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Invesco Inc Grth Tst (IVI)

  Print      Mail a friend       Annual reports

Tuesday 03 June, 2008

Invesco Inc Grth Tst

Final Results

                        Invesco Income Growth Trust plc                        

              Unaudited Preliminary Announcement of Final Results              

                       for the Year Ended 31 March 2008                        

Performance Statistics

                                            At                   At            
                                            31 March       31 March           %
                                            2008               2007      change
Net asset value per ordinary share:                                            
- per Balance Sheet                              212.7p      262.8p       -19.1
- after charging proposed final dividend         210.0p      260.0p       -19.2
Mid-market price per ordinary share              199.0p      240.0p       -17.1
Discount per ordinary share                        6.4%        8.7%            
Actual gearing - excluding effect of cash           110         107            
Effective gearing - including effect of             111         108            
                                            Year               Year            
                                            Ended             Ended            
                                            31 March       31 March           %
                                            2008               2007      Change
Total Return                                                                   
(includes net dividends reinvested)                                            
Net asset value per ordinary share               -15.7%      +20.3%            
FTSE All-Share Index                              -7.7%      +11.2%            

Source: Datastream

Revenue Return and Dividends:                                                  
Net revenue after tax (£'000)                     4,855       4,598        +5.6
Revenue return per ordinary share                  8.3p        8.1p        +2.5
- first interim                                   1.75p       1.50p            
- second interim                                  1.75p       1.75p            
- third interim                                   1.75p       1.75p            
- final                                           3.00p       2.75p            
Total                                             8.25p       7.75p        +6.5
Total Expense Ratio                               1.02%       0.99%            

Chairman's Statement

Investment Performance

After four successive years of double-digit gains, the stockmarket performed
poorly in the 12 months to 31 March 2008. This reflected a combination of the
credit crunch, which brought about the collapse of Northern Rock, and growing
concerns about a slowdown in UK economic activity.

The total return for the period (comprising the movement in NAV plus net
dividends reinvested) was a fall of 15.7%, compared to a 7.7% fall in the
benchmark FTSE All-Share Index. The mid-market price of the ordinary shares
decreased from 240p to 199p during the year, while the discount to NAV per
share narrowed from 8.7% to 6.4%. A relatively poor outcome for the Company's
investment portfolio was exacerbated by the impact of gearing. More detail is
provided in the Investment Manager's commentary below.

When noting the strong performance in the year to 31 March 2007 in last year's
annual financial report, it was emphasised that one of the Company's investment
objectives was long-term capital growth and undue weight should not be given to
a single year. With regard to this, the Company has produced a total return of
304.7% since launch, compared to a 230.5% return in the FTSE All-Share Index.


The Board continues to monitor the Company's level of gearing which, when
appropriately used, should enhance the returns to shareholders. A bank facility
of £20m is available for the purpose of providing gearing. As at 31 March 2008,
the Company had actual gearing of 110, provided by the bank borrowings of £13m.

It is envisaged that, depending on market conditions, the Company's effective
gearing would normally be in the range 100-120 of NAV. It is important to
stress that, prior to a significant change within this range by the investment
manager; permission is required from the Board.

VAT on Management Fees

In early November last year, HMRC accepted the European Court of Justice ruling
in a test case that investment trusts should not be charged VAT on management
fees. Following this the Manager, Invesco Asset Management Limited (`IAML'),
ceased to charge VAT on management fees. Your Board is now taking steps to
recover the VAT paid in the past on your Company's Management Fees. These fees
span a number of years and your Board is holding discussions with the Manager
concerning the amounts recoverable, and will advise shareholders of the outcome
in due course.

Share Buy Backs

During the Company's last financial year, 1,610,506 ordinary shares of 25p each
were repurchased for cancellation. This activity has led to a NAV enhancement
of 0.22% and helped to control discount volatility.

Revenue and Dividends

Three interim dividends of 1.75p each were paid on 30 October 2007, 31 December
2007 and 17 March 2008 respectively. Your Board has proposed a final dividend
of 3p payable on 17 July 2008 to ordinary shareholders on the register on 20
June 2008. This raises the dividend from 7.75p to 8.25p this year, an increase
of 6.5%. In arriving at this figure the Board has undertaken a review of the
Company's revenue reserves and the potential for future dividend growth in the
UK equity market. The Board believes that this level of dividend is one from
which dividend growth can be maintained at least in line with inflation over
the longer term.

Corporate Governance

The Board remains committed to maintaining the highest standards of Corporate
Governance and is accountable to you as shareholders for the governance of the
Company's affairs. The Directors believe that, during the period under review,
they have complied with the provisions of the AIC Code of Corporate Governance
as endorsed by the Financial Reporting Council, save in respect of matters
discussed in the Corporate Governance Statement contained within the Annual
Financial Report for the year ended 31 March 2008.

