US Special Opportunities Trust PLC
Half yearly financial report for the six months ended 30 November 2007
Company highlights
for the six months ended 30 November 2007
Total return performance % change
Assets attributable to shareholders* -1.97%
Gross assets* -2.48%
US Growth portfolio (�)** +1.56%
Russell 2000 Index (�) -12.29%
Income portfolio** -11.10%
FTSE All-Share Index -3.10%
NAV returns and share prices 30 Nov 31 May % change
2007 2007
pence pence
Zero Dividend Preference share NAV 175.05p 167.80p +4.32
Mid price 175.25p 169.50p +3.39
Income share NAV 101.64p 101.60p +0.04
Mid price 93.00p 92.75p +0.27
Capital share NAV 14.94p 22.68p -34.13
Mid price 14.00p 15.50p -9.68
Unit (1 Capital and 1 Income NAV 116.58p 124.28p -6.20
share)
Mid price 107.50p 106.75p +0.70
Revenue return per Income share 1.32p
Net dividends declared per 1.60p
Income share***
* Total return performance calculated, adjusted for any dividends distributed,
share buybacks and any impact due to the change in accounting standards, using
previous UK GAAP monthly data up to 31 December 2005 and revised UK GAAP
monthly data thereafter.
** Total return performance calculated, before deduction of bank interest,
management fees and other expenses, using previous UK GAAP monthly data up to
31 December 2005 and revised UK GAAP monthly data thereafter.
*** First and second interim dividends of 0.8p and 0.8p.
Data as at 30 November 2007, all performance figures for the period ended 30
November 2007 unless otherwise stated. Past performance and dividends paid are
not a guarantee of future returns. Figures sourced from Premier Fund Managers
Ltd and Bloomberg.
Chairman's statement
for the six months ended 30 November 2007
"Beating the benchmark - again"
Dear Shareholder,
Despite market conditions proving to be unusually challenging as the Company
entered the final year of its planned life, I am pleased to report that,
relative to its benchmark, your Company weathered the storm well in the period
under review. During the six months to 30 November, the global financial system
was hit by an unexpectedly sudden contraction of liquidity within the banking
system - the so called credit crunch - triggered by the problems associated
with the financing of sub-prime mortgages in the United States. The tightening
in the availability of credit and the losses incurred in the sub-prime market
had an impact on financial markets globally. Fortunately, your Company has had
no direct exposure to investment in sub-prime mortgage instruments, but has
nonetheless been potentially exposed to the general increased aversion of
investors to risk which in turn has resulted in a sharp set back in smaller
company sectors both in the UK and the US. Furthermore, over the six months to
30 November the US Dollar weakened against Sterling by 3.95% and this has
restrained performance for the UK investor.
During the period under review, the Russell 2000 total return index fell 8.83%
in US Dollars and in Sterling by 12.29%. Against this background the US Growth
portfolio performed well, with a positive total return of 4.45% in Dollars and
1.56% in Sterling. Holdings of particular note were Points International and
Fushi International. The Income portfolio, which had an exceptionally strong
performance last year, had a much more difficult period. Total return was a
negative 11.10% with the bond element performing better than the investment
companies, which suffered from a widening of discounts to asset value and in
some cases a geared exposure to declining markets. Overall, the Company's net
assets fell by 3.35%.
During the period, significant realisations have been made from the US Growth
portfolio, such as KDH Humbolt Wedag and Quintana Maritime, in some cases
crystallising substantial gains against cost price. The proceeds of these sales
allowed some new investments to be made and a tranche of bank debt to be repaid
(see below). In the Income portfolio your Investment Manager has made sales of
some of the less liquid investment company shares and reinvested the proceeds
in bonds and short term money market instruments with good liquidity and
attractive yields.
Gearing and currency hedges
In August 2007, with market conditions deteriorating and with a significant
level of cash in the portfolio, the Board agreed to the repayment of $25
million of its $51.968 million debt liability. At the same, time the
corresponding interest rate and currency swap positions were closed. This left
borrowings of �7 million Sterling and a $26.968 million US Dollar loan fixed at
an exchange rate of US$1.856 to the Pound. Since the period end the remaining
$26.968 million Dollar debt has been repaid and the associated swap positions
closed. As at the date of this report, the Company had only the �7 million
Sterling loan in place.
Also in August, having regard to the planned wind-up of the Company in 2008 and
the positioning of the US Dollar at the time, the Board agreed to make a change
to the Company's cap and collar currency "cylinder" by moving the exchange rate
cap from $1.6610 to $1.9500 whilst leaving the collar at $2.10. The closures of
the swaps in August, together with the change in the currency cylinder,
generated a cash payment to the Company of �1.681 million. The subsequent
closing in November 2007 of the remaining swaps linked to the Dollar loan
generated a further �1.241 million payment. These values had been reflected in
the published net asset value as all derivative positions are marked to market.
However, by carrying out these derivative transactions the Company has been
able to crystallise value which might otherwise have declined as a result of
reducing time value and a changing Dollar exchange rate.
Revenue and dividends
In the six months to 30 November 2007, the Company paid the third and fourth
interim dividends in respect of the previous year; both dividends at the rate
of 0.8p per Income share. The first interim in respect of the current year was
paid on 19 October, also at the rate of 0.8p per Income share. The second
interim of 0.8p was declared on 11 January 2008 and will be payable on 16
February 2008. Revenue per Income share for the first half was 1.32p compared
with 1.40p for the same period the previous year.
Future prospects, risks and uncertainties
The Company has a planned wind-up date of 31 May 2008. As indicated in the 2007
annual report, the Board has been considering the options and the feasibility
of providing a rollover or extension of life scheme for shareholders. This
process continues. The merits of such a scheme are that it would provide
shareholders with a means of mitigating potential capital gains tax
liabilities, provide a cost effective way for investors to retain exposure to
what has been a successful investment strategy and possibly reduce the
potentially detrimental impact of liquidating the whole portfolio against what
could prove to be an unfavourable market background. The Board has appointed
Cenkos Securities plc as Corporate Broker to assist it in the process of
considering the various options.
