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Value Catalyst Fund (VCF)

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Friday 30 March, 2007

Value Catalyst Fund

Interim Results

Value Catalyst Fund Limited (The)
30 March 2007

The Value Catalyst Fund Limited

Unaudited Interim Report
For the period from 1 July 2006 to 31 December 2006

Investment Manager's Report

For the six months ended 31st December, 2006 the Net Asset Value ('NAV') of The
Value Catalyst Fund Limited ('VCF' or the 'Company') grew by 12.58% (with
dividends reinvested). For the twelve months to the 31st December, 2006 the NAV
grew by 17.20% (with dividends reinvested).

For the period from inception to the 31st December, 2006 the Company's NAV has
increased by 145.79% (dividends reinvested).

Over the last year we have come across one particular problem time and time
again. We have identified a company we like, spent considerable time and effort
working up models, developed a strategy and then started to buy a position. What
happens next, the share takes off. At least to levels that makes us put our
hands back in our pockets. 'Great!' might be your response, 'Damn!' is ours.
Yes, this makes money but a fraction of what we would have hoped for if we had
managed to build up a position. Never before have we felt such a high level of
liquidity all around us, as we do now. This may be no huge surprise and as an
activist I think we are well placed to make money out of such a phenomenon, but
where has it all come from? We can't say with any certainty, but we have done
some numbers on the back of an envelope that might help you think about some of
it.

What is the market capital of all stock markets put together in the world? Well,
we know it was $43 trillion in March 2006 and with the market up a bit from
there, let's say $45 trillion. How big is the hedge fund industry? Again,
numbers vary but $2.5 trillion of net assets seems close and for the Private
Equity world, slightly less perhaps at circa $1.5 trillion. This $4 trillion has
come from many sources but we think it is fair to say that five years ago a good
proportion of it, if not most of it, would have been in some form of traditional
equity fund. Our point is that a massive multiplier applies when one $ gets
taken out of a traditional fund and placed into a hedge fund or private equity.
We think that there could be as much as $10 trillion of leverage to add to that
$2.5 trillion of net assets. An extra $10 trillion goes a long way and if we add
in leverage that's available for the Private Equity world as well, it is no
surprise it has trouble squeezing into the total of $45 trillion. Now, we have
ignored oil wealth and we all know the Middle East has been buying assets around
the world, and also ignore property leverage,

We also know that the move lower in markets towards the end of February was in
reality a very small move but one that seemed to cause much anxiety. A 5% market
move should not concern us as investors but if the leverage in the markets is so
high that it translates into much nastier numbers for some, we perhaps have an
explanation for the level of anxiety it caused. Something we have not been able
to find out is the percentage of the market that is bought on debt. If anyone
knows such numbers we would be interested to learn them.

The practical implication of all this to us is how we hedge our portfolios and
what risk we take. We would also make a distinction between financial leverage
i.e. what do we borrow from the bank and asset leverage i.e. what kind of
derivative exposure do we need to add back to get a true picture. We have seen
numbers for financial leverage but we believe it massively underestimates the
asset leverage. In reality we have continued to increase our hedging and carry
low net market exposures.

We have had an extremely busy second half of the year, realising some of our
bigger positions to bids. Our biggest position at the end of June was Saurer, a
Swiss manufacturing conglomerate. We had contested the AGM back in May and
gained one board seat in opposition to the board's efforts. However, it became
clear that the Saurer board did not intend to take notice of the reasons behind
the shareholders' AGM vote, therefore we put forward a resolution to replace the
majority of the board with a different team among which were credible new
executives. This was a substantial amount of work and effort to put together and
it became clear quickly after we delivered our notice that our resolution was
likely to win. This prompted a corporate buyer to emerge who bid for the company
at a substantial premium, realising our largest ever $ profit. Corporate buyers
can move so much quicker than private equity buyers, something we have found
time and time again. They also know the products, how they fit.