Annual General Meeting (`AGM')

At the AGM there are five items of Special Business to be proposed:-

Share Issuance

First your Directors are asking for the usual authority to issue up to an
aggregate nominal amount of £4,879,294 (a third of the Company's issued share
capital as at 3 June 2008) in new ordinary shares. This will allow Directors to
issue shares within the prescribed limits should any favourable opportunities
arise to the advantage of shareholders. The powers authorised will not be
exercised at a price below Net Asset Value so that the interests of existing
shareholders are not diluted. This authority will expire at the AGM in 2009.

Secondly, your Directors are also asking for the usual authority to issue new
ordinary shares pursuant to a rights issue or otherwise than in accordance with
a rights issue of up to an aggregate nominal amount of £1,463,788 (10% of the
Company's issued share capital as at 3 June 2008) of new ordinary shares
disapplying pre-emption rights. This will allow shares to be issued to new
shareholders without having to be offered to existing shareholders first, thus
broadening the shareholder base of the Company. This authority will expire at
the AGM in 2009.

Share Buy Backs

Thirdly, your Directors are seeking to renew the authority to buy back up to
8,776,874 (14.99% of the Company's issued share capital as at 3 June 2008)
subject to the restrictions referred to in the notice of the AGM. This
authority will expire at the AGM in 2009. Your Directors are proposing that
shares bought back by the Company either be cancelled or alternatively, be held
as treasury shares with a view to their resale if appropriate, or later
cancellation. The holding of treasury shares is restricted to 10% of the
Company's issued share capital and any resale of them will only take place on
terms that are in the best interests

of shareholders.

Investment Policy

Fourthly, pursuant to changes to the UKLA Listing Rules, listed investment
companies are now subject to additional requirements in respect of their
published investment policies. Your Directors are therefore seeking the formal
adoption of the Investment Policy for the Company. It is not expected, or
intended, that this will give rise to changes in the way the Company's assets
are managed. The Report of the Directors contained within the Annual Financial
Report for the year ended 31 March 2008 sets out the proposed Investment Policy
of the Company.

Amendments to the Articles of Association

Finally, your Directors are seeking the approval of a number of amendments to
the existing Articles of Association of the Company, primarily to reflect the
provisions of the Companies Act 2006 that came into force in October 2007 and
April 2008, and are coming into force in October 2008. The opportunity is also
being taken to update the Articles generally. In view of the number of changes,
it is proposed that new Articles of Association be adopted. An explanation of
the main changes between the proposed and existing Articles of Association is
set out in the Notice of the AGM contained within the Annual Financial Report
for the year ended 31 March 2008.

The remaining provisions of the Companies Act 2006 are expected to come into
force in October 2009. In addition, various regulations that relate to certain
of these provisions have yet to be finalised. Consequently, it will be
necessary for the Company to undertake a further review of its Articles of
Association in due course in order to reflect these other provisions. It is
anticipated that this will take place in 2009.

Shareholders should note that the terms of the new Articles of Association with
all the proposed changes highlighted are available for inspection at 30
Finsbury Square, London. EC2A 1AG from 3 June 2008 until the close of the AGM
on 8 July 2008.

Your Directors have carefully considered all the resolutions proposed in the
Notice to the AGM and, in their opinion, consider them all to be in the best
interests of shareholders as a whole. Your Directors therefore recommend that
shareholders vote in favour of each resolution. The AGM of the Company will be
held at the offices of Invesco Asset Management Limited on 8 July 2008 at 12.00
noon. I do hope that as many shareholders as possible will attend. This will be
an opportunity not only to meet the Directors but also to hear the views of
Ciaran Mallon, who is the investment manager at Invesco Perpetual with the
day-to-day responsibility for managing the Company's share portfolio.

John McLachlan


3 June 2008

Manager's Report

Market Review and Portfolio Strategy

In common with many other investment companies biased towards higher income,
the Company performed relatively poorly during the year ending 31 March 2008.
The net asset value (`NAV') fell by 15.7%, compared to a 7.7% fall in the
benchmark FTSE All-Share Index (both figures include reinvested income).
However, the figure for the FTSE All-Share disguises a massive divergence in
performance between individual shares over the year. For example, the average
share in the Index fell by 15.4%. Narrowing it down to the FTSE 100 Index, the
best performing share rose by 83% (Rio Tinto) and the worst fell by 100%
(Northern Rock - which the Company did not hold).

The fall in the Company's NAV was exacerbated by gearing. Over the longer term
this has been beneficial to performance, but was unhelpful during last year's
unanticipated falls in the market. In general, gearing is used to enhance
returns by investing in shares which I believe to have superior prospects.
Towards the end of the period under review valuations have become more
attractive, so gearing has been modestly increased from around 107 to 110.

Shareholders may recall that performance in the year ended 31 March 2007 was
strong, and the Company's long term record remains sound, with a total return
of 113.2% in the 5 years to 31 March 2008 compared to 98.7% for the FTSE
All-Share Index.

