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Perpetual Inc&Growth (PLI)

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Thursday 01 June, 2017

Perpetual Inc&Growth

Annual Financial Report

PERPETUAL INCOME AND GROWTH INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT
FOR THE YEAR ENDED 31 MARCH 2017

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FINANCIAL INFORMATION AND PERFORMANCE STATISTICS

Total return(1) (all income reinvested)

1 YEAR 3 YEARS 5 YEARS 10 YEARS
Net asset value(1) (NAV) – debt at market value 9.6% 21.4% 87.1% 122.2%
Share price 4.2% 11.4% 68.7% 120.7%
FTSE All-Share Index(2) 22.0% 24.9% 58.7% 73.7%

Source: Thomson Reuters Datastream.

YEAR ENDED
31 MARCH
2017
YEAR ENDED
31 MARCH
2016
Shareholders’ funds
Net assets (£’000) 1,012,965 960,350
NAV(1) per ordinary share – debt at market value 416.2p 395.6p
Share price and discount
Share price 375.8p 375.6p
Discount(1) to NAV – debt at market value 9.7% 5.1%
Gearing(1)
Gross gearing 15.5% 16.0%
Net gearing 15.5% 16.0%
Return per ordinary share
Revenue 14.65p 15.12p
Capital 22.43p (14.24p)
Total 37.08p 0.88p
Dividend per ordinary share
First interim 3.00p 2.90p
Second interim 3.00p 2.90p
Third interim 3.00p 2.90p
Fourth interim 4.35p 4.10p
Total interim dividends 13.35p 12.80p
Increase in total interim dividends 4.3% +4.1%
Special dividend 0.70p 2.10p
Total including special 14.05p 14.90p
Decrease/increase in dividend (including special) –5.7% +4.9%
Ongoing charges(1)
  Excluding performance fee 0.65% 0.64%
  Performance fee only 0.42%

Note:    (1) Defined in the Glossary of Terms on page 63.

            (2) The benchmark index of the Company.

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CHAIRMAN’S STATEMENT

Performance

For the year ended 31 March 2017, the Company’s net asset value total return was 9.6%. Although this is satisfying in absolute terms, it is less so when compared with the 22.0% return posted by the FTSE All-Share Index, the Company’s benchmark. Also, the discount of the share price to the underlying net asset value widened during the year, from 5.1% to 9.7%, reducing the share price total return to 4.2%.

The longer term performance continues to be strong with five and ten year total returns on net assets of 87.1% and 122.2%, respectively, compared with 58.7% and 73.7% for the benchmark.

The shortfall in the relative return for the year derived mainly from a combination of holding few resources stocks, which performed strongly in the first half of the year, the downgrading by the market of domestically focused companies following the Brexit vote and certain stock specific issues amongst portfolio holdings. Your portfolio manager, Mark Barnett, provides further detail on the performance of the portfolio during the year and sets out his strategy and outlook for the coming year in his report on pages 7 to 8.

Your Board continues to support Mark’s long term conviction approach, which has stood the Company in good stead over the years. This approach means the portfolio is not closely aligned to the benchmark and can result in short term under-performance, as well as the more familiar over-performance, relative to the index from time to time.

Discount

During the period under review, the Board has been well aware of the Company's discount level and that it has widened beyond its usual narrow range. I have discussed this issue with my fellow Directors and the Company's corporate broker. We believed the discount to be largely a result of the Company's relative performance against the wider market over the last year rather than anything fundamental and, therefore, the Board decided against buying back any shares. We remain of the same belief that performance will drive demand for the shares and narrow the discount in due time. Meanwhile, we continue to monitor its level closely.

Dividend

For the year ended 31 March 2017, three interim dividends of 3p each were paid to shareholders in September and December 2016, and March 2017. The Board has declared a fourth interim dividend of 4.35p per share for the year, to be paid on 30 June 2017 to shareholders on the register on 9 June 2017. This gives a total dividend (excluding specials) for the year of 13.35p per share, representing an increase of 4.3% on the previous year and extends again the Company’s record of year-on-year ordinary dividend increases since 1999.

Continuing the policy of recent years to pass on to shareholders special dividends received the Board has also declared a special dividend of 0.7p per share, also to be paid on 30 June 2017 to shareholders on the register on 9 June 2017. This is less than last year and reflects the lower level of special dividends received – special dividends are, by their nature, non-recurring and this fall is not unexpected. It is also why we choose to pass on these dividends separately from the ordinary dividend payments.

Borrowing and Gearing

The Board’s policy is to permit gearing up to a maximum of 25% of total net assets and the Board allows the portfolio manager some discretion up to that level. Borrowings are provided by £60 million of 4.37% senior secured notes redeemable in 2029 and a bank overdraft facility of £140 million. The Board believes that these arrangements provide the portfolio manager with a good balance of fixed and flexible borrowing capacity. The gearing level ranged between 14.0% and 19.4% during the year and ended the year at 15.5% (2016:16.0%).

Management Arrangements

I am pleased to report that, being mindful of the need for the Company to be competitive in the wider marketplace and responsive to that market and to shareholders, your Board has negotiated the removal of the performance related fee and an adjustment to the calculation of the base management fee. From 1 April 2017 the Manager will no longer be entitled to a performance related fee and the management fee, which continues to be based on funds under management, will be 0.15% per quarter up to £900 million, previously £500 million, and 0.10% per quarter above that level. Mark Barnett continues to be the Company’s portfolio manager and we are confident that the changes to the management fee arrangements, allied to the stock picking skills exhibited by Mark since 1999, should help to ensure that the Company remains an attractive investment in the future.

The Board

Having served as your Chairman for the last ten years, the time is right for me to step down from the Board at the conclusion of our Annual General Meeting. I am delighted that Richard Laing has agreed to succeed me as Chairman of the Board and the Management Engagement Committee. Richard has excelled in his role as Chairman of the Audit Committee, and Victoria Cochrane, who joined the Board in 2015, has agreed to succeed him as the new Chairman of the Audit Committee.

The Board has a formal succession plan in place and regularly reviews its composition to ensure there continues to be an appropriate balance of skills, knowledge, experience, diversity and independence. The Miles Partnership have been engaged to find a new non-executive director following my departure.

I would like to thank Mark Barnett and the team at Invesco Perpetual for achieving excellent performance on your behalf during my time as Chairman of your Board, and long may it continue.

Annual General Meeting (AGM)

Shareholders’ attention is drawn to the special business in the Notice of AGM which includes the annual renewal of powers to issue and buy back shares as well as allow application of the minimum notice required for general meetings (other than the annual general meeting) by the Companies Act 2006. An additional ordinary resolution has also been added this year to provide shareholders with an opportunity to vote on the Company’s dividend policy. This is in response to concerns raised by certain voting agencies that the dividend timetable precludes a vote on a final dividend. Further information on all resolutions can be found in the Directors’ Report on pages 29 and 30.

The Directors have carefully considered all the resolutions proposed in the Notice of the AGM (as set out on pages 57 to 60) and, in their opinion, consider them all to be in the interests of shareholders as a whole. The Directors therefore recommend that shareholders vote in favour of each resolution.

In response to requests from shareholders last year, this year the Company’s AGM will be held at Invesco Perpetual’s West End office, 1st Floor, 43-45 Portman Square, London W1H 6LY at 11.00am on 11 July 2017. I hope this will allow more shareholders to attend. The Directors and the portfolio manager, Mark Barnett, will be available at the meeting to answer shareholders’ questions.

Bill Alexander
Chairman
31 May 2017

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STRATEGIC REPORT
FOR THE YEAR ENDED 31 MARCH 2017

PORTFOLIO MANAGER’S REPORT

Market Review

The UK stock market rose strongly over the Company’s financial year to 31 March 2017. This was driven initially by rising commodity prices and a continued absence of inflationary pressures globally and then, following the EU referendum, by the sharp fall in the value of sterling. August 2016 also marked a low point in 10 year government bond yields, as investors’ conviction that the US Federal Reserve was intent on tightening monetary policy increased in light of the persistence of positive US economic momentum and job creation. The UK equity market rose in response to this economic outlook, a trend which accelerated following the election of Donald Trump as US President. The Brexit vote and the consequent rise in the US dollar against sterling brought a significant divergence in sector performance with a rotation towards industries perceived as benefiting from a stronger global economic outlook.

Portfolio Review

The Company’s net asset value, including reinvested dividends, delivered a return of 9.6% over the year under review, compared with one of 22.0% (total return) by the FTSE All-Share Index, the Company’s benchmark index.

The Company’s performance was held back by not holding any mining sector stocks, HSBC or Royal Dutch Shell, which all performed particularly strongly. The absence of mining stocks benefited the portfolio’s performance over the previous two years, but the recovery across the sector in the past year meant that the portfolio missed out on one of the major positive trends of the past twelve months. Control of supply has improved following the shock of the 2011-2015 downturn, but demand growth in China remains under pressure and the sector, to my mind, now looks vulnerable to a fall in the prices of certain key commodities.

The holdings in the tobacco sector again delivered a strongly positive contribution to performance – despite a lack of enthusiasm for “bond proxies” (companies offering low stable growth, steady dividends and low volatility) that prevailed for much of the period. The sector was boosted by corporate transaction activity, with a proposed merger of two of the portfolio’s largest holdings. Reynolds American accepted a cash and shares offer from British American Tobacco, creating a combined entity which is well positioned to exploit next generation products, particularly the US e-cigarette market. The deal is expected to be concluded in the third quarter of 2017.