As at the 31st December, 2006 your Company had a 0.51% economic interest in
Saurer AG, worth $8,095,296, 3.29% of the Company's NAV.

Pergo was also another one of our larger positions that has been bid for after a
lengthy discussion process over the right price and the best way to conduct a
sale. Again, we were the largest shareholder and we also held a board seat.
Pergo AB is a Swedish company that develops, designs and markets laminate
flooring for residential and commercial real estate. Pergo manufactures in
Sweden and the US and sells through retail chains and dealers primarily in
Europe and North America, where its brand is particularly well recognised.

Part of an industry that is consolidating and whose competitors are bigger than
it, Pergo - with its European and North American coverage - was a natural
takeover target, provided it could undertake a much needed restructuring. For
example, despite its brand recognition in the United States, the company's
operations and management were largely based in Sweden.

Laxey Partners began to buy shares in Pergo in February 2004. As the largest
shareholder, a Laxey representative was elected to the Pergo board in 2005 with
a mandate to conduct a strategic review. The review led to a significant
restructuring (as well as the election of new board members and changes in top
management) and without neglecting its lucrative European market, the
company improved its US distribution network and existing customer base.    For
much of 2006 the Pergo board considered various offers for the company. On the
15th January, 2007 Pfleiderer announced a public offer to the Pergo
shareholders. Pfleiderer is a German manufacturer of engineered woods and
infrastructure products. Pfleiderer itself underwent restructuring (ahead
of Pergo) with the sale of all non-core business divisions. It sees the
acquisition of Pergo as a means to enhance its presence in North America and
accelerate its move into the European laminate flooring market. Pfleiderer
offered a cash bid of 51 SEK per Pergo share. This represents a premium of 17%
to the pre-offer share price (SEK 43.3 as at 31st December, 2006) and compares
to our cost of SEK 21 per share.

As at the 31st December, 2006 your Company had a 5.92% economic interest in
Pergo AB, worth $20,829,495, 8.45% of the Company's NAV.

The Absolute family of closed-end funds in Switzerland is something we have been
invested in for a while. The takeover of Absolute Europe (focus: European hedge
funds) by Absolute US (focus: North American hedge funds) is proceeding as
planned. In anticipation, Absolute Europe AG distributed 40% of its market
capitalisation tax-free to shareholders last October. Following the
distribution, Laxey Partners tendered its Absolute Europe stake to Absolute US
at a small discount to NAV. At the time of writing, Absolute US was just short
of the 98% required share ownership of Absolute Europe to complete the
squeeze-out procedure. The transaction was NAV accreditive for Absolute US in
which our holding is much larger than it was in Absolute Europe.

The takeover followed a similar pattern as previously experienced with Absolute
Private Equity and Absolute Managers. We still hold a stake in Absolute Private
Equity and we are impressed how the company increases its NAV continuously and
takes proactive measures to manage its discount.

As at the 31st December, 2006 your Company had a 0.74% economic interest in
Absolute Europe AG, worth $2,166,200, 0.88% of the Company's NAV.

As at the 31st December, 2006 your Company had a 0.43% economic interest in
Absolute US AG, worth $2,530,353, 1.03% of the Company's NAV.

United International Securities Limited ('UIS') is a Singapore listed fund that
makes equity and fixed-income investments across Asia, the United States, China,
Japan, Australia and Germany. At the time of writing we have just called a
meeting to have the company bring forward 'proposals which the Directors believe
will substantially and permanently reduce the discount to net asset value at
which the Company's ordinary shares trade in the market and pursuant to which
shareholders who wish it will be afforded the opportunity to realise their
investment in the Company at a price as near as practicable to the Company's
then net asset value.'

At present we are unsure whether this situation will be realised through a
process of collaboration with the company and its management or through an
antagonistic process but either way we look forward to telling you more in our
next review.