In addition to capital growth, the Company's other objective is long-term real
dividend growth. In this regard, last year was more favourable. There was good
dividend growth from the portfolio investments, allowing a dividend increase of
6.4%. I will return to the investing outlook later in this report but, despite
the difficult environment, the year to March 2009 is likely again to be a year
of reasonably good dividend growth overall.

The past year has been the most tumultuous for financial markets since the
fall-out from the global technology stockmarket bubble over 2000 to 2003. The
bubble this time, however, was in world bond markets and it began to unravel
over the summer of 2007. As an illustration, consider the yield paid by issuers
of US dollar sub-investment grade bonds (so-called junk bonds): in 2002 the
yield premium over safe Government bonds was 5.5%, which fell to around 2% by
2005 (it has now reversed to 5%). Similar contraction of risk premiums were
seen for all manner of borrowers, including bonds issued by US mortgage lenders
(and exotic bond-like derivatives of US mortgage bonds), suggesting that these
issues were of much better quality than they turned out to be.

While the US housing market had been slowing for some time, the initial effects
were on those most closely exposed, such as banks that had a direct lending
relationship with US households. The collapse in June 2007 of two Bear Stearns
hedge funds, however, began to expose how widely dispersed some of the more
risky derivatives of US mortgage bonds were. As it became clear that
significant parts of some banks' balance sheets were invested in these assets,
some of which were now potentially worthless, there was a flight to quality
leading to the well publicised "credit crunch". This has been experienced the
world over, as banks have become cautious of lending to each other, and the
markets for some types of credit products have dried up.

The most prominent casualty of this in the UK was Northern Rock in September
2007. This had a business model reliant on easy access to capital markets for
money to lend rather than customer deposits, and the illiquidity in capital
markets precipitated by the credit crunch forced their near-collapse and was
followed by a Government rescue. A similar flight by financial market
counterparties caused the near collapse and much more rapid rescue in the US of
Bear Stearns by JP Morgan in March 2008 (Bear Stearns was not a bank, but
nevertheless played a vital role in global capital markets).

Also, what started as a financial market event has now exacerbated a slowdown
in Western economic growth. While the UK and US may yet escape a recession by
the strict definition, it is clear that there is widespread slowing in economic
growth in both regions.

At the time of writing - and probably for some time yet - the position remains
unsettled and uncertain. Governments and central banks of the US and UK have,
after some procrastination, shown a determination to use a broad range of
approaches to prevent the financial crisis feeding on itself and are attempting
to contain the impact on the real economy. In the US, interest rates have been
cut from 5.25% to 2%, accompanied by a $168 billion fiscal stimulus package.
The Bank of England has cut interest rates from 5.75% to 5%, and the new
Sterling Lending Facility is an attempt to re-liquefy the market for lending
between banks. Time will tell if these measures are successful, but there
should be some comfort that lessons from the past and other countries, such as
Japan, have been learnt.

What started in the world's bond markets has spread rapidly to world equity
markets. The immediate casualties have been the banks, but it has spread much
wider. This will be seen when I describe some of the good and bad features of
the Company's portfolio this past year.

The Oil and Mining sectors have again been a source of relative
underperformance for the Company compared to the benchmark. Combined they
constitute 30% of the benchmark index, whereas they make up about 15% of the
Company's portfolio. The Company has good, but not excessive, exposure to the
Oil sector through BP, Royal Dutch and AMEC (which has now focused almost
exclusively on its oil and mining-related engineering activities). However, the
sole holding of Anglo American in the Mining sector has been insufficient given
the 38% rise in the sector over the 12 months. As with any rising sector, its
importance in the benchmark grows as share prices rise, and this has been
exacerbated by the increasing number of overseas mining companies choosing to
list in London. There will soon be 12 mining companies in the FTSE 100 Index,
including companies based in the UK, Switzerland, Kazakhstan, the Czech
Republic, Chile and Mexico.

My reason for having little exposure to the Mining sector is essentially
simple: companies in competitive industries will, over time, earn a return
commensurate with the risks they take. Currently, the mining companies are
earning margins and returns on capital massively above their own historic
experience, and far higher than almost all other listed companies. For an
industry which adds little value to the product besides digging it out of the
ground, where there is little genuine long term shortage of most metals and
minerals and where barriers to entry are relatively low, this incredible
financial performance is I believe a short-term phenomenon. The share prices do
not reflect this risk of reversion to a more normal business performance, in my
view. In addition, and perhaps reflecting their managements' views of long term
profitability, most mining companies have very low dividend yields.

To this fundamental concern, I would add that the resources sector and metals
markets are showing, in my opinion, many of the signs of an investment bubble:
current metal prices are well above most analysts' estimates of the long term
economically justifiable level; many investors and analysts talk about a new
paradigm of a "super-cycle"; there is a rush of flotations, often from
far-flung regions of the world; and the industry is seeing its largest ever
proposed takeover, of Rio Tinto by BHP Billiton.