AstraZeneca also performed strongly over the period, boosted by its US dollar exposure. Its chief executive Pascal Soriot characterised 2017 as a potential “inflection point” for the company’s return to long-term growth, with the upcoming launch of several “life-changing” medicines for cancer, respiratory and metabolic diseases built on the “solid foundations of a science-led pipeline”. The European pharmaceutical sector as a whole did not perform well in 2016, as the market focused increasingly on the risks associated with new product trials, the overall pricing environment in the US and the challenge of replacing mature drug portfolios. My view on the long term outlook has not changed; the de-rating of the sector suggests that major companies which succeed in bringing genuinely innovative drugs to market could see a meaningful boost to their prices and the performance of the portfolio’s holdings in the sector.

Other significant positive contributions to portfolio performance came from the holdings in BP, Compass, G4S, Homeserve, RELX and Rentokil Initial.

The portfolio’s holdings in companies particularly exposed to the fall in sterling and perceived challenges to the UK economy performed poorly in the aftermath of the referendum. The stock market was also inclined to de-rate companies which warned of lower profits. Notable amongst these was the holding in Capita, which fell sharply in value as it downgraded full-year earnings forecasts, blaming a range of issues including delayed client decision-making since the EU referendum. The company later confirmed the departure of its chief executive and expects 2017 to be a “transitional year” for the business, as it completes a number of disposals, embeds internal structural changes, and re-positions for a return to growth in 2018. The projected disposal of Capita Asset Services should reduce balance sheet concerns and allow the business to focus on its fundamentally strong outsourcing business.

The holdings in the travel sector, easyJet and Thomas Cook, warned of the negative impact of weaker sterling and were additionally impacted over the period by concerns over terrorist activity and by air traffic control strikes. The share prices of both companies rallied in the first quarter of 2017, as they confirmed more positive trading updates than had been feared by the market and on the back of some renewed sterling strength.

BT detracted from performance. Its shares suffered a sharp sell-off after an update on accounting irregularities in its Italian division, further exacerbated by a profit warning from the company that highlighted a more challenged outlook for UK public services contracts. Further, issues with Ofcom over its Openreach subsidiary and concerns over its pension fund deficit have distracted investors from the company’s strengths – notably the growth potential of its mobile business following the acquisition of EE and its consistent cash flow.

The portfolio’s new holding in Next also did not perform well, following a disappointing Christmas trading update. However, towards the end of the period, its share price rose as it narrowed its profit guidance range for 2017 – underlining the recovery potential in the shares following their de-rating of the past year.

As reported at the half-year, the share price of Circassia fell sharply on news that its cat allergy drug had failed to meet the primary end point of phase 3 trials. While this was very disappointing and surprising news – the drug had performed well in phase 2 trials – it is noteworthy that Circassia retains significant cash on its balance sheet and that, over the past year, the company has also made significant diversification into respiratory drugs, devices and technologies. Confirming this, Circassia saw its share price rise in March as it confirmed a new strategic collaboration with AstraZeneca in combating respiratory disease.

Other domestically focused holdings to deliver negative share price performance included Derwent London, N. Brown, Game Digital, Secure Trust Bank and TalkTalk Telecom.

In terms of portfolio activity during the year, new investments were made in Aviva, Hadrians Wall, Next and Secure Trust Bank. The holdings in Reckitt Benckiser and Smith & Nephew were sold.

Outlook

The steady rise in the UK stock market over the last twelve months has created an environment where the valuation and, in consequence, the index level are vulnerable to disappointment; there is a sense of complacency in several areas. The main driver of improved earnings growth has been a combination of a recovery in commodity prices and a collapse in sterling – in the absence of a continuation in these trends the underlying earnings growth of the market remains lacklustre. It is plausible to envisage an environment which is more positive towards sterling, given the pessimism the market has priced in over the last 12 months, and that factor alone may be sufficient to restrain further gains, particularly in the FTSE 100 index. In addition, the change in the US interest rate environment may act as a headwind for the time being, although given the continued low inflation outlook it is unlikely that the US Federal Reserve will raise rates in big steps or more than four times this year.

The overall political backdrop remains the other major influence on equity markets. There are elections in many major economies, including the UK again, accompanied by a heightened threat from geopolitics which may yet prove disruptive for business confidence. For the foreseeable future it appears likely that the economic backdrop will remain more predictable than the political one.

In conclusion, it is expected that the stock market may struggle to make significant overall progress. The portfolio is well positioned, invested in a diversified range of companies which have the scope to increase in value, driven either by sustainable dividend growth or from companies that can improve or transform their financial prospects regardless of the wider economic environment. In addition, a number of holdings that have temporarily fallen out of favour have significant recovery potential.

Mark Barnett
Portfolio Manager
31 May 2017

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BUSINESS REVIEW

Perpetual Income and Growth Investment Trust plc is an investment company and its investment objective is set out below. The strategy the Board follows to achieve that objective is to set investment policy and risk guidelines, together with investment limits, and to monitor how they are applied. These are also set out below and have been approved by shareholders.

The business model the Company has adopted to achieve its investment objective has been to contract investment management and administration to appropriate external service providers, which are overseen by the Board. The principal service provider is Invesco Fund Managers Limited (the ‘Manager’). Invesco Asset Management Limited, an associate company of the Manager, manages the Company’s investments and acts as Company Secretary under delegated authority from the Manager.

The Manager provides company secretarial, marketing and general administration services including accounting and manages the portfolio in accordance with the Board’s strategy. Mark Barnett is the portfolio manager responsible for the day-to-day management of the portfolio. His associate Martin Walker was appointed as his deputy for this portfolio in November 2016.

The Company also has contractual arrangements with third parties to act as registrar, corporate broker and depositary. The depositary is BNY Mellon Trust & Depositary (UK) Limited. The depositary has delegated safekeeping of the Company’s investments to The Bank of New York Mellon (London Branch).

Investment Objective

The Company’s investment objective is to provide shareholders with capital growth and real growth in dividends over the medium to longer term from a portfolio of securities listed mainly in the UK equity market.

Investment Policy

The Company invests mainly in UK equities and equity-related securities of UK-listed companies. The Manager seeks to identify and invest mainly in companies that offer a combination of good capital growth prospects with the ability to increase dividends over time. Market exposure may also be gained through the limited use of derivatives, the purpose of which would be to achieve changes to the portfolio’s economic exposure. However, the Company will not enter into derivative transactions for speculative purposes.

The Manager manages the portfolio to reflect its convictions and best ideas. The Manager does not set out to manage the risk characteristics of the portfolio relative to the FTSE All-Share Index (‘benchmark index’) and the investment process may result in potentially very significant over or underweight positions in individual sectors versus the benchmark index. If a security is not considered to be a good investment, then the Company will not own it, irrespective of its weight in the benchmark index.

The Manager controls the stock-specific risk of individual securities by ensuring that the portfolio is always appropriately diversified. In-depth and continual analysis of the fundamentals of investee companies allows the Manager to assess the financial risks associated with any particular security.

The Directors believe that the use of borrowings can enhance returns to shareholders and the Company will use borrowings in pursuing its investment objective.

The Company may hedge exposure to changes in foreign currency rates in respect of its overseas investments, at the Manager’s discretion.

Investment Limits

The Board has prescribed investment limits forming part of the Investment Policy, the most significant of which follow:

–          not more than 12% of gross assets in any single investment;

–          not more than 15% of gross assets in other listed investment companies;

–          not more than 20% of gross assets in non-UK listed securities;

–          not more than 10% of gross assets in fixed interest securities;

–          derivatives (including warrants) may be used for investment purposes to increase the Company’s market exposure by up to 5% of gross assets. Derivatives may also be used to hedge the portfolio’s market exposure; and

–          borrowings may be used to raise exposure to securities up to a maximum of 25% of net assets where it is considered appropriate.Each limit is measured at the time of investment or borrowing.

Each limit is measured at the time of investment or borrowing.

Borrowing

Borrowing policy is under the control of the Board. The maximum limit is 25% of total net assets (measured at the time new borrowings are incurred) for investment in companies where there are stock-specific opportunities. The use of borrowing is not an expression of confidence in the performance of the overall UK stock market, but rather an endorsement of the potential for selected securities. In this respect both the Board and the Manager are content that the flexibility which the overdraft facility provides offers the most appropriate means of gearing, supplementing the longer-term borrowings of the Company.

In addition to the overdraft facility, the Company has in issue £60 million par value of fixed rate 15 year senior secured notes (Notes) with an interest rate of 4.37%. Further detail on the Notes is contained in note 12 on page 49.

Performance

The Board reviews performance by reference to Key Performance Indicators (KPIs). The five main KPIs are as follows:

Asset Performance

On a total return basis, the Company’s one, three, five and ten year record for its NAV and share price compared to the benchmark index is shown on page 2. For the year to 31 March 2017, the Company’s NAV underperformed the benchmark index by 12.4%.

In reviewing the performance of the assets of the Company, the Board monitors the NAV performance in relation to the FTSE All-Share Index. However, the Manager’s aim is to achieve absolute return through a genuinely active investment management approach. It is not the investment management team’s philosophy to regard the FTSE All-Share Index as a benchmark for portfolio construction for the Company. This approach can therefore result in a portfolio that is from time to time substantially different from the FTSE All-Share Index but has historically achieved significant outperformance of that index.

Peer Group Performance

There were 22 investment trusts in the UK Equity Income sector at 31 March 2017. This sector, however, is quite diverse in its investment policies and structures. The Board monitors the performance of the Company in relation to both this sector as a whole and to those companies within it which the Board consider to be its peer group.