As at the 31st December, 2006 your Company had a 2.32% economic interest in UIS,
worth $5,289,822, 2.15% of the Company's NAV.

Chinese closed-end funds have been a big winner for us in the second half of
2006. We had spent considerable time and effort trying to understand the legal
framework for them and how the interaction of the manager, the board and
shareholders worked. We also visited most of the managers in China. The summary
of our legal work was very encouraging and what we were trying to establish was
the likelihood that when they finished their initial stated life, shareholders
would be offered a chance to get their money back at Net Asset Value. There was
huge scepticism that this would occur but when the first fund announced its
plans, it was very hard to fault them in any way. The initial redemption was at
98% of Net Asset Value with the 2% going to the fund. This then rose to 99.5%
after six months, with the 0.5% going to the manager. Even more surprising, four
times more people applied for units in the open-ended fund than wished to
redeem. Needless to say this caused quite a change of perception. We were able
to put together a portfolio at around a 45% discount, hedge most of it with
SWAPS and capture the discount.

As at the 31st December, 2006 your Company had a 2.33% economic interest in
Chinese closed-end funds, worth $9,936,439, 4.03% of the Company's NAV.

Close Finsbury Eurotech Trust PLC ('Close Finsbury')

Close Finsbury is an investment trust incorporated in the UK. The aim of the
trust is to achieve long-term capital growth by investing in quoted European
technology companies.

We bought the majority of our stake in Close Finsbury at around a 20% discount
to NAV during the summer of 2005. Back then the company was about eighteen
months away from a continuation vote. The board were keen that the fund continue
and then go on to raise more capital. We made it clear that we supported that in
principle provided that the board give existing shareholders an opportunity to
exit at NAV (or very close to).

Despite our repeated calls for an exit option the board failed to come up with
anything workable.

By way of addressing the board's reluctance to consider providing shareholders
with an exit, Laxey Partners proposed the election of new board members to
replace some of the incumbents and voted against the company's continuation. In
all, 89% of votes cast voted against continuation and the new, replacement board
members, one of whom was Andy Pegge, were elected to the board.

The new board then had 120 days to bring forward alternative proposals and
despite exploring alternatives to liquidation the new board concluded that
liquidation was the only feasible way ahead for all shareholders. An EGM to put
this to shareholders will be held on the 28th March.

As at the 31st December, 2006 your Company had a 5.05% economic interest in
Close Finsbury, worth $1,249,599, 0.51% of the Company's NAV.

Falcon Investment Trust PLC ('Falcon')

Falcon is a closed-end fund incorporated in the UK. The aim of the fund is to
achieve a capital return in excess of the Hoare Govett Smaller Companies Index
(ex Investment Companies) from investment in companies quoted in the UK with a
market cap of between £75m and £1bn at the point of the initial investment.

No stranger to re-organisations, a previous reconstruction of Falcon which Laxey
was involved in had left it with too large a proportion of the register seeking
an exit and an untenable quarterly tender that saw 40-50% of the shareholder
register tender its shares every quarter. Laxey Partners pointed out that this
amounted to a lingering death for the fund and urged the board to deal with the
situation. The board has now announced that they will shortly call an EGM to
consider a scheme to offer the opportunity to realise investments for cash or
roll over into an OEIC.

Laxey Partners acquired its stake in Falcon at a 20% discount to NAV.

As at the 31st December, 2006 your Company had a 5.57% economic interest in
Falcon, worth $2,700,972, 1.10% of the Company's NAV.

New Germany Fund, Inc.

New Germany Fund, Inc. is a non-diversified closed-end management investment
company incorporated in the USA. The fund pursues investments in German
equities; mostly small and mid-cap.

Laxey Partners is a member of the Coalition for Shareholder Democracy along with
Phil Goldstein, the veteran American activist, and Karpus. The coalition was
formed in response to the board of the New Germany Fund Inc repeatedly ignoring
PASSED resolutions to open-end the fund (that's shareholder rights in US
closed-end funds for you, but don't get us started on that) and failing to
recognise the SUCCESSFUL election of new directors.

