Annual Financial Report

LEI: 549300JZQ39WJPD7U596

Invesco Select Trust plc

Annual Financial Report for the year ended 31 May 2023

The following text is extracted from the Annual Financial Report of the Company for the year ended 31 May 2023. All page numbers below refer to the Annual Financial Report which will be made available on the Company's website.

Financial Performance

Capital Statistics - Company Level

(1) Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 116 to 119 of the financial report for details of the explanation and reconciliations of APMs.

(2) Source: Refinitiv/Bloomberg.

(3) With effect from 1 June 2021, the benchmark adopted by the Balanced Risk Allocation Portfolio is comprised of 50% 30-year UK Gilts Index, 25% GBP hedged MSCI World Index (net) and 25% GBP hedged S&P Goldman Sachs Commodity Index. Prior to this, the benchmark was ICE BoA Merrill Lynch 3 month LIBOR plus 5% per annum. Accordingly, both the new and old benchmark are shown.

Chairman's Statement

Highlights

- The Global Equity Income Share Portfolio and the Managed Liquidity Share Portfolio delivered positive NAV performance over the period, with the Global Equity Income and Balanced Risk Allocation Share Portfolios outperforming their respective benchmark indices.

- Dividends per UK Equity Share and Global Equity Income Share rose to 7.05p and 7.20p respectively. A dividend of 1.00p was maintained per Managed Liquidity Share and a first dividend in respect of the Balanced Risk Allocation Shares of 1.00p was also paid.

- Updated Dividend Policy announced post year-end.

- Net assets in the Global Equity Income Share Portfolio increased to £66.7 million, with net conversions into that portfolio.

- Cancellation of the UK Equity and Balanced Risk Allocation Share Premium accounts completed, freeing up circa £123 million of reserves.

- Winterflood Securities Limited appointed as new corporate brokers.

The Company

Your Company's investment objective is to provide shareholders with a choice of investment strategies and policies, each intended to generate attractive risk-adjusted returns.

Your Company's share capital comprises four share classes: UK Equity Shares, Global Equity Income Shares, Balanced Risk Allocation Shares and Managed Liquidity Shares, each of which has its own separate portfolio of assets and attributable liabilities.

The investment objectives and policies of each of the portfolios are set out on pages 44 to 46.

Your Company's structure enables shareholders to adjust asset allocation to reflect their views of the prevailing market outlook. As set out on page 2, shareholders have the opportunity to convert between share classes, free of capital gains tax, every three months. With the personal allowance for Capital Gains Tax being reduced for this current tax year to £6,000, this unique structure allows investors to change their allocation without triggering an event for the purposes of Capital Gains Tax.

Market Background

As I consider the market backdrop over the past year and into the future, I reflect on the key points within the outlook I provided in your Company's last Annual Report. In that outlook, I noted that we continue to be in uncertain times. At that point in the UK, there was debate and concern around inflation, with members of the MPC split on interest rate rises, whilst echoes of concern over a Covid-19 resurgence were stalling hopes of global economic recovery. Much has changed, yet so much remains the same.

As feared in my last commentary, an early resolution to the conflict in Ukraine was not forthcoming and, despite Western and NATO support, shows no signs of resolution.

Global supply chains have returned to some normality and as a consequence in developed markets the momentum of increasing inflation appears to be weakening. Forward looking indicators suggesting that inflation is likely to moderate, as it has already in the US where it is on a downward trajectory. Central banks are walking an interest rate tight-rope, as they balance inflation control with maintaining economic growth. In Emerging Markets, the inflation picture is mixed with a chance of China going into deflation and inflation levels improving elsewhere.

Active management allows us to be agile in responding to changing market conditions and seizing potential alpha-generating opportunities. We believe that the skillful selection of investments, combined with prudent risk management, will enable us to navigate through market fluctuations and deliver superior returns over the long term.

Performance

The UK Equity Share Portfolio has been jointly managed by Ciaran Mallon and James Goldstone over the period. Disappointingly the portfolio saw negative NAV total return performance during the year, underperforming the benchmark by 3.0%. The NAV total return of the UK Equity Share Portfolio over the year was -2.6%, which compares with the total return of 0.4% from the FTSE All-Share Index. The share price total return was -4.7%. Market sentiment was dominated by the impact of sharply increasing inflation and resulting interest rate rises, with the Bank of England increasing rates eight times during the year from 1% to 4.5%. Portfolio performance was mixed, with positive performance relative to the benchmark in three sectors, including strong performance in healthcare and energy stocks and with a number of sectors detracting from overall performance, including basic materials.

The Global Equity Income Portfolio, managed by Stephen Anness, saw positive NAV total return performance, outperforming the benchmark total return by 6.0%. The NAV total return of the Global Equity Income Share Portfolio over the year was 9.8%, which compares to the total return from the MSCI World Index (£) of 3.8%. The share price total return was 4.6%. Globally, market sentiment has similarly been dominated by concerns around rising inflation and the impact on economies of central bank actions in raising rates in order to bring inflation back under control. Against this backdrop the portfolio remained committed to strong stock selection rather than being focused on the broader topics of sector over or under weight allocations, geographic or macro-economic trend forecasting.

The Balanced Risk Allocation Portfolio, by its very nature, has a combination of equities, bonds and commodities exposures. It is managed by Invesco's Global Asset Allocation Team, based in Atlanta. During the period under review, the NAV total return of the Balanced Risk Allocation Share Portfolio was -11.4%, which outperformed the total return from its composite benchmark, which was down by -17.1%, by 5.7%. The share price total return was -14.3%. The portfolio's performance over the period was challenged by the environment of higher inflation and widespread interest rate hikes, with each asset class struggling against declines across commodities, equities and bonds. Tactical allocation was also difficult, with inconsistent returns making positioning in each asset class problematic.

The NAV total return on the Managed Liquidity Portfolio, managed by Derek Steeden, was 3.5%. The share price total return was -5.2%. The portfolio's very short duration helped protect from falls experienced in the wider bond market as a result of interest rates rising faster than expected. As I stressed in my statement last year, it is important to note that although this share class has a lower risk profile than the Company's other three share classes, it is not designed to be a cash fund, and as such is not without risk to capital.

