IPE.L Regulatory News (IPE)

Invesco Perpetual Enhanced Income Limited ("IPE" or the "Company")

LEI: S0VPNHMIZ40I9QSUB528

11 June 2018

IPE publishes Circular to shareholders and responds to Invesco's requisitioned resolutions

Further to the announcement made by IPE confirming receipt of a requisition notice on 22 May 2018, the Company will today publish a Circular containing a letter from the Chairman to shareholders and an overview of the situation. The requisitions are from Invesco Perpetual and Practical Investment Fund (together the "Requisitionists"). GAM Star Credit Opportunities GBP has withdrawn its previously served requisition request.

Both the letter and the situation overview are also included in this announcement. No statement from the Requisitionists has been received. The resolutions will be discussed and voted upon at the Company's forthcoming Extraordinary General Meeting in Jersey, on Friday 20 July 2018. The letter details the Board's response to the Requisitionists' resolutions and its voting recommendation.

Situation overview

The situation may be broadly summarised as below:

· A requisition has been served on the Company by Invesco Perpetual and Practical Investment Fund asking that Donald Adamson, Chairman, and Richard Williams, Chairman of the Management Engagement Committee, be removed as directors of the Company and Ms. Hazel Adam, and Mr. Howard Myles, be appointed as directors of the Company.

· The Board believes that this Requisition is firmly against the interests of the Company's shareholders.

· The Board started negotiating the terms of its Investment Management Agreement with Invesco in November 2017, most notably around the level of management fees being paid and the removal of the performance fee. Despite good faith negotiations, Invesco subsequently resigned as the investment manager in April 2018. They did so after initially agreeing in writing to a new fee arrangement.

· Following Invesco's resignation the Board invited proposals from leading fixed income managers. Invesco were offered, but declined, the opportunity to participate in this competitive process.

· On 22nd May 2018, the Company received the aforementioned requisition demanding removal of Donald Adamson and Richard Williams. It is the Board's view that if Invesco had fully engaged with the Board during this process, it would understand the purpose of, and need for, an independent board for the successful running of a company. Invesco's actions would appear to clearly demonstrate that this is a lesson they are yet to learn.

· The Board believes Invesco Perpetual is using its clients' ownership position to disrupt the tender process for a new manager.

· The strong proposals received by the Board from a number of high-quality potential managers demonstrate the untenable nature of Invesco's position. Every proposal received would result in lower management costs as compared to what it currently pays. No party has proposed a performance fee. Furthermore a preliminary review of 5-year performance suggests that, when measured on a like for like basis against IPE's unleveraged performance, Invesco's historical performance is at approximately the mid-point of the performances quoted in the proposals.

· Costs matter - they go directly to Shareholder returns: They influence how much income the Company can distribute and what investment performance can be achieved. A further consequence of the lower fees offered by prospective managers is that dividend cover could potentially be fully restored and a positive contribution to reserves restarted, improving the long-term sustainability of the yield the Company offers.

· The Board has behaved correctly. It first attempted to renegotiate fees with Invesco and then, when that process was rejected by Invesco, initiated a competitive and fair process for a new investment manager when Invesco chose to resign.

· The Board is now being pressured by a very large asset manager. This is a cynical attempt to use concentrated voting power against retail investors who as platform registered owners or wealth management clients constitute the majority of the share register.

· The Board believes the Requisition can only be seen as an attempt to subvert the rights of the independent Directors to run the Company in the best interests of Shareholders.

· The Company is responding to a request for information from the FCA about the circumstances surrounding the requisition.

· The Board understands that, based on previous conversations with Invesco Perpetual, Invesco Perpetual has historically very rarely voted its shares at company general meetings. Given this past prudent behaviour, the Board would expect them to take a similar approach on these resolutions to ensure that the will of independent shareholders is not prejudiced.

