Half-yearly report

Blue Planet Financials Growth and Income Investment Trusts plc Interim Report and Accounts for the six months ended 30 September 2006 Registered Numbers Blue Planet Financials Growth and Income Investment Trust No 1 plc (Registered Number 162796) Blue Planet Financials Growth and Income Investment Trust No 2 plc (Registered Number 162797) Blue Planet Financials Growth and Income Investment Trust No 3 plc (Registered Number 162798) Blue Planet Financials Growth and Income Investment Trust No 4 plc (Registered Number 162799) Blue Planet Financials Growth and Income Investment Trust No 5 plc (Registered Number 162800) Blue Planet Financials Growth and Income Investment Trust No 6 plc (Registered Number 162801) Blue Planet Financials Growth and Income Investment Trust No 7 plc (Registered Number 162802) Blue Planet Financials Growth and Income Investment Trust No 8 plc (Registered Number 162803) Blue Planet Financials Growth and Income Investment Trust No 9 plc (Registered Number 162804) Blue Planet Financials Growth and Income Investment Trust No 10 plc (Registered Number 162805) Each of the investment trusts is a separate limited company, but otherwise they are to all intents and purposes identical. The information contained in this Interim Report, including the financial statements, applies equally to each of the ten Blue Planet Financials Growth and Income Investment Trusts (the "Trusts"), and reference to the "Company" shall be deemed to be a reference to each of them. Trading in the shares and warrants of the Trusts The Trusts' shares and warrants can be traded in share or warrant units. Each unit comprises 10 shares or warrants, 1 in each of the 10 trusts. It is generally cheaper for investors to trade in the units rather than the underlying shares or warrants. Officers and Advisors Directors Investment Manager Victoria W Killay (Non-Executive Chairman) Blue Planet Investment Management Ltd Kenneth Murray (Non-Executive) Greenside House Dr Michael Shea (Non-Executive) 25 Greenside Place Edinburgh EH1 3AA Telephone No: +44 131 466 6666 Facsimile No: + 44 131 466 6677 e-mail: info@blueplanet.eu.com www.blueplanet.eu.com Secretary and Registered Office Registrars Blue Planet Investment Management Ltd Capita Registrars Greenside House Northern House 25 Greenside Place Woodsome Park Edinburgh EH1 3AA Fenay Bridge Telephone No: +44 131 466 6666 Huddersfield HD8 0LA Facsimile No: +44 131 466 6677 Shareholder Helpline No. +44 870 1623131 e-mail: info@blueplanet.eu.com e-mail: shareholder.services www.blueplanet.eu.com @capitaregistrars.com www.capitaregistrars.com Auditors Bankers Deloitte & Touche LLP Lloyds TSB Scotland Plc Saltire Court Henry Duncan House 20 Castle Terrace 120 George Street Edinburgh EH1 2DB Edinburgh EH2 4LH Stockbroker Custodians Panmure Gordon (UK) Limited RBC Dexia Investor Services Trust Moorgate Hall 71 Queen Victoria Street 155 Moorgate London EC4V 4DE London EC2M 6XB Aic Blue Planet Investment Management Ltd is authorised and regulated by the Financial Services Authority. Blue Planet Financials Growth and Income Investment Trust No.1 plc is a member of the Association of Investment Companies. Financial Record Investment Policy The investment policy of the Company is to invest in securities (as defined by the Financial Services & Markets Act 2000), including shares and bonds, issued by financial companies located anywhere in the World. Investment Objective The investment objective of the Company is to produce a total return greater then the Bloomberg World Financials Index. Financial Record Six months ended Six months ended Year ended 30 September 2006 30 September 2005 31 March 2006 Shareholders' funds (£'000) 3,814 2,944 3,904 Net asset value per share (p)# 28.00 21.69 28.76 Share price (p) (Bid)# 17.60 14.35 19.20 Discount (%) 37.1 33.8 33.2 Gearing (%)* 47.4 35.9 46.5 Revenue available for shareholders (£'000)# 42 32 1 Revenue return per share (p) 0.31 0.23 0.01 Dividend yield on FTSE All Share Index (%) 3.83 2.99 3.35 * Net debt as a percentage of shareholders' funds # Comparative per share data has been adjusted to reflect the 10 for 1 share split approved by shareholders on 2 August 2006. Dividend No interim dividend has been declared. Capital Gains Tax Apportionment for capital gains tax between ordinary shares and warrants based on mid-market prices on the