Gearing

The UK Equity and Global Equity Income Portfolios are able to employ gearing by means of a bank loan facility. Your Board has again renewed this facility at a level of £40 million to allow the Portfolio Managers to employ gearing, if desired, across the two equity portfolios. The Portfolio Managers use this facility tactically and actively, increasing or reducing the level to take advantage of market opportunities. The gross gearing level on the UK Equity Share Portfolio ended the year at 7.7% and the Global Equity Income Portfolio had no gearing at the year-end.

Dividends and Dividend Policy

We have continued to apply the dividend policy adopted six years ago, and supported by shareholder advisory votes, whereby for both UK Equity and Global Equity Income Shares, dividends are paid by way of three equal interim dividends declared in July, October and January with a `wrap-up' fourth interim declared in April. For the year under review the first three dividends declared for the UK Equity Shares were 1.50p per share and for the Global Equity Income Shares 1.55p per share. The fourth interim dividends were 2.55p per share for the UK Equity Shares, bringing the total to 7.05p per share for the year (2022: 6.70p), and 2.55p per share for the Global Equity Income Shares, bringing that total to 7.20p (2022: 7.15p) per share for the year.

Your Company's dividend policy permits the payment of dividends in all four portfolios from capital. With the total income of your Company increasing to £7.40 million (2022: £6.99 million) the contribution from capital required for the Company's dividends to meet the Board's target level was reduced from 2022 levels. For the Global Equity Income Shares a contribution from capital of approximately 2.00p per share was required to achieve the dividend level (2022: 2.30p per share). For the UK Equity Shares a contribution from capital of approximately 0.65p per share was required to achieve the dividend level (2022: 0.70p per share).

The Board intends to continue with the policy of a partial augmentation from capital where appropriate and as we have updated the dividend policy for those share classes for the current financial year, UK Equity and Global Equity Income shareholders are again being given advisory votes on it. We did not set dividend targets for the year ended 31 May 2023 due to the uncertainty of income flows as a result of the pandemic.

For the year under review the Board declared one interim dividend of 1.00p for the Managed Liquidity Shares (2022: 1.00p). The Board has also declared an interim dividend for the year ended 31 May 2024, payable as noted above, of 1.00p per share for Managed Liquidity Shares. This dividend is payable from current year revenue. Given the quantum involved it is unlikely that such payments will be more frequent than annually and may indeed be less frequent.

For the year under review the Board also declared one interim dividend of 1.00p for the Balanced Risk Allocation Shares (2022: nil). The Board had not previously declared a dividend for the Balanced Risk Allocation Shares. Additionally, the Board declared an interim dividend for the year ended 31 May 2024, payable as noted above, of 1.00p per share for the Balanced Risk Allocation Shares and, in expectation of higher levels of income being received by the Portfolio, a special dividend of 2.00p per share. It continues to be the case that in order to maximise the capital return on the Balanced Risk Allocation Shares, the Directors only intend to declare dividends on this share class annually, when the level of income allows, and dividends may be paid less frequently.

The first interim dividends declared in respect of the year to May 2024, which will be paid on 15 August 2023 to shareholders on the register on 21 July 2023, were 1.60p per share for UK Equity Shares, 1.60p per share for Global Equity Income Shares, 1.00p per share for Balanced Risk Allocation Shares and a special dividend of 2.00p, (making a total of 3.00p), and 1.00p per share for Managed Liquidity Shares.

For the year ending 31 May 2024, the Board will target at least maintaining the dividend level from year to year for each of the UK Equity and Global Equity Income Shares. Depending on the level of income received in the relevant quarters, the quarterly dividends for each share class may be enhanced with contributions from capital. Typically, the first three interim dividends will be equal in size with a final fourth interim dividend that has the potential to be increased. The Directors only intend to declare dividends on the Balanced Risk Allocation Shares and Managed Liquidity Shares annually when the level of income allows and having taken into account the dividends paid on the other Share classes.

Discount Policy

Your Company adopted a discount control policy for all four share classes in January 2013, whereby the Company offers to issue or buy back shares of all classes with a view to maintaining the prices of the shares at close to their respective net asset values. The Board remains committed to its utilisation, although it has stepped back at times during the period under review in light of market volatility due to the geopolitical events noted in my commentary on market background above. Discounts have been somewhat wider than before, in line with discounts generally across the investment trust market, which have moved out to levels not seen for some time. The ongoing implementation of this policy is dependent upon your Company's authority to buy back shares, and the Directors' authority to issue shares for cash on a non pre-emptive basis, being renewed at general meetings of the Company.

As noted below, the completion of the cancellation of the UK Equity and Balanced Risk Allocation share premium accounts frees up additional reserves and gives your Company ample scope to continue share buybacks should it be perceived to be in shareholder's best interests.

Share Capital Movements

During the year to 31 May 2023 your Company bought back and placed in treasury 3,772,000 UK Equity Shares at an average price of 165.5p, 740,000 Global Equity Income Shares at an average price of 224.9p, 110,000 Balanced Risk Allocation Shares at an average price of 132.9p and 80,000 Managed Liquidity Shares at an average price of 94.75p. Other than in connection with the share conversion process, no shares were issued during the year. In addition, no shares were sold from treasury and no treasury shares were cancelled. No further shares have been bought back into treasury since the year-end. The Board intends to use the Company's buy back and issuance authorities when this will benefit existing shareholders; and to operate the discount control policy mentioned above; and will ask shareholders to renew the authorities as and when appropriate.