While I try to keep an open mind to new developments and regularly meet with
company management and industry analysts, I still consider this an unattractive
industry in which to invest. The lessons from the technology bubble, and now
the credit bubble, are that it can be painful not to participate in the party,
and it is impossible to know when it will end, but the consequent hangover of
participating is even more painful when it inevitably ends.

Turning to other underperforming areas in the Company's portfolio, these were
mostly in shares directly exposed to the credit market weakness, often in
companies where the relatively high level of debt is seen - at the moment - as
a major risk. Or where the economic slowdown precipitated by the credit crunch
is seen to be a risk. For some companies both concerns featured.

The Company's investments in the bank sector have been poor performers, apart
from HSBC, which substantially outperformed the sector. Whilst the portfolio
was less exposed to Bank shares than the benchmark index, the overall impact on
relative performance was negative. Barclays, HBOS and Royal Bank of Scotland
(in total about 8.7% of the portfolio at the start of the year) have all fallen
substantially as concerns grew about their capital bases and ongoing earnings
power. They provided an important contribution to the Company's dividend, but
their share prices fell by between 33% and 45% respectively over the year. I
have been surprised at how extensive the share price falls have been, although
it is notable that, with the exception of HBOS, the Company's banking sector
shares have been performing about in line with the FTSE All-Share Index since
November 2007.

Looking forward, while appreciating that the bank sector background remains
changeable, I think that there are reasons to persevere with the Company's bank
shareholdings. The recent Royal Bank of Scotland and HBOS rights issues, albeit
containing dividend reductions, should answer questions of financial stability
unless the wider environment deteriorates substantially. At the time of
writing, the bank shares account for about 11% of the portfolio. This is
substantial and under close scrutiny, but seems appropriate when taking a long
term, valuation-led approach as I do. Despite the current difficulties, these
banks have strong franchises, for example in UK business banking or mortgage
lending, and high quality assets outside the UK, which will drive long term

Another source of underperformance was the media sector, where the Company's
portfolio had 7.3% of its assets at the start of the last financial year. One
of the holdings, Reed Elsevier, outperformed the benchmark as it restructured
by exiting its serially underperforming education business. However, Yell,
Informa, Euromoney and United Business Media all performed dismally. The
rationale for owning all four was that they had strong franchises, with
excellent long-term and predictable cash flow. I still believe this to be the
case. However, all also contain the most unpopular features at the moment:
namely economic sensitivity and relatively high levels of balance sheet debt
(with the exception of Euromoney). The shares have duly been punished in
anticipation of profit downgrades and financial distress. I consider the share
price falls excessive and not reflective of the long term potential of the
businesses. With the exception of some specific issues at Yell's US activities,
the companies have so far reported resilient trading. While this may change,
the share prices seem to allow for considerable slowdowns. I have modestly
added to the positions in Yell and Informa.

The leisure sector has been weak, anticipating a tougher backdrop for consumer
spending as the housing market weakens and the prices of food and energy rise.
The Company's holdings of Young & Co and Whitbread have consequently been poor
performers. While Whitbread's shares had been quite highly rated going into
this slowdown, I considered this fair given the considerable growth potential
in its Premier Inn budget hotel and Costa Coffee chains (the company has
changed considerably in recent years and its only other activity is in pub
restaurants, often situated alongside its hotels). Similarly, Youngs was
trading below net asset value, had made major structural improvements (exiting
brewing) and consists of very high quality pub locations. None of these factors
have prevented substantial share price falls. I consider this completely over
done, even if there is some consumer set-back coming, and both remain
attractive on a longer term viewpoint.

One shareholding in the portfolio is in a company directly exposed to the
source of the world's financial crisis - the US housing market. This is
Wolseley, the US, UK and European builders merchant. Wolseley is a well
managed, financially conservative company with a very strong market position
which it has very successfully consolidated by buying up some competitors and
driving economies of scale. However, its US lumber business is now making
losses in the US, despite rapid and extensive cost cutting. A building slowdown
in the UK and Europe would prove painful, also. I underestimated how large the
financial impact of the US building slowdown would be and the shares have been
very weak. It was an error to retain them in the face of such a well-publicised
US housing slowdown. However, its assets remain class-leading, and the US will
at some time resume house building (they have a growing population, Americans
prefer new houses and their houses are made predominantly of wood, so have a
short life). Given this, I don't want to compound the error by selling the
shares at this very low valuation level - in relation to sales, the market
value of the company is about as low as it got before the recovery in the early
1990s, so I am continuing to hold them.

There was perplexing weakness in the share prices of some companies normally
expected to be quite defensive, namely BT, Centrica, National Grid and Tesco.
All are important holdings in the portfolio, and it is difficult to understand
such weakness in terms of the credit crunch or expectations of economic
weakness. Tesco has staged some recovery since the year-end, and I would expect
the others to follow.