To get around the issue of taking on the new directors, the board, without
shareholder approval, introduced the requirement that new directors pass a
'German-ness test' Of course, existing directors are deemed to pass the
German-ness test, by virtue of being existing directors!

Woeful corporate governance and unspectacular performance, this is definitely
one to watch.

As at the 31st December, 2006 your Company had a 1.17% economic interest in New
Germany Fund, Inc., worth $4,166,133, 1.69% of the Company's NAV.

Amanah Millenia Fund Berhad ('Amanah')

Amanah is a closed-end fund registered in Malaysia. It pursues investments in
small and mid-cap companies listed on the Kuala Lumpur Stock Exchange, and other
regional stock exchanges.

Amanah is facing a continuation vote later this year (June). With a fairly
evenly split shareholder register, one half local pension funds and institutions
and the other, 'agents for change' (like us) and the usual suspects. Laxey
Partners is encouraging the board to pre-empt the vote and come up with a scheme
that will please all of its shareholders: an exit for those that want it and
continuation for those that want that.

As at the 31st December, 2006 your Company had a 2.58% economic interest in
Amanah, worth $3,148,198, 1.28% of the Company's NAV.

This has only been a sample of the activity in the last six months and we would
be happy to go through all the various transactions in more detail as long as
you have sufficient time!

Income Statement (Unaudited)

For the period from 1 July 2006 to 31 December 2006

                                               Note        2006           2005
                                                            US$            US$

Income
Dividends                                             3,851,053      5,486,242
Interest                                                670,605        464,228
Net realised gains on realisation of
financial assets and liabilities at fair 
value through the profit and loss                    23,693,977     41,245,942

Net unrealised gains/(losses) on financial
assets and liabilities other than currency
forwards at fair value through the profit and
loss                                                 13,622,913    (18,062,042)

Net unrealised losses on currency forwards at
fair value through the profit and loss               (1,839,463)    (4,206,807)
                                                     ----------     ----------
Total investment income                              39,999,085     24,927,563
                                                     ----------     ----------

Expenses
Dividends payable on short positions                    409,215        731,919
Investment management fee                             2,676,956      2,633,316
Performance fee                                       2,931,039      1,136,900
Administration fee                                      207,476        173,756
Audit fees                                               16,455         15,976
Directors' fees                                          52,494         36,566
Other expenses                                  7       733,560        664,132
Interest expense                                      5,456,348      4,206,771
                                                     ----------     ----------
Total expenses                                       12,483,543      9,599,336
                                                     ----------     ----------
Net profit                                           27,515,542     15,328,227
                                                     ==========     ==========

Earnings per ordinary share
Basic and fully diluted                                US$22.19       US$13.74
                                                     ==========     ==========


Balance Sheet (Unaudited)
As at 31 December 2006

                                  31st December,     30th June,  31st December,
                                           2006           2006            2005
                                            US$            US$             US$
Assets
Investment funds - long             142,757,708    173,249,948     164,159,053
Investment funds - long swaps        10,040,811      2,774,824       1,981,540
Investment funds - short swaps                -          5,220               -
Equities - long                     197,413,157    245,788,469     210,844,228
Equities - long swaps                         -        704,516          21,301
Equities - warrants                     110,050        320,178         342,368
Index swaps - short                           -        360,607               -
Debt securities                          22,799         27,466               -
Futures - long                                -        643,289          34,785
Futures - short                          56,963        157,274         408,280
Amounts receivable on currency
forwards                              3,479,029      5,374,306       5,765,381
Cash at bank and brokers              5,220,906      3,932,564      13,362,190
Cash held as margin at brokers       24,648,534     27,114,413      20,980,363
Amounts due from outstanding sale
settlements                           1,725,242     11,516,901       8,298,908
Other debtors and accrued income        619,103      1,690,020       3,042,694
                                    -----------     ----------     -----------
Total assets                        386,094,302    473,659,995     429,241,091
                                    -----------     ----------     -----------