The principal risk and uncertainty facing the Company over the coming months is
the market risk and uncertainty associated with the possible need to liquidate
the portfolio in volatile conditions, particularly evident in recent days.
Falling equity markets and poor liquidity in the stocks in which your Company
is invested could impact on the terminal asset value for the Capital shares and
Income shares. Foreign exchange movements are an added risk factor, although
the recent change in sentiment affecting the Sterling/Dollar exchange rate
could, if sustained, be advantageous. As we approach the Company's planned
wind-up date, we are increasingly persuaded of the desirability of achieving an
ongoing vehicle that will enable shareholders to benefit from the proven
success of your Manager's investment approach and the longer term prospects of
many of the stocks that the Company holds.
Lord Lang of Monkton
Chairman
29 January 2008
Investment Adviser's report: US Growth portfolio
for the six months ended 30 November 2007
For the six months ended 30 November 2007, the US Growth portfolio had a return
in Sterling of 1.6% against a loss of 12.3% in the Russell 2000. For the same
period, the US Growth portfolio had a Dollar return of 4.4% against a loss of
8.8% in the Russell 2000. Since the Company's inception, a period of 6.7 years
to 30 November 2007, the US Growth portfolio has exceeded the returns of all
major US indices. Measured in Sterling, the US Growth portfolio had an
annualised rate of return of 14.6%, against the Russell 2000's annual return of
3.8%. Measured in Dollars, the US Growth portfolio had an annualised rate of
return of 19.6%, against the Russell 2000's annual return of 9.7%.
At 30 November 2007, the US Growth portfolio was valued at approximately $176
million. At the end of the interim period, the portfolio had 29% of its assets
in cash, fixed income and privately placed debt instruments and 71% of its
assets in equities. Below is a table showing our top ten holdings and their
respective allocations. The top ten holdings represent 34% of the portfolio.
Top ten holdings by company as at 30 November 2007
Company Value Allocation
US$ %
Fushi International, Inc. 9,199,125 5.2
Zhongpin, Inc. 8,771,045 5.0
Bovie Medical Corp. 7,051,000 4.0
Points International, Ltd. 6,260,000 3.5
Integrated Security Systems, Inc 5,677,562 3.2
Comtech Group, Inc. 5,322,000 3.0
Quintana Maritime Limited 5,310,000 3.0
Cover-All Technologies, Inc. 5,135,720 2.9
Medical Action Industries, Inc. 3,751,875 2.1
Williams Companies, Inc. 3,471,000 2.0
59,949,327 33.9
Below are highlights from three of the top holdings.
Fushi International, Inc. (OTC: FSIN) has risen from the third to the largest
holding after appreciating 38% over the last six months. Including the exercise
of warrants, this holding has appreciated 458% since our investment in December
of 2005. Fushi is the largest non-state owned manufacturer of bimetallic cable
products in China, with a significant market share amongst domestic suppliers.
Bimetallic composite products are used in cable television, telecommunications,
utility, electronics and other industrial applications.
The Company's sound strategy is to first dominate the Chinese market, and then
to aggressively take international market share. This was demonstrated recently
when the company announced a definitive agreement to acquire US based
Copperweld Bimetallics. The North American leader, Copperweld Bimetallics was
established in 1915 and has the most well known brand name in the industry
worldwide. Upon completion, this will give Fushi significant additional
manufacturing capacity, new intellectual property and, most importantly, new
distribution channels throughout North and South America as well as Europe.
For the twelve months ended June 2007, Fushi had earnings of $19 million on
revenues of $82 million. The addition of Copperweld should more than double the
size of the company. On 31 October, Fushi announced that it sold 2.8 million
shares for $14 per share raising $39 million. The company also provided
guidance of between $0.86 and $0.96 earnings per share for 2007 and $1.50 to
$1.60 per share for 2008. Fushi International is another example of the
benefits of partnering with successful founders. We believe this company has
the potential to increase few fold over the upcoming years.
Points International, Ltd (OTC: PTSEF) is new to the top ten list due to its
340% appreciation since it was acquired in the open market within the last
year. A provider of information technology solutions to the loyalty industry,
it owns and operates Points.com, a reward program management portal that
enables consumers to earn, buy, gift, share, swap and redeem airline miles and
points with various loyalty programs and retail partners worldwide. This "web
2.0" company is growing rapidly evidenced by its 75% annual revenue growth
reported for the second quarter of 2007. With virtually no competition, we
expect Points to continue to dominate this market and become the sole
"exchange" for businesses and consumers to manage their loyalty programs.
Quintana Maritime Limited (NASDAQ: QMAR) remained on the top ten list even
though we sold half of our position. During the six months ended 30 November,
Quintana appreciated 70%. A provider of dry bulk marine transportation services
internationally, Quintana has benefitted from a rapid increase in the price of
shipping services as China and India place increasing demands upon the world's
grain and iron ore supplies. The average price of renting a ship to carry raw
materials from Brazil to China has nearly tripled to $180,000 per day from just
a year ago. In some cases, ocean shipping can be more expensive than the cargo
itself. Iron ore, for example, costs about $60 per ton, but ship owners are
currently charging about $88 per ton to transport it from Brazil to Asia.
Quintana has the largest fleet of young ships with the longest time charters of
any publicly-traded dry bulk shipper. Quintana has been a less risky way to
participate in the rapid growth of Asian markets.
New investments
We are enthusiastic about the growth prospects of several new investments made
since 31 May 2007. During the period, your Company invested approximately $10
million into 9 new companies. Below is a list of these investments with a brief
description followed by further highlights on three of these investments.
AuraSound (OTC: HMCU) engages in the design, development, manufacture and sale
of audio speakers and micro-audio products used in television sets, computers
and cell phones.
BPO Management Services, Inc. (OTC: BPOM) provides back-office business process
outsourcing services to middle market organisations in the United States.
China Fortune Acquisition Corp. (OTC: CFAUF) is a special purpose acquisition
corporation which intends to acquire through merger, capital stock exchange,
asset acquisition or other business combination with an operating business in
China.