first day of dealings (25 April 1996) in the ordinary shares and the warrants: Each ordinary share 95.24p Each warrant 23.80p The Investment Manager Blue Planet Investment Management Ltd is an Edinburgh based investment management Company which specialises in managing investments in financial companies. Its corporate philosophy is that consistent out-performance is more likely to be achieved by specialisation than it is from the generalist approach, which currently prevails across most of the fund management industry. Stock markets comprise of many sectors, which are represented in general stock market indices, such as the S&P500, FTSE All Share, FTSEurofirst 300, Nikkei 225 etc. However, many of these sectors are in economic decline and will produce below average returns to investors in the future. Blue Planet believes that investors should only invest in those sectors that have superior long-term economic prospects and, crucially, which are undervalued. It believes that the World's financial sector is one such sector. By concentrating only on those sectors and by using the services of expert fund managers who specialise in those sectors investors should maximise their likelihood of consistent out-performance. By focusing on only one sector Blue Planet believes that it is able to develop a level of expertise and understanding of that sector that generalist fund managers cannot. It believes that this greater expertise and understanding will allow it to produce better, more consistent investment returns for its clients than generalist fund managers. It is widely accepted in most walks of life that specialisation leads to better results than generalisation. Blue Planet believes that in future pension funds and others will increasingly use specialist advisors to advise them specifically and solely on the allocation of their assets across sectors and will then place the designated funds with specialist investment managers in those sectors. This segregation of roles and increased specialisation will, it believes, reduce conflicts of interest and lead to better investment performance. In addition to Blue Planet Financials Growth & Income Investment Trusts Nos. 1-10, Blue Planet Investment Management Ltd also manages the Blue Planet Worldwide Financials Investment Trust plc, the Blue Planet European Financials Investment Trust plc and the Blue Planet Global Financials Fund. Details of Blue Planet's ISA, Savings Plan, investment trusts and other products can be found on its website, www.blueplanet.eu.com. Alternatively, they may be obtained from Blue Planet Investment Management Ltd, Greenside House, 25 Greenside Place, Edinburgh, EH1 3AA (Tel no: +44 131 466 6666). Website Information Please take the time to visit our website: www.blueplanet.eu.com If you wish to receive a monthly fact sheet on the trusts please visit: http://www.blueplanet.eu.com/blueplanet_downloads.136.html To download historical Annual and Interim reports and past monthly fund fact sheets: http://www.blueplanet.eu.com/ blueplanet_downloads.124.html Chairman's Statement Performance Over the six month interim period the Company's net asset value ("NAV") fell by 2.6% and in the full year to 30th September 2006 the Company's NAV rose by 29.1%. Over both the six month and one year periods the fund has outperformed its benchmark index, the Bloomberg Worldwide Financials Index, which fell 6% over the six month period and rose 12.5% over the full year. The share price rose 22.6% over the year to 17.60p (bid price) or £1.76 per Share Unit. These prices reflect the 10 for 1 share split which took place in August 2006. However the last six months performance has reflected the more challenging market conditions during that period. The price of our Ordinary Share unit's reached a peak of £2.33 (bid price) on the 21st February this year, just before the start of the interim period. Some equity market weakness followed when firstly when Emerging Markets were negatively affected by rising interest rates in the major economies, especially in the US, and then again by the widespread market downturn in May/June 2006. However during July, August and September the Fund staged a strong recovery. The share price of your Company was more adversely affected than the NAV in the market downturn, and the discount to NAV widened to 37.1%. As a consequence your Company's share