Share Class Conversions

Your Company enables shareholders to adjust their asset allocation to reflect their views of future market returns. Shareholders have the opportunity to convert their holdings of shares into any other class of share, without incurring any tax charge (under current legislation). The conversion dates for the forthcoming year are as follows: 1 August 2023; 1 November 2023; 1 February 2024; and 1 May 2024. The total number of Share class conversions that have occurred over the year's conversion opportunities resulted in net flows of £2.0 million out of the UK Equity Share Portfolio; of £1.8 million into the Global Equity Income Share Portfolio; of £0.1 million into the Balanced Risk Allocation Share Portfolio; and £0.1 million into the Managed Liquidity Share Portfolio. Should you wish to convert shares at any of these dates, conversion forms, which are available on the Manager's website at www.invesco.com/uk/en/investment-trusts/invesco-select-trust-plc.html, or CREST instructions must be received at least ten days before the relevant conversion date.

Cancellation of the UK Equity and Balanced Risk Allocation Share Premium Accounts

As I noted in the Half-Yearly Financial Report, following class consents and approval of shareholders at your Company's Annual General Meeting on 4 October 2022, the Court process to cancel the share premium accounts of the UK Equity and Balanced Risk Allocation Share Classes was implemented on 17 November 2022. Following the implementation the entire share premium account of each of the UK Equity and Balanced Risk Allocation Share Classes was cancelled, amounting to £121,700,000 and £1,290,000, respectively. These distributable reserves provide your Company with flexibility, subject to financial performance, to make future distributions and/or, subject to shareholder authority, in buying back shares.

New Corporate Broker

Winterflood Securities Limited were appointed as the new sole corporate broker and financial adviser to your Company, with effect from 2 May 2023.

Board Matters

There were no changes to the composition of the Board during the year under review. In 2022, the FCA published new rules to encourage companies to report on their board's ethnic and gender diversity. These rules apply to your Company for the year under review and you will find appropriate disclosures on pages 55 and 56. The Board will take into account these new requirements in its next round of succession planning.

All directors will stand for re-election at the forthcoming AGM, details of which are set out below.

Environmental, Social and Governance (`ESG') Considerations

The Board recognises the importance of ESG and the Portfolio Manager's scrutiny of these factors in the underlying portfolio of companies as part of the wider investment process and the consideration of investment risk, opportunity and valuation. Although the UK Equity and Global Equity Income Portfolio Managers are not bound by specific ESG criteria and have the ability to invest across the full ESG spectrum, ESG considerations are fully integrated into the investment process. In addition, the Portfolio Managers engage with investee companies on ESG issues, as well as on broader matters of company strategy and performance, throughout the duration of the investment, with the aim of challenging, assessing and monitoring risk and which is further supported by Invesco's large and well-resourced global ESG Team. Further information on the UK Equity and Global Equity Income Portfolio Manager's ESG processes and engagement is set out in their ESG Statement on pages 39 to 43.

Reporting under the Task Force on Climate Related Disclosures

In accordance with the requirements of the Taskforce on Climate Related Financial Disclosures (`TCFD'), Invesco Fund Managers Limited provided product level reports for the investment trusts it manages in late June 2023. The report for your Company, covering the UK Equity and Global Equity Income Share Classes, is available on the Manager's website at www.invesco.com/uk/en/investment-trusts/invesco-select-trust-plc.html. Given the underlying portfolio holdings of the Balanced Risk Allocation and Managed Liquidity Share Classes are not covered by relevant climate analytic methodologies, the report for the Company does not cover those two portfolios. Key elements of the report includes climate metrics for the respective UK Equity and Global Equity Income portfolios, including versus their applicable benchmarks, a scenario analysis of how climate change is likely to impact the respective portfolio assets under orderly, disorderly and hothouse world scenarios, and a discussion of the most significant drivers of performance under those scenarios.

Consumer Duty

The Board is cognisant of the FCA's Consumer Duty rules, which set higher and clearer standards of consumer protection across financial services and aim to put customer needs first. Whilst the rules do not directly apply to your Company, they do require the Manager to consider the needs, characteristics and objectives of their customers and to deliver key outcomes. The Board has received regular updates from the Manager on its implementation plan, including the positive results of its value assessment on each of the four portfolios. The Board will continue to monitor the Manager's compliance, which will be formally reviewed, as part of the annual assessment of the Manager, by the Management Engagement Committee.

Annual General Meeting (`AGM')

I am pleased to invite all our shareholders to the Company's AGM which will be held in person at 43-45 Portman Square, London, W1H 6LY at 11.30am on 2 October 2023.

As well as your Company's formal business, there will be a presentation from the UK Equity and Global Equity Income Portfolio Managers. Shareholders will have the opportunity to put questions to the Directors and UK Equity and Global Equity Income Portfolio Managers. Light refreshments will be available. Shareholders may bring a guest to this meeting. To register your interest in attending, please contact us at [email protected].

For those unable to attend the AGM in person, we will be posting updates from each of the Portfolio Managers on our website after the AGM. The business of the AGM is summarised in the Directors' Report on pages 64 and 65. It is recommended that shareholders exercise their votes by means of registering them with your Company's registrar ahead of the meeting, online or by completing paper proxy forms, and appoint the Chairman of the meeting as their proxy. The Board has considered all the resolutions proposed in the Notice of the AGM and believe they are in the best interests of shareholders and your Company as a whole. Accordingly, the Directors recommend that shareholders vote in favour of each resolution, as will the Directors in respect of their own shareholdings.

Once again, I look forward to meeting as many of you as possible at the AGM.

Outlook

Within the context of my earlier comments on the market backdrop, we expect market volatility to continue and this may present your Portfolio Managers with attractive investment opportunities. In times of volatility, the worst days are often followed by the best days, and one needs to remain invested to capture those days.

Your Company's UK Equity and Global Equity Income Portfolios are committed to a `valuation based' approach, which aims to identity the true valuation of a company and whether the current share price reflects this. Although, it is difficult to know how long the market will take to appreciate the value of a company, your Managers identify specific drivers that aim to enable this recognition. UK equities, in general, have experienced a prolonged period of being rather unwanted, unfashionable and unloved, and share prices have been affected by a significant withdrawal from this market. Their value is being very gradually recognised and we expect an uptick in M&A. In the US, it has been striking to note how narrow the market has been, with performance concentrated across a handful of names and a marked difference between the S&P 500's returns versus that minus its seven dominant stocks. We are starting to see some signs of this normalising. The Managers are of the view that income, in the form of dividend, is an important constituent of the total return of the equity portfolios. They have a strong belief in the ability of equities to protect the investor from the effects of inflation over the long term.