Foothills Resources (OTC: FTRS) engages in the acquisition exploration and
development of oil and gas properties in northern California, Texas and
Oklahoma.
Gaoke Energy Group (OTC: CSCA) is the largest Chinese engineering company
providing design, construction, installation and operating expertise for
distributed power generation and micro power networks in China. This company is
currently known as Chardan South China Acquisition Corporation.
HLS Systems International (OTC: HLSYF) is one of the leading automation control
systems providers in China. HLS automation equipment is used in the nuclear,
rail, subway, light rail and petrochemical industries.
Narrowstep, Inc. (OTC: NRWS) produces, transmits and manages streaming video
broadcasts via the Internet and television (TV) channels in Europe, Asia and
the US.
Petrohunter Energy Corp. (OTC: PHUN) engages in the acquisition, exploration,
development and production of crude oil and natural gas reserves in the western
US and Australia.
Vertical Branding, Inc. (OTC: VBDG) operates as a consumer product branding,
marketing and distribution company in the US.
Disposals
During the six months ended 30 November 2007 the US Growth portfolio sold
approximately $22 million in securities, more than two times the Dollar amount
of new investments. We sold all of our Cano Petroleum for $1.8 million making a
gain of $538,000. We sold our entire $1.3 million position in ChinaBak Battery
for a slight gain. We sold two of our convertible debentures, Compudyne and
Kaman Corporation for $1.5 million. We sold all of our Express-1 Expedited
Solutions for a small loss. We sold approximately half of our Gasco Energy,
realising sale proceeds of $3.8 million from a cost basis of just $1.3. The
largest sale and capital gain came from KHD Humbolt Wedag where we realised
sale proceeds of $5.5 million from a cost of just $456,000. The second largest
sale was that of Quintana Maritime where we sold half of our position for $5.4
million. In addition to the above, your Company made a partial sale of US Home
Systems and a complete sale of Vaso Active Pharmaceuticals. Uninvested cash was
used in August 2007 to repay the $25 million bank loan with a further $26.968
million repayment made after the period end.
RENN Capital Group, Inc.
29 January 2008
Investment Manager's report: Income portfolio
for the six months ended 30 November 2007
The FTSE 100 Index of larger companies produced a total return of minus 1.2%
while the broader based FTSE All-Share Index generated minus 3.1%. Our
investment company and reverse convertible bond portfolios, together
constituting the Income portfolio, produced a minus 11.1% total return. Poorest
performance was from the investment company exposure and specifically high
yielding geared ordinary shares. The FD/AIC Split Capital Ordinary Income Share
Index was down 15.8%.
Investment company portfolio
We moved to a more defensive position within the investment company portfolio,
while the UK market rallied almost 15% between mid August and mid October in
response to a 25 basis point cut in interest rates by the monetary policy
committee. In particular, we sold or reduced our holdings in leveraged ordinary
income shares improving the portfolio's liquidity and protecting capital as the
market retreated. Stocks sold included New Star Financial, Jupiter Second
Enhanced and Investec High Income.
Our holding in Investors Capital `A' shares was sold towards the October peak
while funds were received from our holding in Premier Pacific which paid a
large terminal dividend when it returned cash to shareholders. We have opted
for cash in Schroder Split's scheme on wind-up.
The result of these sales was to reduce our exposure to high income and split
capital investment companies within the Income portfolio from �13.6 million to
�5.9 million equivalent to 7.2% of assets attributable to shareholders.
Most of the funds raised from investment companies had been reinvested in short
bonds and certificates of deposit.
Bond portfolio
The reverse convertible bond ("RCB") holdings returned a loss in total return
terms despite generating an income in excess of 5%. Over the same period the
FTSE 100 Index lost -1.2% including dividends. RCBs linked to Kingfisher, DSGI,
LogicaCMG and Wolseley were all particularly disappointing. Noteworthy good
performances came from RCBs linked to BP and Rio Tinto.
Money raised in the investment company portfolio has been invested into short
bonds and certificates of deposits ("CDs"). Money markets have become
distressed following various financial institutions reporting losses on assets
related to US sub-prime mortgages. This has presented an unusual opportunity to
invest in cash equivalents on yields significantly above the Bank of England's
base rate. Over �4 million has been invested into CDs and short bonds,
generally achieving discount yields in excess of 6%.
At 30 November 2007, the RCBs had an income yield over 11% and an average
weighted life of 18 months.
Premier Fund Managers
29 January 2008
Interim management report
Listed companies are now required by the FSA's Disclosure and Transparency
Rules to include an interim management report within their half yearly results.
The Company's interim management report is comprised of the information
contained in the Chairman's statement, the Investment Adviser's report, the
Investment Manager's report and the risk factors contained in this half yearly
report.
The interim management report and the financial statements have not been
reviewed or audited by the Company's Auditor.
Responsibility statements
for the six months ended 30 November 2007
The Directors confirm that to the best of their knowledge:
(a) the condensed set of financial statements, which has been prepared in
accordance with applicable accounting standards in the United Kingdom,
gives a true and fair view of the assets, liabilities, financial position
and profit of the Company as required by the Disclosure and Transparency
Rule ("DTR") 4.2.4R,
(b) the interim management report includes a fair review of the information
required by DTR 4.2.7R, being an indication of the important events that
have occurred during the first six months of the financial year and their
impact on the condensed set of financial statements, and a description of
the principal risks and uncertainties for the remaining six months of the
year,
(c) the interim management report includes a fair review of the information
required by DTR 4.2.8R, being related party transactions that have taken
place in the first six months of the current financial year and that have
materially affected the financial position and performance of the entity
during that period, and any changes in the related party transactions
described in the last annual report that could do so.
This half yearly report was approved by the Board of Directors on 29 January
2008 and the above responsibility statement was signed on its behalf by the
Chairman.
