INVESCO PERPETUAL SELECT TRUST PLC – Half-year Report

Invesco Perpetual Select Trust plc
LEI: 549300JZQ39WJPD7U596

HALF-YEARLY FINANCIAL REPORT

SIX MONTHS ENDED 30 NOVEMBER 2016

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FINANCIAL PERFORMANCE

CUMULATIVE TOTAL RETURNS TO 30 NOVEMBER 2016

UK Equity Portfolio

	SIX MONTHS	ONE YEAR	THREE YEARS	FIVE YEARS
Net Asset Value	4.5%	3.0%	29.3%	105.5%
Share Price	4.4%	1.5%	30.8%	135.7%
FTSE All-Share Index	9.6%	9.8%	15.7%	55.4%

Global Equity Income Portfolio

	SIX MONTHS	ONE YEAR	THREE YEARS	FIVE YEARS
Net Asset Value	17.3%	20.3%	38.8%	100.9%
Share Price	19.2%	18.3%	39.3%	119.8%
MSCI World Index (£)	20.2%	24.3%	46.2%	101.6%

Balanced Risk Portfolio

The name and objective of this Portfolio were changed with effect from 8 February 2012. The strategy followed since 8 February 2012 is substantially different to the strategy in place prior to that date. The five year figures below are presented for consistency.

	SIX MONTHS	ONE YEAR	THREE YEARS	SINCE 8 FEB 2012	FIVE YEARS
Net Asset Value	4.6%	10.6%	14.0%	24.5%	22.8%
Share Price	6.9%	9.0%	15.6%	40.1%	37.8%
3 month LIBOR +5% pa	2.8%	5.6%	16.7%	27.1%	28.3%

Managed Liquidity Portfolio

	SIX MONTHS	ONE YEAR	THREE YEARS	FIVE YEARS
Net Asset Value	0.0%	0.0%	0.0%	1.3%
Share Price	0.2%	–1.2%	0.5%	2.3%

Source: Thomson Reuters Datastream.

PERIOD END NET ASSET VALUE, SHARE PRICE AND DISCOUNT

SHARE CLASS	NET ASSET VALUE (PENCE)	SHARE PRICE (PENCE)	DISCOUNT
UK Equity	168.9	166.8	1.2%
Global Equity Income	183.8	183.0	0.4%
Balanced Risk	128.4	127.5	0.7%
Managed Liquidity	103.1	101.3	1.7%

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INTERIM MANAGEMENT REPORT INCORPORATING THE
CHAIRMAN’S STATEMENT

CHAIRMAN’S STATEMENT

Investment Objective and Policy

The Company’s investment objective is to provide shareholders with a choice of investment strategies and policies, each intended to generate attractive risk-adjusted returns.

The Company’s share capital comprises four share classes: UK Equity Shares, Global Equity Income Shares, Balanced Risk Shares and Managed Liquidity Shares, each of which has its own separate portfolio of assets and attributable liabilities.

The Company enables shareholders to alter their asset allocation to reflect their view of prevailing market conditions. Shareholders have the opportunity every three months to convert between share classes free of capital gains tax.

Performance

In NAV terms, with dividends reinvested, the UK Equity Portfolio returned +4.5% over the six months to the end of November 2016 compared with its benchmark, the FTSE All-Share Index’s total return of +9.6%. The share price total return was +4.4%.

The Global Equity Income Portfolio returned +17.3% in NAV terms, and +19.2% on the share price, compared with its benchmark, the MSCI World Index’s total return over the period of +20.2%. 

The Balanced Risk Portfolio returned +4.6% in NAV terms, and +6.9% on the share price. The Portfolio’s benchmark, 3 month LIBOR plus 5% p.a., returned +2.8%.

The Company’s Managed Liquidity Shares, whose objective is derived from cash returns, had a nil return based on the NAV and +0.2% based on the share price.

The performance of the two equity oriented classes suffered from the very marked reversal of sector performance which began in the first quarter of 2016 and has broadly continued through the year. As a result the UK Equity class gave back some of its exceptional outperformance since inception. The Global Equity Income class was underweight in the US and overweight in the UK. This stance is much influenced by the value and opportunities available in those markets.

Balanced Risk continued to perform in line with its mandate and ahead of many “Absolute Return” funds. We are disappointed that it has not so far achieved the traction it deserves and remain convinced that it is a valid and logical component of the Company’s structure, providing a relatively uncorrelated and lower risk alternative to the equity based share classes.  

UK Equity Portfolio Management Arrangements

I announced at the Company‘s Annual General Meeting on 4 October 2016 that, after managing the Company’s UK Equity portfolio for the ten years since our launch, Mark Barnett had relinquished the management of the portfolio in favour of James Goldstone, one of the senior members of Invesco Perpetual’s UK Equities team. James has 15 years’ industry experience and has worked closely alongside Mark for the last four years. He has a similar philosophy to Mark, both managers being very valuation focused, having a long-term view in their investment process and regarding dividends as a key measure of a company management’s discipline. However, they do not have exactly the same outlook or convictions and the profile of the portfolio has changed somewhat since James took it over. The NAV was not affected by the realignment process and, in the very short period since James took over, his changes have been beneficial for performance. We look forward to seeing the longer term effect.

The Board

As part of the Board’s succession policy David Rosier retired from the Board on 4 October 2016 and we appointed a new non-executive Director, Craig Cleland, with effect from 1 November 2016.  Craig is Head of Corporate Development: Investment Trusts at CQS (UK) LLP and has a wealth of experience in the investment trust sector. 

Dividends

In accordance with the dividend policy that was implemented in 2015, the Board has declared equal first, second and third quarterly dividends for the current year for each of the equity share classes. For both the UK Equity shares and the Global Equity Income shares each of these dividends was 1.4p, making 4.2p declared to date. We continue to target annual dividends of at least 6.15p for the UK Equity shares and at least 6p for the Global Equity Income shares, these being the levels declared last year. Achieving these targets may require a contribution from capital, as was the case last year.

It continues to be the case that in order to maximise the capital return on the Balanced Risk Shares, the Directors only intend to declare dividends on the Balanced Risk Shares to the extent required, having taken into account the dividends paid on the other Share classes, to maintain the Company’s status as an investment trust. None have been declared to date.

In consequence of the continued very low interest rates prevailing, the cumulative retained net revenue of the Managed Liquidity Portfolio continues to be minimal and the Directors have not declared any dividends on the Managed Liquidity Shares since 18 April 2012.

Discount and Share Buy Backs

The Company has continued to operate a discount control policy for all four share classes through the period. In light of the uncertainty engendered by the EU referendum and the related weakness of sterling it was necessary to provide market liquidity and buy back some shares in connection with operating this policy. During the period the Company bought back 950,000 UK Equity shares at an average price of 165.0p, 250,000 Global Equity Income shares at a price of 157.5p, and 63,000 Managed Liquidity shares at a price of 101.1p.

Outlook

Events on the political front were so striking in the reporting period that it is clearly very dangerous to make any predictions. It does, however, look as though a “Hard Brexit” has become more likely. This will have repercussions as it takes effect on the UK economy and, politically, may have material consequences. On the wider international front I find it impossible to assess to which of Donald Trump’s many and varied statements I should attribute more weight, let alone how they will interact with the US political system and foreign governments. However, recent actions post inauguaration suggest, depressingly, that protection and zero sum nationalism are key parts of the administration’s policy.

Our portfolio managers have always stressed that their approach in equities is to pick attractive stocks based on their valuation and ability to generate free cash flow. Fortunately such opportunities continue to exist. Profitability may indeed improve as the US and Continental European economies grow a little faster and many British companies benefit from the weakness of sterling.

For the first time in several years inflation has become a concern in several countries. The US may be about to add a reflationary fiscal programme to an economy that is approaching capacity constraints. Similar policies are being proposed in the UK where their impact coincides with the inflationary effects of sterling weakness. As a result we have seen major, though partially reversed, rises in bond yields in those markets. Given the very low level of real yields, changes in inflationary expectations are likely to be more than reflected in bond yields. In consequence, the very benign conjunction of easy money and tight(ish) fiscal policy is changing and the overall balance of policy seems likely to be less favourable to securities markets than in the recent past.

Patrick Gifford
Chairman
31 January 2017

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Related Party Transactions

Under United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law), the Company has identified the Directors as related parties. No other related parties have been identified during the period. No transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.

Principal Risks and Uncertainties

Explanations of the Company’s principal risks and uncertainties are set out on pages 34 to 37 of the 2016 annual financial report, which is available on the Manager’s website.