Enquiries:

J.P. Morgan Cazenove

William Simmonds

02077424000

FTI Consulting (for media enquiries)

Ed Berry

edward.berry@fticonsulting.com

02037271046

Tom Blackwell

tom.blackwell@fticonsulting.com

020 3727 1051

Hilary Jones

R&H Fund Services (Jersey) Ltd

Company Secretary

Letter from the Chairman to Shareholders extracted from today's Circular

Dear Shareholder,

Introduction

I am writing to you as a Requisition has been served on the Company by Invesco Perpetual and Practical Investment Fund. The Requisition requires the Directors to call an extraordinary general meeting of the Company's Shareholders to consider resolutions that:

Mr. Donald Adamson, Chairman, and Mr. Richard Williams, Chairman of the Management Engagement Committee, each be removed as directors of the Company; and

Ms. Hazel Adam, and Mr. Howard Myles, each be appointed as directors of the Company.

The purpose of this letter is to convene the Extraordinary General Meeting and to explain why your Board is recommending Shareholders VOTE AGAINST the Resolutions. The Board believes that only an INDEPENDENT Board with relevant experience of the fixed income market can act in the best interests of all Shareholders, including negotiating contractual terms with the prospective investment manager of the Company. Therefore:

• to reduce the running costs of the Company;

• to increase the income available for distribution; and

• to supplement investment performance with lower costs;

reject the Requisition and VOTE AGAINST the Resolutions.

Shareholders will be aware that the Directors together own 1,282,227 shares in the Company providing strong alignment with Shareholders' interests generally. Each of the Directors intends to vote against the Resolutions.

Background

Current and historical management fee arrangements

The base fee arrangements with Invesco amount to a current blended annual rate* of 0.90%. In addition, Invesco charges a performance fee to the Company upon performance of the portfolio meeting certain criteria.

As reported in the recent interim report of the Company, the Board is currently cautious about prospective returns from high yield bond markets. Therefore it is important that base fees the Company pays are competitive and limit the reduction in shareholder returns to a more reasonable level. Further, the Board believes that a performance fee might in future encourage inappropriate use of leverage at the latter stages of a credit cycle and thus removing this possible incentive is in the interests of Shareholders.

In the period from 2007 to 2017, inclusive, the Company has paid Invesco £12.3m in total fees including base and performance fees. The Company's unaudited net assets as at 30 April 2018 were £122m. For the last financial year the Company's ongoing charge was 2.15% of which investment management costs represented 1.86%¹.

Costs matter - they go directly to Shareholder returns: how much dividend the Company can pay and what investment performance can be achieved.

The terms of the Investment Management Agreement were last changed in 2014. Market practice for the fees paid to managers of equivalent portfolios has changed in that time, with both annual fees reducing and performance fees becoming increasingly rare. The FCA has also published a significant review into the asset management sector in which end-client value for money was a significant focus.

Having taken relevant advice and carried out detailed research, the Board concluded that the current arrangements with Invesco needed to be adjusted. Accordingly, the Board had been seeking to renegotiate these terms since November 2017.

After significant prevarication and failure to engage in meaningful discussion by Invesco, the Board, as a last resort and having explored all other avenues, raised the possibility of terminating the contract with Invesco. The Board was then informed in writing in April 2018 that Invesco had agreed to improved fee terms. This makes their subsequent resignation all the more disappointing.

The agreed terms would have removed the performance fee and reduced the blended annual rate to 0.77%*. Shareholders will note that this reduced fee is still higher than virtually all of the fees quoted by alternative managers discussed below. Invesco were also asked to accept a change to their termination notice period to bring the Company into line with other Invesco managed listed investment companies. Invesco refused and resigned without further discussion with the Board.

Invesco is required to manage the Company until the expiry of the 12 month notice period provided under the existing investment management agreement.

Timeline

The events leading to this requisition may be briefly summarised as the below:

New manager recruitment process

Following Invesco's resignation, the Board initiated a process to recruit a new investment manager for the Company. Invesco declined to participate in this open and competitive process.

The Board is pleased that despite the Requisition, which was served at a time when Invesco Perpetual were aware that proposals were being sought following Invesco's resignation, a significant number of highly credible organisations have submitted a range of proposals. Virtually all are from 'household names' in the asset management industry.