As at 31 March 2017, of those companies ranked within the UK Equity Income sector, the Company was ranked 20th over one year, 16th over three and 6th over five years by NAV performance (source: JP Morgan Cazenove).

Dividends and Dividend Policy

The Company’s dividend policy is that the Directors shall seek to provide ordinary shareholders with real growth in dividends over the medium to longer term. In so doing the Directors aim to distribute, by way of dividend, substantially all of the Company’s net income after expenses and taxation whilst also retaining a prudent level of reserves. Dividends are paid on a regular quarterly basis in September, December, March and June in respect of each accounting year. The timing of these regular quarterly payments means that shareholders do not have an opportunity to vote on a final dividend. Recognising the importance of shareholder engagement, and although not required by any regulation, shareholders are being given an opportunity to vote on this policy at the forthcoming AGM.

The Board has declared ordinary dividends of 13.35p per share in respect of the year under review, compared with 12.8p per share in respect of the prior year, an increase of 4.3%. A special dividend of 0.7p per share has also been declared (2016: 2.1p). The Retail Price Index increased 3.1% in the year. The individual dividends declared for the year are shown below, on page 2 and in note 8 to the financial statements.

The Manager aims to maximise total return from the portfolio. The Manager believes in strong earnings growth and in the importance of dividends to total return. However, whilst income is a prime objective, dividend yields do not constrain investment decisions.

Premium/Discount

The Board monitors the premium/discount at which the Company’s ordinary shares trade and how this compares to other investment trusts in the peer group. During the year the shares traded in the discount range of 2.1% to 10.2% and ended the year at a 9.7% discount. This is shown in the adjacent graph which plots the discount over the year. As at 31 March 2017, the average discount of the 22 investment trusts in the UK Equity Income sector was 4.8% (2016: 4.5% (source: JPMorgan Cazenove).

The Board and the Manager closely monitor movements in the Company’s share price and dealings in the Company’s shares. In order to address any significant overhang or shortage of ordinary shares in the market the Board asks shareholders to approve resolutions each year which allow for the repurchase of ordinary shares (for cancellation or to be held as treasury shares) and also their issuance. This may assist in the management of any discount. No shares were issued or bought back in the past year.

The Company has not previously held any shares in treasury. However, should the Board consider it to be in shareholders’ interests to do so, then it is the Board’s policy to sell shares held as treasury shares on terms that are in the best interests of shareholders as a whole.

Ongoing Charges

The expenses of managing the Company are reviewed by the Board at every meeting. The Board aims to minimise the ongoing charges figure which provides a guide to the effect on performance of all annual operating costs of the Company. The ongoing charges figure for the year was 0.65% (2016: 0.64%) based on management fees (excluding the performance fee which is described on pages 26 and 27) and other expenses of £6,267,000 (2016: £6,305,000).

Results and Dividends

On 31 March 2017, the share price and the net asset value (debt at market value) per ordinary share were 375.8p and 416.2p respectively. The respective comparable figures at 31 March 2016 were 375.6p and 395.6p.

For the year ended 31 March 2017, three interim dividends of 3p each per share were paid on 30 September 2016, 28 December 2016 and 31 March 2017 respectively. A fourth interim dividend of 4.35p per share has been declared for payment on 30 June 2017 to shareholders on the register on 9 June, giving total interim dividends for the year of 13.35p (2016: 12.8p). As discussed in the Chairman’s Statement, a special dividend of 0.7p per share has also been declared and will be paid at the same time as the fourth interim dividend. The aggregate dividend paid for the year is 14.05p (2016: 14.9p).

Financial Position and Borrowings

The Company’s balance sheet on page 41 shows the assets and liabilities at the year end. Details of the £60 million senior secured notes are shown in note 12, and details of the Company’s overdraft facility are shown in note 11.

Outlook, including the Future of the Company

The main trends and factors likely to affect the future development, performance and position of the Company’s business can be found in the Portfolio Manager’s Report in this Strategic Report. Further details of the principal risks affecting the Company are set out under ‘Principal Risks and Uncertainties’ below.

Principal Risks and Uncertainties

The Board carries out a regular review of the risk environment in which the Company operates and has carried out a robust assessment of the principal risks facing the Company. The following sets out a description of those risks and how they are being managed or mitigated.

Economic Risk

Economic risk arises from uncertainty about the future prices of the Company’s investments. The majority of the Company’s investments are listed on regulated stock exchanges and will be subject to market fluctuations, both upward and downward, arising from external factors including general economic conditions and government policies. Such factors are outside the control of the Board and the Manager and may give rise to high levels of volatility in the prices of the investments held.

Investment Risk

There can be no guarantee that the Company will meet its investment objective and therefore there is also a risk of underperformance against the Company’s benchmark index. The Manager provides the Board with management information, including performance data, and shareholder analysis.

Poor performance of individual portfolio investments is mitigated as the Board has established guidelines to ensure that the Investment Policy of the Company is pursued by the portfolio manager and that the portfolio of investments is appropriately diversified. Any proposed divergence from these guidelines is referred to the Board and the guidelines themselves are reviewed at every Board meeting. The day-to-day management of the portfolio is the responsibility of the portfolio manager who, with his team, undertakes continual analysis of the fundamentals of all holdings. The performance of the portfolio manager is carefully monitored by the Board culminating in the annual review of the management contract.

A fuller discussion of the economic and market conditions facing the Company and the current and future performance of the portfolio are included in the Portfolio Manager’s Report on pages 7 and 8. Past performance of the Company is not necessarily indicative of future performance.

Financial Risk

The financial risks faced by the Company include market price risk (including currency risk, interest rate risk and other price risk), liquidity risk and credit risk, which includes counterparty and custodial risk. Details of these risks and how they are managed are disclosed in note 16 to the financial statements on pages 51 to 54.

Gearing Risk

Whilst the use of borrowings by the Company should enhance total shareholder return when the return on the Company’s underlying securities is rising and exceeds the cost of borrowing, it will have the opposite effect when the underlying return is falling. Whilst the portfolio manager has full discretion on when and how he should use borrowings to gear returns, the Board reviews regularly the level of gearing and the extent of available borrowings.

Share Discount Risk

The Company’s shares may trade at a wide discount to their underlying net asset value. The Board and the Manager maintain an active dialogue with the aim of ensuring that the market rating of the Company’s shares reflects the underlying NAV and the Board has taken the powers, which it seeks to renew each year, for both share repurchase and issuance to help the management of this process.

Operational Risk

The Board regularly reviews the system of financial and non-financial internal controls operated by the Company, the Manager and other external service providers. These include controls designed to safeguard the Company’s assets and to ensure that proper accounting records are maintained. Details of how the Board monitors the services provided by the Manager and other suppliers are explained further in the internal controls and risk management section in the audit committee report on page 21. The depositary also monitors the Company’s stock, cash, borrowings and investment restrictions throughout the year and issues an annual report to the Directors.

Regulatory Risk

The Company is subject to various laws and regulations by virtue of its status as a public limited company registered under Section 833 of the Companies Act 2006, its status as an investment trust, and its listing on the Official List of the UK Listing Authority.

Loss of investment trust status for tax purposes could lead to the Company being subject to tax on the realised capital profits on the sale of its investments. A serious breach of other regulatory rules could lead to suspension from the Official List, a fine or qualified audit report. Other control failures, either by the Manager or any other of the Company’s service providers, could result in operational or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations. The Manager reviews compliance with tax and other financial regulatory requirements on a daily basis and reports to the Board on a regular basis on all regulatory aspects.

Other Risks

The risk that the portfolio manager, Mark Barnett, may become incapacitated or otherwise be unavailable is mitigated by support available from his designated deputy for this portfolio, Martin Walker, and the wider Invesco Perpetual UK Equities team.

Viability Statement

The Company, as an investment trust, is a collective investment vehicle designed and managed for the long term. The Company’s investment objective is to provide shareholders with capital growth and real growth in dividends over the medium to longer term. The Directors take a long term view in their stewardship of the Company, as does the portfolio manager in his management of the portfolio. The Company is required by its Articles to have a continuation vote every five years, the next instance being in 2021. The Directors have no reason to believe that shareholders will not vote, again, for the continuation of the Company at that time. The Company typically holds shares for at least five years and this period is substantially less than the outstanding term of the Company’s Notes, which will require repayment in 2029. Consequently, the Directors consider that the appropriate term for the purpose of this viability statement is five years.

In their assessment of the Company’s viability, the Directors considered the principal risks to which it is exposed, as set out on pages 12 and 13, together with mitigating factors. Their assessment also considered the following: the Company’s investment objective and strategy; the investment capabilities of the portfolio manager; the business model of the Company, which has effectively been stress tested over the years through various difficult market cycles; the current outlook for the UK economy and equity markets; demand for the Company’s shares and their discount or premium; the Company’s borrowing structure; the liquidity of the portfolio; and the Company’s future income and annual operating costs. Consideration of the borrowing structure included the amount the NAV could fall without triggering the repayment of the Notes and /or the bank overdraft and the amount of debt cover – which at the year end was more than seven times the amount of these aggregate liabilities.

The Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of assessment.

Board Diversity

The Board’s policy on diversity is that the Board seeks to ensure that its structure, size and composition, including the balance of skills, knowledge, diversity (including gender) and experience of Directors, is sufficient for the effective direction and control of the Company. The Board has not set any measurable targets or quotas in respect of this policy. The Board comprises six non-executive directors, one of whom is a woman. This constitutes 16.6% female Board representation. Summary biographical details of the Directors are set out on page 17. The Company has no employees.

