Interim Results

Merrill Lynch Latin Amer Inv. Trust 08 August 2006 8 August 2006 MERRILL LYNCH LATIN AMERICAN INVESTMENT TRUST PLC Interim announcement of results in respect of the six months ended 30 June 2006 • The Company's net asset value per share increased by 9.4% under performing its benchmark, the MSCI EM Latin American Index by 2.7% (both in US$ terms on a total return basis). • The Company's share price increased by 17.6% (in US$ terms on a total return basis). • Basic earnings per share amounted to 5.47 cents for the period (six months to 30 June 2005: 7.23 cents). • The Directors have declared an interim dividend of 2.50 cents per share, (in line with the dividend paid for the period to 30 June 2005 of 2.50 cents), payable on 12 September 2006 to shareholders on the register on 18 August 2006. • The discount to NAV narrowed over the period from 11.0% as at 31 December 2005 to 4.4% as at 30 June 2006, and currently stands at 2.9%. • The Directors have resolved to exercise their discretion to implement the next tender offer for up to 20% of the issued share capital at a discount to net asset value of 2.0%, which has a calculation date of 2 October 2006. For further information please contact: Peter Burnell, Chairman - 01434 632292 Jonathan Ruck Keene, Managing Director Investment Trusts - 020 7743 2178 Nigel Webb, Director Media & Communications - 020 7743 5938 Merrill Lynch Investment Managers Or William Clutterbuck The Maitland Consultancy - 020 7379 5151 The Chairman, Peter Burnell, comments: 'Performance For the six months to 30 June 2006 Latin America, along with most emerging markets, was pushed higher in the earlier part of the year as investors continued to search for more aggressive returns and found interesting opportunities in the region. When markets started to react to concerns about slowing US economic growth alongside increasing inflation and the implications for US Federal policy, risk appetite diminished significantly and Latin American markets experienced an almost 30% correction from mid May to mid June. As these fears diminished, markets recovered in the latter part of June. Against this background the Company's net asset value ('NAV') ended the period at 588.95 cents per share (equivalent to 318.42 pence per share), an increase of 9.4% above its year end value on a total return basis (US$ dollar terms). In comparison the benchmark index returned 12.1% over the same period whilst the share price rose to 304.50 pence per share, a rise of 8.9% in sterling terms and 17.6% in US dollar terms on a total return basis. Most of the underperformance against the index occurred during the second quarter at the beginning of which Merrill Lynch Investment Manager ('MLIM') took over as investment manager. This was due to a combination of transaction expenses arising from the portfolio rebalancing, poor stock selection in Brazil and unfortunate timing in taking out the gearing. The discount ended the period at 4.4% which is much improved on the year end rate of 11%. Since the end of the review period, the NAV has increased by 4.9% compared to a return of 4.3% from the benchmark index. Further details on performance are set out in the Manager's report Gearing The Company currently has three committed loan facilities totalling US$44.5m and has drawn down a total of US$20m. The gearing was drawn down in mid May shortly before the period of extreme market volatility and, as mentioned above, its timing was therefore unfortunate. The decision to gear was based on the Manager's belief that Latin American markets looked attractive relative to their own history as well as relative to other global markets. All of the gearing was deployed in the Brazilian market, our largest country overweight, where we continue to find some of the most attractive country-level valuation parameters in the world coupled with attractive country-specific catalysts. Dividends Dividend income in the period gave rise to revenue returns of 5.47 cents per share (six months to 30 June 2005: 7.23 cents per share). The Board is pleased to declare an interim dividend of 2.5 cents per share (six months to 30 June 2005: 2.50 cents per share), which will be paid on 12 September 2006 to shareholders on the register on 18 August 2006 (ex-dividend date 16 August 2006). Tender offer During the period the Board implemented a tender offer for 24.99% of the shares in issue at a discount of 2% to NAV with 18,526,120 shares being cancelled with effect from 15 May 2006. No further shares were purchased for cancellation in the period. The Directors have resolved to exercise their discretion to implement the next tender offer which has a