These are summarised as follows:

•   Investment Objectives – the investment policies may not achieve the published investment objectives;

•   Market Movements and Portfolio Performance – falls in stock markets will affect the performance of the individual Portfolios and securities held within the Portfolios;

•   Risks Applicable to the Company’s shares – the prices of shares in the Company may not appreciate and the level of dividends may fluctuate;

•   Viability and Compulsory Conversion of a Class of Shares – lack of demand for one of the Company’s share classes could result in the relevant portfolio becoming too small to be viable. If ownership of a class of shares becomes too concentrated the Directors may serve notice on holders of the affected class requiring them to convert to another class;

•   Liability of a Portfolio for the Liabilities of Another Portfolio – in the event that any Portfolio was unable to meet its liabilities, the shortfall would become a liability of the other Portfolios;

•   Gearing – borrowing will amplify the effect on shareholders’ funds of gains and losses on the underlying securities;

•   Hedging – where hedging is used there is a risk that the hedge will not be effective;

•   Regulatory and Tax Related – whilst compliance with rules and regulations is closely monitored, breaches could affect returns to shareholders;

•   Additional Risks Applicable to Balanced Risk Shares – the use of financial derivative instruments, in particular futures, forms part of the investment policy and strategy of the Balanced Risk Portfolio. The degree of leverage inherent in futures trading potentially means that a relatively small price movement in a futures contract may result in an immediate and substantial loss to the Portfolio; and

•   Reliance on Third Party Service Providers – the Company has no employees, so is reliant upon the performance of third party service providers, particularly the Manager, for it to function.

In the view of the Board these principal risks and uncertainties are as equally applicable to the remaining six months of the financial year as they were to the six months under review.

Going Concern

The financial statements have been prepared on a going concern basis. The Directors consider this to be appropriate as the Company has adequate resources to continue in operational existence for the foreseeable future, being 12 months after approval of the financial statements. In reaching this conclusion, the Directors took into account the value of net assets; the Company’s Investment Policy; its risk management policies; the diversified portfolio of readily realisable securities which can be used to meet funding commitments; the credit facility and the overdraft which can be used for short-term funding requirements; the liquidity of the investments which could be used to repay the credit facility in the event that the facility could not be renewed or replaced; its revenue; and the ability of the Company in the light of these factors to meet all its liabilities and ongoing expenses.

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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 has been prepared in accordance with the FRC’s FRS 104 Interim Financial Reporting;

–  the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the FCA’s Disclosure Guidance and Transparency Rules; and

–  the interim management report includes a fair review of the information required on related party transactions.

The half-yearly financial report has not been audited or reviewed by the Company’s auditor.

Signed on behalf of the Board of Directors.

Patrick Gifford
Chairman
31 January 2017

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UK EQUITY SHARE PORTFOLIO
PERFORMANCE RECORD

Total Return

	SIX MONTHS TO 30 NOV 2016	YEAR TO 31 MAY 2016	YEAR TO 31 MAY 2015	YEAR TO 31 MAY 2014	YEAR TO 31 MAY 2013
Net Asset Value	4.5%	–1.4%	15.3%	18.3%	42.8%
Share Price	4.4%	–2.2%	17.2%	9.2%	63.5%
FTSE All-Share Index	9.6%	–6.3%	7.5%	8.9%	30.1%

Source: Thomson Reuters Datastream.

Revenue return per share	2.20p	5.81p	6.38p	5.40p	5.48p
Dividends paid	2.80p	6.15p	6.15p	5.30p	5.55p

UK EQUITY SHARE PORTFOLIO
MANAGER’S REPORT

Investment Objective

The investment objective of the UK Equity Portfolio is to provide shareholders with an attractive real long-term total return by investing primarily in UK quoted equities.

Market and Economic Review

After a volatile start to 2016 the UK stock market rallied strongly during the six month period under review. There was significant divergence in sector performance, driven initially by rising commodity prices and “dovish” central bank monetary policy, then by the sharp fall in sterling following the EU Referendum and, finally, by the US presidential election result.

The resources sectors (oil and mining) performed especially well over the period, as crude oil continued to rise from its February price lows, notably on proposed production cuts by OPEC members. Share price falls after the Referendum were seen most acutely in certain domestically focused sectors; the share prices of companies with US dollar denominated earnings rose strongly in anticipation of upgrades to forecast earnings.

The Bank of England’s 0.25 per cent. cut in interest rates met expectations, but the broader language around monetary stimulus went further than many in the market had anticipated. UK equities and government bond yields rose in response to the surprise election of Donald Trump as the 45th US President and a Republican majority to Congress, expecting higher rates of government spending and lower taxes to provide some tailwinds to global economic growth. Following the election, US GDP data exceeded expectations with a 3.2 per cent. rise during the third quarter; on the last day of November, OPEC agreed its first production cut in eight years, strengthening crude oil prices.

Portfolio Performance

The UK equity share portfolio’s net asset value, including re-invested dividends, rose by 4.5% (£ NAV, total return) during the 6 months to the end of November 2016, compared to a rise of 9.6% (£, total return) in the FTSE All-Share index.

Portfolio Review

The portfolio delivered a positive return against a volatile market backdrop, but failed to match the rise of the index. Relative performance was hurt by the portfolio’s underweight in mining companies – where share prices rose strongly through the period, gaining from weakened sterling and recovering commodity prices.

Holdings in the tobacco sector were among the top contributors to performance, benefiting from international exposure and US dollar earnings, but also from continued positive news flow. British American Tobacco (BAT) continued the drive towards consolidation in the sector with a US$47 billion bid for Reynolds American in the period, to buy out the 57.8% it does not already own. The merger was described by BAT chief executive Nicandro Durante as the “logical progression” for the two companies – a view with which we concur. Subsequent to the reporting period BAT revised its offer, increasing the cash element of a cash and share offer. The new offer values each Reynolds share at US$59.64, up from US$56.50 proposed in October. The deal should be earnings enhancing in its first full year, significantly improve BAT’s cash flow generation profile and be accretive to dividends; it is expected to conclude in the third quarter of this year. It will provide BAT with direct access to the attractive and cash generative US market, balance the company’s global cash flow streams between Emerging and Developing markets, and enhance BAT’s global brand portfolio.

The holding in BP benefited from weakened sterling and rising oil prices through the period. Defence conglomerate BAE Systems’ share price was buoyed by a series of US defence contracts announced through the Autumn, including a seven-year, US$384 million contract to provide specialised weapon sights to the US Army.

Weighing on performance were the holdings in domestic sectors, notably those particularly exposed to the fall in sterling. The share prices of companies expected to be most impacted by emergent challenges to the UK economy performed poorly in the aftermath of the Referendum. The stock market was also inclined to de-rate companies which warned of lower profits – delivering a “double-whammy” impact in those instances.

Notable amongst these was the holding in Capita, which fell sharply in value as it downgraded full-year earnings forecasts, blaming a slow-down in specific trading businesses, one-off costs and problems with a major contract with TFL - along with delayed client decision-making since the EU referendum.

Budget airline easyJet warned of the negative impact of weaker sterling and was also affected by concerns over terrorist activity and air traffic control strikes during the period. The share price of Circassia Pharmaceuticals fell sharply on news that its cat allergy drug had failed to meet the primary end point of Phase III trials. While this was very disappointing and surprising news – the drug had performed well in Phase II trials - it is noteworthy that Circassia retains significant cash on its balance sheet and that, over the past year, the company has also made significant diversification into respiratory drugs, devices and technologies.

Change in Portfolio Manager

I took over as portfolio manager from Mark Barnett at the beginning of October, four months into the reporting period. I have implemented a series of changes in the portfolio reflecting my views on the implications of the steepening yield curve in an environment of rising interest rates and inflation. Most significant among these changes was the addition of Barclays; by period end the UK banking major was the largest holding in the portfolio with a weighting of just over 5 per cent. Elsewhere in the financial sector, other new additions to the portfolio included Lloyds Bank, Aviva and Aldermore. Cairn Homes and Hibernia have been added to gain exposure to the structural attractions of the Dublin real estate market. This was funded by disposals in the UK REIT sector.

I have built some exposure to gold via Randgold Resources and Acacia Mining, the portfolio’s only exposure to the metals and mining sector. Portfolio holdings in London Stock Exchange, Capita, Bunzl, Shaftesbury and New River Retail were disposed of.