Now on to some good news. There were a number of takeovers in the portfolio
over the course of the year, all at good premiums and all significant holdings
of between 1% and 2%: Scottish & Newcastle, ICI, Biffa and Kelda.

Also, one of the largest positions in the portfolio is Vodafone, built up over
the course of late 2006, which performed well and proved beneficial to

The support services sector, which at about 8% of the Company's portfolio is
considerably more than the benchmark, proved helpful too. Shareholdings of
MITIE, Capita, Bunzl and Group 4 Security all outperformed the FTSE All-Share
Index. This perhaps reflected their perceived (and so-far actual) economic

As hoped, the Company's large positions (cumulatively almost 20%) in utilities
and tobacco proved defensive in a difficult year and made a positive
contribution to the overall performance. However, the holdings are not solely
held for their resilience, and each company has good potential to grow and
provide a growing dividend.

A number of new holdings for the portfolio were bought at points during the
year, using proceeds from the takeovers and a modest increase in gearing in
early 2008. These include ITV, where the valuation is low for an unrivalled
mass market advertising medium and the newly appointed Chief Executive Michael
Grade is making progress in improving the quality of its output. I built up a
position in AstraZeneca over the autumn as its price fell, taking its valuation
to historic low levels. A more recent addition is specialty chemical company
Croda, which has good pricing power, products and market positions, all for a
very reasonable valuation.


I must admit that I have been surprised at the harsh treatment meted out by the
stockmarket to many of the Company's shareholdings. The investing environment
continues to feel perilous and the newspapers are dominated by bad news, but I
think there are several reasons that some cautious optimism is warranted. This
is particularly true if a longer-term perspective is taken. I believe that
being able to keep a firm focus on the long-term is one of the key benefits of
the investment company structure, and an important competitive advantage in an
increasingly short-term investment world.

The UK equity markets, unlike the experience at the turn of the century, did
not enter this slow-down and bubble-burst at high valuation levels. Incredibly,
ignoring reinvested income, the stockmarket is at almost the same level it was
a decade ago. In the intervening period, aggregate earnings have roughly
doubled. Share prices were not, and definitely now are not, anticipating strong
earnings growth. The job of an investment manager is to reconcile current news
flow with prospects anticipated in the share prices, and a lot of bad news is
already in many prices.

Also, while news on corporate earnings and the economy may yet weaken, the
historical record of the stockmarket shows that it usually begins to reverse
weakness well before the news gets comfortable.

It is noteworthy that, at the time of writing, the US, UK and European
stockmarkets are well above their lows of 17 March 2008. This is the day that
the Bear Stearns takeover was engineered by the US Federal Reserve, which
perhaps cemented confidence that extraordinary efforts would be made to deal
with the current problems. This improving confidence has also been seen in bond
markets. However, the situation remains fragile and in the short-term there may
be more volatility.

I am confident, however, that this crisis and panic will pass in time. This is
not the first that there has been, it will not be the last and they have always
passed, despite the confident predictions of deeper doom at the time. That this
event was centred on the US provides some comfort as this is a resilient,
dynamic economy, underpinned by a growing population and an unrivalled ability
to recognise a problem, deal with it and move on to the next money-making

However, I am not positioning the portfolio to depend on a rapid recovery. What
I am doing is remaining disciplined and focused on taking the right decisions
for the long-term prospects of the Company. Often this means being willing to
take short-term pain where the stockmarket has over reacted and share prices
are not reflecting the longer-term potential of sound companies.

The portfolio will continue to be managed as in previous years with a sensible
level of diversification, providing broad exposure to the UK stock market.
Individual investments will be chosen because the share price is attractively
valued in relation to that company's future prospects. The overall portfolio is
expected to yield more than the benchmark index, and will seek to provide good
dividend growth. Generally, portfolio activity is likely to remain low, thereby
minimising transaction costs and enabling me to focus on investments with a
sound long-term outlook. Whilst performance has been disappointing over the
last 12 months, the long term record remains sound. I firmly believe that
successful long-term investment management requires consistent and disciplined
application of the investment approach. I therefore remain optimistic about the
longer term potential of the companies whose shares are held in the portfolio,
and maintain confidence in the Company's long-term performance prospects.