calculation date of 2 October. Under the terms of the offer Shareholders may tender for purchase all or part of their holdings of shares for cash. The price at which shares will be purchased will be the prevailing net asset value per share as at the close of business on 2 October, subject to a discount of 2% (to cover the likely costs of the tender offer). The tender offer will be for a maximum of 20% in aggregate of the shares in issue as at 2 October. A circular relating to the tender offer will be sent to shareholders with the interim report. Savings Schemes The Company's shares are now available through the Merrill Lynch Investment Trusts Savings Scheme which includes a savings plan, ISA and PEP. We believe that this offers an easy and cost effective way to invest in the shares of the Company. F&C Management wrote to all the participants in its savings schemes in early August offering them the opportunity to either transfer free of charge to the MLIM Savings Scheme or transfer into another of their managed trusts. The Directors firmly believe that in spite of three years' exceptional performance in Latin American markets, prospects continue to be excellent looking forward on a medium term view. We therefore very much hope that participants in the F&C scheme will continue to invest in the Company through the MLIM Scheme. Please note that the deadline for returning your forms is 16 October 2006. All participants will have the opportunity to participate in the forthcoming tender offer, therefore all transfers to the MLIM Savings Scheme will be made after the tender offer effective date which is expected to be on or around 9 October 2006. If you do not instruct F&C, your shares in the Company will be sold and this may result in a capital gains tax liability. Prospects Despite the likelihood of further volatility in the near term, we expect certain key Latin American markets to perform positively in the second half of 2006 and into 2007, given that the recent sharp sell off makes equity valuations attractive. Assuming that the market's read on the FED was correct and that we are nearing the end of their tightening cycle, we expect market fundamentals will once again drive performance. In this instance, Brazil looks very attractive in both a Latin American context as well as in a wider global emerging markets arena. Brazilian valuations continue to be very compelling; the Brazilian Central Bank has room to continue cutting local interest rates given falling inflation, and the forthcoming October presidential elections should not represent a market moving event. For all these reasons, Brazil is our largest country overweight. We have a small underweight position in Mexico, where we still see long-term value following the closely contested presidential elections on 2 July. Chile continues to offer challenging valuation levels and remains an underweight market.' Commenting upon the outlook for the Company, Will Landers of Merrill Lynch Investment Managers, the Investment Manager, notes: 'Latin American Market Overview For the six months ended 30 June 2006, the Company's NAV and share price rose by 9.4% and 17.6% respectively, both in total return terms. The first half of 2006 continued to show significant volatility in Latin American markets, newsflow and changes in expectations regarding US interest rates, their impact on risk pricing, elections throughout the region and the perceived Latin American shift to the left, all affecting market sentiment. Moreover, Brazilian interest rate policy and the velocity of interest rate cuts, continued commodities demand from China, and the path of the US dollar have caused significant changes in market direction. As a result, Latin American markets were up significantly during the month of January, moved mostly sideways through the middle of April, had a strong move up from mid April through to mid May, had a sharp sell-off from mid May to mid June and recovered some lost ground in the last two weeks of the period. For the period under review, the MSCI Free Latin America Index returned 12.1%, having reached a high point in mid May with a return of 32.1%. Market returns Local market Exchange Rate Close YTD change (US$) Close YTD change Argentina 1,711 8.7% 3.09 -1.8% Brazil 36,361 17.5% 2.17 7.9% Chile 2,126 3.3% 539 -5.0% Colombia 7,662 -28.5% 2,574 -11.2% Mexico 19,147 1.4% 11.34 -6.2% Peru 8,156 78.6% 3.26 4.8% Venezuela 30,747 50.8% 2,147 0.0% MSCI Latin American 313.05 12.1% - - Source: Bloomberg This year will be one of the busiest years for elections in Latin America - since late last year, presidential elections have been held in Bolivia, Chile, Colombia, Ecuador