Social and Environmental Matters

As an investment company with no employees, property or activities outside investment, environmental policy has limited application. The Manager considers various factors when evaluating potential investments. While a company’s policy towards the environment and social responsibility, including with regard to human rights, is considered as part of the overall assessment of risk and suitability for the portfolio, the Manager does not necessarily decide to make or not to make an investment on environmental and social grounds. The Manager applies the United Nations Principles for Responsible Investment.

As an investment vehicle the Company does not provide goods or services in the normal course of business, and does not have customers. Accordingly, the Directors consider that the Company is not within the scope of the Modern Slavery Act 2015.

This Strategic Report was approved by the Board of Directors on 31 May 2017

Invesco Asset Management Limited
Company Secretary

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INVESTMENTS IN ORDER OF VALUATION
AT 31 MARCH 2017

Ordinary shares listed in the UK unless stated otherwise



ISSUER


SECTOR
MARKET
VALUE
£’000

% OF
PORTFOLIO
Equity Investments
Reynolds American – US common stock Tobacco 73,350 6.3
British American Tobacco Tobacco 60,306 5.2
BP Oil & Gas Producers 45,435 3.9
Imperial Brands Tobacco 42,507 3.6
BAE Systems Aerospace & Defence 42,452 3.6
AstraZeneca Pharmaceuticals & Biotechnology 41,211 3.5
Provident Financial Financial Services 36,148 3.1
Legal & General Life Insurance 33,060 2.8
Roche – Swiss common stock Pharmaceuticals & Biotechnology 32,928 2.8
BT Fixed Line Telecommunications 31,598 2.7
Top ten holdings 438,995 37.5
RELX Media 27,263 2.3
Rentokil Initial Support Services 26,044 2.2
NewRiver REIT Real Estate Investment Trusts 24,508 2.1
London Stock Exchange Financial Services 23,730 2.0
Novartis – Swiss common stock Pharmaceuticals & Biotechnology 22,856 2.0
Compass Travel & Leisure 22,828 2.0
Hiscox Non-life Insurance 22,461 2.0
Babcock International Support Services 22,227 1.9
Beazley Nonlife Insurance 22,158 1.9
G4S Support Services 21,366 1.8
Top twenty holdings 674,436 57.7
BTG Pharmaceuticals & Biotechnology 20,544 1.8
SSE Electricity 19,154 1.6
Aviva Life Insurance 18,824 1.6
Bunzl Support Services 18,514 1.6
Shaftesbury Real Estate Investment Trusts 18,445 1.6
Derwent London Real Estate Investment Trusts 17,376 1.5
BCA Marketplace Financial Services 16,685 1.4
Capita Support Services 16,291 1.4
easyJet Travel & Leisure 16,004 1.4
Next General Retailers 15,611 1.4
Top thirty holdings 851,884 73.0
Drax Electricity 15,390 1.3
HomeServe Support Services 15,086 1.3
Sherborne Investors Guernsey B – A shares Financial Services 14,430 1.3
Oxford Sciences InnovationUQ Financial Services 13,875 1.2
Centrica Gas, Water & Multiutilities 13,859 1.2
Thomas Cook Travel & Leisure 13,528 1.2
KCOM Fixed Line Telecommunications 13,179 1.1
Lancashire Non-life Insurance 12,277 1.1
Harworth Real Estate Investment & Services 11,343 1.0
Touchstone Innovations (formerly Imperial Innovations) Financial Services 10,544 0.9
Top forty holdings 985,395 84.6

   



ISSUER


SECTOR
MARKET
VALUE
£’000

% OF
PORTFOLIO
Equity Investments
Real Estate Investors Real Estate Investment Trusts 10,419 0.9
P2P Global Investments Equity Investment Instruments 10,416 0.9
TalkTalk Telecom Fixed Line Telecommunications 10,378 0.9
Secure Trust Bank Banks 9,407 0.8
SciFluor Life SciencesUQ – US Series A convertible preferred Pharmaceuticals & Biotechnology 9,333 0.8
IP Group Financial Services 9,078 0.8
Vectura Pharmaceuticals & Biotechnology 9,010 0.8
Horizon Discovery Pharmaceuticals & Biotechnology 8,292 0.7
CLS Real Estate Investment & Services 8,125 0.7
Macau Property Opportunities Fund Real Estate Investment & Services 7,731 0.7
Top fifty holdings 1,077,584 92.6
Motif Bio
  – ADR(2)
  – ADR(2) warrants – 9 Nov 2021
Pharmaceuticals & Biotechnology 4,099
3,133
352

0.7
Hadrians Wall Secured Investments Equity Investment Instruments 7,245 0.6
Chesnara Life Insurance 7,108 0.6
N Brown General Retailers 6,968 0.6
Diurnal Pharmaceuticals & Biotechnology 6,606 0.6
PureTech Health Pharmaceuticals & Biotechnology 5,700 0.5
Marwyn Value Investors Equity Investment Instruments 5,466 0.5
infirst HealthcareUQ – D shares
                               – preference shares
Pharmaceuticals & Biotechnology 3,960
1,263

0.4
Circassia Pharmaceuticals Pharmaceuticals & Biotechnology 4,897 0.4
Doric Nimrod Air Three – preference shares Equity Investment Instruments 4,862 0.4
Top sixty holdings 1,139,243 97.9
Doric Nimrod Air Two – preference shares Equity Investment Instruments 4,644 0.4
VPC Speciality Lending Investments Financial Services 3,569 0.3
MayAir Industrial Engineering 3,233 0.3
Silence Therapeutics Pharmaceuticals & Biotechnology 2,958 0.3
GAME Digital General Retailers 2,947 0.2
Realm Therapeutics (formerly PuriCore) Health Care Equipment & Services 2,701 0.2
Funding Circle SME Equity Investment Instruments 2,101 0.2
Damille Investments II Equity Investment Instruments 1,559 0.1
Lombard Medical – US common stock Health Care Equipment & Services 1,175 0.1
Napo PharmaceuticalsUQ – US common stock Pharmaceuticals & Biotechnology 281
Top seventy holdings 1,164,411 100.0
HaloSource Chemicals 230
Nimrod Sea Assets Equity Investment Instruments 206
XTL Biopharmaceuticals – ADR(2) Pharmaceuticals & Biotechnology 41
Mirada Media 2
Total Equity Investments (74) 1,164,890 100.0

   

Other Investments
Barclays Bank – Nuclear Power Notes 28 Feb 2019 (NR)(3) Electricity 13
Total Investments (75) 1,164,903 100.0

Notes:   (1)        UQ is unquoted investment.

            (2)        American Depositary Receipt.

            (3)        NR is non-rated (by both Moody and S&P).

.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES
in respect of the preparation of the Annual Financial Report

The 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 UK Accounting Standards, including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’.

Under company law, the Directors must not approve the accounts unless they are satisfied that they 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 judgements and estimates that are reasonable and prudent;

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

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

he Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with 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 irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, a Directors’ Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations.

The Directors of the Company each confirm to the best of their knowledge, that:

•      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company taken as a whole; and

•      this annual financial report 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 consider that the annual financial report taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Signed on behalf of the Board of Directors

Bill Alexander
Chairman
31 May 2017

.

INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH

2017 2016

NOTES
REVENUE
£’000
CAPITAL
£’000
TOTAL
£’000
REVENUE
£’000
CAPITAL
£’000
TOTAL
£’000
Gains/(losses) on investments at fair value 9 60,170 60,170 (23,335) (23,335)
Foreign exchange (losses)/gains (7) (7) 33 33
Income 2 39,321 318 39,639 40,246 40,246
Investment management fees 3 (1,679) (3,916) (5,595) (1,670) (7,935) (9,605)
Other expenses 4 (671) (1) (672) (739) (1) (740)
Net return before finance costs and taxation 36,971 56,564 93,535 37,837 (31,238) 6,599
Finance costs 5 (1,120) (2,615) (3,735) (1,184) (2,762) (3,946)
Return on ordinary activities before taxation 35,851 53,949 89,800 36,653 (34,000) 2,653
Tax on ordinary activities 6 (639) (639) (554) (554)
Return on ordinary activities after taxation for the financial year 35,212 53,949 89,161 36,099 (34,000) 2,099
Return per ordinary share:
Basic 7 14.65p 22.43p 37.08p 15.12p (14.24)p 0.88p

The total column of this statement represents the Company’s profit and loss account, prepared in accordance with UK Accounting Standards. The return on ordinary activities after taxation is the total comprehensive income and therefore no statement of comprehensive income is presented. The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations  No operations were acquired or discontinued in the year.

.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
FOR THE YEAR ENDED 31 MARCH

SHARE
CAPITAL
£’000
SHARE
PREMIUM
£’000
CAPITAL
RESERVE
£’000
REVENUE
RESERVE
£’000

TOTAL
£’000
At 31 March 2015 23,687 251,166 672,346 31,228
Net return on ordinary activities (34,000) 36,099
Dividends paid – note 8 (34,599)
Net proceeds from issue of new shares 356 14,067
At 31 March 2016 24,043 265,233 638,346 32,728
Net return on ordinary activities 53,949 35,212
Dividends paid – note 8 (36,546)
At 31 March 2017 24,043 265,233 692,295 31,394

.