Outlook & Strategy

The short term outlook for UK equities appears to me to be closely dependent upon wider macro and political factors, including global currency and interest rate trends. Despite recent currency-driven earnings upgrades, the UK market level looks quite fully valued, albeit punctuated by significant pockets of value.

Within what is a more volatile macro environment, I continue to be pragmatic in my investment approach. Ultimately, I look for undervalued shares and favour businesses with strong balance sheets, high barriers to entry, and the ability to expand market share and deliver real returns over the long-term.

James Goldstone
Portfolio Manager
31 January 2017

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UK EQUITY SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 30 NOVEMBER 2016

Ordinary shares listed in the UK unless stated otherwise

COMPANY	SECTOR†	MARKET  VALUE £’000	% OF PORTFOLIO
Barclays	Banks	4,056	5.3
Reynolds American – US common stock	Tobacco	4,016	5.3
BP	Oil & Gas Producers	3,236	4.3
BAE Systems	Aerospace & Defence	3,016	4.0
British American Tobacco	Tobacco	2,574	3.4
BT	Fixed Line Telecommunications	2,445	3.2
Lloyds Bank	Banks	2,192	2.9
Legal & General	Life Insurance	2,124	2.8
Aviva	Life Insurance	2,100	2.8
Imperial Brands	Tobacco	1,796	2.4
RELX	Media	1,795	2.4
Acacia Mining	Mining	1,597	2.1
AstraZeneca	Pharmaceuticals & Biotechnology	1,558	2.0
Babcock International	Support Services	1,558	2.0
Compass	Travel & Leisure	1,540	2.0
BTG	Pharmaceuticals & Biotechnology	1,455	1.9
Centrica	Gas, Water & Multiutilities	1,434	1.9
Safestyle UK	General Retailers	1,423	1.9
Novartis – Swiss common stock	Pharmaceuticals & Biotechnology	1,410	1.9
SSE	Electricity	1,371	1.8
Rentokil Initial	Support Services	1,344	1.8
Beazley	Non-life Insurance	1,337	1.8
Dairy Crest	Food Producers	1,326	1.7
Provident Financial	Financial Services	1,293	1.7
Roche – Swiss common stock	Pharmaceuticals & Biotechnology	1,286	1.7
G4S	Support Services	1,196	1.6
Ashtead	Support Services	1,195	1.6
HomeServe	Support Services	1,128	1.5
Cairn Homes	Household Goods & Home Construction	1,092	1.4
Johnson Service	Support Services	1,033	1.4
BCA Marketplace	Financial Services	1,008	1.3
Sherborne Investors Guernsey B – A shares	Financial Services	1,006	1.3
Thomas Cook	Travel & Leisure	953	1.3
Next	General Retailers	920	1.2
Drax	Electricity	908	1.2
Derwent London	Real Estate Investment Trusts	883	1.2
Smith & Nephew	Health Care Equipment & Services	879	1.1
Aldermore	Banks	871	1.1
Summit Germany	Real Estate Investment & Services	822	1.1
easyJet	Travel & Leisure	820	1.1
A J Bell – Unquoted	Financial Services	750	1.0
Sigma Capital	Financial Services	734	1.0
Hollywood Bowl	Travel & Leisure	681	0.9
JD Sports Fashion (formerly JD Sports)	General Retailers	680	0.9
Mears	Support Services	670	0.9
Randgold Resources	Mining	653	0.8
Secure Trust Bank	Banks	616	0.8
McBride	Household Goods & Home Construction	610	0.8
N Brown	General Retailers	606	0.8
Hibernia REIT	Real Estate Investment Trusts	582	0.8
Zegona Communications	Non-equity Investment Instruments	580	0.8
Harworth	Real Estate Investment & Services	574	0.7
Vectura	Pharmaceuticals & Biotechnology	574	0.7
P2P Global Investments	Equity Investment Instruments	528	0.7
International Consolidated Airline	Travel & Leisure	525	0.7
Chesnara	Life Insurance	494	0.6
Hadrians Wall Secured Investments	Equity Investment Instruments	491	0.6
Coats	General Industrials	462	0.5
Melrose Industries	Construction & Materials	362	0.4
Howden Joinery	Support Services	309	0.4
Circassia Pharmaceuticals	Pharmaceuticals & Biotechnology	269	0.3
GAME Digital	General Retailers	197	0.3
Tullet Prebon	Financial Services	189	0.2
Nimrod Sea Assets	Equity Investment Instruments	14	–
HaloSource	Chemicals	8	–
Barclays Bank – Nuclear Power Notes 28 Feb 2019	Non-equity Investment Instruments	1	–
		76,155	100.0

†FTSE Industry Classification Benchmark.

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UK EQUITY SHARE PORTFOLIO
INCOME STATEMENT

	SIX MONTHS ENDED 30 NOVEMBER 2016			SIX MONTHS ENDED 30 NOVEMBER 2015
	REVENUE £’000	CAPITAL £’000	TOTAL £’000	REVENUE £’000	CAPITAL £’000	TOTAL £’000
Gains/(losses) on investments	–	1,951	1,951	–	(172)	(172)
Foreign exchange gains	–	7	7	–	5	5
Income	1,066	23	1,089	1,166	–	1,166
Management fee – note 2	(65)	(152)	(217)	(65)	(152)	(217)
Performance fee – note 2	–	284	284	–	(574)	(574)
Other expenses	(102)	–	(102)	(99)	–	(99)
Net return before finance costs and taxation	899	2,113	3,012	1,002	(893)	109
Finance costs	(16)	(37)	(53)	(21)	(49)	(70)
Return on ordinary activities before taxation	883	2,076	2,959	981	(942)	39
Tax on ordinary activities	(14)	–	(14)	(11)	–	(11)
Return on ordinary activities after taxation for the financial period	869	2,076	2,945	970	(942)	28
Basic return per ordinary share – note 4	2.20p	5.24p	7.44p	2.43p	(2.36)p	0.07p

SUMMARY OF NET ASSETS

	AT 30 NOVEMBER 2016 £’000	AT 31 MAY 2016 £’000
Fixed assets	76,155	73,579
Current assets	447	1,106
Creditors – amounts falling due within one year, excluding borrowings	(1,737)	(1,808)
Bank loan	(8,900)	(7,150)
Net assets	65,965	65,727
Net asset value per ordinary share – note 5	168.9p	164.3p
Gearing:
– gross	13.5%	10.9%
– net	13.1%	9.9%

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GLOBAL EQUITY INCOME SHARE PORTFOLIO

PERFORMANCE RECORD

TOTAL RETURN

	SIX MONTHS  TO 30 NOV 2016	YEAR TO 31 MAY 2016	YEAR TO 31 MAY 2015	YEAR TO 31 MAY 2014	YEAR TO 31 MAY 2013
Net Asset Value	17.3%	–0.2%	13.1%	9.6%	33.9%
Share Price	19.2%	–2.8%	16.1%	8.3%	40.4%
MSCI World Index (£)	20.2%	0.7%	16.2%	7.4%	29.7%

Source: Thomson Reuters Datastream.

Revenue return per share	2.07p	5.51p	4.68p	4.22p	3.28p
Dividends paid	2.80p	6.00p	4.60p	3.55p	3.40p

GLOBAL EQUITY INCOME SHARE PORTFOLIO
MANAGER’S REPORT

Investment Objective

The investment objective of the Global Equity Income Portfolio is to provide an attractive and growing level of income return and capital appreciation over the long term, predominantly through investment in a diversified portfolio of equities worldwide.

Market and Economic Review

A lack of clarity about the frequency and magnitude of US interest rate hikes and political events in the UK and the US dominated markets. Markets were completely wrong-footed by the decision of UK voters on 23 June to leave the European Union and investors’ emotional response to the outcome was reflected in dramatic market moves. Equities sold off and bond markets – particularly core government bonds – went up. Sterling fell against the US dollar to a level last seen in the mid-1980s as investors reacted to the Brexit vote. The brunt of the equity sell-off was experienced by the UK, but other markets were also impacted to varying degrees. As the initial shock wore off, global equity markets ? supported by assurances from major central banks to provide support and investors’ returning to a risk-on mood – rallied over the summer months. Diminishing fears about Brexit-related volatility and encouraging economic data in the US, Europe and China supported investors’ risk appetite and triggered a rotation away from perceived ‘safer’ bond-like (i.e. ‘bond proxy’) sectors and into the more cyclical and economically sensitive areas of the market over the summer months. These market segments tend to do well when the economy is stronger and bond yields are moving higher.