and Peru, to be followed by Mexico in July, Brazil in October and Venezuela in December. While concerns regarding Latin America's supposed move to the left were widely reported in the press, equity markets for the most part ignored such concerns. The three most liquid Latin American equity markets - Brazil, Mexico and Chile - are seen to have strong institutions along with sound fiscal and monetary policies and maturing democracies that are able to deal with changes in government without negatively impacting their economies. In Brazil, the Central Bank has been very active in reducing interest rates, having cut rates by 375 basis points in aggregate during their four meetings in the first half of 2006, bringing the SELIC rate to 15.25%. Inflation expectations continue to be below the Central Bank's goal of 4.50% for 2006, providing room for more cuts during the remainder of the year. The domestic economy is reacting to the easing cycle, loan demand continues to be very strong, and the export sector continues to post record performances on a monthly basis despite the almost 8% appreciation of the Real during the period. At the company level, earnings growth continues to be robust, balance sheets are in good shape, and valuations continue to trade below historical averages. The market seems comfortable with the potential re-election of President Lula, who currently has a strong lead in all polls for the October election. In Mexico, the economy continues to perform well, with inflation hovering around 3% for the year and GDP growth close to 4%. Mexico continues to benefit from strong oil performance (the largest contributor to the Federal budget) as well as the good performance of the US economy (destination for over 85% of Mexico's exports). The stock market continues to trade close to its historical average valuation parameters. The Chilean market did not react as positively as expected during the sell-off in the latter part of the period given the economy's strong reliance on copper and the commodity's price volatility during the period. Valuation parameters remain at the top end of all emerging markets. The region's smaller markets offer few investable opportunities from a liquidity standpoint. Colombia's move in June to lift capital controls on local equity investments could pave the way for improved liquidity and potentially new equity issuances, but the market sold off strongly during the period following strong outperformance during the latter parts of 2005. In Peru, president-elect Alan Garcia's views towards the mining sector and the potential for further taxation cause us to remain cautious over investments in the country. Argentina's stringent capital controls restrict investments in that country to ADRs. Portfolio Following our appointment as Manager at the end of March, we enacted a large buy /sell program in order to bring the portfolio in line with our investment outlook as further described below. We introduced 5% gearing in mid May, following the tender offer at a 2% discount to NAV. At the period end, the Company held investments in 58 Latin American companies. At the country level, the portfolio is heavily weighted towards the Brazilian market, with an 8.5% overweight position (almost 64% of assets) versus our benchmark, representing the only significant country overweight. Mexico is a slight underweight at 27.3% of assets, with Chile accounting for 4.6% and Argentina 3.0%. The portfolio is well diversified from an industry standpoint, with no industry accounting for more than 21% of assets. Outlook The Company is positioned to benefit from the low valuations offered by the Brazilian market and the expected consumer led economic growth, a continued economic expansion in Chile (and to a certain extent Argentina), and somewhat insulated from Mexican politics by holding stocks in Mexico that should not be heavily affected by the result of that country's elections. In Brazil, where rates have been cut to 15.75% in the period, we expect the easing cycle to continue, albeit at a slower pace, finishing 2006 at or below 14%. While this would still give Brazil a real interest rate of around 10%, we expect that this significant reduction in rates will result in strong domestic economic growth. This, coupled with continued expansion in Brazil's trade account as exports continue to perform well, should enable Brazil to post overall GDP growth of around 4% in 2006, and allow Brazilian companies to post strong double digits earnings growth for the third year in a row. As Brazilian valuations remain at the low end of global equity markets and we do not expect any changes in fiscal or monetary policy