Ciaran Mallon

Investment Manager

3 June 2008

Investments in Order of Valuation

at 31 March 2008

Ordinary shares unless stated otherwise

Company                   Activity by sector                 Value         % of
                                                             £'000    Portfolio
Vodafone                  Mobile Telecommunications          7,492          5.5
BP                        Oil & Gas                          7,029          5.2
Imperial Tobacco          Tobacco                            6,834          5.0
British American Tobacco  Tobacco                            6,196          4.5
GlaxoSmithKline           Pharmaceuticals &                  5,803          4.3
Royal Dutch Shell         Oil & Gas                          5,512          4.0
HSBC                      Banks                              4,777          3.5
National Grid             Gas, Water & Multiutilities        4,646          3.4
Royal Bank of Scotland    Banks                              4,424          3.2
BT                        Fixed Line Telecommunications      4,190          3.1
Top Ten Holdings                                            56,903         41.7
Tesco                     Food & Drug Retailers              4,184          3.1
AstraZeneca               Pharmaceuticals &                  3,967          2.9
Scottish & Southern       Electricity                        3,865          2.8
Land Securities           Real Estate                        3,181          2.3
Barclays                  Banks                              3,176          2.3
Young & Co Brewery        Travel & Leisure                   2,640          1.9
HBOS                      Banks                              2,609          1.9
Rexam                     General Industrials                2,463          1.8
G4S                       Support Services                   2,401          1.8
Bunzl                     Support Services                   2,361          1.7
Top Twenty Holdings                                         87,750         64.2
AMEC                      Oil & Gas                          2,311          1.7
Aviva                     Life Insurance                     2,285          1.7
Prudential                Life Insurance                     2,140          1.6
Anglo American            Mining                             2,099          1.5
United Utilities          Gas, Water & Multiutilities        2,093          1.5
GKN                       Automobiles & Parts                2,077          1.5
Whitbread                 Travel & Leisure                   2,028          1.5
MITIE                     Support Services                   1,999          1.5
Pennon                    Gas, Water & Multiutilities        1,927          1.4
Capita                    Support Services                   1,912          1.4
Top Thirty Holdings                                        108,621         79.5
Legal & General           Life Insurance                     1,877          1.4
Centrica                  Gas, Water & Multiutilities        1,776          1.3
Intercontinental Hotels   Travel & Leisure                   1,768          1.3
Informa                   Media                              1,746          1.3
Reed Elsevier             Media                              1,642          1.2
Balfour Beatty            Construction & Materials           1,634          1.2
Filtrona                  Support Services                   1,590          1.2
BAE Systems               Aerospace & Defence                1,589          1.2
Severn Trent              Gas, Water & Multiutilities        1,499          1.1
William Hill              Travel & Leisure                   1,420          1.0
Top Forty Holdings                                         125,162         91.7
Euromoney                 Media                              1,293          1.0
ITV                       Media                              1,252          0.9
HMV                       General Retailers                  1,250          0.9
Wolseley                  Support Services                   1,150          0.8
United Business Media     Media                              1,071          0.8
Brewin Dolphin            General Financial                  1,038          0.7
Just Retirement           Life Insurance                       963          0.7
Yell                      Media                                936          0.7
Nichols                   Beverages                            917          0.7
Rensburg Sheppards        General Financial                    849          0.6
Top Fifty Holdings                                         135,881         99.5
Croda International       Chemicals                            665          0.5
Total Value of                                             136,546        100.0

Related PartyTransactions

Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Ltd, acts as Manager, Company Secretary and Administrator to the Company.
Details of IAMLs services and fees are given in the Annual Financial Report for
the year ended 31 March 2008. There are no other related party transactions.

Principal Risks & Uncertainties

The principal risks and uncertainties that could affect the Company's business
can be divided into various areas:

  * Investment Objective and Policy;
  * Ordinary Shares;
  * Gearing;
  * Market Movements and Portfolio Performance; and
  * Regulatory
A detailed explanation of these principal risks and uncertainties can be found
in the Annual Financial Report for the year ended 31 March 2008.

Directors' Responsibility Statement

in respect of the preparation of the Annual Financial Report

Directors are responsible for preparing the Annual Financial Report in
accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice. The financial statements are required by law to give a true and fair
view of the state of affairs of the Company and of the profit or loss of the
Company for that period.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;

• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.

The Directors, to the best of their knowledge, state that:

• the financial statements, prepared in accordance with United Kingdom
Generally Accepted Accounting Practice, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company; and

• the Report of the Directors includes a fair review of the development and
performance of the business and the position of the Company together with a
description of the principal risks and uncertainties that it faces.

The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
company and enable them to ensure that the financial statements comply with the
Companies Act 1985 (as updated by the Companies Act 2006). They are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other

Signed on behalf of the Board of Directors

John McLachlan


3 June 2008

Income Statement

for the year ended 31 March

                                         2008                     2007        
                             Revenue  Capital    Total Revenue Capital   Total
                             £'000      £'000    £'000   £'000   £'000   £'000
(Losses)/gains on                  - (28,770) (28,770)       -  21,412  21,412
at fair value through                                                         
profit or loss                                                                
Income                         6,128        -    6,128   5,789     312   6,101
Investment                     (575)    (575)  (1,150)   (604)   (604) (1,208)
management fee                                                                
Other expenses                 (286)      (2)    (288)   (237)     (4)   (241)
Net return before finance                                                     
costs and taxation             5,267 (29,347) (24,080)   4,948  21,116  26,064
Finance costs                  (412)    (412)    (824)   (350)   (350)   (700)
Return on ordinary             4,855 (29,759) (24,904)   4,598  20,766  25,364
activities before and                                                         
after tax                                                                     
Return per ordinary share                                                     
 - basic                        8.3p  (50.6)p  (42.3)p    8.1p   36.9p   45.0p

The total column of this statement represents the Company's profit and loss
account. The supplementary revenue and capital columns are presented for
information purposes as recommended by the guidance note issued by the
Association of Investment Companies. All items in the above statement derive
from continuing operations and the Company has no other gains or losses and
therefore no statement of total recognised gains or losses is presented. No
operations were acquired or discontinued in the year.