Growing disenchantment with the widening gap between the privileged minority and those left behind has been reflected in the rise of populism in many parts of the globe. In particular, the surprise outcomes of the EU referendum in the UK and the US presidential election in November are clear examples of electorates pushing back against the social and wealth inequality that they have experienced in recent years. Still, Donald Trump’s unexpected US presidential success took investors by surprise. Mimicking market reactions post-Brexit, US equity markets rallied strongly to reach new all-time highs. Trump’s pro-growth and reflationary views also accelerated the sector rotation away from ‘bond proxies’. If realised, financials, defence-related and infrastructure-related industries are likely to be the primary beneficiaries of Trump’s policies. Meanwhile, in November, crude oil prices received a boost after the Organization of the Petroleum Exporting Countries’ (OPEC) confirmed its earlier agreement reached in September to cut production from 1 January 2017. With US economic growth gathering speed on the back of strengthening core economic and labour data, bond markets fully priced-in a December US interest rate rise by the end of November, and expectations are growing for further increases in 2017.

Portfolio Performance

On a total return basis, the Global Equity Income Portfolio’s net asset value returned 17.3% over the six months to the end of November 2016, compared to a return of 20.2% in the MSCI World Index (£, net of withholding tax).

Portfolio Strategy and Review

The Portfolio’s underperformance of the benchmark MSCI World index during the six months was primarily attributable to holdings in the UK post-Brexit, especially within the telecommunications sector, and mixed performances from positions in the more economically sensitive areas of the equity market. Whilst the Portfolio’s holdings in these market segments, such as industrials and materials, managed to generate strong absolute returns, they underperformed relative to the benchmark index. In particular, our industrials sector holdings weighed on relative performance, with most of the performance deficit stemming from our airline holding easyJet, which was impacted by the post-Brexit environment, terror-related events and strike action (especially in France). However, easyJet has remained resilient, reporting a record number of passengers year-on-year to the end of September 2016 and expecting renewed growth in key markets, both in the UK and across Europe. Relative weakness also came from our industrials positions in the professional services sectors, including Nielsen and publisher and information provider RELX. Within the materials sector, a position in UK-based international packaging company DS Smith and lack of exposure to the metals and mining sector weighed on returns.

Among so called ‘bond proxies’, the relative weakness of our telecommunication services position in BT, and to a lesser degree in mobile communications provider Orange, weighed strongly on performance during the review period. This was primarily attributed to investor concerns around the regulatory environment in the UK and Europe, as well as BT’s growing pension liability. However, we remain confident of the dividend paying capacity of both companies.

Over the review period, our large weighting in financials enjoyed robust performance as the sector benefited from the rotation into previously ‘out-of-favour’ areas of the equity market and an apparent policy shift, notably in the US, towards more expansionary fiscal policies. With the prospects of a US interest rate rise firming up, a steepening yield curve and strong quarterly corporate earnings results for banks especially in the US, our financials holdings in aggregate generated strong absolute returns. Dutch financial services group ING, JPMorgan Chase and PNC Financial Services were our top three performers in this sector, with Citigroup also contributing. Nonetheless, our holdings in the sector underperformed versus the benchmark index. This was in part due to the exposure to the UK financial industry through our holding in Legal & General. Our holding in Italian lender Intesa Sanpaolo, despite its own strong market position and balance sheet, was impacted by sentiment because of the weak state of many other Italian banks. Relative softness among our insurance and capital markets positions also countered some of our otherwise good performance in the sector. We remain of the view that financials appear undervalued and offer attractive dividend prospects.

On a more positive note, our consumer discretionary holdings outperformed the benchmark performance of that sector. In particular, our holding in gaming and resort company, Las Vegas Sands, benefited from strong share performance after the opening of their new resort, The Parisian Macau, on Macau’s Cotai Strip in mid-September and was among the top 5 individual contributors to performance over the review period. Elsewhere, our information technology holdings in strongly performing Taiwan Semiconductor Manufacturing and Microsoft helped the outperformance.

Performance support also came from holdings in the energy sector. Whilst the oil price has remained fairly stable since the initial lows at the start of the year, both oil prices and oil company stocks received a boost from OPEC’s agreements in September and November. However, scepticism remains about the group’s ability to deliver output cuts outside OPEC’s 14 members. This was underpinned by the International Energy Agency, which highlighted in its report the significant task faced by OPEC if the oil cartel is to cut its production and boost the price of the commodity. The agency pointed out that output was actually increasing in Russia, Brazil, Canada and Kazakhstan. Among our energy positions, US-based Chevron, BP and Norway’s Statoil were among the top 20 individual performers. We continue to be impressed by the commitment of companies in the sector to lower their operating costs, limit capital expenditure and to protect dividends.

Outlook

Our global outlook remains one of a slow and prolonged economic recovery, against a backdrop of heightened market uncertainty. With the European economic recovery continuing to gain ground, we remain optimistic that a number of European companies offer compelling valuation opportunities and should benefit from the combined tailwinds of a weaker euro and loose monetary policy. However, whilst fiscal austerity in the developed world has dominated much of the post global financial crisis period, we are starting to see signs of a shift towards more expansionary fiscal policies. Overall, our strategy remains constant, to invest in high quality companies at attractive valuations. We view high quality companies as those that can sustain profit margins and deliver positive returns through the economic cycle. We view growing and sustainable dividends as clear evidence of these sorts of companies. In aggregate, therefore, we target companies that offer attractive yields, sustainable income and capital upside.

Nick Mustoe
Portfolio Manager
31 January 2017

GLOBAL EQUITY INCOME SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 30 NOVEMBER 2016

Ordinary shares unless stated otherwise

COMPANY	INDUSTRY GROUP†	COUNTRY†	MARKET VALUE £’000	% OF PORFOLIO
JPMorgan Chase	Banks	US	2,438	3.8
Chevron	Energy	US	2,172	3.4
PNC Financial Services	Banks	US	2,038	3.2
Microsoft	Software & Services	US	1,983	3.1
Novartis	Pharmaceuticals Biotechnology & Life Sciences	Switzerland	1,824	2.8
ING	Banks	Netherlands	1,715	2.7
Pfizer	Pharmaceuticals Biotechnology & Life Sciences	US	1,711	2.7
BP	Energy	UK	1,689	2.6
Legal & General	Insurance	UK	1,657	2.6
BT	Telecommunication Services	UK	1,651	2.6
Statoil	Energy	Norway	1,567	2.5
United Technologies	Capital Goods	US	1,552	2.4
British American Tobacco	Food Beverage & Tobacco	UK	1,538	2.4
Airbus	Capital Goods	France	1,520	2.4
Taiwan Semiconductor Manufacturing	Semiconductors & Semiconductor Equipment	Taiwan	1,495	2.3
Orange	Telecommunication Services	France	1,415	2.2
Amgen	Pharmaceuticals Biotechnology & Life Sciences	US	1,411	2.2
Nielsen	Commercial & Professional Services	US	1,367	2.1
Total	Energy	France	1,361	2.1
Deutsche Post	Transportation	Germany	1,326	2.1
Citigroup	Banks	US	1,292	2.0
Roche	Pharmaceuticals Biotechnology & Life Sciences	Switzerland	1,219	1.9
RELX	Commercial & Professional Services	Netherlands	1,212	1.9
Aon – A shares	Insurance	US	1,210	1.9
Intesa Sanpaolo	Banks	Italy	1,182	1.8
Philip Morris International	Food Beverage & Tobacco	US	1,175	1.8
Deutsche Boerse	Diversified Financials	Germany	1,159	1.8
Allianz	Insurance	Germany	1,107	1.7
Gilead Sciences	Pharmaceuticals Biotechnology & Life Sciences	US	1,101	1.7
Centrica	Utilities	UK	1,082	1.7
China Mobile – R	Telecommunication Services	Hong Kong	1,066	1.7
Las Vegas Sands	Consumer Services	US	1,057	1.6
Royal Dutch Shell – A shares	Energy	Netherlands	1,030	1.6
Adecco	Commercial & Professional Services	Switzerland	986	1.5
Hiscox	Insurance	UK	981	1.5
UBS	Diversified Financials	Switzerland	954	1.5
Nordea	Banks	Sweden	935	1.5
Amcor	Materials	Australia	935	1.5
Honda Motor	Automobiles & Components	Japan	903	1.4
Williams-Sonoma	Retailing	US	899	1.4
easyJet	Transportation	UK	852	1.3
Union Pacific	Transportation	US	833	1.3
BAE Systems	Capital Goods	UK	819	1.3
Booker	Food & Staples Retailing	UK	804	1.3
Canadian Natural Resources	Energy	Canada	672	1.0
Zurich Insurance	Insurance	Switzerland	644	1.0
Nasdaq	Diversified Financials	US	623	1.0
Yue Yuen Industrial	Consumer Durables & Apparel	Hong Kong	603	0.9
American Express	Diversified Financials	US	595	0.9
Canon	Technology Hardware & Equipment	Japan	589	0.9
Zhejiang Expressway – H	Transportation	Hong Kong	551	0.9
DS Smith	Materials	UK	442	0.7
CK Hutchison	Capital Goods	Hong Kong	423	0.7
London Stock Exchange	Diversified Financials	UK	420	0.7
BASF	Materials	Germany	338	0.5
			64,123	100.0

†MSCI and Standard & Poor’s Global Industry Classification Standard.