price has fallen 8.3% over the six month period to 30th September 2006 and the price of our Ordinary Share units ended the period at £1.76. In October the price of our Ordinary Share units moved back above £2.00. The Board are confident that February's share price highs will be surpassed. The long term performance of the Blue Planet Financials Growth and Income Investment Trusts is impressive. The share price total returns are 114.9% over the past three years against a 43.1% increase in the benchmark and 125.7% over the past five years against a 43.3% return from the benchmark. The Fund has remained focused on the growth available from selected emerging and developed market economies over the past six months, and has looked primarily to Europe. In Central and Eastern Europe ("CEE"), Russia and Poland are key markets. Our largest single holding is the Russian bank Sberbank. This Bank has superior growth potential over the next 5 to 10 years with considerable room for efficiency gains, that will further increase its profits. Russia itself is a country with strong economic fundamentals with GDP growth of 7.9% in 2005 and government forecasts of a 6.6% growth in 2006. It has vast natural resources and an underdeveloped banking sector. There is a rapid growth in real household income and a surge in foreign direct investment. Sberbank generated a total return of 38% over the six months period. Poland's macroeconomic indicators continue to be strong. Its GDP growth rate is above average for Europe at 5.5%, there is only a moderate current account deficit, inflation is low, employment is increasing and there is growth in retail sales. The Fund was invested in three banks in Poland at the time of the last annual report, and has since invested in a fourth bank in Poland, whilst marginally reducing its overall exposure to the country by decreasing the size of some holdings. In other parts of CEE the Fund is invested in Raiffeisen International Bank Holding that has exposure to a wide range of markets in the CEE, including Russia. The Fund has also invested in South East Europe. During 2005 Turkish banks were transforming and improving profitability, and foreign interest in the Turkish banking sector increased. Your Company invested in Finansbank A.S., Turkiye Garanti Bankasi A.S. and Turkiye Sinai Kalkinma Bankasi. Early in 2006 the macroeconomic situation in Turkey started to deteriorate, consumer inflation started increasing and Turkey's current account deficit widened to 24% in March 2006. Interest rates that had been low by historical standards in Turkey looked set to increase. In anticipation of a downturn in Turkey the Finansbank and Turkiye Garanti investments were sold in April and May and substantial profits were taken. Greece enjoys one of the highest growth rates in the EU. Between 1995 and 2003 Greece's sovereign rating was increased five times by Fitch. Your Company holds investments in Piraeus Bank S.A. and Hellenic Exchanges, the Greek stock exchange. In Latin America the fund retained its investments in Banco Bradesco and Nossa Caixa in Brazil throughout the interim period, as interest rates were reduced over successive months, boosting demand for consumer loans. The fund sold its investment in Mexico ahead of elections there. Figure 1 shows the geographic movements of the portfolio over the six month interim reporting period. The fund has invested in Banca Intesa in Italy and benefited from the increasing confidence in Italian banks as the long-discussed mergers and acquisitions finally take place, and what is currently a highly fragmented market, begins to see some rationalisation. Figure 1 Portfolio Movements Country Sep 06 Mar 06 % % Russia 21.9 15.8 France 19.9 10.5 Brazil 11.3 9.5 Poland 11.2 12.1 Austria 7.5 10.4 Spain 5.7 6.0 Norway 4.9 4.9 Eire 4.6 4.9 Greece 3.9 4.8 Italy 3.0 0.0 Turkey 2.4 8.3 Denmark 2.0 2.2 Switzerland 1.7 3.0 Mexico 0.0 4.8 Germany 0.0 2.8 Warrants The bid price of our Warrant units fell by 25% to 960p over the six months to 30th September 2006. Over the full year the Warrant units' bid price has increased by 71%. Following the 10 for 1 share split in August 2006, each warrant unit now entitles the holder to subscribe for 10 Ordinary Shares at an exercise price of 10 pence each. The warrants remain valid until 2010. Gearing At the half year end our gearing stood at 47.4% of