The Balanced Risk Allocation Portfolio aims to deliver equity-like returns but with half the volatility of equity markets. Although there will still be day-to-day volatility, over the longer term investors may have a smoother experience in the price movements, gained through a diversified spread of exposures across equity, bond and alternative assets.

By investing predominantly in ultra-short dated bonds, the Managed Liquidity Portfolio aims to offer a higher degree of security for those with a more conservative outlook; its investments may be impacted by interest rates as well as other factors.

As I write, we are starting to see evidence of inflationary pressures beginning to ease slightly, with the expectation across US, European and UK markets, that the rate rise cycle is coming to an end. Your Managers expect a more substantive downward move in inflation over the autumn. I continue to believe that your Company's structure and portfolios remain well positioned to negotiate the market challenges and opportunities that lie ahead.

Victoria Muir

Chairman

1 August 2023

UK Equity Share Portfolio Performance Record

Total Return

For the year ended 31 May

(1) Source: Refinitiv.

UK Equity Share Portfolio Historical Shareholder Returns from an Initial Investment of £1,000 on 31 May 2013

Source: Refinitiv.

UK Equity Share Portfolio Managers' Report

Q What has been happening in the UK equity market over the period?

A For most of the twelve-month period market sentiment was dominated by the impact of sharply increasing inflation on the economy primarily driven by global supply chain disruptions, increased commodity prices and pent-up consumer demand. In response to rising inflation, the Bank of England took a cautious approach to monetary policy, considering the potential impact on the economy that was still partially in a recovery phase post pandemic. Interest rates were adjusted incrementally in an attempt to strike a balance between controlling inflation and supporting economic growth. The Bank of England raised rates eight times during the period from 1% to 4.5% and, subsequent to the end of the review period, raised rates by a further 0.5% to 5% in response to persistently high readings on inflation and also pay.

The FTSE All-Share Index has a large weighting to commodity and energy stocks. As commodity and energy prices moderated in the second-half of the period under review estimates of aggregate earnings were revised downwards and this weighed on the performance of the Index. Outside the energy sector underlying earnings estimates have been broadly flat, although estimates in the banks sector have been revised up as interest rates have continued to rise. The technology, industrials and consumer discretionary sectors were the strongest performing sectors over the period, whilst telecoms, real estate and basic materials were significantly weaker.

Q How did the portfolio perform and what were the key contributors and detractors to performance over the year?

A The portfolio underperformed its benchmark over the twelve months to 31 May 2023, with a net asset value return of -2.6%. Over the same period the FTSE All-Share Index rose +0.4%.

At a sector level the biggest contribution to positive performance versus the FTSE All-Share Index over the twelve-month period was the portfolio's underweight to the healthcare sector. The portfolio's holding of PureTech Health performed well. In March the company announced that it had sold a portion of its royalties derived from sales of a treatment for schizophrenia (developed by a company it founded, Karuna) for $100 million upfront and $400 million in future revenues. In our view, the quality of the development pipeline and the valuation of the PureTech Health business remains compelling. Not holding GlaxoSmithKline was helpful to overall performance as the company's share price struggled to recover from litigation concerns around its Zantac drug which was alleged to have links to cancer.

The price of crude oil and natural gas has fallen steadily over the twelve-month period as supply has normalised. The portfolio weighting to the energy sector is in line with the benchmark and both BP and Shell contributed modestly to performance.

The portfolio is overweight to the industrials sector and despite the sector detracting from performance overall, there were a number of holdings that performed well. Ferguson announced better than expected results in the fourth-quarter and continuing share buy backs. Within the same sector Bunzl and Coats both delivered better than expected results and were two of the strongest performing holdings overall, but this performance was offset by weakness in the portfolio's holdings of Chemring, which issued a downbeat update earlier in the year following delays in customer procurements, energy and wage inflation and labour shortages. Subsequent to the end of the review period the share price has recovered sharply following a report of record first-quarter order intake. Essentra reported a drop in fourth-quarter sales and a tough trading environment.

Financials detracted overall as a sector but there were some notable strong performances in the portfolio. Insurance holdings Lancashire and Hiscox both contributed strongly to relative performance. Lancashire saw an increase in gross written premiums and both firms reported smaller than anticipated losses from Hurricane Ian which made landfall in Florida in September 2022. Unfortunately, some of this strong performance in financials was offset by Barclays, a top 10 holding in the portfolio, which was slightly weaker over the period. Additionally, not holding benchmark heavyweight HSBC which performed well over the period detracted from relative performance.

Consumer discretionary stocks remained under pressure due to cost of living increases, however, RELX and Whitbread posted notable performances. RELX, which has activities in areas such as science journals, risk analytics, legal databases and exhibitions, issued revenue and profit growth guidance above expectations which was well received by the market, and Whitbread issued a strong trading update. JD Sports Fashion also performed strongly in the second half of the twelve-month period. Unfortunately, these strong performances in the sector were partially offset by Future which has been weaker following the announcement last year that the Chief Executive was planning to step down. We believe that the succession planning for the business has been carefully conducted and remain confident of the business's prospects.

The portfolio is overweight the utilities sector and SSE, a leading developer and operator of renewable energy (predominantly wind and hydroelectric) across the UK and Ireland performed well. We see SSE as one of a number of companies that are key to the successful transition to Net Zero. Drax is another example and has successfully transitioned from a coal fired electricity production to almost completely generating power from sustainably sourced biomass. Unfortunately, the company's prospective carbon-capture project failed to be selected for fast-track financing discussions with the UK government and this weighed on the share price. However, it has been invited for formal discussions with the UK government to help the deployment of large-scale Power BECCS (Bioenergy with Carbon Capture and Storage).