H:       H-Shares – shares issued by companies incorporated in the People’s Republic of China (PRC) and listed on the Hong Kong Stock Exchange.

R:       Red Chip Holdings – holdings in companies incorporated outside the PRC, listed on the Hong Kong Stock Exchange, and controlled by PRC entities by way of direct or indirect shareholding and/or representation on the board.

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GLOBAL EQUITY INCOME SHARE PORTFOLIO
INCOME STATEMENT

	SIX MONTHS ENDED 30 NOVEMBER 2016			SIX MONTHS ENDED 30 NOVEMBER 2015
	REVENUE £’000	CAPITAL £’000	TOTAL £’000	REVENUE £’000	CAPITAL £’000	TOTAL £’000
Gains/(losses) on investments	–	8,389	8,389	–	(1,814)	(1,814)
Foreign exchange losses	–	(7)	(7)	–	(1)	(1)
Income	909	–	909	785	–	785
Management fees – note 2	(57)	(134)	(191)	(49)	(114)	(163)
Other expenses	(87)	(1)	(88)	(72)	–	(72)
Net return before finance costs and taxation	765	8,247	9,012	664	(1,929)	(1,265)
Finance costs	(11)	(25)	(36)	(12)	(29)	(41)
Return on ordinary activities before taxation	754	8,222	8,976	652	(1,958)	(1,306)
Tax on ordinary activities	(81)	–	(81)	(56)	–	(56)
Return on ordinary activities after taxation for the financial period	673	8,222	8,895	596	(1,958)	(1,362)
Basic return per ordinary share – note 4	2.07p	25.25p	27.32p	1.88p	(6.17)p	(4.29)p

SUMMARY OF NET ASSETS

	AT 30 NOVEMBER 2016 £’000	AT 31 MAY 2016 £’000
Fixed assets	64,123	57,669
Current assets	1,075	1,271
Creditors falling due within one year, excluding borrowings	(612)	(397)
Bank loan	(4,500)	(6,600)
Net assets	60,086	51,943
Net asset value per ordinary share – note 5	183.8p	159.2p
Gearing:
– gross	7.5%	12.7%
– net	7.0%	11.4%

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BALANCED RISK SHARE PORTFOLIO

PERFORMANCE RECORD

The name and objective of this Portfolio were changed with effect from on 8 February 2012.

Total Return

	SIX MONTHS  TO 30 NOV 2016	YEAR TO 31 MAY 2016	YEAR TO 31 MAY 2015	YEAR TO 31 MAY 2014	YEAR TO 31 MAY 2013
Net Asset Value	4.6%	–0.3%	4.1%	5.5%	8.8%
Share Price	6.9%	–2.1%	5.0%	4.5%	20.7%
3 month LIBOR +5% pa	2.8%	5.6%	5.6%	5.5%	5.7%

Source: Thomson Reuters Datastream.

BALANCED RISK SHARE PORTFOLIO
MANAGER’S REPORT

Investment Objective

The investment objective of the Balanced Risk Portfolio is to provide shareholders with an attractive total return in differing economic and inflationary environments, and with low correlation to equity and bond market indices by gaining exposure to three asset classes: debt securities, equities and commodities.

Market and Economic Review

Government bonds started the period strongly, owing primarily to concerns about the UK’s EU referendum and its aftermath and expectations that central banks would be forced to abandon rate hikes in the near term. Bond prices remained firm through the third quarter of 2016 as low growth and inflation kept central banks on hold from rising rates or revising existing accommodative policy. However, yields spiked at the end of the period as rate hike fears returned and demand for safe havens declined.

Equity performance was mixed at the beginning of the period, with Japan and Europe experiencing meaningful declines while other developed markets managed gains. The UK emerged as the leader in spite of the Brexit outcome of the EU referendum. Equities posted positive performance globally in the third quarter of 2016, due to dovish language from central banks as they continued to contend with low growth and below target inflation, which continued through to the end of the period, although results were not uniformly positive across individual markets.

The commodities rally that began in the first quarter of 2016 continued into the period under review. Performance began to pull back in the middle of the third quarter, but returns varied among the commodity complexes. In aggregate, commodity prices finished the period on a positive note, while across the various complexes, cyclical areas such as industrial metals and energy performed well, while precious metals and agricultural commodity prices fell.

Portfolio Performance

The Balanced Risk Shares Portfolio outperformed the benchmark. The Portfolio return for the six months was 4.6%, compared with the benchmark, 3 month LIBOR plus 5%, return of 2.8%.

Portfolio Strategy and Review

Strategic exposure to bonds led results in June as prices increased and yields declined – nervous investors sought refuge from volatility in equities early in the month as polling data indicated that “leave” had taken the lead amongst UK voters leading up to the EU referendum. After the Brexit vote later in the month, bond yields moved lower still in response to the uncertainty about what impact the UK leaving the European Union would have and the belief that central banks would be forced to postpone any hike in policy rates – German bund yields were driven into negative territory and other markets revisited or set historical lows. The positive bond price performance continued through the third quarter of 2016 as tepid economic growth and below trend inflation kept central banks on hold. Additionally, safe haven demand triggered by renewed volatility among commodities in July and August and fears that concerns about Deutsche Bank could lead to European banking contagion in September, helped to suppress yields. However, yields spiked across the board at the end of the period on the heels of Donald Trump’s victory in the US presidential election as economic optimism and calls for a rate hike in the US, together with hints from the European Central Bank (ECB) about the potential to begin to taper asset purchases, reduced the demand for safe haven assets.

Equity markets had a bifurcated outcome in June with Japan and Europe selling off while the UK, US and Hong Kong markets enjoyed gains. Performance was positive for developed equities in the third quarter as they continued to levitate on dovish policies from central banks as they tried to generate real growth and inflation across their respective economies through a combination of extremely low rates and, in the case of the Bank of Japan and the ECB, outright asset purchases. Equity exposures ended the period on a positive note but performance was varied among markets. US small caps led results in November followed by Japanese equities and US large caps. European equities ended November flat, while share prices in Hong Kong and the UK ended in negative territory. The outsized gains for US small caps relative to the other markets may reflect a belief that economic policies under Trump will benefit US domiciled companies with a domestic customer base where US dollar strength or a tariff war will not have the negative impact that other markets may suffer.

Commodity performance was positive in June as the rally from earlier in the year continued. Precious metals increased as the US Federal Reserve (Fed) once again deferred making a second increase in interest rates. Then, safe-haven demand caused a second surge in prices on the outcome of the UK’s Brexit vote. Agricultural commodities contributed by exposure to both grains and soft commodities. Industrial metals found aluminium outpacing copper as the sub-complex traded up on the subsidence of Chinese economic fears, along with some softness in the dollar pre-Brexit. The energy sub-complex was the sole detractor in June due to declines in unleaded gasoline as stocks remained at excessive levels. Commodity prices pulled back in the third quarter. Agriculture prices suffered as crop reports indicated improvement in expected yields, particularly in the soy complex. Energy prices remained depressed in response to the ongoing supply glut in crudes and distillates such as unleaded gasoline. Industrial metals had a neutral impact as weakness mid-quarter was offset by surprise strength in China manufacturing data in the later part of the period boosting prices of aluminium and copper. Precious metals were a mild contributor as silver traded in line with industrial metals. However, commodity performance improved at the end of the period as price gains in cyclical commodities outweighed the impact of price declines across agricultural commodities and precious metals. Industrial metals rose as Trump’s election and strong Chinese manufacturing data sparked a surge in optimism that drove the complex to its best gain since 2012 and the single best month for copper since 2009. Energy prices surged on the last day of the month, as OPEC and Russia reached an agreement to cut production. Precious metals detracted in November as economic optimism and continued calls for a rate hike in December diminished demand for safe-havens. Agriculture prices were mixed in November with strong declines in coffee, sugar, wheat and corn leading to losses that were only partially offset by gains in soybeans and soybean oil.