Management fees proposed range from 0.35% to 0.83% of Net Assets*. No party has proposed a performance fee.

As noted in the Company's announcement on 29 June 2018:

• Every proposal received from alternative managers would result in lower management costs than those currently incurred by the Company and indeed almost all the fee proposals are lower than those that the Board thought it had agreed with Invesco before their sudden resignation.

• A further consequence of lower fees offered by prospective managers is that dividend cover could potentially be fully restored and a positive contribution to reserves restarted, improving the long term sustainability of the yield the Company offers.

• Many of the proposals include fee waivers or direct cost contributions to offset or partially offset costs that would arise from any transition to a new manager. They also include interesting investment proposals that would give the Company the flexibility to adapt to a changing fixed income landscape, if so desired.

• A preliminary review of 5-year performance suggests that, when measured on a like for like basis against IPE's unleveraged performance, IPE's historic performance is only at approximately the mid-point of the performances quoted in the proposals.

Whilst further investigation is needed of all the proposals submitted, the Board notes that four proposals in particular merit further investigation. A summary is included in the following table, including an estimation of what the difference in management fees proposed to that of Invesco Perpetual would have saved the Company, were they to have managed the Company's assets for the last financial year:

Exhibit I

The Board believes that the responses received, from managers of comparable quality and standing to Invesco, have fully vindicated its position that significantly more attractive management terms than those currently applied to the Company are available in the market. Of course, the Board is conscious that cost is not the only consideration and that a qualitative assessment is needed. In making that assessment, the expertise of the Chairman of the Management Engagement Committee is particularly important in securing the best outcome for all shareholders.

The Board's primary interest is to ensure shareholder value is both protected and enhanced. The strength of the management proposals received would appear to demonstrate a clear path to shareholder value creation through lower fees, whilst also protecting the integrity of the Company by securing a best-in-class manager to run its assets.

The Requisition

Shareholders will be aware that a key tenet of the investment company structure is that an independent board of directors is in place to oversee the governance of a company in the best interests of Shareholders.

The Requisitionists are seeking to change your Board composition by appointing individuals whose credentials and expertise in fixed income are highly questionable. Howard Myles has 7 non-executive directorships, all employing equity strategies. Hazel Adam's career has been spent specialising in Asian equities. This Company does not invest in equities - the assets are fixed income securities. Neither nominee has made any public commitment to take into account the results of an open and highly competitive tender process to safeguard the future management of the Company nor has either made any equivalent private statement to the Company.

Meanwhile the Chairman, Donald Adamson has over 30 years' experience of fund management, corporate finance and private equity experience. He has served as a director or chairman of eight other listed investment companies over his career. Today he holds only one listed investment company position and so is dedicated to the Company. He has been a director of the company since 1999 and Chairman since 2012. He holds 741,230 shares in the Company. Prior to the Requisition he announced in the last interim report that he plans to step down at or before the next AGM. Before doing so he will continue to take care of Shareholder interests. The Board has initiated a process to find a successor with the relevant expertise and experience to succeed Donald.

Richard Williams is a newly appointed member of the Board and brings 25 years of experience as a fixed income investment manager. In 2014 he joined one of his former clients, the Railways' Pension Scheme, and now serves as Chief Investment Officer. In addition to IPE Richard has held a variety of non-executive and advisory roles, many with a fixed income connection. In his executive and non-executive roles Richard is an advocate for good governance and value-for-money and speaks publicly on these issues. Richard believes that the appointment of Directors who are sponsored by an associate of the current investment manager will inevitably increase pressure for the interests of Invesco to be prioritised at the expense of shareholders.

The other members of the Board believe that the loss of Richard's expertise would be very detrimental for the Company. His background is particularly helpful for selecting and providing oversight of the investment manager.

Your Board believes that:

• Donald Adamson and Richard Williams are independent and expert Directors;

• The Nominees do not have the necessary fixed income expertise required; and that,

• Directors nominated by a shareholding controlled by an affiliate of Invesco should not be deemed independent for the purposes of the UK Corporate Governance Code.