Equity
Share capital                             1,361          1,327           1,327
Share premium                       141,572,265    135,071,990     135,071,990
Retained earnings                   104,847,634     87,571,852      78,796,466
                                    -----------     ----------     -----------
Total shareholders' funds           246,421,260    222,645,169     213,869,783
                                    ===========     ==========     ===========

Liabilities
Investment funds - short             13,197,551      5,769,759       5,091,404
Investment funds - short swaps          241,349        168,135          95,498
Investment funds - long swaps           721,315      1,225,228               -
Equities - long swaps                         -      1,050,146         165,800
Equities - short                     14,709,060     51,470,723      25,525,377
Equities - short swaps                2,858,612        828,751          84,462
Index swaps - short                   1,187,449        821,658         504,006
Futures - short                       1,284,473      2,792,907         980,911
Amounts payable on currency
forwards                              7,058,543      7,114,357       2,448,648
Overdrawn balances at brokers        92,253,331    166,677,377     175,665,145
Amounts due for outstanding
purchase settlements                    502,737      7,274,001         683,194
Other creditors and accrued
expenses                              5,658,622      5,821,784       4,126,863
                                    -----------     ----------     -----------
Total liabilities                   139,673,042    251,014,826     215,371,308
                                    -----------     ----------     -----------
Total liabilities and equity        386,094,302    473,659,995     429,241,091
                                    ===========     ==========     ===========
Net asset value per ordinary          US$195.31      US$181.33       US$174.19
share                               ===========     ==========     ===========


Statement in Changes in Net Assets (Unaudited)
For the period from 1 July 2006 to 31 December 2006

                                                         2006            2005
                                                        Total           Total
                                                          US$             US$

Balance at 1st July                               222,645,169     179,052,915

Increase in net assets arising from operations     27,515,542      15,328,227

Dividend                                          (10,239,760)     (4,899,538)

Issue of ordinary shares                            6,500,309      24,388,179
                                                  -----------     -----------
Balance at 31st December                          246,421,260     213,869,783
                                                  ===========     ===========


Cash Flow Statement (Unaudited)
For the period from 1 July 2006 to 31 December 2006

                                                        2006             2005
                                                         US$              US$
Operating activities
Net gain arising from operations                  27,515,542       15,328,227
Adjustments:
Net realised gain on investments                 (23,693,977)     (41,245,942)
Net movement in unrealised (appreciation)/depreciation on:
 - investments                                   (13,622,913)      18,062,042
 - currency forwards                               1,839,463        4,206,807
Decrease/(increase) in debtors                     1,070,917       (2,794,069)
(Decrease) in creditors                             (163,162)      (2,262,801)
                                                  ----------       ----------
Net cash outflow from operating activities        (7,054,130)      (8,705,736)
                                                  ----------       ----------

Investing activities
Purchase of investments                         (235,264,988)    (235,969,523)
Sale of investments                              319,305,078      177,364,594
Decrease/(increase) in cash held as margin         2,465,879         (564,280)
                                                  ----------       ----------
Net cash inflow/(outflow) from investing
activities                                        86,505,969      (59,169,209)
                                                  ----------       ----------
Financing activities
Dividend paid                                     (3,739,451)        (756,111)
Issue of shares                                            -       24,388,179
                                                  ----------       ----------
Net cash (outflow)/inflow from financing
activities                                        (3,739,451)      23,632,068
                                                  ----------       ----------

Increase/(decrease) in cash and cash
equivalents                                       75,712,388      (44,242,877)
                                                  ==========       ==========

Cash and cash equivalents at the beginning of
the period                                      (162,744,813)    (118,060,078)
                                                 -----------      -----------
Cash and cash equivalents at the end of the
period                                           (87,032,425)    (162,302,955)
                                                 ===========      ===========


Notes to the Financial Statements (Unaudited)
For the period from 1 July 2006 to 31 December 2006

1. Accounting policy

The financial statements have been prepared in accordance with the historical
cost convention as modified by the revaluation of investments, and in accordance
with International Financial Reporting Standards.