Lord Lang of Monkton
Chairman
29 January 2008
Financial summary
Capital
30 November 31 May Change Premium/
2007 2007 % (discount)
30
November
2007
%
Assets attributable to 82,111 84,958 (3.35)
shareholders (�'000)
Gross assets (�'000)** 103,638 119,948 (13.60)
Net asset value per Zero 175.05p 167.80p 4.32
Dividend
Preference share***
Mid-market price per Zero 175.25p 169.50p 3.39 0.11
Dividend
Preference share
Net asset value per 101.64p* 101.60p 0.04
Income share***
Mid-market price per 93.00p 92.75p 0.27 (8.50)
Income share
Net asset value per 14.94p 22.68p (34.13)
Capital share***
Mid-market price per 14.00p 15.50p (9.68) (6.29)
Capital share
Net asset value per Unit* 116.58p* 124.28p (6.20)
**
(1 Capital share and 1
Income share)
Mid-market price per Unit 107.50p 106.75p 0.70 (7.79)
Six months Six months to Change
to 30 November %
30November 2006
2007 pence
pence
Revenue
Return per Income 1.32 1.40 (5.71)
share
Net dividend paid 2.40 2.30 4.35
per Income share
*Including current period revenue.
**Total assets less current liabilities (excluding bank loan and net assets
attributable to shareholders).
*** Net asset values calculated in accordance with Articles of Association.
As at
30
November
2007
%
Hurdle rates
Zero Dividend Preference shares:
Hurdle return rate to share price (78.8)
of 175.25p
Hurdle rate to redemption price of (77.8)
182.608201p on 31 May 2008
Income shares:
Hurdle return rate to share price (13.1)
of 93.00p
Hurdle rate to redemption price of (6.6)
100.00p on 31 May 2008
Capital shares:
Hurdle return rate to share price 7.4
of 14.00p
Units:
Hurdle return rate to unit price of 0.8
107.50p
Source: Fundamental Data Limited (all rights reserved).
Six months Six months
to to
30 30
November November
2007 2006
% %
Total return
Total return on assets attributable (1.97) (2.81)
to shareholders*
Total return on gross assets* (2.48) (3.48)
Total return on US Growth portfolio 1.56 (3.21)
(�)**
Total return on US Growth portfolio 4.45 1.25
($)**
Russell 2000 Index (�) - total (12.29) 4.38
return
Russell 2000 Index ($) - total (8.83) 9.72
return
Total return on Income portfolio** (11.10) 9.93
FD/AIC SCI Ordinary Income Share - (15.83) 11.01
total return***
FD/AIC SCI Income Share - total (1.39) 13.43
return***
FTSE All-Share Total Return Index (3.10) 8.62
Total return per Unit*** 2.20 (1.34)
Total return per Income share*** 2.00 5.07
Total expenses ratio/cost of 0.88 0.91
running the Company
*Total return performance calculated, adjusted for any dividends distributed,
share buybacks and any impact due to the change in accounting standards, using
previous UK GAAP monthly data up to 31 December 2005 and revised UK GAAP
monthly data thereafter.
**Total return performance calculated, before deduction of bank interest,
management fees and other expenses, using previous UK GAAP monthly data up to
31 December 2005 and revised UK GAAP monthly data thereafter.
*** Source: Fundamental Data Limited (all rights reserved).
US Growth portfolio:
Principal investments
as at 30 November 2007
Fair % of assets
value attributable
�'000 to
shareholders
Company Classification Sector
US T-Bill Government stock Government 12,125 14.77
Fushi Common stock Industrial 4,474 5.45
International
manufacturing
Zhongpin Convertible pref Food processing 4,266 5.20
/
Common stock
Bovie Medical Common stock Medical 3,429 4.18
equipment
Points Common stock Internet 3,045 3.71
International software
& services
Integrated Loan notes/ Security & 2,752 3.35
Security Systems Convertible protection
deb/Common stock services
Comtech Group Common stock Consumer goods 2,588 3.15
Quintana Maritime Common stock Shipping 2,582 3.15
Cover-All Common stock/ Application 2,499 3.04
Technologies software
Warrants
Medical Action Common stock Medical 1,825 2.22
Industries equipment
Williams Companies Common stock Oil & gas 1,688 2.06
services
Gasco Energy Common stock Oil & gas 1,629 1.98
pipelines
OmniVision Common stock Semiconductions 1,358 1.65
Technologies
China Security & Common stock/ Business 1,294 1.58
Surveillance Warrants security
Skystar Convertible deb/ Pharmaceuticals 1,292 1.57
Bio-Pharmaceutical Warrants
Silverleaf Common stock Property 1,274 1.55
management
eOriginal Holdings Convertible pref Software 1,242 1.51
/Warrants
Motorcar Parts of Common stock Auto parts 1,241 1.51
America
Hanwei Energy Common stock Oil & gas 1,231 1.50
services equipment
& services
BPO Management Convertible pref Application 1,193 1.45
Services /Warrants software
53,027 64.58
As at 30 November 2007, the US Growth portfolio consisted of 172 holdings in 92
companies with a total market value of �81,628,000, excluding cash, being
99.41% of assets attributable to shareholders.