Reconciliation of Movements in Shareholders' Funds

for the year ended 31 March

                  Share    Equity   Share    Capital  Special  Capital    Capital Revenue    Total
                Capital Component Premium Redemption  Reserve Reserve-    Reserve Reserve         
                          of CULS            Reserve          Realised Unrealised                 
                  £'000     £'000   £'000      £'000    £'000    £'000      £'000   £'000    £'000
For the year                                                                                      
31 March 2007                                                                                     
At 1 April 2006  13,984     1,102  23,200         50   18,773   28,825     43,673   5,834  135,441
Return for the                                                                                    
from income                                                                                       
statement             -         -       -          -        -    8,315     12,451   4,598   25,364
Equity                -         -       -          -        -        -          - (5,497)  (5,497)
Share buy backs (1,484)         -       -      1,484 (15,863)        -          -       - (15,863)
Treasury shares                                                                                   
cancelled         (373)         -       -        373        -        -          -       -        -
Conversion of     2,914   (1,102)  16,821          -        -        -          -       -   18,633
For the year                                                                                      
31 March 2008                                                                                     
At 31 March      15,041         -  40,021      1,907    2,910   37,140     56,124   4,935  158,078
Return for the                                                                                    
from income                                                                                       
statement             -         -       -          -        -    7,277   (37,036)   4,855 (24,904)
Equity                -         -       -          -        -        -          - (4,691)  (4,691)
Share buy backs   (403)         -       -        403  (2,910)  (1,021)          -       -  (3,931)
At 31 March      14,638         -  40,021      2,310        -   43,396     19,088   5,099  124,552

Balance Sheet

as at 31 March

                                                2008             2007
                                               £'000            £'000
Fixed assets                                                         
Investments at fair value                    136,546          168,839
Current assets                                                       
Debtors                                        1,307            1,182
Cash at bank                                       -                -
                                               1,307            1,182
Creditors: amounts falling due within       (13,301)         (11,943)
one year                                                             
Net current liabilities                     (11,994)         (10,761)
Total assets less current liabilities        124,552          158,078
Capital and reserves                                                 
Called up share capital                       14,638           15,041
Share premium account                         40,021           40,021
Other capital reserves:                                              
Capital redemption reserve                     2,310            1,907
Special reserve                                    -            2,910
Capital reserve - realised                    43,396           37,140
Capital reserve - unrealised                  19,088           56,124
Revenue reserve                                5,099            4,935
Shareholders' funds                          124,552          158,078
Net asset value per ordinary share                                   
Basic                                         212.7p           262.8p

Cash Flow Statement

For the year ended 31 March

                                                2008             2007
                                               £'000            £'000
Cash flow from operating activities            4,507            4,773
Servicing of finance                           (843)            (593)
Net financial investment                       3,523            4,967
Equity dividends paid                        (4,691)          (5,497)
Cash inflow before management of               2,496            3,650
liquid resources and financing                                       
Financing                                    (3,931)         (15,863)
Decrease in cash                             (1,435)         (12,213)
Reconciliation of cash flow to                                       
movement in net debt                                                 
Decrease in cash                             (1,435)         (12,213)
Non-cash movement on CULS                          -           18,544
Change in net debt in the year               (1,435)            6,331
Net debt at beginning of year               (11,727)         (18,058)
Net debt at end of year                     (13,162)         (11,727)


1. Accounting policies

A summary of the principal accounting policies, all of which have been applied
consistently throughout the year and the previous year, is set out in the
Annual Financial Report for the year ended 31 March 2008.

(a) Basis of accounting

The financial statements have been prepared under the historical cost
convention except for the measurement at fair value of investments and in
accordance with applicable UK Accounting Standards and with the Statement of
Recommended Practice (SORP) for "Financial Statements of Investment Trust
Companies" issued in 2005 by the Association of Investment Companies, on the
assumption that approval as an Investment Trust will continue to be granted.