Outlook

As we start the year, investors are looking for hints about what policy direction the new Trump administration will take in the first 100 days in office. There are already signs of protectionist tendencies with the threat of tariffs for US companies who relocate production outside of the US as well as a number of cabinet appointees who are viewed as being hardliners when it comes to policy regarding trade deals with China. The degree of uncertainty that could result from policy announcements against already elevated equity valuations may cause difficulties later in the year.

Scott Wolle
Portfolio Manager
31 January 2017

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TARGET ANNUALISED RISK

The targeted annualised risk (volatility of monthly returns) for the portfolio as listed above is analysed as follows:

ASSET CLASS	RISK	CONTRIBUTION
Bonds	1.6%	18.3%
Equities	4.4%	50.0%
Commodities	2.8%	31.7%
	8.8%	100.0%

Derivative instruments held in the Balanced Risk Share Portfolio are shown on the next page. At the period end all derivative instruments held in this Portfolio were exchange traded futures contracts. Holdings in futures contracts that are not exchange traded are permitted as explained in the investment policy which is disclosed in full on page 30 of the 2016 annual financial report.

BALANCED RISK SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 30 NOVEMBER 2016

	YIELD %	MARKET VALUE £’000	% OF NET ASSETS
Short Term Investments
UK Treasury Bill 8 May 2017	0.22	2,997	32.9
UK Treasury Bill 27 Feb 2017	0.21	2,499	27.4
Short-Term Investment Company (Global Series)	0.32	2,290	25.1
Total Short Term Investments		7,786	85.4
Hedge Funds(1)
Harbinger Class PE Holdings		16	0.2
Harbinger Class L Holdings		2	–
Total Hedge Funds		18	0.2
Total Fixed Asset Investments		7,804	85.6

(1)The hedge fund investments are residual holdings of the previous investment strategy, which are awaiting realisation of underlying investments.

LIST OF DERIVATIVE INSTRUMENTS
AT 30 NOVEMBER 2016

	NOTIONAL EXPOSURE £’000	NOTIONAL EXPOSURE AS % of NET ASSETS
Government Bonds
Canada	1,655	18.2
Australia	1,601	17.6
UK	863	9.5
US	724	7.9
Total Bond Futures (4)	4,843	53.2
Equities Futures
Japan	723	7.9
Hong Kong	707	7.8
UK	678	7.4
Europe	617	6.8
US small cap	532	5.8
US large cap	530	5.8
Total Equity Futures (6)	3,787	41.5
Commodities Futures
Agriculture
Soybean meal	230	2.5
Cotton	229	2.5
Soy bean	211	2.3
Sugar	211	2.3
Corn	88	1.0
Soybean oil	54	0.6
Wheat	53	0.6
Coffee	46	0.5
Energy
Gasoline	199	2.2
Brent crude	129	1.4
Natural gas	110	1.2
WTI crude	83	0.9
Gas-oil (diesel)	72	0.8
New York Harbor ultra-low sulphur diesel	54	0.6
Industrial Metals
Copper	343	3.8
Aluminium	241	2.6
Precious Metals
Gold	376	4.1
Silver	199	2.2
Total Commodities Futures (18)	2,928	32.1
Total Derivative Instruments (28)	11,558	126.8

BALANCED RISK SHARE PORTFOLIO

INCOME STATEMENT

	SIX MONTHS ENDED 30 NOVEMBER 2016			SIX MONTHS ENDED 30 NOVEMBER 2015
	REVENUE £’000	CAPITAL £’000	TOTAL £’000	REVENUE £’000	CAPITAL £’000	TOTAL £’000
Gains on investments	–	4	4	–	1	1
Gains/(losses) on derivative instruments	15	307	322	39	(512)	(473)
Foreign exchange gains	–	118	118	–	1	1
Income	16	–	16	20	–	20
Management fees – note 2	(10)	(24)	(34)	(10)	(22)	(32)
Other expenses	(21)	–	(21)	(19)	–	(19)
Return before finance costs and taxation	–	405	405	30	(532)	(502)
Finance costs	–	–	–	–	–	–
Return on ordinary activities before taxation	–	405	405	30	(532)	(502)
Tax on ordinary activities	–	–	–	–	–	–
Return on ordinary activities after taxation for the financial period	–	405	405	30	(532)	(502)
Basic return per ordinary share – note 4	–	5.67p	5.67p	0.40p	(7.05)p	(6.65)p

SUMMARY OF NET ASSETS

	AT 30 NOVEMBER 2016 £’000	AT 31 MAY 2016 £’000
Fixed assets	7,804	7,698
Derivative assets held at fair value through profit or loss	327	388
Current assets	1,139	845
Derivative liabilities held at fair value through profit or loss	(127)	(68)
Other creditors excluding borrowings	(30)	(26)
Net assets	9,113	8,837
Net asset value per ordinary share – note 5	128.4p	122.8p
Notional exposure as % of net assets	126.8%	137.7%

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MANAGED LIQUIDITY SHARE PORTFOLIO

PERFORMANCE RECORD

Total Return

	SIX MONTHS TO 30 NOV 2016	YEAR TO 31 MAY 2016	YEAR TO 31 MAY 2015	YEAR TO 31 MAY 2014	YEAR TO 31 MAY 2013
Net Asset Value	0.0%	–0.1%	–0.1%	0.2%	0.5%
Share Price	0.2%	–0.9%	0.5%	0.4%	1.3%

Source: Thomson Reuters Datastream.

Revenue return per share	0.00p	(0.14)p	(0.12)p	0.02p	0.10p
Dividend	nil	nil	nil	nil	nil

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MANAGED LIQUIDITY SHARE PORTFOLIO

MANAGER’S REPORT

Investment Objective

The investment objective of the Managed Liquidity Share Portfolio is to produce an appropriate level of income return combined with a high degree of security.

Market and Economic Review

For sterling bond markets, the six months to 30 November 2016 were dominated by the UK’s vote to leave the European Union and subsequent decision by the Bank of England (BoE) to ease UK monetary policy further.

After pausing in July, the BoE loosened monetary policy in August. Amongst the measures announced was a 0.25% cut in Bank Rate. Sterling denominated bond yields moved sharply lower following the cut. More recently, an increase in inflation expectations, better than expected economic data and a potential shift toward fiscal stimulus has seen bond yields rise.

Over the six months to the end of November, 2 year Gilt yields fell 30 basis points (bps) ending the period at 0.13%. The majority of this fall occurred during the first week after the Brexit vote. Yields had risen to 0.52% on 23 June, as polls indicated a lead for the “remain” vote. In the following seven days, yields fell to 0.10% before then trading in a 10bps (0.01%) range to the end of October. During October, 2 year Gilt yields broke out of this range, peaking at 0.29% before then falling back to 0.13% by the end of November.

Interbank lending rates were also lower over the period. In line with Gilt yields, 3 month LIBOR fell from a peak of 0.59% on 23 June to 0.49% in the first few weeks following the vote. The cut in Bank Rate caused a second 10bps drop in LIBOR, which then traded between 0.38% and 0.41% until 30 November 2016.

Portfolio Strategy and Review

Our investment strategy is achieved by investing in the Invesco Perpetual Money Fund and the Sterling Liquidity Portfolio of Short-Term Investments Company (Global Series) plc, each of which invests in a diversified portfolio of high quality sterling denominated short-term money market instruments.

The Invesco Perpetual Money Fund has positions in a number of government, quasi-government and corporate bonds. In order to limit the exposure to interest rate risk and credit risk (the likelihood of an issuer defaulting), these bonds are both short dated and of high quality. The fund also holds some floating rate notes, debt instruments whose interest rates are reset at regular intervals.

The Sterling Liquidity Portfolio of the Short-Term Investments Company (Global Series) plc invests in high quality sterling denominated money market instruments such as commercial paper, certificates of deposit, time deposits and floating rate notes. At 30 November 2016 the Sterling Liquidity Portfolio was rated AAAm by Standard and Poor’s and AAAmmf by Fitch Ratings.

Outlook

Inflation pressures in the UK have increased, albeit from a low level, and economic data has so far exceeded expectations post-referendum. Nonetheless, we continue to think that any upward adjustment in the Bank Rate will be gradual and to a lower level than in previous cycles.