Income portfolio (Investment Companies):
All investments
as at 30 November 2007
Fair % of assets
value attributable
�'000 to
shareholders
Company Classification
Acorn Income Ordinary shares 1,019 1.24
Small Companies Dividend Ordinary shares 886 1.08
Investec High Income Ordinary shares 585 0.71
Middlefield Canadian Redeemable 492 0.60
Income participating
preference shares
Glasgow Income Ordinary shares 470 0.57
European Assets Ordinary shares 444 0.54
Edinburgh New Income Ordinary shares 440 0.54
M & G High Income Income shares 317 0.39
Babcock & Brown Public Ordinary shares 309 0.38
Partnerships
T2 Income Ordinary shares 240 0.29
Ecofin Water & Power Ordinary shares 184 0.22
Opportunities
HSBC Infrastructure Ordinary shares 173 0.21
Rutley European Property Convertible 108 0.13
redeemable
preference shares
Kenmore European Ordinary shares 105 0.13
Industrial
Henderson High Income Ordinary shares 76 0.09
INVESCO Leveraged High Ordinary shares 52 0.06
Yield
Aberdeen Asian Income Warrants 9 0.01
City Merchant High Yield Ordinary shares 6 0.01
5,915 7.20
Income portfolio (Reverse Convertible Bonds):
Principal investments
as at 30 November 2007
Year of Strike Fair % of assets
maturity price* value attributable
�'000 to
shareholders
Reverse Convertible
Bond
National Australia 2008 - 1,000 1.22
Bank 6.50% CD 28/01/08
Ulster Bank 6.38% CD 2008 - 800 0.97
21/01/08
ING Bank 5.49% CD 02/ 2008 - 699 0.85
01/08
KPN 8.25% Mtn Stp 11/ 2008 - 503 0.61
04/08
Deutsche Bank 5.875% 2008 - 399 0.49
CD 08/02/08
GE Capital UK Funding 2010 - 293 0.36
4.75% 15/12/10
Rabo 9.62% 03/07/09 2009 566.00p 291 0.35
(Prudential)
Barclays 10.90% 16/08/ 2010 1,695.00p 276 0.34
10 (Land Securities)
SG 11.04% 06/02/09 2009 172.00p 210 0.26
(DSG Intl)
Rabo 10.15% 18/05/09 2009 126.00p 203 0.25
(Vodafone)
Danske 5.525% CD 04/01 2008 - 200 0.24
/08
DB 9.84% 18/06/10 2010 1,270.00p 196 0.24
(GlaxoSmithKline)
Barclays 10.00% 03/10/ 2008 744.00p 196 0.24
2008 (Emap)
Rabo 10.00% 22/02/2008 2008 641.00p 185 0.22
(BP)
DB 11.20% 09/03/09 2009 177.00p 180 0.22
(LogicaCMG)
HBOS 6.0884% Non - - 177 0.21
cumulative
irredeemable
preference
Barclays 10.01% 17/08/ 2009 959.00p 167 0.20
09 (HBOS)
Calyon 10.25% 08/12/08 2008 397.75p 147 0.18
(Bae Systems)
DB 9.05% 02/03/09 2009 544.50p 140 0.17
(Rexam)
SG 10.14% 10/11/08 2008 1,407.00p 136 0.17
(GlaxoSmithKline)
6,398 7.79
As at 30 November 2007, the Income portfolio consisted of 57 holdings with a
total market value of �12,911,000, excluding cash, being 15.72% of the assets
attributable to shareholders.
* Strike prices are in Sterling unless otherwise stated.
Risks of investing
The principal risk and uncertainty facing the Company over the coming months is
the market risk and uncertainty associated with the possible need to liquidate
the portfolio in volatile conditions. Falling equity markets and poor liquidity
in the stocks in which your Company is invested could impact on the terminal
asset value for the Capital shares and Income shares. Foreign exchange
movements are an added risk factor, although the recent change in sentiment
affecting the Sterling/Dollar exchange rate could, if sustained, be
advantageous.
The capital structure of the Company includes gearing through bank debt and, in
respect of any one share class, through the capital attributable to any prior
ranking share class. This gearing means that for any movement - up or down - in
the Company's gross assets there will (in most circumstances) be a greater
percentage movement in the net asset value of the Capital shares and the Units.
This in turn may be reflected in greater volatility in the share prices of the
Capital shares and Units and adds to the risk associated with these
investments. If the final capital entitlement of the Income shares (100p) is
uncovered, the movement of the NAV of the Income shares will also be geared in
the same way, as would the NAV attributable to the Zero Dividend Preference
shares if their current entitlement to assets were uncovered. This adds to the
risk associated with these investments. If, on a wind-up, the gross assets of
the Company are insufficient to cover the bank loan and the capital
entitlements of prior ranking share classes, the terminal asset value of any of
the share classes where the prior ranking liabilities are uncovered could be
zero.
The dividend on the Income shares and hence also on the Units depends on the
receipt of interest payments and dividends from the securities in which the
Company invests.
Investments by the Company in the shares of other investment companies may be
themselves substantially geared by prior charges, resulting in the potential
for greater volatility in the share prices of investments in the Income
portfolio.
The Zero Dividend Preference shares rank after the repayment of bank debt but
ahead of the Income shares and the Capital shares for repayment of capital on a
winding-up of the Company and hence can be regarded as lower risk in respect of
capital entitlement than the other two classes of share. A decline in the gross
assets of the Company could result in the Zero Dividend Preference shares
failing to receive their full redemption value on wind-up and if gross assets
were equal to or less than the amount required to repay the bank loan and other
liquidation costs, you would lose all of your capital invested in the Zero
Dividend Preference shares.
The income and the capital value of the Company's investments can be
significantly affected, either favourably or unfavourably, by currency
movements as a significant proportion of the Company's assets and income is
denominated in US Dollars.
A proportion of the Company's assets is invested in smaller and unquoted
companies which are inherently higher in risk and have a lower marketability
than larger listed companies.
Income statement (unaudited)
for the six months ended 30 November 2007
Period 1 June to 30 Period 1 June to 30
November 2007 November 2006
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Losses on - (2,788) (2,788) - (2,596) (2,596)
investments at
fair
value through
profit or loss
Income 1,496 - 1,496 1,690 - 1,690
Investment (222) (520) (742) (237) (555) (792)
management fee
Other expenses (169) - (169) (244) - (244)
Exchange gains/ - 1,815 1,815 - (1,115) (1,115)
(losses) on
capital items
Movement in fair - (417) (417) - 1,756 1,756
value of
derivative
financial
instruments
Net return before 1,105 (1,910) (805) 1,209 (2,510) (1,301)
finance costs
and taxation
Finance costs
Interest payable (254) (593) (847) (297) (692) (989)
and similar
charges
Appropriations in
respect of:
Zero Dividend - (1,053) (1,053) - (963) (963)
Preference shares
Income shares (657) (671) (1,328) (697) (654) (1,351)
Capital shares - 4,036 4,036 - 4,628 4,628
Return on ordinary 194 (191) 3 215 (191) 24
activities
before taxation
Taxation on (194) 191 (3) (215) 191 (24)
ordinary
activities
- - - - - -
Return per share pence pence pence pence pence pence
(FRS 25)
Capital share - (8.07) (8.07) - (9.26) (9.26)
Income share 1.32 1.35 2.67 1.40 1.32 2.72
Zero Dividend - 7.63 7.63 - 6.98 6.98
Preference share
Unit (1 Capital, 1 1.32 (6.72) (5.40) 1.40 (7.94) (6.54)
Income)
The total column of this statement is the income statement of the Company. The
supplementary revenue return and capital return column have been prepared in
accordance with the AIC's SORP. Revenue and capital return per share figures
shown are also supplementary information.
