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Invesco Perpetual Enhanced Income Limited

Half-Yearly Financial Report for the Six Months to 31 March 2018

KEY FACTS

Invesco Perpetual Enhanced Income Limited is a closed-end investment company with limited liability incorporated in Jersey. The Company's ordinary shares are listed on the London Stock Exchange.

Investment Objective of the Company

The Company's principal objective is to provide shareholders with a high level of income whilst seeking to maximise total return through investing in a diversified portfolio of high yielding corporate and Government bonds. The Company may also invest in equities and other instruments that the Manager considers appropriate. The Company seeks to balance the attraction of high yield securities with the need for protection of capital and to manage volatility. The Company generally employs gearing in its Investment Policy.

Full details of the Company's Investment Policy (incorporating the Company's investment objective, investment policy and risk and investment limits) can be found on pages 10 and 11 of the Company's 2017 annual financial report.

Performance Statistics

\* The increase in total return NAV includes a 0.2% enhancement to NAV generated by the issue of ordinary shares at a premium during the six month period.

(1) reflects 3,227,852 ordinary shares issued in the period.

(2) Source: Thomson Reuters.

INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN'S STATEMENT

CHAIRMAN'S STATEMENT

Results for the six months to 31st March 2018

For the six months under review, the Company has delivered a total net asset value return of -0.2%. This compares to 3 month LIBOR of +0.7%. The share price premium increased from 3.6% to 5.7% primarily reflecting the value placed by the market on the income stream available from the Company. This secondary market demand allowed the Company to issue 3.2million new shares at a premium and provided a net accrual of value to existing shareholders after costs. This accrual of value is consistent with the approach we have adopted in relation to the issue of new shares since the shares started to trade at a premium. It is not enough for "tap" issuance to be cost neutral, it should be value accretive.

The Managers' Report which follows continues the cautionary tone of much of their recent reporting. High yield bond prices remain elevated and yields correspondingly low. Markets remain vulnerable in the context of potential rate rises from U S and U K Central Banks during 2018. Borrowing at the period end was 21% Gross and 18% Net of cash balances. The Managers continue to seek opportunities capable of generating sustainable yields balanced with minimizing risk to capital.

Termination of Management Agreement

Shareholders will be aware of the announcement released by the Company on 23rd April 2018 stating that Invesco had decided to step down from the management of the Company. The announcement also acknowledged the good service provided to the Company by Invesco over the years.

I would like to take this opportunity to provide some further context around this development and the Board's role in relation to it. It is a key responsibility, indeed, duty of an independent board to keep the commercial terms under which the investment manager is engaged under review to ensure that they fairly reflect current market circumstances and practice. This is precisely what your Board has been doing. Shareholders will also be aware that the Directors together own 1,282,227 shares in the Company providing strong alignment with shareholders' interests generally.

In reviewing the terms of the investment management agreement which were last changed in 2014, the Board has noted the following particular matters:

i) The elevated level of the high yield market has created an environment where costs inevitably absorb an increasing proportion of gross returns. The results for this period demonstrate the point. Investment management costs constitute the largest proportion of total costs.

ii) A detailed review of fee structures for comparable vehicles, supported by our advisers, demonstrated that since 2014 commercial terms for managers have been moving distinctly to favour shareholders more. In addition, performance fees have been eliminated by many investment companies.

iii) The FCA review of the asset management industry has made it very clear to those charged with the governance of investment vehicles that they must be able to satisfy themselves that investment management fees represent good value for money for investors.

Having taken relevant advice and carried out detailed research, the Board concluded that the current arrangements with Invesco needed to be adjusted. A further point in tackling the Company's cost structure rests on the improvement to dividend cover which cost reductions can be expected to make. This will improve the long term sustainability of the income which can be offered. This point is particularly relevant in that our dividend is not currently fully covered by earnings albeit that the Company has significant levels of revenue reserves.