from the incoming administration (regardless of whether President Lula is re-elected or the PSDB returns to the presidency), Brazil remains our favourite equity market in Latin America. In Mexico, the expectation that polarised politics will continue to limit the ability of the next government to enact much needed constitutional reforms makes us cautious about the region. Valuations are not excessive, but they are at the higher end of recent history. Our Mexico portfolio is positioned in companies with significant foreign operations, such as America Movil and Cemex, as well as companies that will do well irrespective of the winner in the presidential election (infrastructure and homebuilding sectors). At the end of the day, Mexico has sound fiscal policies and an independent Central Bank focused on inflation targeting that should allow the country to continue to do well. Chilean valuations remain at the high end of emerging markets, and as such we have an underweight position - the stocks we do hold tend to provide us with exposure to the consumer economy, which should do well in this period of strong copper prices as well as a strong Chilean peso. In addition, many of our Chilean holdings give us exposure to the Argentine consumer, as our Argentine portfolio is mostly geared towards global players in oil services and steel. Overall, we remain positive about Latin American equity markets given their attractive valuation relative to their own history as well as to other emerging markets, the region's sound fiscal policies, low inflation rates, reduced debt levels both at the public as well as corporate level, and strong focus on corporate governance.' Ten Largest Holdings Petroleo Brasileiro (Petrobras) (13.8%) dominates the upstream and downstream oil and gas sector in Brazil and is one of the 15 largest integrated oil companies in the world. The company has recently unveiled plans for high single digit compound production growth until 2015 which would make it one of the largest oil companies globally. Cia Vale Rio Doce (CVRD) (9.5%) is the world's fourth largest diversified mining company. Iron ore is the key product but it also has a significant exposure to copper, bauxite, aluminium, logistics and steel. America Movil (9.0%) is the dominant cellular player in Latin America. Operations commenced in Mexico, where they are the market leader with 80% market share. Operations, via acquisitions, have expanded their presence into most of the region; including Brazil, Argentina, Colombia and Chile. The company continues to be the prime beneficiary of increased cellular penetration and consumption growth. Banco Bradesco (8.5%) is the second largest bank in Brazil by market capitalisation, offering services such as consumer loans, corporate loans, insurance and leasing. Prospects remain bright as credit penetration increases following interest rate declines. Usiminas (3.7%) produces steel in Brazil with products including flat and hot rolled steel. AmBev CIA de Bebidas (3.2%) is the leading brewer in Brazil with market share of close to 70% in beer. They are also the sole distributor of Pepsi products. International operations range from South America to Canada. Volume growth is aided by low penetration and supportive population dynamics. Management is widely regarded as being amongst the most efficient globally, allowing for strong cash generation. Banco Itau (2.7%) is the largest bank in Brazil by market capitalisation, offering services such as consumer loans, corporate loans, insurance and investment banking. Profitability has consistently been the highest in the banking system, with return on equity above 30%. Wal-Mart de Mexico (Walmex) (2.6%) is the largest retailer in Mexico and is at least twice the size of its nearest competitor. Walmex operates a portfolio of different formats including Supercentres (hypermarkets), Sams wholesale clubs, Bodega discount stores, Superama supermarkets and Suburbia apparel stores. Walmex is an extremely well managed company growing its selling space in double digits every year which is entirely financed by its own internal cash flow. Tenaris (2.5%) is the leading global player in the production of seamless steel pipes. High oil prices and increased rig activity have created a very favourable environment. Operations range from Mexico, Italy to Argentina. More recently entrance into the lucrative US market was achieved by the purchase of Maverick. Corporacion Geo (2.1%) is the most profitable homebuilder in Mexico. Government sponsored initiatives and increased mortgage lending by the commercial banks are helping to address the structural housing deficit. All percentages