Consumer staples was a sector of mixed performance. The portfolio is underweight the sector but the holdings of Tesco, British American Tobacco (BAT) and Cranswick contributed overall to relative performance, as did not holding Diageo and Ocado, both of which were weaker over the period. However, these gains were offset by the portfolio's holding of Nichols and not holding large international branded staples producer Unilever, which performed well and therefore detracted from relative performance.

Sharp rises in interest rates have impacted the whole of the property sector due to the typically high levels of debt and therefore sensitivity to higher interest rates. PRS REIT, which provides high quality new build homes for the rental market has inevitably been weaker in this environment, but the business has an impressive portfolio of properties and demand for rental homes in the UK is growing and will likely see further demand as interest rates look set to remain higher in the immediate future.

Basic materials detracted from relative performance as gold miners Newmont and Barrick Gold were weaker. Gold rallied strongly from November 2022 to the beginning of April 2023 before moderately tailing off towards the end of the period. Newmont reported second-quarter adjusted earnings per share that were below expectations. Similarly, Barrick Gold's first-quarter results were mixed with production modestly lower due to maintenance, and elevated costs. Historically gold has been a good hedge against inflation and with inflation likely to remain higher for longer, we believe this position will provide some diversification benefits in the months to come, accompanied by an attractive yield.

On the flipside, still within the basic materials sector, not owning large international industrial metals & mining companies Anglo American, Glencore and Rio Tinto was helpful to relative performance versus the benchmark as the share prices of all three were weaker over the period due to weaker base metal and bulk commodity prices since the beginning of this year.

Q How has gearing impacted the performance and what is your strategy going forward?

A The use of gearing in the portfolio over the period was slightly detrimental to overall performance. Gearing at the start of the twelve-month period was just under 11% and this was reduced to around 0% by December 2022 before rising to around 7.5% at the end of the period in May 2023. This level is below the limit of 25% set by the Board.

The level of gearing is under regular review. In the current higher interest rate environment, the cost of gearing the portfolio is now a more important consideration when ascertaining the appropriate level for the portfolio. We are comfortable that the current level of gearing provides an opportunity to enhance the portfolio's returns relative to the FTSE All-Share Index when considering a wider macro view and the opportunities in the portfolio.

Q Have your views on inflation changed over the last twelve months and have you altered your approach at all as a result?

A Having risen to levels far higher than anyone had anticipated, the expectation was that inflation would fall more sharply than has been the case. Many commentators had described their expectations for inflation as `transient' but in fact it has been more persistent than most had predicted. Our view over the review period had been that inflation would remain higher for longer and that view has strengthened over the course of this year. Consequently, to curb inflation, interest rates have risen sharply. For the businesses in which we invest, this increases the cost of capital. Our focus has therefore become even more concentrated on strong businesses with pricing power and robust balance sheets.

Q How has the portfolio evolved over the period and how is it currently positioned?

A There have been no material adjustments to the positioning of the portfolio although there has been some trading activity. The holdings of Barratt Developments, DFS Furniture, Johnson Service, Jupiter Fund Management, Restaurant Group and Vodafone were disposed of whilst Next, AstraZeneca and Newmont were reduced in size. The sale of Barratt Developments reflected our view that housebuilders were likely to come under increasing pressure as interest rates rise, whilst DFS Furniture, Restaurant Group and Johnson Service were all sold as the consumer came under increased pressure with the rising cost of living and pressure on disposable incomes. Jupiter Fund Management was sold as the business continued to struggle with performance and fund outflows and we lost conviction in the investment case.

New positions in Lloyds and Man were introduced in the portfolio. The portfolio already has a long standing holding in Barclays, but we think that a holding in Lloyds will complement and diversify our banking exposure. Lloyds has the largest share of retail deposits in the UK and less exposure to corporate business. The business has a new leadership team with a clear mid-term growth strategy & return potential. Man is a leading hedge fund manager with a strong track record of investment return and performance fee generation which should support significant capital returns and share buy backs. The business has multiple and diversified sources of performance fee generation across a broad client base, all of which reduces the risk.

On a sectoral basis and relative to the FTSE All-Share Index, we remain over-weight in utilities and consumer discretionary stocks. The overweight to utilities offers an inflation-linked return that in our view remains underappreciated. We have also maintained our exposure to energy as these companies generate significant free cash flows and make substantial distributions to shareholders, even at currently reduced oil prices. Even in the case of economic weakness we would expect oil prices to prove resilient from here, at least relative to other commodities, as the Organisation of the Petroleum Exporting Countries (OPEC) will continue to manage supply. It is also possible that they will benefit from a rerating as they are rewarded for their increased commitment to invest in low carbon energy projects.

We remain under-weight in consumer staples which we see as expensive, and financials in general but we do have a sizeable position in banks stocks Barclays and Lloyds.

Q What is your outlook for the next 12 months and beyond? Why invest in the UK now?

A The UK economy has weathered its fair share of challenges. However, despite the headwinds of high inflation and higher interest rates, which have been more persistent than anticipated and will likely remain higher for longer, we remain optimistic that inflation will start to moderate towards the end of 2023. The uncertainties in the global economy and the geo-political landscape continue to make the range of possible outcomes particularly wide. We believe that to mitigate these continuing headwinds, a strategy of focusing on companies that are good quality, with sound fundamentals and strong cash generation, is the right course to follow. By carefully selecting stocks with strong liquidity, we can remain active and maintain a portfolio of our highest conviction ideas, across a range of sectors. We remain confident in the long-term prospects of the companies that we own in the UK Equity Portfolio and further believe that these companies have the potential to strengthen their competitive positions in the year ahead irrespective of the economic and market regime that will develop.

We continue to engage closely with the management teams of the companies in which we invest. It is often during challenging market conditions that their insight and expertise, from the sectors and economies in which they operate, is extremely useful and complementary to the data and analysis that is already available to us. It is also due to the global footprint of these companies in the FTSE All-Share Index, that we often say the UK equity market is not a proxy for the UK economy. More than 75% of corporate earnings in the FTSE All-Share Index are derived internationally. UK equities continue to appear attractively valued across a blend of valuation measures, relative to history, and relative to the US market. This opportunity is not just at an index level, but in fact across all the major sectors.