NAV. This is achieved by a bank loan, the purpose of which is to fund investments in the expectation that the returns from these will exceed the cost of the loan. Dividend Income from investments has again increased this year - it is up approximately 50% on last year's interim period - and despite an increase in costs, the revenue per share is up 35%. However, most of our dividend income is received in the first half of the year and we will receive much less in the second half, in which our costs are likely to exceed our income. With this in mind, the Directors have decided not to declare an interim dividend and it is unlikely that there will be sufficient revenue to declare a final dividend. Blue Planet Services and Price Information Sources Shareholders can view the Company's share price and additional information about the Fund on the website of Blue Planet Investment Management Ltd (www.blueplanet.eu.com) and the London Stock Exchange (www.londonstockexchange.com). To find the Company's share price on the London Stock Exchange website go to the Home page and type "BPFU" in the "Price Search" field. Our share price is also published in the Financial Times. A 10 for 1 share split was carried out in August 2006. The home page of the Blue Planet Investment Management Ltd website has a link with investor information on the 10 for 1 stock split, including answers to a number of frequently asked questions. Independent Rating of the Fund Trustnet is an independent company providing factual, unbiased assessments of the performance of funds to private investors and Independent Financial Advisers. The excellent performance of the Fund has led Trustnet to rate your Company 1st out of 30 funds for share price and 1st out of 28 funds for NAV performance over one year in the sector for Equity Growth & Income conventional trusts. The tables below highlight the 1, 3 and 5 year rankings by Trustnet against all the Equity Growth & Income investment trusts. Table: Blue Planet Financials Growth & Income Investment Trust plc rankings against other Equity Growth & Income Conventional Investment Trusts Share Price Performance NAV Performance Number Percentile Number Percentile Rank of Trusts Performance Rank of Trusts Performance 1 year 1 30 3.3% 1 28 3.6% 3 year 5 28 17.9% 1 26 3.8% 5 year 10 26 38.5% 6 24 25.0% Source: www.trustnet.com data as of 30 September 2006. Outlook Your Company has an excellent portfolio of high quality banking stocks. We are positive about the future prospects for the banks and other financial businesses in which we are invested and we are confident, that with our award winning investment team, that the future performance of your Fund is in the best possible hands. In July 2006 The Banker magazine reported that the top 1,000 banks worldwide had reported an average increase of profits in 2005 of 18.6% and a record return on capital of 22.7%. Their survey shows that annual growth is slowing in percentage terms - which is to be expected as the growth is now from a higher base. We believe that the banking sector will continue to benefit from a sustained growth in revenues. Retail banking, in particular in certain emerging markets, is seeing a huge increase in demand. Further consolidation and efficiency gains can be expected as cross-border acquisitions accelerate in pace. In Europe mergers and acquisitions were up 20% in 2005, with deals totalling Euro 126bn, 73% of which was cross-border deals. In addition technological advances will add to the efficiency gains to be achieved. We believe that there are many banks that remain undervalued by the market. These will provide your Company with excellent investment opportunities. We believe that our approach of specialising in only the financial sector and running a relatively concentrated portfolio of well researched stocks is set to continue to deliver good returns for shareholders, and we look forward to the future with confidence. I would like to thank all shareholders for their continuing support. Victoria Killay Chairman 30 November 2006 Balance Sheet (Unaudited) At 30 September At 30 September At 31 March 2006 2005 2006 (£) (£) (£) Fixed assets Equity investments 5,642,251 4,003,130 5,780,791 Current assets 108,576 37,513 122,085 Creditors: amounts falling due within one year (33,022) (18,195) (75,636) Net current assets 75,554 19,318 46,449 Total assets