All revenue and capital items in the above statement derive from continuing
operations. There are no recognised gains or losses other than those passing
through the income statement.
Income statement (unaudited)
for the six months ended 30 November 2007
Year ended 31 May
2007
(audited)
Revenue Capital Total
�'000 �'000 �'000
- 3,703 3,703 Gains on
investments at
fair
value through
profit or loss
3,477 100 3,577 Income
(474) (1,106) (1,580) Investment
management fee
(555) - (555) Other expenses
- (1,037) (1,037) Exchange
losses on
capital items
- 1,668 1,668 Movement in
fair value of
derivative
financial
instruments
2,448 3,328 5,776 Net return
before finance
costs
and taxation
Finance costs
(590) (1,376) (1,966) Interest
payable and
similar
charges
Appropriations
in respect of:
- (1,965) (1,965) Zero Dividend
Preference
shares
(1,435) (1,313) (2,748) Income shares
- 928 928 Capital shares
423 (398) 25 Return on
ordinary
activities
before
taxation
(423) 398 (25) Taxation on
ordinary
activities
- - -
pence pence pence Return per
share (FRS 25
basis)
- (1.86) (1.86) Capital share
2.89 2.64 5.53 Income share
- 14.24 14.24 Zero Dividend
Preference
share
2.89 0.78 3.67 Unit (1
Capital, 1
Income)
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue return and capital return columns have been
prepared in accordance with the AIC's SORP. Revenue and capital return per
share figures shown are also supplementary information.
All revenue and capital items in the above statement derive from continuing
operations. There are no recognised gains or losses other than those passing
through the income statement.
Statement of movements in net assets attributable to shareholders (unaudited)
for the six months ended 30 November 2007
Period Period Year
1 June to 1 June to ended
30 November 30 November 31 May
2007
2007 2006
(audited)
(unaudited) (unaudited) �'000
�'000
�'000
Net assets attributable to 84,958 82,713 82,713
shareholders at the start of
the period
Appropriations to shareholders
Zero Dividend Preference shares 1,053 963 1,965
Income shares 1,328 1,351 2,748
Capital shares (4,036) (4,628) (928)
(1,655) (2,314) 3,785
Dividends paid to Income (1,192) (1,142) (1,540)
shareholders
Net assets attributable to 82,111 79,257 84,958
shareholders at period end
Balance sheet (unaudited)
as at 30 November 2007
30 31 May 30
November 2007 November
2007 (audited) 2006
(unaudited) �'000 (unaudited)
�'000 �'000
Fixed assets
Investments at fair value 94,539 110,712 90,540
Currency swap 1,414 1,728 1,581
Cap and collar cylinder 82 172 457
Interest rate swap 29 41 -
96,064 112,653 92,578
Current assets
Debtors 917 1,325 595
Cash at bank 6,911 6,479 21,461
7,828 7,804 22,056
Creditors - amounts
falling due within one year
Creditors 254 509 383
Bank loan 21,527 34,990 -
Net assets attributable to 82,111 84,958 -
shareholders
103,892 120,457 383
Net current (liabilities)/ (96,064) (112,653) 21,673
assets
Total assets less current - - 114,251
liabilities
Creditors - amount falling
due after more than one year
Bank loan - - 34,985
Interest rate swap - - 9
Currency swap - - -
Cap and collar cylinder - - -
Assets attributable to - - 79,257
shareholders
- - 114,251
- - -
Net asset values per share pence pence pence
(FRS 25)
Capital share 15.29 23.37 15.96
Income share 101.40 101.13 99.12
Zero Dividend Preference 174.63 167.00 159.74
share
Unit 116.69 124.50 115.08
Statement of cashflows (unaudited)
for the six months ended 30 November 2007
Period Period Year
1 June to 1 June to ended
30 November 30 November 31 May
2007
2007 2006 (audited)
(unaudited) (unaudited) �'000
�'000 �'000
Operating activities
Investment income 1,155 1,041 2,268
received
Deposit interest received 162 369 766
Investment management (808) (798) (1,532)
fees paid
Secretarial fees paid (46) (36) (89)
Other cash payments (192) (232) (394)
Net cash inflow from 271 344 1,019
operating activities
Servicing of finance
Interest paid (841) (985) (1,958)
Non-equity dividends paid (1,192) (1,142) (1,540)
(Income shares)
Net cash outflow from (2,033) (2,127) (3,498)
servicing of finance
Taxation
Corporation tax paid - - -
Income tax recovered - - -
Total taxation paid - - -
Capital expenditure and
financial investment
Purchases of investments (113,016) (11,240) (96,447)
Sales of investments 127,111 22,501 93,406
Net cash inflow/(outflow)
from capital expenditure
and financial investment 14,095 11,261 (3,041)
Net cash inflow/(outflow) 12,333 9,478 (5,520)
before financing
Financing
Repayment of loan (11,789) - -
Net cash outflow from (11,789) - -
financing
Net cash inflow/(outflow) 544 9,478 (5,520)
after financing
Increase/(decrease) in 544 9,478 (5,520)
cash
Notes to the half yearly financial report
for the six months ended 30 November 2007
1. basis of preparation
This financial information has been prepared under the historical cost
convention as modified by the revaluation of certain investments and in
accordance with the Accounting Standard Board's ("ASB") Statement on Half
Yearly Financial Reports, applicable law and Accounting Standards in the United
Kingdom ("UK GAAP") and with the Statement of Recommended Practice "Financial
Statements of Investment Trust Companies" ("SORP") issued by the Association of
Investment Companies ("AIC") in January 2003 and revised in December 2005 and
in accordance with accounting policies set out in the statutory accounts for
the year ended 31 May 2007.