The current environment continues to be difficult to predict. The Bank of England has a difficult task to get inflation under control without inflicting undue damage on the economy by withdrawing economic stimulus. Whilst we believe that inflation may begin to fall later this year, this will be largely due to annualising high prices from last year. The price level for many goods and services will likely remain elevated. Those companies that are able to pass on or absorb these increases, will likely fair better in our view; and although concerns of a shallow recession loom, by strategically positioning the portfolio for a range of outcomes we hope to navigate the potential headwinds that might occur.

James Goldstone & Ciaran Mallon

Joint Portfolio Managers

1 August 2023

UK Equity Share Portfolio List of Investments

AT 31 May 2023

Ordinary shares listed in the UK unless stated otherwise

AIM Investments quoted on AIM.

† FTSE Industry Classification Benchmark.

UK Equity Share Portfolio

Individual portfolio breakdowns are provided for additional information only. See note 1(a)(ii) on page 88 for further details.

Income Statement

FOR THE YEAR ENDED 31 MAY

Summary of Net Assets

AT 31 MAY

Summary of Changes in Net Assets

FOR THE YEAR ENDED 31 MAY

Global Equity Income Share Portfolio Performance Record

(1) Source: Refinitiv.

Global Equity Income Share Portfolio Historical Shareholder Returns from an Initial Investment of £1,000 on 31 May 2013

Source: Refinitiv.

Global Equity Income Share Portfolio Manager's Report

Q How did the portfolio perform in the year under review?

A We are pleased to report the portfolio outperformed both its peer group and its relevant benchmark. The net asset value of the portfolio grew in the year to 31 May 2023, by 9.8%, this exceeded the return of the comparator benchmark which increased in value by 3.8%.

The whole of the year to May 2023 in financial markets was dominated by concerns around rising inflation, and the impact on economic activity of central bank actions (i.e. raising interest rates) to bring it back under control. Investor sentiment has swung between periods of pessimism such as in summer and early autumn 2022, where investor expectations became overly bearish expecting a deep recession in response to the rapid tightening of monetary policy; to periods through the spring of 2023 where optimism around new technology (such as AI) and resilient corporate earnings, together with better inflation data, have fuelled hopes of a soft landing for the global economy.

At a regional level, the US market has been dominated by sentiment around the technology sector; it was extremely weak through much of 2022, however recovered strongly during 2023 despite a mini regional banking crisis on positive earnings announcements and more recently expectation of a new wave of earnings growth arising from developments in AI. The UK has been amongst the worst performers globally over the 12-month period, its large index weight in commodity and energy stocks was a drag as prices fell back following the sharp spikes post the Russian invasion of Ukraine. Europe has performed somewhat better, the expected energy crisis over the winter of 2022 did not materialise and generally the economy and corporate earnings have exceeded expectations. In Asia, the recovery of the Chinese economy from Covid-19 has been slower than expected, the region has performed relatively poorly. In contrast to Japan, where particularly in 2023 the stock market has outperformed other regions, being seen by investors as something of a safe haven from rising interest rates whilst enjoying reasonable valuations.

Q What were the key contributors and detractors to performance?

A Performance of the fund was driven by stock selection rather than over or under allocation to geographies or sectors. We are comfortable, indeed pleased with this as we spend most of our time analysing individual stocks rather than looking at macro-economic trends and forecasts.

The largest position in the portfolio, 3i, was also the largest positive contributor. We have held 3i, the UK listed private equity company since 2021. We are attracted to the quality and future growth potential of its largest asset, Action, a European discount retailer. It generates high returns, and we believe it retains significant growth potential. We are also impressed by the quality of 3i's management and how they have managed the remainder of their portfolio assets.

During the summer/autumn 2022 market weakness we added to our semiconductor holdings such as Broadcom and Nvidia, both of which subsequently performed well. We acquired a position in Besi, a Dutch listed company specialising in a semiconductor packaging technique known as hybrid bonding, which improves the overall performance, power efficiency and cost of semiconductors. We felt it was trading well below its intrinsic value. The recovery in the share price since has been strong, although justified in our view by some significant new customer wins. We retain a position though we have taken some profits.

Verallia, the French listed glass packaging manufacturer performed well as natural gas prices collapsed and the resilience of the business model became better understood.

Other strong contributors included Next where we built a position during the UK market dislocation following the budget whilst Liz Truss was Prime Minister, we sold the position in spring 2023 following strong performance. Also, Broadcom, the US based semiconductor company specialising in chips for the communications sector, where the company has continued to deliver results ahead of market expectations.

On the negative side of the ledger our holding in American Tower, the real estate company focused on owning and renting sites for mobile phone masts was weak as investors became more concerned by the impact of rising interest rates on profitability. The other property asset in the portfolio, Link REIT, the Hong Kong property company, was also weak for this reason, but also the slow economic recovery in Asia and its decision to raise capital.

We are underweight in the energy sector, but our only holding, Aker BP, the Norwegian oil producer was an underperformer. There was no bad news, however the stock drifted lower with the underlying commodity price.

Top Contributors

Q Has the portfolio changed significantly over the period?

A The portfolio has evolved quite considerably over the period. However, it is interesting to note the largest holdings in the portfolio at year end 2022 remain our largest holdings today, such as 3i, Verallia, American Tower, Broadcom, AIA and Microsoft. Others such as Standard Chartered and Coca-Cola are just outside the top ten holdings.

Another constant has been our overweight in the financials sector, however whilst we are overweight in the insurance sector and private equity companies (3i and KKR & Co) we continue to be very underweight banks. Whilst we acknowledge rising interest rates have provided a tailwind to interest income, we remain concerned by credit quality risks as the global economy slows down. By year end Standard Chartered was our sole bank holding.