less current liabilities 5,717,805 4,022,448 5,827,240 Creditors: amounts falling due after more than one year (note 5) (1,904,153) (1,078,000) (1,923,129) Net assets 3,813,652 2,944,448 3,904,111 Capital and reserves Called-up share capital 136,226 135,850 135,850 Share premium account 1,175,092 1,169,502 1,170,956 Other reserves Capital reserve - realised 1,073,496 341,521 906,475 Capital reserve - unrealised 1,299,081 1,177,271 1,602,768 Capital redemption reserve 8,450 8,450 8,450 Warrant reserve 60,810 63,374 61,920 Revenue reserve 60,497 48,480 17,692 Equity shareholders' funds 3,813,652 2,944,448 3,904,111 Net asset value per ordinary share - basic (note 4) 28.00p 21.69p 28.76p Net asset value per ordinary share - diluted (note 4) 25.15p 19.81p 25.74p Comparative per share data has been adjusted to reflect the 10 for 1 share split approved by shareholders on 2 August 2006. Income Statement (Unaudited) For the six months ended For the six months ended For the year 30 September 2006 30 September 2005 ended 31 March 2006 Revenue Capital Total Revenue Capital Total Revenue Capital Total (£) (£) (£) (£) (£) (£) (£) (£) (£) Realised gains / (losses) on investments - 293,367 293,367 - 93,931 93,931 - 691,532 691,532 Unrealised (losses) / gains on investments - (321,791) (321,791) - 685,671 685,671 - 1,129,272 1,129,272 Currency exchange (losses) / gains - (59,773) (59,773) - (6,059) (6,059) - (28,264) (28,264) Income from investments 123,063 - 123,063 82,513 - 82,513 94,980 - 94,980 Bank interest receivable 3,353 - 3,353 590 - 590 1,705 - 1,705 Administrative expenses (42,879) (23,269) (66,148) (25,949) (10,024) (35,973) (55,356) (23,997) (79,353) Net return before finance costs and taxation 83,537 (111,466) (27,929) 57,154 763,519 820,673 41,329 1,768,543 1,809,872 Interest payable (25,200) (25,200) (50,400) (13,868) (13,868) (27,736) (28,442) (28,441) (56,883) Return on ordinary activities before taxation 58,337 (136,666) (78,329) 43,286 749,651 792,937 12,887 1,740,102 1,752,989 Taxation on ordinary activities (note 3) (16,260) - (16,260) (11,536) - (11,536) (11,925) - (11,925) Return on ordinary activities after taxation 42,077 (136,666) (94,589) 31,750 749,651 781,401 962 1,740,102 1,741,064 Return per ordinary share - basic (note 4) 0.31p (1.01p) (0.70p) 0.23p 5.54p 5.77p 0.01p 12.83p 12.84p Return per ordinary share - diluted (note 4) 0.29p (0.93p) (0.64p) 0.23p 5.37p 5.60p 0.01p 12.10p 12.11p The Total column of the income statement represents the profit & loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. There were no recognised gains and losses other than those disclosed above. Accordingly a statement of total recognised gains and losses is not required. Comparative per share data has been adjusted to reflect the 10 for 1 share split approved by shareholders on 2 August 2006. Cash Flow Statement (Unaudited) For the six months For the six months For the year ended ended ended 30 September 2006 30 September 2005 31 March 2006 (£) (£) (£) Operating activities Investment income received 110,657 79,513 90,859 Interest received 3,340 590 1,705 Investment management and administration fees paid (32,550) (19,907) (46,078) Cash paid to and on behalf of directors (2,620) (1,014) (2,700) Other cash payments (20,621) (15,655) (25,756) Net cash inflow from operating activities 58,206 43,527 18,030 Servicing of finance Interest paid (50,293) (25,917) (56,583) Taxation Taxation recovered 2,571 438 1,679 Capital expenditure and financial investment Purchase of investments (1,820,568) (1,131,059) (3,604,477) Sale of investments 1,873,514 695,182 2,489,311 Equity dividend paid - (16,895) (16,895) Management of liquid resources Cash placed on deposit (376,685) - (315,471) Cash withdrawn from deposit 341,747 - 314,181 Financing Net proceeds from share issue (note 4) 4,130 6,110 6,110 Additional loan - 318,535 1,144,860 Increase / (decrease) in cash 32,622 (110,079) (19,255) Notes 1. The financial statements for the six months to 30 September 2006 have been prepared on the basis of the accounting policies set out in the Company's Annual Reports and Accounts as at 31 March 2006. 2. All expenses are charged to the revenue account with the exception of management fees and interest charges on borrowings, one half of which less the appropriate tax relief is charged to capital. The Directors reviewed the terms of the Investment Management agreement in March 2006 and increased the annual fee from 1.00% of total assets to 1.50% with effect from 1 April 2006. 