Stuart Edwards
Portfolio Manager
31 January 2017

MANAGED LIQUIDITY SHARE PORTFOLIO
LIST OF INVESTMENTS

	AT 30 NOVEMBER 2016 MARKET VALUE £’000	AT 31 MAY 2016 MARKET VALUE £’000
Invesco Perpetual Money Fund†	4,899	4,894
Short-Term Investments Company (Global Series)	848	418
	5,747	5,312

†At the period end the Managed Liquidity Share Portfolio held 6.2% (May 2016: 9.9%) of the shares in issue of the Invesco Perpetual Money Fund.

MANAGED LIQUIDITY SHARE PORTFOLIO

INCOME STATEMENT

	SIX MONTHS ENDED 30 NOVEMBER 2016			SIX MONTHS ENDED 30 NOVEMBER 2015
	REVENUE £’000	CAPITAL £’000	TOTAL £’000	REVENUE £’000	CAPITAL £’000	TOTAL £’000
Gains on investments	–	–	–	–	2	2
Income	13	–	13	12	–	12
Management fees – note 2	(3)	–	(3)	(6)	–	(6)
Other expenses	(10)	–	(10)	(10)	–	(10)
Return on ordinary activities before taxation	–	–	–	(4)	2	(2)
Tax on ordinary activities	–	–	–	–	–	–
Return on ordinary activities after taxation	–	–	–	(4)	2	(2)
Basic return per ordinary share – note 4	–	–	–	(0.08)p	0.04p	(0.04)p

SUMMARY OF NET ASSETS

	AT 30 NOVEMBER 2016 £’000	AT 31 MAY 2016 £’000
Fixed assets	5,747	5,312
Current assets	17	925
Creditors falling due within one year, excluding borrowings	(141)	(146)
Net assets	5,623	6,091
Net asset value per ordinary share – note 5	103.1p	103.1p

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CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 NOVEMBER

	2016			2015
	REVENUE £’000	CAPITAL £’000	TOTAL £’000	REVENUE £’000	CAPITAL £’000	TOTAL £’000
Gains/(losses) on investments	–	10,344	10,344	–	(1,983)	(1,983)
Gains/(losses) on derivative instruments	15	307	322	39	(512)	(473)
Foreign exchange gains	–	118	118	–	5	5
Income	2,004	23	2,027	1,983	–	1,983
Management fees – note 2	(135)	(310)	(445)	(130)	(288)	(418)
Performance fees – note 2	–	284	284	–	(574)	(574)
Other expenses	(220)	(1)	(221)	(200)	–	(200)
Net return before finance costs and taxation	1,664	10,765	12,429	1,692	(3,352)	(1,660)
Finance costs	(27)	(62)	(89)	(33)	(78)	(111)
Return on ordinary activities before taxation	1,637	10,703	12,340	1,659	(3,430)	(1,771)
Tax on ordinary activities	(95)	–	(95)	(67)	–	(67)
Return on ordinary activities after taxation for the financial period	1,542	10,703	12,245	1,592	(3,430)	(1,838)
Basic return per ordinary share – note 4
UK Equity Share Portfolio	2.20p	5.24p	7.44p	2.43p	(2.36)p	0.07p
Global Equity Income Share Portfolio	2.07p	25.25p	27.32p	1.88p	(6.17)p	(4.29)p
Balanced Risk Share Portfolio	–	5.67p	5.67p	0.40p	(7.05)p	(6.65)p
Managed Liquidity Share Portfolio	–	–	–	(0.08)p	0.04p	(0.04)p

The total column of this statement represents the Company’s profit and loss account, prepared in accordance with UK Accounting Standards. The return on ordinary activities after taxation is the total comprehensive income and therefore no additional statement of comprehensive income is presented. 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. No operations were acquired or discontinued in the period. Income Statements for the different Share classes are shown on pages 11, 16, 21 and 24 for the UK Equity, Global Equity Income, Balanced Risk and Managed Liquidity Share Portfolios respectively.

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CONDENSED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
FOR THE SIX MONTHS ENDED 30 NOVEMBER

	SHARE CAPITAL £’000	SHARE PREMIUM £’000	SPECIAL RESERVE £’000	CAPITAL REDEMPTION RESERVE £’000	CAPITAL RESERVE £’000	REVENUE RESERVE £’000	TOTAL £’000
At 31 May 2016	1,062	1,290	85,252	345	44,073	576	132,598
Cancellation of deferred shares	–	–	(2)	2	–	–	–
Share conversions	(1)	–	1	–	–	–	–
Shares bought back and held in treasury	–	–	(2,039)	–	–	–	(2,039)
Return on ordinary activities per the income statement	–	–	–	–	10,703	1,542	12,245
Dividends – note 9	–	–	–	–	–	(2,017)	(2,017)
At 30 November 2016	1,061	1,290	83,212	347	54,776	101	140,787
At 31 May 2015	1,059	1,290	83,157	343	49,326	538	135,713
Cancellation of deferred shares	–	–	(1)	1	–	–	–
Net proceeds from shares issued from treasury	–	–	1,775	–	–	–	1,775
Return on ordinary activities per the income statement	–	–	–	–	(3,430)	1,592	(1,838)
Dividends – note 9	–	–	–	–	–	(1,847)	(1,847)
At 30 November 2015	1,059	1,290	84,931	344	45,896	283	133,803

CONDENSED BALANCE SHEET
AS AT 30 NOVEMBER 2016

REGISTERED NUMBER 5916642

	UK EQUITY £’000	GLOBAL EQUITY INCOME £’000	BALANCED RISK £’000	MANAGED LIQUIDITY £’000	TOTAL £’000
Fixed assets
Investments held at fair value through profit or loss	76,155	64,123	7,804	5,747	153,829
Current assets
Derivative assets held at fair value through profit or loss	–	–	327	–	327
Debtors	167	777	305	4	1,253
Cash and cash equivalents	280	298	834	13	1,425
	447	1,075	1,466	17	3,005
Creditors: amounts falling due within one year
Derivative liabilities held at fair value through profit or loss	–	–	(127)	–	(127)
Other creditors	(10,637)	(5,112)	(30)	(141)	(15,920)
Net current (liabilities)/assets	(10,190)	(4,037)	1,309	(124)	(13,042)
Net assets	65,965	60,086	9,113	5,623	140,787
Shareholders’ funds
Share capital	460	364	113	124	1,061
Share premium	–	–	1,290	–	1,290
Special reserve	39,989	32,989	5,149	5,085	83,212
Capital redemption reserve	73	78	24	172	347
Capital reserve	25,431	26,459	2,644	242	54,776
Revenue reserve	12	196	(107)	–	101
Shareholders’ funds	65,965	60,086	9,113	5,623	140,787
Net asset value per ordinary share Basic – note 5	168.9p	183.8p	128.4p	103.1p

CONDENSED BALANCE SHEET
AS AT 31 MAY 2016

	UK EQUITY £’000	GLOBAL EQUITY INCOME £’000	BALANCED RISK £’000	MANAGED LIQUIDITY £’000	TOTAL £’000
Fixed assets
Investments held at fair value through profit or loss	73,579	57,669	7,698	5,312	144,258
Current assets
Derivative assets held at fair value through profit or loss	–	–	388	–	388
Debtors	477	570	191	8	1,246
Cash and cash equivalents	629	701	654	917	2,901
	1,106	1,271	1,233	925	4,535
Creditors: amounts falling due within one year
Derivative liabilities held at fair value through profit or loss	–	–	(68)	–	(68)
Other creditors	(8,958)	(6,997)	(26)	(146)	(16,127)
Net current (liabilities)/assets	(7,852)	(5,726)	1,139	779	(11,660)
Net assets	65,727	51,943	8,837	6,091	132,598
Shareholders’ funds
Share capital	460	361	114	127	1,062
Share premium	–	–	1,290	–	1,290
Special reserve	41,589	32,834	5,277	5,552	85,252
Capital redemption reserve	73	78	24	170	345
Capital reserve	23,355	18,237	2,239	242	44,073
Revenue reserve	250	433	(107)	–	576
Shareholders’ funds	65,727	51,943	8,837	6,091	132,598
Net asset value per ordinary share Basic – note 5	164.3p	159.2p	122.8p	103.1p

.

NOTES TO CONDENSED FINANCIAL STATEMENTS

1.   Accounting Policies

The condensed financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, FRS 104 Interim Financial Reporting and the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued by the Association of Investment Companies in November 2014. The financial statements are issued on a going concern basis.