BALANCE SHEET
AS AT 31 MARCH


NOTES
2017
£’000
2016
£’000
Fixed assets
  Investments held at fair value 9 1,164,903 1,117,576
Current assets
  Debtors 10 7,930 3,785
Creditors: amounts falling due within one year 11 (100,385) (101,570)
Net current liabilities (92,455) (97,785)
Total assets less current liabilities 1,072,448 1,019,791
Creditors: amounts falling due after more than one year 12 (59,483) (59,441)
Net assets 1,012,965 960,350
Capital and reserves
Share capital 13 24,043 24,043
Share premium 14 265,233 265,233
Capital reserve 14 692,295 638,346
Revenue reserve 14 31,394 32,728
Shareholders’ funds 1,012,965 960,350
Net asset value per ordinary share – basic
  – debt at par 15 421.3p 399.4p
  – debt at market value 15 416.2p 395.6p

These financial statements were approved and authorised for issue by the Board of Directors on 31 May 2017.

Bill Alexander
Chairman
Signed on behalf of the Board of Directors

.

NOTES TO THE FINANCIAL STATEMENTS

1.     Principal Accounting Policies

Accounting policies describe the Company’s approach to recognising and measuring transactions during the year and the position of the Company at the year end.

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied during the year and the preceding year, unless otherwise stated.

(a)   Basis of Preparation

Accounting Standards applied

The financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and applicable law (UK Generally Accepted Accounting Practice) and with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued by the Association of Investment Companies in November 2014, and updated in January 2017. The financial statements are issued on a going concern basis.

As an investment fund the Company has the option, which it has taken, not to present a cash flow statement. A cash flow statement is not required when an investment fund meets all the following conditions: substantially all investments are highly liquid and are carried at market value, and where a statement of changes in equity (in these financial statements it is called the Reconciliation of Movements in Shareholders’ Funds) is provided.

(b)   Foreign Currency and Segmental Reporting

(i)     Functional and presentational currency

The financial statements are presented in sterling, which is the Company’s functional and presentational currency and the currency in which the Company’s share capital and expenses, as well as the majority of its assets and liabilities, are denominated.

(ii) Transactions and balances

Transactions in foreign currencies, whether of a revenue or capital nature, are translated to sterling at the rates of exchange ruling on the dates of such transactions. Foreign currency assets and liabilities are translated to sterling at the rates of exchange ruling at the balance sheet date. Any gains or losses, whether realised or unrealised, are taken to the capital reserve or to the revenue reserve, depending on whether the gain or loss is of a capital or revenue nature. All gains and losses are recognised in the income statement.

(iii)   Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business of investing in equity and debt securities, issued by companies quoted mainly on the UK or other regulated stock exchanges.

(c)    Financial Instruments

(i)    Recognition of financial assets and financial liabilities

The Company recognises financial assets and financial liabilities when the Company becomes a party to the contractual provisions of the instrument. The Company will offset financial assets and financial liabilities if the Company has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.

(ii)    Derecognition of financial assets

The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in the transferred financial asset that is created or retained by the Company is recognised as an asset.

(iii)   Derecognition of financial liabilities

The Company derecognises financial liabilities when its obligations are discharged, cancelled or expired.

(iv)   Trade date accounting

Purchases and sales of financial assets are recognised on trade date, being the date on which the Company commits to purchase or sell the assets.

(v)   Classification and measurement of financial assets and financial liabilities

Financial assets

The Company’s investments are classified as held at fair value through profit or loss.

Financial assets held at fair value through profit or loss are initially recognised at fair value, which is taken to be their cost, with transaction costs expensed in the income statement, and are subsequently valued at fair value.

Fair value for investments that are actively traded in organised financial markets is determined by reference to stock exchange quoted bid prices at the balance sheet date. For investments that are not actively traded or where active stock exchange quoted bid prices are not available, fair value is determined by reference to a variety of valuation techniques including broker quotes and price modelling. Where there is no active market, unlisted/illiquid investments are valued by the Directors at fair value based on recommendations from Invesco’s Pricing Committee, which in turn is guided by the International Private Equity and Venture Capital Association Guidelines, using valuation techniques such as earnings multiples, recent arm’s length transactions and net assets.

Financial liabilities

Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method.

(d)   Cash and Cash Equivalents

Cash and cash equivalents may comprise cash (including short term deposits which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value) as well as cash equivalents, including money market funds. Investments are regarded as cash equivalents if they meet all of the following criteria: highly liquid investments held in the Company’s base currency that are readily convertible to a known amount of cash, are subject to an insignificant risk of change in value and provide a return no greater than the rate of a three-month high quality government bond.

(e)   Hedging and Derivatives

Forward currency contracts entered into for hedging purposes are valued at the appropriate forward exchange rate ruling at the balance sheet date. Profits or losses on the closure or revaluation of positions are included in capital reserves.

Futures contracts may be entered into for hedging purposes and any profits and losses on the closure or revaluation of positions are included in capital reserves.

Derivative instruments are valued at fair value in the balance sheet. Derivative instruments may be capital or revenue in nature and, accordingly, changes in their fair value are recognised in revenue or capital in the income statement as appropriate.

(f)    Income

Dividend income arises from equity investments held and is recognised on the date investments are marked ‘ex-dividend’. Special dividends are looked at individually to ascertain the reason behind the payment. This will determine whether they are treated as income or capital in the income statement.

Deposit interest and underwriting commission receivable are taken into account on an accruals basis.

Interest income arising from fixed income securities and cash is recognised in the income statement using the effective interest method. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.

(g)   Expenses and Finance Costs

Expenses are recognised on an accruals basis and finance costs are recognised using the effective interest method in the income statement.

The investment management fee and finance costs are allocated 70% to capital and 30% to revenue. This is in accordance with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the portfolio.

The performance fee is allocated wholly to capital as it arises from capital returns on the portfolio.

Investment transaction costs are recognised in capital in the income statement. All other expenses are allocated to revenue in the income statement.

(h)   Taxation

The liability for corporation tax is based on net revenue for the year excluding non-taxable dividends. The tax charge is allocated between the revenue and capital account on the marginal basis whereby revenue expenses are matched first against taxable income in the revenue account.

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax or a right to pay less tax in the future have occurred. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements. Deferred taxation assets are recognised where, in the opinion of the Directors, it is more likely than not that these amounts will be realised in future periods.

A deferred tax asset has not been recognised in respect of surplus management expenses and losses on loan relationships, as the Company is unlikely to have sufficient future taxable revenue to offset against these.

(i)    Dividends

Dividends are not recognised in the financial statements unless there is an obligation to pay at the balance sheet date. Proposed dividends are recognised in the year in which they are paid to shareholders.

2.     Income

This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source.

2017
£’000
2016
£’000
Income from investments
UK dividends – ordinary 30,344 27,127
UK dividends – special 1,719 3,495
Overseas dividends – ordinary 6,167 6,332
Overseas dividends – special 1,609
Scrip dividends 1,002
Unfranked investment income 889 632
39,119 40,197
Other income
Underwriting commission 4 49
Other 198
Total income 39,321 40,246

Special dividends of £318,000 have been recognised in capital (2016: £nil).

3.     Investment Management Fees

This note shows the fees due to the Manager. These are made up of the management fee calculated and paid quarterly and a performance fee calculated and paid annually.

2017 2016
REVENUE
£’000
CAPITAL
£’000
TOTAL
£’000
REVENUE
£’000
CAPITAL
£’000
TOTAL
£’000
Investment management fee (i) 1,679 3,916 5,595 1,670 3,895 5,565
Performance-related management fee (ii) 4,040 4,040
1,679 3,916 5,595 1,670 7,935 9,605

Details of the Investment Management Agreement can be found on pages 26 and 27.

(i)    At 31 March 2017 £1,420,000 (2016: £1,368,000) was due for payment in respect of the investment management fee.

(ii)    For the year ended 31 March 2017, a performance-related fee would have been payable to the Manager, had the Company's performance exceeded the FTSE All-Share Index to the extent that it exceeded any brought forward underperformance. No performance-related fee was accrued at the year end (2016: £4,040,000).

4.     Expenses

The other expenses of the Company are presented below; those paid to the Directors and the auditor are separately identified.

2017 2016
REVENUE
£’000
CAPITAL
£’000
TOTAL
£’000
REVENUE
£’000
CAPITAL
£’000
TOTAL
£’000
Directors’ remuneration (i) 173 173 163 163
Fees payable to the Company’s auditor for:
  – audit of the financial
    statements (ii) 27 27 27 27
Other expenses (iii) 471 1 472 549 1 550
671 1 672 739 1 740

(i)    Further information on Directors’ remuneration is provided in the Directors’ Remuneration Report.

(ii)    Fees payable to the Company auditor are shown excluding VAT which is included in other expenses.

(iii)  Included within other expenses is £13,000 (2016: £11,000) of employer’s National Insurance paid on Directors’ remuneration. As at 31 March 2017, the amount outstanding on Directors’ remuneration and employer’s National Insurance was £15,000 (2016: £18,000). Other expenses charged to capital arise from custodian transaction charges.

5.     Finance costs

Finance costs arise on any borrowing the Company has, being in this case the £60 million notes and the overdraft facility.

2017 2016
REVENUE
£’000
CAPITAL
£’000
TOTAL
£’000
REVENUE
£’000
CAPITAL
£’000
TOTAL
£’000
Interest payable on borrowings repayable as follows:
Bank overdraft repayable within 1 year, not by instalments 321 749 1,070 385 896 1,281
Notes repayable after 5 years, not by instalments 799 1,866 2,665 799 1,866 2,665
1,120 2,615 3,735 1,184 2,762 3,946

Loan notes are amortised on an effective interest basis.

6.     Taxation

As an investment trust the Company pays no tax on capital gains. The Company also suffers no tax on income arising on UK and certain overseas dividends, mainly EU ones. As a result, the Company’s tax charge arises solely from irrecoverable tax on overseas dividends. Lastly, this note clarifies the basis for the Company having no deferred tax asset or liability.