2. revenue appropriations in respect of income shares
Revenue appropriations in respect of Income shares are split between dividends
paid in the period and the remaining balance of the revenue account for the
year.
Period Period Year
1 June to 1 June to ended
30 November 30 November 31 May 2007
2007 2006
�'000
�'000 �'000
Dividends 1,192 1,142 1,540
Residual balance of revenue (535) (445) (105)
account
Total revenue appropriations in 657 697 1,435
respect of Income shares
Dividends are comprised as
follows:
Relating to prior period
Third interim paid of 0.80p net 398 348 348
(2006: 0.70p)
Fourth interim paid of 0.80p 397 397 397
net (2006: 0.80p)
795 745 745
Relating to current period
First interim paid of 0.80p net 397 397 397
(2006: 0.80p)
Second interim not yet paid - - 398
(2006: 0.80p)
1,192 1,142 1,540
In addition a second interim dividend of 0.80p per Income share will be paid on
16 February 2008. This dividend relates to the period 1 June to 30 November
2007, but in accordance with the Company's accounting policies it is recognised
in the period in which it is paid.
3. return per share
Period 1 June to Period 1 June to Year ended
30 November 2007 30 November 2006 31 May 2007
Revenue Capital Total Revenue Capital Total Revenue Capital Total
pence Pence pence pence pence pence pence pence pence
Return per
share (FRS 25)
Capital share - (8.07) (8.07) - (9.26) (9.26) - (1.86) (1.86)
Income share 1.32 1.35 2.67 1.40 1.32 2.72 2.89 2.64 5.53
Zero Dividend - 7.63 7.63 - 6.98 6.98 - 14.24 14.24
Preference
share
Unit (1 1.32 (6.72) (5.40) 1.40 (7.94) (6.54) 2.89 0.78 3.67
Capital, 1
Income)
Capital shares
The return per Capital share is based on appropriations for the period of loss
�4,036,000 (period 1 June 2006 to 30 November 2006: loss �4,628,000; year ended
31 May 2007: loss �928,000) and on 50,000,000 (period 1 June 2006 to 30
November 2006: 50,000,000; year ended 31 May 2007: 50,000,000) Capital shares.
Income shares
The revenue return per Income share is based on revenue appropriations of �
657,000 (period 1 June 2006 to 30 November 2006: �697,000; year ended
31 May 2007: �1,435,000) and on 49,670,000 (period 1 June 2006 to 30 November
2006: 49,670,000; year ended 31 May 2007: 49,670,000) Income shares being the
weighted average number of shares in issue during the period. The capital
return per Income share is based on an annualised redemption yield from 12
April 2001 of approximately 2.79% and on 49,670,000 Income shares.
The redemption yield is contingent on the Company having sufficient assets at
the time of redemption.
Zero Dividend Preference shares
The return per Zero Dividend Preference shares is based on an annualised
redemption yield from 12 April 2001 of approximately 8.8%, and on 13,799,000
(period 1 June 2006 to 30 November 2006: 13,799,000; year ended 31 May 2007:
13,799,000) being the weighted average number in issue during the period 1 June
2006 to 31 May 2007.
The return per share based on the allocation of available assets in the event
of a return of capital in accordance with the Articles of Association was:
Period 1 June to Period 1 June to Year ended
30 November 2007 30 November 2006 31 May 2007
Revenue Capital Total Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence pence pence pence
Return per
share
(Articles)
Capital shares - (7.74) (7.74) - (8.95) (8.95) - (1.23) (1.23)
Income shares 1.32 1.12 2.44 1.40 1.10 2.50 2.89 2.20 5.09
Zero Dividend - 7.25 7.25 - 6.66 6.66 - 13.57 13.57
Preference
shares
Unit (1 1.32 (6.62) (5.30) 1.40 (7.85) (6.45) 2.89 0.97 3.86
Capital, 1
Income)
4. Net asset values
Total net asset values attributable to shareholders calculated in accordance
with FRS 25 are as follows:
30 31 May 30
November November
2007
2007 2006
�'000
�'000 �'000
For the purposes of
calculating net asset
values:
Total net assets
attributable to:
- Capital shareholders 7,646 11,682 7,982
- Income shareholders 50,368 50,232 49,233
- Zero Dividend 24,097 23,044 22,042
Preference shareholders
82,111 84,958 79,257
- Unit holders 58,014 61,914 57,215
pence pence pence
Net asset value per:*
- Capital share 15.29 23.37 15.96
- Income share 101.40 101.13 99.12
- Zero Dividend 174.63 167.00 159.74
Preference share
- Unit 116.69 124.50 115.08
They are represented by:
30 31 May 30
November November
2007
2007 2006
�'000
�'000 �'000
Share capital 113 113 113
Special reserve 60,983 60,983 60,983
Capital redemption 2 2 2
reserve
Capital reserve - (9,755) (13,563) (12,379)
realised
Capital reserve - 10,887 18,731 13,847
unrealised
Redemption reserve 18,502 16,778 15,117
Revenue reserve 1,379 1,914 1,574
Assets attributable to 82,111 84,958 79,257
shareholders
* Net asset values per share calculated on the number of shares in issue of:
30 31 May 30
November November
2007
2007 2006
- Capital share 50,000,000 50,000,000 50,000,000
- Income share 49,670,000 49,670,000 49,670,000
- Zero Dividend 13,799,000 13,799,000 13,799,000
Preference share
Total net asset values attributable to shareholders calculated in accordance
with the Company's Articles of Association are as follows:
30 31 May 30
November November
2007
2007 2006
�'000
�'000 �'000
For the purposes of
calculating net asset
values:
Total net assets
attributable to:
- Capital shareholders 7,471 11,340 7,480
- Income shareholders 50,485 50,463 49,575
- Zero Dividend 24,155 23,155 22,202
Preference shareholders
82,111 84,958 79,257
- Unit holders 57,956 61,803 57,055
pence pence pence
Net asset value per:*
- Capital share 14.94 22.68 14.96
- Income share 101.64 101.60 99.81
- Zero Dividend 175.05 167.80 160.89
Preference share
- Unit 116.58 124.28 114.77
Amounts attributable to Income shareholders and Zero Dividend Preference
shareholders are increased monthly or compounded at a daily compound rate as
set out in the Company's Articles of Association whereas their entitlements,
calculated under FRS 25, are lower due to adjustments made relating to their
share issue costs.