As already mentioned, market sentiment has swung between pessimism and over optimism, we have taken the opportunities provided by the market to buy good companies when we felt they were on sale. In the early part of the period, we reduced exposure to consumer staples such as Nestle, and US DIY chain Home Depot as we felt they were fully valued. We increased exposure to more cyclical and technology names such as Celanese, the US based chemical company with a strong record of value creation, also the aforementioned Besi who produce equipment that increases the efficiency and performance of semiconductors. We also added US-based Intercontinental Exchange (ICE), the global exchange and data services company, after recent share price weakness led to a more attractive entry point. In the latter part of the year we scaled back some of our more economically sensitive holdings where our conviction was lower, selling out of JP Morgan, the US bank and Volkswagen (VW), the German automotive manufacturer. We added Asahi, and Royal Unibrew, the Japanese and Danish brewers whose recovery prospects post pandemic we felt were underappreciated, and toward the end of the period Reckitt Benckiser the UK listed household consumer products company.

Q Do you worry the crisis during the spring in US regional banks is a foretaste of banking turmoil in the year ahead?

A Whilst we would never completely rule it out as banks remain leveraged plays on the global economy, we believe it is extremely unlikely. The circumstances that pertained to Silicon Valley Bank and First Republic in the US were quite unique. The larger banks in the US and in particular Europe are much better capitalised and regulated than before the financial crisis of 2008. However, at present we do not find the risk reward profile attractive relative to other opportunities in the market.

Q There is much excitement around the potential for Artificial Intelligence, what's your take?

A The emergence of Chat GPT in recent months, and then the significant rise in profit guidance from Nvidia toward the end of May 2023 has set interest in this developing technology alight. Our view is that it is a further evolution of the digitalisation trends in almost all areas of our lives. It will provide a further leg to growth for the broader semiconductor and software industries in years to come.

We held Nvidia through most of the period, making close to 60% profit on our investment. We sold in March/April 2023 as we saw the company as being fully valued. Clearly if they can deliver on recent forecasts, we would be proved wrong, but we felt the risk/ reward trade-off was no longer compelling given the high valuation of the stock.

We would caution however on getting carried away, other than Nvidia there are not many pure plays on the theme and share prices across the whole technology sector have moved sharply higher in recent months. Much future good news is already priced into the sector.

Q How has the portfolio gearing evolved over the last year?

A We started the year in June 2022 with around 10% portfolio gearing, toward the end of 2022 following a reasonable recovery in markets it was reduced to around 7%, then 5% in March 2023 following a strong start to the year. By 31 May 2023 the portfolio had no gearing, reflecting our greater caution considering strong market performance set against what appears to us to be a very uncertain macroeconomic outlook around the world.

Q When considering stock selection for the portfolio, how do you incorporate ESG risks and considerations.

A Our approach whilst always evolving has not changed significantly over the last year.

We view analysing ESG risks as a key part of our investment process. As active, fundamental managers we consider every key aspect of a company's true worth, including material ESG considerations because we believe that the most sustainable way to make money is to buy companies for less than they are worth. Establishing an estimated `fair value' of a company is therefore essential and this entails incorporating ESG aspects into our investment methodology. We take a holistic approach where a company's ESG credentials are scrutinised alongside traditional financial and qualitative aspects to derive a fair value. All companies face challenges regarding ESG and therefore we must consider materiality (the impact of ESG factors on fair value) and ESG momentum (the potential for ESG improvement over time). Both can influence a stock's potential returns and our conviction levels in an investment. As shareholders we actively engage with companies to enhance the value of our investments. We encourage companies to create sustainable value and mitigate risks in relation to their corporate activities. This can include prompting them to improve governance structures, make better asset allocation decisions, instilling sustainable practices and policies, and providing better disclosure. This reinforces our fundamental belief that responsible investing demands a long-term view and that a stakeholder-centric culture of ownership and stewardship is at the heart.

Q How do you view the outlook for financial markets in the next 12 months?

A We said last year how difficult we felt the market was to forecast, sadly this year is no different. We have become progressively more cautious through 2023 as valuations have risen and profit margins widened, whilst at the same time monetary conditions have tightened, this is reflected in our more balanced portfolio positioning and lack of gearing.

Our best assessment is that the global economy will continue to slow over the summer as the sharp rise in interest rates around the world increasingly impact businesses and the consumer, especially as excess savings built up during Covid-19 lockdowns have now been largely spent. We could see quite a contraction in economic activity and sentiment by the early autumn, which may well impact share prices. The upside would be a further reduction in inflation and hopefully by year end or early 2024 some modest decline in interest rates, which may well provide investors with renewed optimism. Our sense at present is that the US may be first to see falling interest rates, the UK last, Europe in between.

For our part we will continue to invest in companies with strong balance sheets and generating free cashflows. Of course, no company or portfolio can ever fully insulate itself from the prevailing economic weather, but we hope to continue to outperform our benchmark in what may well be choppy waters.

Stephen Anness

Portfolio Manager

1 August 2023

Global Equity Income Share Portfolio List of Investments

AT 31 May 2023

Ordinary shares unless stated otherwise

ADR American Depositary Receipts - are certificates that represent shares in the relevant stock and are issued by a US bank. They are denominated and pay dividends in US dollars.

R Red Chip Holdings - holdings in companies incorporated outside the PRC, listed on the Hong Kong Stock Exchange, and controlled by PRC entities by way of direct or indirect shareholding and/or representation on the board.

†  MSCI and Standard & Poor's Global Industry Classification Standard.

* The investment in Sberbank - ADR has been valued at zero as secondary listings of the depositary receipts on Russian companies have been suspended from trading.

Global Equity Income Share Portfolio

Individual portfolio breakdowns are provided for additional information only. See note 1(a)(ii) on page 88 for further details.

Income Statement

FOR THE YEAR ENDED 31 MAY

Summary of Net Assets

AT 31 MAY

Summary of Changes in Net Assets

FOR THE YEAR ENDED 31 MAY

Balanced Risk Allocation Share Portfolio Performance Record

Total Return

For the year ended 31 May

(1) Source: Refinitiv.