(a)   Tax Charge

2017 2016
REVENUE
£’000
CAPITAL
£’000
TOTAL
£’000
REVENUE
£’000
CAPITAL
£’000
TOTAL
£’000
Overseas taxation 639 639 554 554

(b)   Reconciliation of Tax Charge

2017
£’000
2016
£’000
Return on ordinary activities before taxation 89,800 2,653
Theoretical tax at UK Corporation Tax rate of 20% (2016: 20%) 17,960 530
Effects of:
– non-taxable gains on investments (12,034)  4,667
– non-taxable gains on foreign exchange movements  1 (7)
– non-taxable UK dividends (5,724) (5,137)
– non-taxable UK special dividends (344) (699)
– non-taxable scrip dividends (200)
– non-taxable overseas dividends (1,296) (1,266)
– non-taxable overseas special dividends (322)
– expenses in excess of taxable income 1,437 2,434
– irrecoverable overseas tax suffered 639 554
639 554

(c)    Factors That May Affect Future Tax Changes

The Company has excess management expenses and loan relationship deficits of £172,042,000 (2016: £164,858,000) that are available to offset future taxable revenue. A deferred tax asset, measured at the prospective rate of corporation tax of 17%, of £29,247,000 (2016: 18%, £29,674,000) has not been recognised in respect of these expenses since they are recoverable only to the extent that the Company has sufficient future taxable revenue.

7.     Return per Ordinary Share

Return per share is the amount of gain generated for the financial year divided by the weighted average number of ordinary shares in issue.

2017 2016
PENCE £’000 PENCE £’000
Returns after taxation:
  – revenue 14.65 35,212 15.12 36,099
  – capital 22.43 53,949 (14.24) (34,000)
  – total 37.08 89,161 0.88 2,099
NUMBER NUMBER
Weighted average number of ordinary shares in issue during the year: 240,432,350 238,793,640

8.     Dividends on Ordinary Shares

Dividends represent the return of income to shareholders. The Company pays four interim dividends a year.

Dividends on equity shares paid in the year:

2017 2016
PENCE £’000 PENCE £’000
Fourth interim in respect of previous year 4.10 9,858 3.90 9,238
First interim paid 3.00 7,213 2.90 6,940
Second interim paid 3.00 7,213 2.90 6,947
Third interim paid 3.00 7,213 2.90 6,973
13.10 31,497 12.60 30,098
Special dividend paid in respect of previous year 2.10 5,049 1.90 4,501
15.20 36,546 14.50 34,599

Dividends on equity shares payable in respect of the year:
2017 2016
PENCE £’000 PENCE £’000
First interim paid September 3.00 7,213 2.90 6,940
Second interim paid December 3.00 7,213 2.90 6,947
Third interim paid March 3.00 7,213 2.90 6,973
Fourth interim payable June 4.35 10,459 4.10 9,858
Total interim dividends 13.35 32,098 12.80 30,718
Special dividend payable June 0.70 1,683 2.10 5,049
14.05 33,781 14.90 35,767

9.     Investments at Fair Value

The portfolio comprises investments which are listed, i.e. traded on a regulated stock exchange, and a small proportion of investments which are valued by the Directors as they are unlisted or not regularly traded.

Gains and losses are either:

•           realised, usually arising when investments are sold; or

•           unrealised, being the difference from cost on those investments still held at the year end.

(a)        Investments

2017
£’000
2016
£’000
Investments listed on a recognised stock exchange 1,136,191 1,090,088
Unlisted investments 28,712 27,488
Total investments 1,164,903 1,117,576
Opening valuation 1,117,576 1,128,511
Movements in year:
  Purchases at cost 135,608 191,566
  Sales – proceeds (148,451) (179,166)
  Sales – net realised profits on sales 61,172 43,672
Movement in investment holding gains (1,002) (67,007)
Closing valuation 1,164,903 1,117,576
Closing book cost (913,612) (865,283)
Closing investment holding gains 251,291 252,293
Net realised gains based on historical cost 61,172 43,672
Movement in investment holding gains (1,002) (67,007)
Gains/(losses) on investments 60,170 (23,335)

(b)        Transaction Costs

     The transaction costs included in gains on investments consisted of £633,000 (2016: £805,000) on purchases and £238,000 (2016: £250,000) on sales.

(c)        Significant holdings

            At 31 March 2017 the Company had holdings of 3% or more of the following investments:


NAME OF UNDERTAKING
COUNTRY OF
INCORPORATION

INSTRUMENT

% HELD
Napo PharmaceuticalsUQ United States US common stock 21.7%
Realm Therapeutics (Formerly PuriCore) England and Wales Ordinary shares 16.8%
Nimrod Sea Assets Guernsey Ordinary shares 9.9%
Diurnal England and Wales Ordinary shares 9.9%
Real Estate Investors England and Wales Ordinary shares 9.5%
MayAir Jersey Ordinary shares 9.4%
SciFluor Life SciencesUQ United States “A” convertible preferred shares 9.3%
Hadrian’s Wall Secured Investments Guernsey Ordinary shares 8.7%
Motif Bio
 
England and Wales
 
Ordinary shares
American Depositary Receipt
8.5%
6.7%
Lombard Medical Cayman Islands US common stock 6.8%
infirst HealthcareUQ England and Wales “D“ shares 6.7%
Damille Investments II England and Wales Ordinary shares 5.9%
Macau Property Opportunities Fund Guernsey Ordinary shares 5.6%
Marwyn Value Investors Cayman Islands Ordinary shares 5.1%
Horizon Discovery England and Wales Ordinary shares 4.9%
Silence Therapeutics England and Wales Ordinary shares 4.8%
GAME Digital England and Wales Ordinary shares 3.8%
Harworth England and Wales Ordinary shares 3.7%
NewRiver REIT England and Wales Ordinary shares 3.1%
Sherborne Investors Guernsey B Guernsey “A“ shares 3.1%
HaloSource England and Wales Ordinary shares 3.0%
UQ: unquoted investment.

10.   Debtors

Debtors are amounts which are due to the Company, such as monies due from brokers for investments sold and income which has been earned (accrued) but not yet received.

2017
£’000
2016
£’000
Amounts due from brokers 4,460
Tax recoverable 931 1,185
Prepayments and accrued income 2,539 2,600
7,930 3,785

11.   Creditors: amounts falling due within one year

Creditors are amounts which must be paid by the Company and are split between those due within 12 months of the balance sheet date (as shown in this note) and those due after that time (as shown in the next note).

2017
£’000
2016
£’000
Bank overdraft 97,609 93,942
Amounts due to brokers 189 1,022
Performance-related fee 4,040
Accruals 2,587 2,566
100,385 101,570

The Company has an uncommitted bank overdraft facility based on the lower of 25% of the net asset value of the Company and £140 million (2016: £140 million). Interest is payable at 0.7% over LIBOR. The covenant under the facility requires total assets not to fall below £620 million (2016: £620 million). The facility was renewed on 28 May 2017 on the same terms.

12.   Creditors: amounts falling due after more than one year

2017
£’000
2016
£’000
4.37% senior secured notes 2029 60,000 60,000
Unamortised issue costs (517) (559)
59,483 59,441

The senior secured notes (Notes) of £60 million were issued on 8 May 2014 and are secured by a floating charge over all the Company’s assets and are redeemable at par on 8 May 2029. The Notes have a fixed interest rate of 4.37% per annum payable biannually on 8 May and 8 November. Issue costs are amortised over the life of the Notes using the effective interest method.

The Notes are secured by a first floating charge over the Company’s assets. Under the Notes Purchase Agreement, the net asset value (NAV) of the Company must not fall below £350 million and the Company must ensure that the ratio of gross borrowings (measured at par) to the NAV must not, at any time, exceed 50%.

13.   Share Capital

Share capital represents the total number of shares in issue, on which dividends accrue.

2017 2016
NUMBER £’000 NUMBER £’000
Allotted 10p ordinary shares:
Brought forward 240,432,350 24,043 236,874,251 23,687
Issue of new shares 3,558,099 356
Carried forward 240,432,350 24,043 240,432,350 24,043

No shares have been issued or brought back subsequent to the year end.

The Directors' Report on page 29 sets out the share capital structure, restrictions and voting rights.

14.   Reserves

This note explains the different reserves attributable to shareholders. The aggregate of the reserves and share capital (see previous note) make up total shareholders’ funds.

The share premium comprises the net proceeds received by the Company following the issue of shares, after deduction of the nominal amount of 10 pence and any applicable issue costs. The share premium is non-distributable.

Capital investment gains and losses are shown in note 9(a), and form part of the capital reserve. The revenue reserve shows the net revenue retained after payment of any dividends. The capital and revenue reserves are distributable by way of dividend.

15.   Net Asset Value

The Company’s total net assets (total assets less total liabilities) are often termed shareholders’ funds and are converted into net asset value per ordinary share by dividing by the number of shares in issue.

The following shows the shareholders' funds and net asset value (NAV) in pence per share, together with a reconcilation of NAV with debt at par to NAV with debt at market value. The difference in the NAVs arises solely from the valuation of the 4.37% senior secured loan notes 2029 (Notes). The number of shares in issue at the year end is shown in note 13.

2017 2016
SHAREHOLDERS’
FUNDS
£’000
NAV
PER SHARE
PENCE
SHAREHOLDERS’
FUNDS
£’000
NAV
PER SHARE
PENCE
NAV – debt at par 1,012,965 421.3 960,350 399.4
Notes – debt at par, after amortised costs (note 12) 59,483 24.7 59,441 24.7
      – debt at market value (note 17) (71,675) (29.8) (68,710) (28.5)
NAV – debt at market value 1,000,773 416.2 951,081 395.6

Only the basic NAV is shown. There is no dilution in this or the previous year.