The Board and the Management Engagement Committee sought to reach a suitable accommodation with Invesco which we believed would reflect current market conditions. Despite detailed efforts by the Board and its advisers over an extended period, it was not possible to reach a satisfactory agreement and Invesco decided to step down and have subsequently declined an invitation to participate in the investment manager replacement process described below. Invesco will continue to manage the portfolio until a replacement is appointed under the 12 month notice period provided under the existing agreement.

Investment Manager Recruitment Process

The Board and its advisers believe that improved terms from suitably qualified managers will be available in the market. JP Morgan Cazenove has been retained to co-ordinate this process and I am able to confirm that in addition to the planned approaches being made to a number of leading bond managers, significant unsolicited interest from a variety of experienced bond managers has already been expressed and will be considered as part of the detailed process being carried out.

Board Composition

Had negotiations with Invesco, which commenced in November of last year, been successfully concluded it would have been my intention to retire from the Board. However, given the difficulties experienced I have remained as Chairman in order to see this very important matter completed in the interests of all shareholders. In any event, I will stand down on or before the next Annual General Meeting of the Company

Outlook

The market outlook is as earlier described. The Board is optimistic that with the recruitment of a high quality and experienced bond manager and a lower cost structure, the prospects for the future will be significantly improved with enhanced dividend cover and higher net returns for any given level of portfolio return.

Donald Adamson

Chairman

21 May 2018

PORTFOLIO MANAGERS' REPORT

Market Background

For bond markets the six months to the 31 March 2018 can be viewed as two distinct periods. In the last three months of 2017, markets were relatively quiet, with bond yields little changed. Volatility then increased during the first three months of 2018 amid concerns about higher interest rates.

Over the six months, the yield to maturity of the European currency high yield bond market as a whole rose 32 basis points (bps), ending March 2018 at 3.86%. Meanwhile the premium European high yield companies needed to pay to borrow over underlying government bonds (the credit spread) increased 50bps to 327bps. In the US, the yield increased 60bps to 6.56% with credit spreads rising 12bps to 372bps.

Among the key drivers of bond market returns during this period were US tax reforms and central bank activity.

The US government approved plans for tax reform in December 2017, with the cuts coming into effect in January 2018. The cuts helped fuel a wave of positive sentiment, with high yield bonds among the markets that rallied strongly in response. Sentiment in the high yield market was dented in February as rising government bond yields and questions over the sustainability of corporate earnings growth helped to spark a sharp rise in equity volatility.

Fears of tighter monetary conditions were given further weight in March 2018 when the US Federal Reserve hiked the Fed Funds rate for the sixth time in this cycle. The hike took the upper bound of the rate to 1.75% and at the time of writing, the Fed is expected to raise the Fed Funds rate another three times this year.

In November, the Bank of England reversed its post-Brexit cut in UK Bank Rate, returning the rate back to 0.5%. It remained at this level for the rest of the period. However, the Bank of England's Monetary Policy Committee was split 7-2 over whether to raise UK interest rates at its March meeting. While the majority were in favour of holding, the two dissenters wanted to hike the rate immediately because of what they saw as increased inflationary pressures. This increased market expectations that the rate will be hiked further in May.

After the increased levels of high yield bond issuance during 2017, the more challenging backdrop so far in 2018 has seen supply in the European high yield bond market fall. Data from Barclays shows that in the first quarter, there was €18.1bn of new supply, which is down 30% compared to the same period in 2017.

According to rating agency Moody's, default rates are forecast to remain low. Moody's predict that the US default rate will fall to 2.4% in 2018 and the European rate to just 1.2%.

Portfolio Strategy

The overall shape of our portfolio has not changed greatly. The core is made up of a selection of high yield bonds from seasoned issuers that we believe have a relatively low risk of default. These tend to be companies with balance sheets that are better equipped to cope with periods of weaker earnings. We have much less enthusiasm for highly leveraged companies in sectors dependent on the economic cycle. That is not to say that we will not invest in these areas; rather that we demand a much higher level of income to compensate for the additional risk such companies pose.

Our largest sector allocation remains financials, most notably subordinated bank capital. These are bonds that we think continue to provide a relatively attractive level of income relative to the risk. Banks have taken significant steps over the past few years to raise capital and to improve their balance sheets. Elsewhere, we also see some opportunities in corporate hybrids. These instruments are issued by companies across sectors and they can provide a nice balance between higher yield (due to their subordinate position in the capital structure) and the relative security of the stronger balance sheets of these issuers.