reflect the value of the holding as a percentage of total investments. INCOME STATEMENT for the six months ended 30 June 2006 Revenue return US$'000 Capital return US$'000 Total US$'000* --------------------- ---------------------- --------------------- Six months Six months Year ended Six months Six months Year ended Six months Six months Year ended ended ended ended ended ended ended 30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05 Notes (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) Gains on investments - - - 55,274 27,297 118,684 55,274 27,297 118,684 held at fair value through profit or loss (Losses)/ gains (2) 9 (2) (307) (659) (176) (309) (650) (178) on foreign Exchange Income 3 6,853 7,113 12,218 - - - 6,853 7,113 12,218 Investment management 4 (683) (518) (1,132) (2,050) (1,555) (3,395) (2,733) (2,073) (4,527) Fees Operating expenses 5 (707) (540) (1,133) (15) (31) (38) (722) (571) (1,171) -------- -------- -------- --------- --------- ---------- --------- --------- ---------- Net return before 5,461 6,064 9,951 52,902 25,052 115,075 58,363 31,116 125,026 finance costs and taxation Finance (51) (23) (37) (152) (68) (109) (203) (91) (146) costs -------- -------- -------- --------- --------- ---------- --------- --------- ---------- Return on ordinary 5,410 6,041 9,914 52,750 24,984 114,966 58,160 31,025 124,880 activities before taxation Taxation on ordinary (1,621) (1,000) (1,848) 661 216 379 (960) (784) (1,469) activities -------- -------- -------- --------- --------- ---------- --------- --------- ---------- Return on ordinary 3,789 5,041 8,066 53,411 25,200 115,345 57,200 30,241 123,411 activities after taxation -------- -------- -------- --------- --------- ---------- --------- --------- ---------- Return per ordinary 8 5.47 7.23 10.98 77.05 36.12 157.08 82.52 43.35 168.06 share - basic (cents) Return per ordinary 8 - 6.52 10.36 - 32.58 148.18 - 39.10 158.54 share - diluted (cents) *The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Trusts Companies ('AITC'). The Company has no recognised gains and losses other than those disclosed in the Income Statement and the Reconciliation of Movement in Shareholders' Funds. All items in the above statement derive from continuing operations. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS Share Share Capital Special Warrant Non Other Revenue Total Capital premium redemption reserve reserve distributable capital reserve US$'000 US$'000 account reserve US$'000 £'000 reserve reserve US$'000 US$'000 US$'000 US$'000 US$'000 for the six months ended 30 June 2006 At 31 December 7,413 11,655 1,573 32,837 - 4,356 338,691 6,727 403,252 2005 Net return from ordinary - - - - - - 53,411 3,789 57,200 activities Share buy (1,852) - 1,852 (32,837) - - (95,291) - (128,128) backs Dividends - - - - - - - (4,819) (4,819) paid(1) -------- --------- -------- -------- -------- -------- ---------- -------- ---------- At 30 June 5,561 11,655 3,425 - - 4,356 296,811 5,697 327,505 2006 -------- --------- -------- -------- -------- -------- ---------- -------- ---------- for the six months ended 30 June 2005 At 31 December 6,977 63,880 972 - 3,484 872 223,346 2,757 302,288 2004 Transfer of share - (61,562) - 61,562 - - - - - premium to special reserve Net return from ordinary - - - - - - 25,200 5,041 30,241 activities Share buy - - - - - - - - - backs Tender - - - - - (19) - (19) costs Dividends - - - - - - - (2,093) (2,093) paid(2) -------- --------- -------- -------- -------- -------- ---------- -------- ---------- At 30 June 6,977 2,318 972 61,562 3,484 872 248,527 5,705 330,417 2005 -------- --------- -------- -------- -------- -------- ---------- -------- ---------- for the year ended 31 December 2005 At 31 December 6,977 63,880 972 - 3,484 872 223,346 2,757 302,288 2004 Transfer of share - (61,562) - 61,562 - - - - - premium to special reserve Net return from ordinary - - - - - - 115,345 8,066 123,411 activities Share buy (601) - 601 (28,725) - - - - (28,725) backs Shares issued on 1,037 9,337 - - (3,484) 3,484 - - 10,374 conversion of warrants Dividends - - - - - - - (4,096) (4,096) paid(3) -------- --------- -------- -------- -------- -------- ---------- -------- ---------- At 31 December 7,413 11,655 1,573 32,837 - 4,356 338,691 6,727 403,252 2005 -------- --------- -------- -------- -------- -------- ---------- -------- ---------- The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserve and amounted to $1,126,000 for the six months ended 30 June 2006 (six months ended 30 June 2005: $833,000; year ended 31 December 2005: $1,655,000). (1) Second interim dividend in respect of the year ended 31 December 2005 of 6.50 cents per share paid