16.   Risk Management and Financial Instruments

Financial instruments comprise the Company’s investment portfolio, derivative financial instruments (if the Company had any), as well as any cash, borrowings, other receivables and other payables. This note sets out risks arising from these in terms of the Company’s exposure and sensitivity, and any mitigation that the Manager and Board can take.

The Company’s strategy for managing investment risk is determined with regard to the Company’s Investment Policy, as shown on page 9. The management of market risk is part of the investment management process. The Company’s portfolio is managed in accordance with the internal controls and risk management systems as described in the sections thereon in the Corporate Governance Statement (page 19) and in the Audit Committee Report (page 20). The overall disposition of the Company’s assets is reviewed by the Board on a regular basis.

The Company’s financial instruments comprise its investment portfolio (as shown on pages 15 and 16) cash, borrowings (including overdraft and notes), debtors and creditors that arise directly from its operations such as sales and purchases awaiting settlement and accrued income. For the purpose of this note ‘cash’ should be taken to comprise cash and cash equivalents. The accounting policies in note 1 include criteria for the recognition and the basis of measurement applied for financial instruments. Note 1 also includes the basis on which income and expenses arising from financial assets and liabilities are recognised and measured.

The principal risks that an investment company faces in its portfolio management activities are set out below:

Market risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk:

Currency risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in foreign exchange rates;

Interest rate risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in market interest rates; and

Other price risk – arising from fluctuations in the fair value or future cash flows of a financial instrument for reasons other than changes in foreign exchange rates or market interest rates.

Liquidity risk – arising from any difficulty in meeting obligations associated with financial liabilities.

Credit risk – arising from financial loss for a company where the other party to a financial instrument fails to discharge an obligation.

Risk Management Policies and Procedures

The Directors have delegated to the Manager the responsibility for the day-to-day investment activities of the Company as more fully described in the Business Review.

As an investment trust the Company invests in equities and other investments for the long term so as to meet its investment objective and policies. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company’s net assets or a reduction of the profits available for dividends. The risks applicable to the Company and the policies the Company used to manage these risks for the two years under review follow.

16.1      Market Risk

The Company’s Manager assesses the Company’s direct exposure when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis. The Board meets at least quarterly to assess risk and review investment performance. No other derivative or hedging instruments are utilised to manage market risk. Gearing is used to enhance returns, but this also increases the Company’s exposure to market risk and volatility.

16.1.1      Currency Risk

The majority of the Company’s assets, liabilities and income are denominated in sterling. There is some exposure to US dollars and Swiss francs.

Management of the currency risk

The Manager monitors the Company’s direct exposure to foreign currencies on a daily basis and reports to the board on a regular basis.

Forward currency contracts can be used to reduce the Company’s exposure to anticipated future changes in exchange rates which are used also to achieve the portfolio characteristics that assist the Company in meeting its investment objective and policies. All contracts are limited to currencies and amounts commensurate with the asset denominated in those currencies. During the year, no forward currency contracts were used by the Company (2016: none).

Income denominated in foreign currencies is converted to sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is included in the financial statements and its receipt.

Currency exposure

The fair values of the Company’s monetary items that have currency exposure at 31 March are shown below. Where the Company’s equity investments (which are not monetary items) are priced in a foreign currency, they have been included separately in the analysis so as to show the overall level of exposure.           

31 MARCH 2017 31 MARCH 2016
US
DOLLAR
£’000
SWISS
FRANC
£’000
US
DOLLAR
£’000
SWISS
FRANC
£’000
Foreign currency exposure on net monetary items 5,045 767 444 715
Investments at fair value through profit or loss that are equities 87,871 55,784 79,379 49,616
Total net foreign currency exposure 92,916 56,551 79,823 50,331

The above may not be representative of the exposure to risk during the year, because the levels of foreign currency exposure may change significantly throughout the year.

Currency sensitivity

The following table illustrates the sensitivity of the return after taxation for the year using exchange rates for sterling to US dollars and Swiss francs. It is based on the Company’s monetary foreign currency financial instruments held at each balance sheet date and takes account of any forward foreign exchange contracts, if used, that offset the effects of changes in currency exchange rates.

The possible change in exchange rates of ±6.3% (2016: ±3.4%) for US dollars and ±5.1% (2016: ±2.8%) for Swiss francs has been determined based on market volatility in the year, using the standard deviation of sterling’s fluctuation to the applicable foreign currency against the mean.

If sterling had strengthened, this would have had the following effect:

31 MARCH 2017 31 MARCH 2016
US
DOLLAR
£’000
SWISS
FRANC
£’000
US
DOLLAR
£’000
SWISS
FRANC
£’000
Income statement – profit/(loss) after taxation
    Revenue return (125) (126) (63) (61)
    Capital return (5,821) (2,845) (2,714) (1,409)
Total return after taxation for the year (5,946) (2,971) (2,777) (1,470)

If sterling had weakened against the currencies above, the effect would have been the exact opposite.

In the opinion of the Directors, the above sensitivity analysis is not representative of the year as a whole, since the level of exposure may change frequently as part of the currency risk management process of the Company.

16.1.2      Interest rate risk

Interest rate movements may affect the level of income receivable on cash deposits and the interest payable on variable rate borrowings. When the Company has cash balances, they are held on variable rate bank accounts yielding rates of interest dependent on the base rate of the custodian. At the year end the Company had an uncommitted bank overdraft facility based on the lower of 25% of the net assets of the Company and £140 million (2016: same). The Company uses the facility when required at levels approved and monitored by the Board. The Company also has in issue £60 million 4.37% senior secured notes 2029 (Notes).

At the year end drawings on the Company’s overdraft were £97,609,000 (2016: £93,942,000) and the Notes had an amortised cost of £59,483,000 (2016: £59,441,000). At the maximum overdraft of £140 million, the effect of a ±1% in the interest rate would result in a decrease/increase to the Company’s income statement of £1.4 million (2016: £1.4 million).

At the previous and current year ends the Company had no investment in, and thus exposure to, any debt securities.

16.1.3      Other price risk

Other price risks (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the value of the equity investments, but it is the business of the Manager to manage the portfolio to achieve the best return for an acceptable level of risk.

Management of other price risk

The Directors manage the market price risks inherent in the investment portfolio by meeting regularly to monitor on a formal basis the Manager’s compliance with the Company’s stated objectives and policies and to review investment performance.

The Company’s portfolio is the result of the Manager’s investment process and as a result is not correlated with the Company’s benchmark or the market in which the Company invests. The value of the portfolio will not move in line with the market but will move as a result of the performance of the company shares within the portfolio.

If the value of the portfolio rose or fell by 10% at the balance sheet date, the return after tax for the year would increase or decrease by £116.5 million (2016: £111.8 million) respectively.

16.2      Liquidity risk

Liquidity risk is minimised as the majority of the Company’s investments are readily realisable securities which can be sold to meet funding commitments as necessary. In addition, the £140 million bank overdraft facility provides for additional funding flexibility.

2017 LESS THAN
THREE
MONTHS
£’000
THREE TO
TWELVE
MONTHS
£’000

MORE THAN
ONE YEAR
£’000


TOTAL
£’000
Bank overdraft 97,609 97,609
Accruals (excluding amount accrued on Notes) 1,553 1,553
Notes 60,000 60,000
Interest on Notes 1,311 1,311 30,153 32,775
100,473 1,311 90,153 191,937

   

2016
THREE
MONTHS
OR LESS
£’000
MORE THAN
THREE MONTHS
BUT LESS THAN
ONE YEAR
£’000


MORE THAN
ONE YEAR
£’000



TOTAL
£’000
Bank overdraft 93,942 93,942
Accruals and performance-related fee (excluding amount accrued on Notes) 6,594 6,594
Notes 60,000 60,000
Interest on Notes 1,311 1,311 32,775 35,397
101,847 1,311 92,775 195,933

16.3      Credit risk

Encompasses the failure by counterparties to deliver securities which the Company has paid for, or to pay for securities which the Company has delivered. This risk is minimised by using only approved counterparties. The Company’s ability to operate in the short-term may be adversely affected if the Company’s custodian suffers insolvency or other financial difficulties. However, with the support of the depositary’s restitution obligation the risk of outright credit loss on the investment portfolio is remote. The Board reviews the custodian’s annual controls report and the Manager’s management of the relationship with the custodian. Cash balances are limited to a maximum of £2.5 million with any one deposit taker, with only approved deposit takers being used. This limit is at the discretion of the Board and is reviewed on a regular basis.

17.   Fair Value

The values of the financial assets and financial liabilities are carried in the balance sheet at their fair value (investments), or the balance sheet amount is a reasonable approximation of fair value (amounts due from brokers, dividends receivable, accrued income, amounts due to brokers, accruals, cash and any drawings on the bank facility) or at amortised cost (Notes).

Fair Value Hierarchy Disclosures

Nearly all of the Company’s portfolio of investments are in the Level 1 category as defined in FRS 102 as amended for fair value hierarchy disclosures (March 2016). The three levels set out in this follow.

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

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

•   Level 3: Inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

Categorisation within the hierarchy is determined on the basis of the lowest level input that is significant to the fair value measurement of each relevant asset/liability. The valuation techniques used by the Company are explained in the accounting policies note.