The net asset values calculated (on both bases above) include unaudited current
period revenue net of dividends paid as at 30 November 2007 and 2006.
The bi-weekly net asset values released to the stock exchange are calculated in
accordance with AIC guidelines, and exclude unaudited current period revenue
and dividends relating to the current accounting period. At 30 November 2007,
the difference between the two methods equated to �260,000 (0.52p per Income
share).
* Net asset values per share calculated on the number of shares in issue as
follows:
30 31 May 30
November November
2007
2007 2006
- Capital share 50,000,000 50,000,000 50,000,000
- Income share 49,670,000 49,670,000 49,670,000
- Zero Dividend 13,799,000 13,799,000 13,799,000
Preference share
5. movement in assets attributable to shareholders on a winding-up
Capital Special Capital Capital Redemption Revenue
redemption reserve reserve reserve reserve reserve
reserve �'000 realised unrealised �'000 �'000
�'000 �'000 �'000
Balance brought
forward
1 June 2007 2 60,983 (13,563) 18,731 16,778 1,914
Gains/(losses) on - - 4,526 (7,314) - -
investments
Exchange gains/
(losses) on
capital item - - 1,928 (113) - -
Movements in fair
value of
derivative - - - (417) - -
instruments
Costs charged to - - (1,113) - - -
capital
Tax relief on - - 191 - - -
capital costs
Appropriations in
respect of:
Zero Dividend
Preference
shares - - (1,053) - 1,053 -
Income shares - - (671) - 671 -
Net revenue - - - - - (535)
At 30 November 2 60,983 (9,755) 10,887 18,502 1,379
2007
6. movement in fair value of derivative financial instruments
Period Period Year
1 June to 1 June to ended
30 30 31 May
November November
2007
2007 2006
�'000
�'000 �'000
Interest rate swap (314) 1,352 1,499
Currency swap (12) 45 95
Cap and collar cylinder (91) 359 74
(417) 1,756 1,668
7. EFFECTIVE TAX RATE
The tax charge for the six months ended 30 November 2007 of �3,000 (period 1
June 2006 to 30 November 2006: �24,000; year ended 31 May 2007: �25,000)
relates to irrecoverable taxation charged on overseas income.
The Company has an effective tax rate of 0% for the year ending 31 May 2008.
The estimated effective tax rate is 0% as investment gains are exempt from tax
owing to the company status as an Investment Trust and there is expected to be
an excess of management expenses over taxable income.
8. RECONCILIATION OF NET RETURN BEFORE FINANCE COST AND TAXATION TO NET CASH
INFLOW FROM OPERATING ACTIVITIES
30 30 31 May
November November
2007
2007 2006
�'000
�'000 �'000
Net return before finance costs (805) (1,301) 5,776
and taxation
Losses/(gains) on investment 2,788 2,596 (3,703)
Exchange (gains)/losses on (1,815) 1,115 1,037
capital items
Movement in fair value of 417 (1,756) (1,668)
derivative financial
instruments
(Decrease)/increase in (103) (14) 112
creditors
(Increase)/decrease in debtors (151) (145) 44
Capital dividend - (100)
Reinvested dividends (57) (127) (454)
Tax deducted on investment (3) (24) (25)
income
Net cash inflow from operating 271 344 1,019
activities
9. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
30 30 31 May
November November
2007
2007 2006
�'000
�'000 �'000
Increase/(decrease) in cash in 544 9,478 (5,520)
period
Repayment of loan 11,789 - -
Realised foreign exchange gain 1,681 - -
on repayment of bank loan
Amortisation of costs incurred (7) (5) (10)
on bank loan
Realised foreign exchange (112) (1,056) (1,040)
(loss)/gain
Movement in net debt 13,895 8,417 (6,570)
Net debt at start of period (28,511) (21,941) (21,941)
Net debt at end of period (14,616) (13,524) (28,511)
10. ANALYSIS OF Changes in NET DEBT
30 31 May 30
November November
2007
2007 2006
�'000
�'000 �'000
Cash at bank 6,911 6,479 21,461
Debts due within (21,527) (34,990) -
one year
Debts due after - - (34,985)
more than one year
(14,616) (28,511) (13,524)
11. RELATED PARTY TRANSACTIONS
The Investment Managers, Premier Asset Management (Guernsey) Limited and
Premier Fund Managers Limited, are regarded as related parties to the Company.
The amounts paid to the Managers for Investment Management fees are disclosed
in the Income Statement. At 30 November 2007 there were amounts outstanding of
�117,000 (31 May 2007: �181,000; 30 November 2006: �128,000). The investment
management fee is based on the Company's gross assets less current liabilities
which are reduced by the value of investments held in the companies where
Premier are the investment manager. At 30 November 2007 the market value of
these holdings was �1,020,000 (31 May 2007: �2,823,000; 30 November 2006: �
1,312,000).
12. Financial information
The financial information contained in this half yearly financial report does
not constitute full statutory accounts as defined in Section 240 of the
Companies Act 1985. The financial information for the six months ended 30
November 2007 and 30 November 2006 has not been audited.
The information for the year ended 31 May 2007 has been extracted from the
latest published audited accounts. Those accounts have been filed with the
Registrar of Companies and included the report of the auditors which was
unqualified and did not contain a statement under Sections 237(2) or (3) of the
Companies Act 1985.
END
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