being held on 25 November 2008. 33 King William Street London EC4R 9AS 16 April 2008

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