2. Income

                                               2008      2007
                                              £'000     £'000
Income from listed investments                               
UK dividends                                  6,126     5,752
Deposit interest                                  2        37
Total income                                  6,128     5,789

3. Investment management fee

               Revenue        2008 Total   Revenue     2007 Total  
                        Capital                     Capital        
                  £'000      £'000   £'000    £'000   £'000   £'000
Investment          527        527   1,054      514     514   1,028
management fee                                                     
VAT thereon          48         48      96       90      90     180
                    575        575   1,150      604     604   1,208

The Company's Manager is Invesco Asset Management Limited (`IAML'). The
contract between the Company and IAML may be terminated on three months notice
and immediately in certain other circumstances. The investment management fee
is calculated and payable monthly in arrears based on the value of the funds
under management before deducting borrowings, of 0.7% up to £100 million, 0.6%
on the next £50 million, 0.55% on the next £50 million and if in excess of £200
million the fee will be reviewed. This fee is allocated 50% to capital and 50%
to revenue in accordance with the Board's expected long-term split of returns,
in the form of capital gains and income respectively, from the investment
portfolio of the Company. At 31 March 2008 £77,000 (2007: £101,000) was owed in
respect of management fees.

With effect from November 2007 no VAT has been payable on management fees
following the ruling of the European Court of Justice that investment trust
management fees are exempt VAT.

4. Return per ordinary share

                       Revenue         2008 Total    Revenue       2007 Total  
                                  Capital                      Capital         
Basic                        8.3p   (50.6)p  (42.3)p      8.1p    36.9p   45.0p

Basic, capital and total return per ordinary share is based on each return on
ordinary shares after tax and on 58,866,586 (2007: 56,324,873) ordinary shares,
being the weighted average number of shares in issue during the year.

5 Dividends on ordinary shares

                                               2008                2007        
                                            Pence     £'000     Pence     £'000
Amounts recognised as distributions and                                        
paid to                                                                        
shareholders in the year:                                                      
Final paid in respect of previous year       2.75     1,617      3.95     2,170
Special paid in respect of previous             -         -      0.90       494
First interim paid                           1.75     1,025      1.50       818
Second interim paid                          1.75     1,025      1.75       955
Third interim paid                           1.75     1,024      1.75     1,060
                                             8.00     4,691      9.85     5,497

We set out below the total dividend payable in respect of the financial year
which is the basis on which the requirements of Section 842 Income and
Corporation Taxes Act 1988 are considered.

                                               2008                2007        
                                            Pence     £'000     Pence     £'000
First interim paid                           1.75     1,025      1.50       818
Second interim paid                          1.75     1,025      1.75       955
Third interim paid                           1.75     1,024      1.75     1,060
Proposed final                               3.00     1,757      2.75     1,650
                                             8.25     4,831      7.75     4,483

Proposed dividends payable at the balance sheet date are not included as a
liability in that year's financial statements.

6. Share Capital

                                           2008                   2007         
                                         Number    £'000        Number    £'000
Ordinary shares of 25p each         120,000,000   30,000   120,000,000   30,000
Allotted, called-up and fully                                                  
Ordinary shares of 25p each          58,551,530   14,638    60,162,036   15,041

During the year the Company bought back the following ordinary shares:

                                                 Number               £'000
As at 1 April 2007                           60,162,036              15,041
Shares bought back and cancelled            (1,610,506)               (403)
At 31 March 2008                             58,551,530              14,638

No shares were held in treasury at the year end (2007: Nil).

7 Net asset value per ordinary share

The net asset value per ordinary share and the net asset values attributable at
the year end were as follows:-

                  Net Asset          Net Assets  Net Asset Value     Net Assets
                                   Attributable        Per Share   Attributable
                       Per Share                                               
                                           2008             2007           2007
                                 £'000          p                         £'000
Ordinary shares                                                                
- Basic                    212.7        124,552            262.8        158,078

Net asset value per ordinary share is based on net assets at the year end and
on 58,551,530 (2007: 60,162,036) ordinary shares, being the number of ordinary
shares in issue at the year end.
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 March 2008 or the year ended 31 March
2007. The financial information for 2007 is derived from the statutory accounts
for 2007, which have been delivered to the Registrar of Companies. The auditors
have reported on the 2007 accounts; their report was unqualified, did not
include a reference to any matters to which the auditors drew attention by way
of emphasis without qualifying the report and did not contain a statement under
section 237 (2) or (3) of the Companies Act 1985. The statutory accounts for
the year ended 31 March 2008 have not yet been delivered to the Registrar of
Companies, nor have the auditors yet reported on them. The statutory accounts
for the year ended 31 March 2008 will be finalised on the basis of the
information presented by the directors in this preliminary announcement and
will be delivered to the Registrar of Companies following the Company's Annual
General Meeting.

The audited Annual Financial Report will be available to shareholders shortly.
Copies may be obtained during normal business hours from the Company's
Registered Office, 30 Finsbury Square, London, EC2A 1AG or the Company's
website at

The Annual General Meeting will be held on 8 July 2008 at 12 noon at 30
Finsbury Square, London, EC2A 1AG.

By order of the Board

Invesco Asset Management Limited

3 June 2008


Mr Tim Mitchell

Tel - 020 7065 3182

Mr Andrew Watkins

Tel - 020 7065 4023

Miss Karina Bryant

Tel - 020 7065 3644


a d v e r t i s e m e n t