3. The taxation charge arises wholly from overseas withholding tax on investment income. 4. The return per ordinary share is based upon the following figures: 30 Sept 2006 30 Sept 2005 31 Mar 2006 Revenue return £42,077 £31,750 £962 Capital return (£136,666) £749,651 £1,740,102 Weighted average number of ordinary shares in issue during the period - basic 13,592,151 13,542,890 13,559,850 Weighted average number of ordinary shares in issue during the period - diluted 14,622,494 13,952,920 14,381,850 At the Annual General Meeting on 2 August 2006 shareholders approved the subdivision of the Companies ordinary shares by way of a ten for one share split such that the 1,362,260 existing ordinary shares of 10p each were divided into 13,622,600 new ordinary shares of 1p each. Comparative per share data in this interim report has been adjusted to reflect this split. At 1 April 2006 the Company had 260,170 warrants in issue. On 31 July 2006 4,580 warrants were exercised leaving 255,590 warrants in issue. On 31 July 2006 the Company issued 820 ordinary shares out of its treasury shares holding of 820 to partially satisfy the exercise of warrants. £728 being the cost of the shares has been credited to revenue reserves and £92 to share premium account. At 30 September 2006 the Company held no treasury shares. After the approval of the subdivision on 2 August 2006, each warrant now confers the right, exercisable normally on 31 July in any of the years from 2007 to 2010 inclusive, to subscribe for ten new ordinary shares at a price of 10p per share. The net asset value per ordinary share is calculated on the 13,622,600 ordinary shares in issue at the end of the period. Net asset dilution arises from the potential exercise of outstanding warrants and is assumed only to take place if the net asset value per share exceeds the exercise price of £0.10. 5. The sterling loans are subject to a covenant which sets a maximum gearing threshold. Details of the loans outstanding at 30 September 2006 were as follows: Amount (£) Interest Rate (%) Repayment Date Sterling loan 750,000 5.99 23 January 2012 Sterling loan 1,154,153 5.40 23 January 2012 6. At 30 September 2006 the Company had authority to buy back 203,000 of its own shares in accordance with the authority granted at the Annual General Meeting on 2 August 2006. No shares were bought back during the period under review. 7. The figures and financial information for the year ended 31 March 2006 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for the period as defined in section 240 of the Companies Act 1985. Those accounts have been delivered to the Registrar of Companies and include the report of the auditors which was unqualified and did not contain a statement either under section 237(2) or 237(3) of the Companies Act 1985. Portfolio Information At 30 September 2006 Valuation (£) % of portfolio Equities 1,073 Sberbank RF 1,237,846 21.9 23,907 Credit Agricole SA 560,368 9.9 7,436 Raiffeisen International Bank Holding 422,780 7.5 34,392 Banco Nossa Caixa SA 358,972 6.4 26,012 Banco Bilbao Vizcaya Argentaria 321,316 5.7 3,351 Societe Generale 282,762 5.0 4,859 BNP Paribas SA 278,894 5.0 41,991 DNB NOR ASA 273,936 4.9 16,467 Banco Bradesco SA 273,790 4.9 237,700 Bank Millennium SA 259,322 4.6 4,085 Blue Planet Global Financials Fund 259,002 4.6 1,590 Bank Przemyslowo-Handlowy BPH 218,726 3.9 13,655 Piraeus Bank SA 188,546 3.3 48,715 Banca Intesa SPA 170,800 3.0 4,567 Bank Pekao SA 151,886 2.7 141,750 Turkiye Sinai Kalkinma Bankasi 137,035 2.4 3,341 Amagerbanken A/S 113,888 2.0 2,989 UBS AG 94,591 1.7 4,133 Hellenic Exchanges SA 34,968 0.6 64 Bank Zachodni WBK SA 2,095 - 421 Central Cooperative Bank AD 728 - Total 5,642,251 100.0 Geographical Regions Russia 1,237,846 21.9 France 1,122,024 19.9 Brazil 632,762 11.3 Poland 632,029 11.2 Austria 422,780 7.5 Spain 321,316 5.7 Norway 273,936 4.9 Eire 259,002 4.6 Greece 223,514 3.9 Italy 170,800 3.0 Turkey 137,035 2.4 Denmark 113,888 2.0 Switzerland 94,591 1.7 Bulgaria 728 - Total 5,642,251 100.0 For more information, please visit www.blueplanet.eu.com. You can also contact the Company on 0131 466 6666 or by emailing info@blueplanet.eu.com. END

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