Over the period under review, the Company's NAV fell from 77.5p to 74.9p, a fall of 3.4%. The NAV total return was -0.2%. The portfolio entered the period with gross borrowing of 23%. This had been reduced to 21% by 31 March 2018.

Outlook

Overall we remain cautious; despite rising over the past six months, bond yields remain low in historical terms and continue to price in little room for disappointment in terms of earnings and economic data. In our view, this means the market remains vulnerable to correction. By identifying and understanding the credit risks within companies, we aim to identify those bonds that are being appropriately priced and those that are not. This should mean we will be well placed to exploit any opportunities such a correction might present.

Paul Read/Paul Causer/Rhys Davies

Portfolio Managers

21 May 2018

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risk factors relating to the Company can be summarised as follows:

- Investment Policy - the adopted investment policy and process may not achieve the Company's published investment objective.

- Market Risk - a fall in the stock markets and/or a prolonged period of decline in the stock markets relative to other forms of investments will affect the performance of the portfolio, as well as the performance of individual portfolio investments.

- Investment Risk - the investment process employed by the Manager is likely to result, from time to time, in a more concentrated portfolio than those of other investment funds.

- Foreign Exchange Risk - the movement of exchange rates may have an unfavourable or favourable impact on returns as the Company holds non-sterling denominated investments and cash.

- Shares - share price is affected by market sentiment, supply and demand for the shares, dividends declared, portfolio performance as well as wider economic factors and changes in the law. The market value of, and the income derived from, the Company's ordinary shares can fluctuate and may go down as well as up.

- Gearing Returns Using Borrowings - net borrowing may not exceed 50% of shareholders' funds. Borrowing levels may change from time to time in accordance with the Manager's assessment of risk and reward. As a consequence, any reduction in the value of the Company's investments may lead to a correspondingly greater percentage reduction in its NAV (which is likely to adversely affect the Company's share price).

- High Yield Corporate Bonds - corporate bonds are subject to credit, liquidity, duration and interest rate risk. Adverse changes in the financial position of the issuer of corporate bonds or in general economic conditions may impair the ability of the issuer to make payments of principal interest or may cause the liquidation or insolvency of the issuer.

- Derivatives - the Company may enter into derivative transactions for the purpose of efficient portfolio management. The Company will not enter into derivative transactions for speculative purposes.

- Reliance on External Service Providers - failure by any service provider to carry out its obligations to the Company could have a materially detrimental impact on the operation of the Company and affect the ability of the Company to successfully pursue its investment policy.

- Regulatory - whilst compliance with rules and regulations is closely monitored, breaches could affect returns to shareholders.

A detailed explanation of these principal risks and uncertainties can be found on pages 13 to 16 of the Company's 2017 annual financial report, which is available on the Company's section of the Manager's website at: www.invescoperpetual.co.uk/enhancedincome

In the view of the Board, these principal risks and uncertainties are as much applicable to the remaining six months of the financial year as they were to the six months under review.

GOING CONCERN

The half-yearly financial report has been prepared on a going concern basis. The Directors consider that this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In considering this, the Directors took into account the Company's investment objective, risk management policies and capital management policies, the diversified portfolio, the liquidity of the securities which can be used to meet short-term funding commitments, and the ability of the Company to meet all of its liabilities, including its repo financing, and ongoing

RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE MANAGER

Under International Financial Reporting Standards, the Company has identified the Directors as related parties. Transactions with Directors are limited to their remuneration. Transactions with the Manager comprise management and any performance fees. The basis of these has not changed from that reported in the latest annual financial report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

in respect of the preparation of the half-yearly financial report

The Directors are responsible for preparing the half-yearly financial report using accounting policies consistent with applicable law and International Financial Reporting Standards.