In March 2016, the FRC published amendments to FRS 102 Fair value hierarchy disclosures. These amendments become effective for accounting periods beginning on or after 1 January 2017. The Company has chosen to adopt these amendments early. There are no accounting policy or disclosure changes as a result of this adoption.

The accounting policies applied to these condensed financial statements are consistent with those applied in the financial statements for the year ended 31 May 2016.

2.   Management Fees

The Manager is entitled to a basic fee which is calculated and payable quarterly. The fee is based on the net assets of each Portfolio, at the following percentages:

–    0.65% per annum in the case of the UK Equity and Global Equity Income Portfolios;

–    0.75% per annum for the Balanced Risk Portfolio; and

–    0.12% from 1 June 2016 (previously 0.25%) per annum for the Managed Liquidity Portfolio.

The Manager is also entitled to receive performance fees in respect of the UK Equity and Global Equity Income Portfolios of 12.5% of the increase in net assets per relevant Share in excess of a hurdle of the relevant benchmark plus 1% per annum. The amount of the performance fee that can be earned in any one year is limited to 0.65% of the net assets of the relevant Portfolio and payment is subject to a high water mark. Any underperformance of the benchmark, or performance above the cap, is carried forward to subsequent periods.

No performance fee was earned for the UK Equity Portfolio during the six months (30 November 2015: performance fee of £574,000 provided for). In addition, performance fee of £284,000 previously accrued was written back due to the current period’s underperformance. The remaining performance fee accrued for past periods is £1,021,000 and, as it cannot be reduced by future underperformance, remains an obligation of the Company.

No performance fee was earned for the Global Equity Portfolio during the six months (30 November 2015: £nil). Any underperformance must be fully set off by over performance before any performance fee can be paid. As at the last year end, the underperformance carried forward was £607,000.

The management fees and finance costs are charged to the applicable Portfolio as follows, in accordance with the Board’s expected split of long-term income and capital returns:

	PORTFOLIO	REVENUE RESERVE	CAPITAL RESERVE
	UK Equity	30%	70%
	Global Equity Income	30%	70%
	Balanced Risk	30%	70%
	Managed Liquidity	100%	–

Any entitlement to the investment performance fee which is attributable to the UK Equity or Global Equity Income Portfolio is allocated 100% to capital as it is directly attributable to the capital performance of the investments in those Portfolios.

3.   Tax expense represents the sums of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the period.

It is the intention of the Directors to conduct the affairs of the Company so that it satisfies the conditions for approval as an investment trust company. Any company so approved is not liable for taxation on capital gains.

4.   Basic Return per Ordinary Share

Basic revenue, capital and total return per ordinary share is based on each of the returns on ordinary activities after taxation as shown by the income statement for the applicable Share class and on the following number of shares being the weighted average number of shares in issue throughout the period for each applicable Share class:

		WEIGHTED AVERAGE NUMBER OF SHARES
	SHARE	SIX MONTHS  ENDED 30 NOVEMBER  2016	SIX MONTHS  ENDED 30 NOVEMBER  2015
	UK Equity	39,568,327	39,919,191
	Global Equity Income	32,554,801	31,765,942
	Balanced Risk	7,137,292	7,545,881
	Managed Liquidity	5,801,765	5,214,241

5.   Net Asset Values per Ordinary Share

The net asset values per ordinary share were based on the following Shareholders’ funds and shares (excluding treasury shares) in issue at the period end:

		AT 30 NOVEMBER 2016 £’000	AT 31 MAY 2016 £’000
	PORTFOLIO SHAREHOLDERS’ FUNDS
	UK Equity	65,965	65,727
	Global Equity Income	60,086	51,943
	Balanced Risk	9,113	8,837
	Managed Liquidity	5,623	6,091
	PORTFOLIO SHARES IN ISSUE AT PERIOD END
	UK Equity	39,047,678	40,013,223
	Global Equity Income	32,695,170	32,627,852
	Balanced Risk	7,099,860	7,199,116
	Managed Liquidity	5,451,474	5,906,165

6.   Classification Under Fair Value Hierarchy

FRS102 as amended for fair value hierarchy disclosures (March 2016) sets out three fair value levels. These are:

Level 1 – The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3 – Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

The fair value hierarchy analysis for investments held at fair value at the period end is as follows:

		UK EQUITY £’000	GLOBAL EQUITY INCOME £’000	BALANCED RISK £’000	MANAGED LIQUIDITY £’000
	AT 30 NOVEMBER 2016
	Financial assets designated at fair value through profit or loss:
	Level 1	75,404	64,123	5,496	–
	Level 2	1	–	2,617	5,747
	Level 3	750	–	18	–
	Total for financial assets	76,155	64,123	8,131	5,747
	Financial liabilities:
	Level 2 – Derivative instruments	–	–	127	–
	AT 31 MAY 2016
	Financial assets designated at fair value through profit or loss:
	Level 1	72,827	57,669	5,490	–
	Level 2	2	–	2,578	5,312
	Level 3	750	–	18	–
	Total financial assets	73,579	57,669	8,086	5,312
	Financial liabilities:
	Level 2 – Derivative instruments	–	–	68	–

Level 1 This is the majority of the Company’s investments and comprises quoted investments and Treasury bills.

Level 2 This comprises the UK Equity Portfolio’s holdings of Barclays Bank Nuclear Power Notes, liquidity funds held in the Balanced Risk and Managed Liquidity Portfolios, and any derivative instruments.

Level 3 This includes the UK Equity Portfolio’s holding of an unquoted stock, AJ Bell, and the remaining hedge fund investments of the Balanced Risk Portfolio.

7.   Movements in Share Capital and Share Class Conversion
IN THE SIX MONTHS ENDED 30 NOVEMBER 2016

		UK EQUITY	GLOBAL EQUITY INCOME	BALANCED RISK	MANAGED LIQUIDITY
	Ordinary 1p shares (number)
	At 31 May 2016	40,013,223	32,627,852	7,199,116	5,906,165
	Shares bought back into treasury	(950,000)	(250,000)	–	(63,000)
	Arising on share conversion:
	– August 2016	(130,868)	231,149	(91,769)	(55,664)
	– November 2016	115,323	86,169	(7,487)	(336,027)
	At 30 November 2016	39,047,678	32,695,170	7,099,860	5,451,474

   

		UK EQUITY	GLOBAL EQUITY INCOME	BALANCED RISK	MANAGED LIQUIDITY
	Treasury Shares (number)
	At 31 May 2016	5,973,000	3,418,000	4,240,000	6,837,785
	Share bought back into treasury	950,000	250,000	–	63,000
	At 30 November 2016	6,923,000	3,668,000	4,240,000	6,900,785
	Total shares in issue at 30 November 2016	45,970,678	36,363,170	11,339,860	12,352,259
	Average buy back price	165.0p	157.5p	n/a	101.1p

As part of the conversion process 192,231 deferred shares of 1p each were created. All deferred shares are cancelled before each period end and no deferred shares are in issue at the start or end of a period.

8.   Share Prices

	PERIOD END	UK EQUITY	GLOBAL EQUITY INCOME	BALANCED RISK	MANAGED LIQUIDITY
	30 November 2015	171.0p	160.5p	117.0p	102.5p
	31 May 2016	162.5p	156.0p	119.3p	101.0p
	30 November 2016	166.8p	183.0p	127.5p	101.3p

9.   Dividends on Ordinary Shares

      The first and second interim dividends were paid on 15 August 2016 and 15 November 2016 respectively:

	PORTFOLIO	NUMBER  OF SHARES	DIVIDEND RATE	TOTAL £’000
	UK Equity
	First interim	39,763,023	1.40p	557
	Second interim	39,317,155	1.40p	550
			2.80p	1,107
	Global Equity Income
	First interim	32,377,852	1.40p	453
	Second interim	32,609,001	1.40p	457
			2.80p	910

      Dividends paid for the six months to 30 November 2016 totalled £2,017,000 (six months to 30 November 2015: £1,847,000).

10.  The financial information contained in this half-yearly financial report, which has not been reviewed or audited by the independent auditor, does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information for the half years ended 30 November 2016 and 30 November 2015 has not been audited. The figures and financial information for the year ended 31 May 2016 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 Registrar of Companies and include the Independent Auditor’s Report, which was unqualified and did not include a statement under section 498 of the Companies Act 2006.

By order of the Board
Invesco Asset Management Limited
Company Secretary
31 January 2017