on 19 May 2006 to shareholders on the register at 18 April 2006 (2) Second interim dividend in respect of the year ended 31 December 2004 of 3.00 cents per share paid on 21 April 2005 to shareholders on the register at 29 March 2005. (3) First interim dividend in respect of the year ended 31 December 2005 of 2.50 cents per share paid on 4 November 2005 to shareholders on the register as at 7 October 2005. BALANCE SHEET as at 30 June 2006 Notes 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) US$'000 US$'000 US$'000 Investments at fair value through profit or loss 345,674 305,132 397,649 Current assets Debtors 4,587 4,586 2,489 Cash at bank 6,171 3,614 4,582 Short term deposits - 27,000 - ---------- ---------- ---------- 10,758 35,200 7,071 Creditors - amounts falling due within one year US dollar bank loans (20,000) - - Other creditors (8,903) (9,891) (1,444) ---------- ---------- ---------- (28,903) (9,891) (1,444) ---------- ---------- ---------- Net current (liabilities)/assets (18,145) 25,309 5,627 ---------- ---------- ---------- Total assets less current liabilities 327,529 330,441 403,276 Creditors - amounts falling due after more than one year Non equity redeemable shares (24) (24) (24) ---------- ---------- ---------- Net assets 327,505 330,417 403,252 ====== ====== ====== Capital and reserves Share capital 7 5,561 6,977 7,413 Share premium account 11,655 2,318 11,655 Capital redemption reserve 3,425 972 1,573 Special reserve - 61,562 32,837 Warrant reserve - 3,484 - Non distributable reserve 4,356 872 4,356 Capital reserve 296,811 248,527 338,691 Revenue reserve 5,697 5,705 6,727 ---------- ---------- ---------- Total equity shareholders' funds 327,505 330,417 403,252 ====== ====== ====== Net asset value per share - undiluted (cents) 8 588.95 473.58 543.95 ====== ====== ====== Net asset value per share - diluted (cents) 8 - 425.22 - ====== ====== ====== CASH FLOW STATEMENT for the six months ended 30 June 2006 Six months ended Six months ended Year ended 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) US$'000 US$'000 US$'000 Net cash inflow from operating activities 5,779 5,001 6,824 Returns on investment and servicing of finance (81) (99) (129) Taxation paid (858) (1,263) (2,084) Capital expenditure and financial investment Purchase of investments (236,434) (117,142) (271,301) Proceeds from the sale of investments 345,664 149,464 296,470 Capital expenses (11) (44) (34) ----------- ----------- ----------- Net cash inflow from capital expenditure and financial Investment 109,219 32,278 25,135 ----------- ----------- ----------- Equity dividends paid (4,819) (2,093) (4,096) Financing Net loans drawndown/(repaid) 20,000 (11,250) (11,250) Increase in short term deposits - (27,000) - Purchase of ordinary shares (127,342) - (28,725) Warrants exercised - 15 10,390 ------------ ----------- ----------- Net cash outflow from financing (107,342) (38,235) (29,585) ------------ ----------- ----------- Increase/(decrease) in cash in the period 1,898 (4,411) (3,935) ======= ======= ======= RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW FROM OPERATING ACTIVITIES Six months ended Six months ended Year ended 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) US$'000 US$'000 US$'000 Net return before finance costs and taxation 58,363 31,116 125,026 Gains on investments held at fair value through profit or loss (55,274) (27,297) (118,684) Exchange losses of a capital nature 307 659 176 Exchange losses/(gains) of a revenue nature 2 (9) 2 Non-operating expenses of a capital nature 15 31 38 Decrease in debtors 1,547 1,192 1,016 Increase/(decrease) in creditors 1,058 (489) (548) Scrip dividends (239) (202) (202) --------- --------- --------- Net cash inflow from operating activities 5,779 5,001 6,824 --------- --------- --------- Notes to the Interim Report 1. Principal activity The Company conducts its business so as to qualify as an investment trust company within the meaning of section 842 of the Income and Corporation Taxes Act 1988. 2. Basis of Preparation The interim financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 31 December 2005. 