2017 LEVEL 1
£’000
LEVEL 2
£’000
LEVEL 3
£’000
TOTAL
£’000
Financial assets designated at fair value through profit or loss:
Quoted investments – equities 1,136,178 1,136,178
Other securities 13 13
Unquoted investments 28,712 28,712
Total for financial assets 1,136,178 13 28,712 1,164,903

   

2016 LEVEL 1
£’000
LEVEL 2
£’000
LEVEL 3
£’000
TOTAL
£’000
Financial assets designated at fair value through profit or loss:
Quoted investments – equities 1,090,061 1,090,061
Other securities 27 27
Unquoted investments 27,488 27,488
Total for financial assets 1,090,061 27 27,488 1,117,576

The book cost and market value (fair value) of the senior secured loan notes based on a comparable quoted debt security at the balance sheet date follows:

2017 2016
BOOK
VALUE
£’000
FAIR
VALUE
£’000
BOOK
VALUE
£’000
FAIR
VALUE
£’000
4.37% senior secured loan notes 2029 60,000 71,675 60,000 68,710
Unamortised issue costs (517) (559)
59,483 71,675 59,441 68,710

18.   Capital Management

The Company’s total capital employed at 31 March 2017 was £1,170,057,000 (2016: £1,113,733,000) comprising borrowings of £157,092,000 (2016: £153,383,000) and equity share capital and other reserves of £1,012,965,000 (2016: £960,350,000).

The Company’s total capital employed is managed to achieve the Company’s investment objective and policy as set out on pages 9 and 10, including that borrowings may be used to raise equity exposure up to a maximum of 25% of net assets. At the balance sheet date, gross gearing of 15.5% (2016: 16.0%) equalled net gearing. The Company’s policies and processes for managing capital are unchanged from the preceding year.

The main risks to the Company’s investments are shown in the Directors’ Report under the ‘Principal Risks and Uncertainties’ section on pages 12 and 13. These also explain that the Company is able to gear and that gearing will amplify the effect on equity of changes in the value of the portfolio.

The Board can also manage the capital structure directly since it has taken the powers, which it is seeking to renew, to issue and buy back shares and it also determines dividend payments. The Company is subject to externally imposed capital requirements with respect to the obligation and ability to pay dividends by Section 1159 Corporation Tax Act 2010 and by the Companies Act 2006, respectively, and with respect to the availability of the overdraft facility, by the terms imposed by the lender. The Board regularly monitors, and has complied with, the externally imposed capital requirements. This is unchanged from the prior year. Current year borrowings comprise a bank overdraft and senior secured notes, details of which are given in notes 11 and 12.

19.   Contingencies, Guarantees and Financial Commitments

Any liabilities the Company is committed to honour and which are dependent on future circumstances or events occurring would be disclosed in this note if any existed.

There were no contingencies, guarantees or financial commitments outstanding at the balance sheet date.

20.   Related Party Transactions and Transaction with the Manager

A related party is a company or individual who has direct or indirect control or who has significant influence over the Company. Under accounting standards, the Manager is not a related party.

Under UK GAAP, the Company has identified the Directors as related parties. The Directors’ remunerations and interests have been disclosed on pages 31 to 33 with additional disclosure in note 4. No other related parties have been identified.

Details of the Manager’s services and fees are disclosed in the Directors’ Report on pages 26 and 27 and note 3.

21.   Post Balance Sheet Event

Any significant events that occurred after the balance sheet date but before the signing of the balance sheet will be shown here.

There are no significant post balance sheet events requiring disclosure.

.

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS GIVEN that the Annual General Meeting (AGM) of Perpetual Income and Growth Investment Trust plc will be held at 1st Floor, 43-45 Portman Square, London W1H 6LY at 11.00am on 11 July 2017 for the following purposes:

Ordinary Business

To consider and, if thought fit, to pass the following resolutions all of which will be proposed as ordinary resolutions:

1. To receive the Annual Financial Report for the year ended 31 March 2017.

2. To re-elect Vivian Bazalgette a Director of the Company.

3. To re-elect Victoria Cochrane a Director of the Company.

4. To re-elect Alan Giles a Director of the Company.

5. To re-elect Richard Laing a Director of the Company.

6. To re-elect Bob Yerbury a Director of the Company.

7. To approve the Company’s dividend policy as set out on page 10 of the 2017 annual financial report.

8. To approve the Annual Statement and Report on Remuneration for the year ended 31 March 2017.

9. To re-appoint Ernst & Young LLP as auditor.

10. To authorise the Audit Committee to determine the auditor’s remuneration.

Biographies of Directors seeking re-election are shown on page 17 of the annual financial report.

Special Business

To consider and, if thought fit, to pass the following resolutions of which resolution 11 will be proposed an Ordinary Resolutions and resolutions 12, 13 and 14 will be proposed as Special Resolutions:

11. THAT:
the Directors be generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 as amended from time to time prior to the date of the passing of this resolution (the ‘Act’) to exercise all powers of the Company to allot relevant securities (as defined in that section) up to an aggregate nominal amount (within the meaning of Sections 551(3) and (6) of the Act) of £2,404,323, this being 10% of the Company’s issued ordinary share capital as at 30 May 2017, such authority to expire at the conclusion of the next AGM of the Company or the date fifteen months after the passing of this resolution, whichever is the earlier, but so that this authority shall allow the Company to make offers or agreements before the expiry of this authority which would or might require relevant securities to be allotted after such expiry as if the authority conferred by this resolution had not expired.

12. THAT:
the Directors be and they are hereby empowered, in accordance with Sections 570 and 573 of the Companies Act 2006 as amended from time to time prior to the date of the passing of this resolution (the ‘Act’) to allot equity securities for cash, either pursuant to the authority given by resolution 12 set out above or (if such allotment constitutes the sale of relevant shares which, immediately before the sale, were held by the Company as treasury shares) otherwise, as if Section 561 of the Act did not apply to any such allotment, provided that this power shall be limited:

(a) to the allotment of equity securities in connection with a rights issue in favour of all holders of a class of equity securities where the equity securities attributable respectively to the interests of all holders of securities of such class are either proportionate (as nearly as may be) to the respective numbers of relevant equity securities held by them or are otherwise allotted in accordance with the rights attaching to such equity securities (subject in either case to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of, any regulatory body or any stock exchange in any territory or otherwise); and

(b) to the allotment (otherwise than pursuant to a rights issue) of equity securities up to an aggregate nominal amount of £2,404,323, this being 10% of the Company’s issued ordinary share capital as at 30 May 2017

and this power shall expire at the conclusion of the next AGM of the Company or the date 15 months after the passing of this resolution, whichever is the earlier, but so that this power shall allow the Company to make offers or agreements before the expiry as if the power conferred by this resolution had not expired; and so that words and expressions defined in or for the purposes of Part 17 of the Act shall bear the same meanings in this resolution.

13. THAT:
the Company be generally and subject as hereinafter appears unconditionally authorised in accordance with Section 701 of the Companies Act 2006 as amended from time to time prior to the date of the passing of this resolution (the ‘Act’) to make market purchases (within the meaning of Section 693(4) of the Act) of its issued ordinary shares of 10p each in the capital of the Company (‘Shares’)

PROVIDED ALWAYS THAT:

(i) the maximum number of Shares hereby authorised to be purchased shall be 14.99% of the Company’s issued ordinary shares on 11 July 2017, being the date of the AGM (equivalent to 36,040,809 shares as at 30 May 2017);

(ii) the minimum price which may be paid for a Share shall be 10p;

(iii) the maximum price which may be paid for a Share must not be more than the higher of: (a) 5 per cent. above the average of the mid-market values of the Shares for the five business days before the purchase is made; or (b) that stipulated by the regulatory technical standards adopted by the EU pursuant to the Market Abuse Regulation from time to time;

(iv) any purchase of Shares will be made in the market for cash at prices below the prevailing net asset value per Share (as determined by the Directors);

(v) the authority hereby conferred shall expire at the conclusion of the next AGM of the Company or, if earlier, on the expiry of 15 months from the passing of this resolution unless the authority is renewed at any other general meeting prior to such time;

(vi) the Company may make a contract to purchase Shares under the authority hereby conferred prior to the expiry of such authority which will be executed wholly or partly after the expiration of such authority and may make a purchase of Shares pursuant to any such contract; and

(vii) any shares so purchased shall be cancelled or, if the Directors so determine and subject to the provisions of Sections 724 to 731 of the Act and any applicable regulations of the United Kingdom Listing Authority, be held (or otherwise dealt with in accordance with Section 727 or 729 of the Act) as treasury shares.

14. THAT:
the period of notice required for general meetings of the Company (other than AGMs) shall be not less than 14 clear days’ notice.

By order of the Board

Invesco Asset Management Limited
Company Secretary
31st May 2017

.

This Annual Financial Report announcement does not constitute the Company's statutory accounts.

The statutory accounts for the year ended 31 March 2016 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 March 2016 received an audit report which 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 include a statement under either section 498(2) or 498(3) of the Companies Act 2006.

The statutory accounts for the financial year ended 31 March 2017 have been approved and audited but have not yet been filed.

The audited annual financial report will be available to shareholders, and will be delivered to the Registrar of Companies, shortly.  Copies may be obtained during normal business hours from the Company’s Registered Office, from its correspondence address, 6th Floor, 125 London Wall, London EC2Y 5AS, and via the Company’s web page: www.invescoperpetual.co.uk/pigit

The Annual General Meeting of the Company will be held at 1st Floor, 43-45 Portman Square, London W1H 6LY at 11.00am on 11 July 2017.

Invesco Asset Management Limited
Company Secretary
1 June 2017


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