The Directors confirm that to the best of their knowledge:

- the condensed set of financial statements contained within the half-yearly financial report have been prepared in accordance with the International Accounting Standards 34 'Interim Financial Reporting';

- the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the FCA's Disclosure Guidance and Transparency Rules; and

- the interim management report includes a fair review of the information required on related party transactions.

The half-yearly financial report has not been audited or reviewed by the Company's auditor.

Signed on behalf of the Board of Directors.

Donald Adamson

Chairman

21 May 2018

BOND RATING ANALYSISAT 31 MARCH 2018

Standard and Poor's Ratings, investments grade is BBB- and above

The definitions of these ratings are set out on page 68 of the 2017 annual financial report.

INVESTMENT PORTFOLIOAt 31 March 2018

All investments are fixed interest bonds unless otherwise stated; floating rate notes are depicted by FRN.

Bonds and Equity Investments

CONDENSED STATEMENT OF CHANGES IN EQUITY

CONDENSED BALANCE SHEET

CONDENSED STATEMENT OF CASH FLOW

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

The total column of this statement represents the Company's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards, as adopted by the European Union. The profit after taxation is the total comprehensive income. The supplementary revenue and capital columns are both prepared 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 of the Company. No operations were acquired or discounted in the period.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1. Basis of Preparation

The condensed financial statements have been prepared using the same accounting policies as those adopted in the 2017 annual financial report. They have been prepared on an historical cost basis, except for the measurement at fair value of investments and derivatives and in accordance with the applicable International Financial Reporting Standards (IFRS), as adopted by the European Union and, where possible, in accordance with the Statement of Recommended Practice for Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued by the Association of Investment Companies in November 2014, as updated in January 2017.

2. Income

3. Management Fees, Performance Fees and Finance Costs

Investment management fees and finance costs are allocated equally to revenue and capital. The management fee is 1% on the first £80 million of shareholders' funds; 0.7% on the next £70 million; and 0.6% on any excess of shareholders' funds over £150 million.

The performance fee is allocated wholly to capital and is calculated at 20% of outperformance over a hurdle of LIBOR +1%, stepped and reducing to 10% of outperformance in respect of shareholders' funds in excess of £80 million. Payment of the performance fee is subject to various constraints as defined in the 2017 annual financial report. No performance fee was earned for the six months ended 31 March 2018. (2017: £474,000). The deferred performance fee arising for the year ended 30 September 2017 of £306,000 is shown as a provision.

4. Taxation

The Company is subject to Jersey income tax at the rate of 0% (2017: 0%). The overseas tax charge consists of irrecoverable witholding tax.

5. Dividends Paid

The first interim for the quarter ended 31 December 2017 was paid on 31 January 2018 to Shareholders on the register on 05 January 2018. The second interim for the quarter ended 31 March 2018 was paid on 30 April 2018 to Shareholders on the register on 06 April 2018.

6. Movements in Share Capital

The average price of the shares issued was 79.32p (2017: 78.81p).

No shares have been issued subsequent to the period end.

7. Classification under Fair Value Hierarchy

Note 19 of the 2017 annual financial report sets out the basis of classification as set out by IFRS 'Financial Instrument Disclosures'. No Level 3 items have been held during the period or at the period end, and the total (not shown) is therefore the aggregate of Level 1 and Level 2.

At 31 March 2018 financial liabilities designated at fair value though profit or loss consisted of currency hedges totalling £203,000 (30 September 2017: none) as level 2 items.

8. Post Balance Sheet Events

On 23 April 2018, the Company announced that Invesco Fund Managers Limited had resigned. Further details are contained in the Chairman's Statement. The Company will incur additional costs arising from the move of manager. No amounts have been included in the results to 31 March 2018.

9. Status of Half-yearly Financial Report

The financial information contained in this half-yearly report, which has not been reviewed or audited, does not constitute statutory accounts as defined in Article 104 of Companies (Jersey) Law 1991. The financial information for the half years ended 31 March 2017 and 2018 have not been audited. The figures and financial information for the year ended 30 September 2017 are extracted and abridged from the latest published accounts and do not constitute the statutory accounts for that year.

By order of the Board

R&H Fund Services (Jersey) Limited

Company Secretary

21 May 2018