3. Income Six months ended Six months ended Year ended 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) US$'000 US$'000 US$'000 Income from investments: Overseas dividends 6,566 6,574 11,559 Scrip dividends 239 202 202 Interest receivable and other income: Deposit and cash fund interest 48 337 457 --------- --------- --------- Total 6,853 7,113 12,218 --------- --------- --------- 4. Investment management fees On 31 March 2006, the Company entered into an investment management agreement with MLIM (the 'New Management Agreement'), under which MLIM will supply discretionary investment management and administration services to the Company. Under the previous management arrangement F&C Emerging Markets Limited ('FCEM') was paid a fee of 1.5% per annum of the Company's net assets up to US$200m, and 1% on net assets in excess of this amount. Additionally the FCEM received an administration fee denominated in pounds sterling which was adjusted annually in line with movements in the Retail Price Index. This fee amounted to US$48,000 for the period to 8 May 2006 (US$136,000 for the year to 31 December 2005). Under the New Management Agreement, for the period from 31 March 2006 until the time of the Company's Annual General Meeting ('AGM') in 2007, the Company will pay MLIM a quarterly management and administration charge equal to 0.8% per annum of the NAV, payable in arrears. For the period commencing on the date of the Company's AGM in 2007 and for the duration of the agreement thereafter, the Company will pay MLIM a quarterly management and administration fee equal to 1% per annum of the NAV, payable in arrears. The management and administration charges will be payable together with applicable VAT. 5. Operating expenses Six months ended Six months ended Year ended 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) US$'000 US$'000 US$'000 Custody fee 210 122 282 Other administration costs 497 418 851 ------- ------ ------- 707 540 1,133 ------- ------ ------- 6. Dividend The interim dividend of 2.50 cents per share will be paid on 12 September 2006 to shareholders on the register at 18 August 2006. The total cost of the dividend, based on 55,608,059 shares in issue (30 June 2005: 74,134,179 shares; 31 December 2005, 74,134,179 shares) is US$1,390,000 (30 June 2005: US$2,003,000; 31 December 2005: US$4,819,000). 7. Share capital Number Authorised Number Issued and Nominal fully paid US$'000 Nominal US$'000 Ordinary shares of 10 cents each in issue at 31 December 2005 110,000,000 11,000 74,134,179 7,413 Purchase of ordinary shares for cancellation, in relation to the tender offer - - (18,526,120) (1,852) ---------------- --------- --------------- -------- At 30 June 2006 110,000,000 11,000 55,608,059 5,561 ---------------- --------- --------------- -------- 8. Net asset value and return per ordinary share 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) The weighted average number of ordinary shares in issue during the period, on which the return per ordinary share was calculated, was: 69,323,529 69,770,192 73,431,788 Dilutive potential - 7,578,394 4,411,650 Weighted average number of shares for diluted return calculations* - 77,348,586 77,843,438 The actual number of ordinary shares in issue at the end of each period, on which the net asset value was calculated, was: 55,608,059 69,770,192 74,134,179 cents cents cents Revenue return per share - undiluted 5.47 7.23 10.98 Capital return per share - undiluted 77.05 36.12 157.08 ------- ------- --------- Total return per share - undiluted 82.52 43.35 168.06 ------- ------- --------- Revenue return per share - diluted* - 6.52 10.36 Capital return per share - diluted* - 32.58 148.18 ------- ------- --------- Total return per share - diluted* - 39.10 158.54 --------- --------- --------- Net asset value per share - undiluted 588.95 473.58 543.95 Net asset value per share - diluted* - 425.22 - Share price ** 563.20 371.00 484.00 --------- --------- --------- * The Company did not have any dilutive securities during the six months ended 30 June 2006. ** The Company's share price is quoted in sterling and the above price represents the US dollar equivalent. 9. Publication of non-statutory accounts The financial information contained in this interim report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the six months ended 30 June 2006 and 30 June 2005 has not been audited. The information for the year ended 31 December 2005 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under sections 237(2) or (3) of the Companies Act 1985. 10. Annual results The Board expects to announce the annual results for the year ended 31 December 2006 in February 2007. Copies of the preliminary announcement can be obtained from the Secretary on 020 7743 3000. The annual report should be available March 2007. 11. Copies of the interim report will be posted to shareholders as soon as practicable. Copies will also be available to the public from the Company's registered office at 33 King William Street, London EC4R 9AS. 8 August 2006 33 King William Street London EC4R 9AS This information is provided by RNS The company news service from the London Stock Exchange

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