Comparative figures

The comparative figures shown in the Income Statement, the Statement of Changes
in Net Assets and the Cash Flow Statement relate to the corresponding interim
period for the preceding financial year, 1st July, 2005 to 31st December, 2005.

2. Investments
                       31st December,          30th June,        31st December,
                                2006                2006                  2005
                                 US$                 US$                   US$
Long positions:
Market value             349,623,210         421,233,316           377,217,475
                        ============         ===========          ============
Cost                     284,722,459         371,213,177           328,889,451
                        ============         ===========          ============

Short positions:
Market value             (33,421,531)        (61,328,832)          (31,873,378)
                        ============         ===========          ============
Proceeds                 (22,703,410)        (51,868,410)          (26,230,977)
                        ============         ===========          ============

All of the Company's investments are classified as held for trading.

3. Issued Share Capital
                                             Period ended        Period ended
                                            31st December,      31st December,
                                                     2006                2005
                                                      US$                 US$
Ordinary shares of US$0.001 each
At 1st July                                         1,227               1,086
Issued during period                                   34                 141
                                               ----------         -----------
At 31st December                                    1,261               1,227
                                               ----------         -----------

Founder shares of US$1 each
At 31st December                                      100                 100
                                               ----------        ------------

Total issued share capital                          1,361               1,327
                                               ==========        ============

Number of ordinary shares
At 1st July                                     1,227,789           1,086,372
Issued during period                               33,887             141,417
                                               ----------        ------------
At 31st December                                1,261,676           1,227,789
                                               ==========        ============

Number of founder shares
At 31st December                                      100                 100
                                               ==========       =============



4. Share Premium

                                          Period ended              Period ended
                                        31st December,            31st December,
                                                2006                      2005
                                                 US$                       US$

At 1st July                              135,071,990               110,683,952
Relating to issues                         6,500,275                24,388,038
                                        ------------            --------------
At 31st December                         141,572,265               135,071,990
                                        ============            ==============


5. Retained Earnings
                                              Period ended         Period ended
                                            31st December,       31st December,
                                                     2006                 2005
                                                      US$                  US$

At 1st July                                    87,571,852           68,367,777
Operating profit for the period                27,515,542           15,328,227
Dividend                                      (10,239,760)          (4,899,538)
                                             ------------       --------------
At 31st December                              104,847,634           78,796,466
                                             ============       ==============

6. Dividend
                                                                         Total
2006 Dividend (in respect of year ended 30th June, 2006)                   US$
Paid 30th September, 2006
Dividend of US$8.34 per ordinary share                              10,239,760
                                                                ==============

                                                                         Total
2005 Dividend (in respect of year ended 30th June, 2005)                   US$
Paid 30th September, 2005
Dividend of US$4.51 per ordinary share                               4,899,538
                                                                ==============

7. Other Expenses
                                            Period ended          Period ended
                                           31st December,        31st December,
                                                    2006                  2005
                                                     US$                   US$

Legal and professional fees                      638,559               522,795
Insurance                                         65,630                71,497
Miscellaneous expenses                            29,371                69,840
                                            ------------        --------------
                                                 733,560               664,132
                                            ============        ==============
8. Gearing

Gearing, or leverage, is the percentage of borrowing compared to the percentage
of assets. For VCF, this borrowing should not exceed 200% of the net asset
value.

9. Copies of the interim statement

Copies of the interim statement will be sent to shareholders. Further copies
will be available from HSBC Securities Services (Isle of Man) Limited, 12/13
Hill Street, Douglas, Isle of Man IM1 1EF.







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