(2) With effect from 1 June 2021, the benchmark adopted by the Balanced Risk Allocation Portfolio is comprised of 50% 30-year UK Gilts Index, 25% GBP hedged MSCI World Index (net) and 25% GBP hedged S&P Goldman Sachs Commodity Index. Prior to this, the benchmark was ICE BoA Merrill Lynch 3 month LIBOR plus 5% per annum. Accordingly, both the new and old benchmark are shown.

Balanced Risk Allocation Share Portfolio Historical Shareholder Returns from an Initial Investment of £1,000 on 31 May 2013

Source: Refinitiv.

Balanced Risk Allocation Share Portfolio Manager's Report

Investment Objective

The investment objective of the Balanced Risk Allocation Portfolio is to provide shareholders with an attractive total return in differing economic environments, and with low to moderate correlation to equity and bond market indices by gaining exposure to three asset classes: debt securities, equities, and commodities.

Q How has the strategy performed in the year under review?

A The Balanced Risk Allocation Portfolio posted a negative return of -11.4% over the fiscal year, outperforming the benchmark by 5.7%. The past twelve months proved to be a challenging year amid an environment of higher inflation, widespread rate hikes and fresh concerns of a growth slowdown, leading to a renewed bout of volatility. Against this backdrop, risk assets broadly struggled with commodities declining the most, followed by bonds and equities.

Q What were the biggest contributors and detractors to performance?

A Exposure to commodity markets was the largest detractor from performance, with three of the four complexes posting losses, led by energy, reflecting increasing concerns about the current and future state of the global economy. Energy saw declines in all six exposures, with natural gas being the worst-performing commodity in the complex. Agriculture exposure also detracted, as the soy complex declined on news of a bumper crop in Brazil as well as a forecast from the International Grains Council that supply is likely to outpace demand in 2023. Sugar was the top agriculture contributor as a lack of product available for delivery has taken prices to 2011 levels. Industrial metals saw losses in both copper and aluminium as prices remain under pressure following continued disappointing economic data from China, the world's top consumer of these metals. Precious metals were the sole complex to post gains with both gold and silver advancing. Both gold and silver rose in response to the banking crisis, lower interest rates and a weaker US dollar.

Exposure to equities detracted from results for the period as three of the six markets contended with an environment of higher rates, higher inflation and ongoing geopolitical turmoil. Emerging market equities were the largest detractor from results as inflation pressures remained elevated and concerns of weakness in China, where the recovery has not been as robust as expected. Both US large and small caps declined as well, as the US Federal Reserve (Fed) continued to press forward with aggressive rate hikes amid disappointingly persistent inflation readings. Small caps underperformed large caps as investors shifted out of higher-beta exposure, the result of investors' clear preference for larger, more liquid stocks. European equities were a top contributor, despite rate hikes by the European Central Bank (ECB), benefiting from rising investor optimism. Lower energy prices helped the European continent avoid a stagflationary spiral and saw the Euro Stoxx 50 Index near its highest point since the Global Financial Crisis. Japanese equities were the top contributor for the period on relative valuations, strong earnings reports, encouraging corporate reforms and the Bank of Japan maintaining its accommodative monetary policy.

Exposure to government bonds detracted from results as five of the six markets produced negative results. A combination of strong tightening moves across most major central banks and persistently high inflation readings had bond investors expecting further hikes, reducing the attractiveness of bonds. The sole market to post positive results for the period was Japan. Yields across most of the markets in which the portfolio invests have seemingly peaked, but the path remains choppy and range-bound, reflecting ongoing uncertainty around the strength of both growth and inflation.

Q How did the tactical allocation perform?

A The tactical allocation detracted from performance as the inconsistency of returns month-to-month across assets made positioning difficult. Tactical equity disappointed due to a lack of persistent trend, with equities up one month, down the next. Tactical commodities detracted largely due to overweights across energy for most of the period. Tactical bonds detracted due to mixed positioning for most of the period.

Q What is your 30-day outlook?

A Due to the flexible nature of the portfolio in terms of allocation across asset classes, the outlook is reassessed every 30 days, hence the reason why this period has been chosen.

Although the highly anticipated recession has not materialised yet, there is still reason for caution. Markets have remained resilient, but global economic indicators are flashing recessionary signals. Multiple vulnerabilities mark the landscape, including the prospect of more interest rate increases and their ultimate effect on economic growth. Should economic strength continue, inflation will likely remain elevated, keeping monetary policy tight. Looking forward, one of the main questions to be addressed is whether such significant monetary tightening will lead to credit issues.

The latest tactical positioning, as at the date of this report, includes overweights across all equity markets. Emerging markets and US small caps have transitioned from underweight to modestly overweight. In fixed income, the tactical positioning is now underweight all markets except Japan. Positioning within commodities is similar to last month, with all four complexes maintaining net underweight positions.

Scott Wolle

Portfolio Manager

1 August 2023

Balanced Risk Allocation Share Portfolio List of Derivative Instruments

AT 31 MAY 2023

List of Investments

(1) The hedge fund investments are residual holdings of the previous investment strategy, which are awaiting realisation of underlying investments.

Derivative instruments held in the Balanced Risk Allocation Share Portfolio are shown on the previous page. At the year end all the derivative instruments held in the Balanced Risk Allocation Share Portfolio were exchange traded futures contracts. Holdings in futures contracts that are not exchange traded are permitted as explained in the investment policy on page 45.

Balanced Risk Allocation Share Portfolio

Individual portfolio breakdowns are provided for additional information only. See note 1(a)(ii) on page 88 for further details.

Income Statement

FOR THE YEAR ENDED 31 MAY

Summary of Net Assets

AT 31 MAY

Summary of Changes in Net Assets

FOR THE YEAR ENDED 31 MAY

Managed Liquidity Share Portfolio Performance Record

Total Return

For the year ended 31 May

(1) Source: Refinitiv.

(2) Includes a £34,000 (1.40p per share) refund of management fees in respect of prior year overcharges.

Managed Liquidity Share Portfolio Historical Shareholder Returns from an Initial Investment of £1,000 on 31 May 2013