Invesco has a significant conflict in seeking to protect its own commercial ends at the expense of retail investors in the Company. Your Company is a small company facing a self-interested onslaught from a large and powerful group that is intent on ignoring the FCA's recent call for stricter corporate governance standards and alignment of shareholder interests.

The Requisition is a cynical attempt to use Invesco's concentrated voting power against small private investors who, as platform registered owners or wealth management clients, constitute the majority of the owners of this Company. This Invesco-led requisition, served against the Board Chairman who is retiring at or before the next AGM, and the one Board member with extensive experience as a practitioner in fixed income investment management, is therefore considered by your Board to be entirely vexatious in nature.

As Invesco has resigned and subsequently declined to take part in the investment manager review process, the Board can only infer that they do not wish to manage the Company on a continuing basis and, therefore, do not have the best interests of the Company at heart when using a fund managed by an affiliate to serve the Requisition. Thus the Board believes the Requisition can only be seen as an attempt to subvert the rights of the independent Directors to run the Company in the best interests of Shareholders.

The Board understands that, based on previous conversations with Invesco Perpetual, Invesco Perpetual has historically very rarely voted its shares at company general meetings. Given this past prudent behaviour, the Board would expect them to take a similar approach on these resolutions to ensure that the will of independent shareholders is not prejudiced.

It is of significant note that the Requisitionists have not sought to justify or explain their actions. They have not to date provided a statement seeking to explain the reasons they believe the Resolutions should be approved by Shareholders and have persistently declined to comment - Shareholders can draw their own conclusions as to why this is.

Costs incurred by Invesco's resignation and the subsequent Requisition

Invesco resigned as manager of the Company and in so doing, necessitated the Board's organising of new manager recruitment process. Despite the best efforts of Board to minimise the associated expense, the costs of this process are estimated to be £140,000. Elements of these costs may be offset by fee waivers or direct contributions offered by an incoming manager. The Company looks forward to reimbursement proposals from Invesco to cover any remaining net costs to its investors.

Similarly after having resigned, Invesco instituted a self-interested and hostile requisition. Again, despite the Board's best efforts to minimise associated expenses, the costs of responding to this and reaching out to the retail investors who own the majority of company are estimated to be £300,000. Invesco has caused the Company to incur additional costs for which it should be required to reimburse shareholders.

Further, the share price has fallen 7.2p, since the day before the announcement of Invesco's resignation on 23 April 2018 to 7 June 2018 (the latest practicable date prior to publication of this document), wiping £11.9m off the market value of the Company in that period, equivalent to 9% of the Company.

The Requisition - Key Takeaways

Your vote matters:

• Secure a stronger future for the Company: Ensure the management selection process is concluded, with the prospect of appointing a manager with a strong performance track record charging lower fees that those currently paid by the Company and therefore giving the potential for better Shareholder returns

• Vote on principle: Ensure your Company remains independently governed - Stop Invesco's self-interest prevailing against other Shareholders' best interests

Ultimately, this vote is about saving Shareholders' money, maintaining the independence of your Board and concluding the process of appointing a recognised manager committed to these principles. YOUR VOTE MATTERS

Extraordinary General Meeting

A notice convening an Extraordinary General Meeting of the Company, which is to be held at 11.30am on 20 July 2018, is set out in Part 3 of this document. At this meeting, ordinary resolutions which require a simple majority of those Shareholders voting to vote in favour in order to be passed, will be proposed to effect the removal and appointment of directors to the Board.

Action to be taken

Whether or not you intend to be present at the Extraordinary General Meeting, Shareholders are requested to complete and return the accompanying Form of Proxy in accordance with the instructions printed thereon, so as to be received as soon as possible, and in any event no later than 11.30am on 18 July 2018. The completion and return of the Form of Proxy will not preclude you from attending the meeting and voting in person should you so wish.

Recommendation

The Board considers that the Resolutions are not in the best interests of the Company and its Shareholders as a whole. Accordingly the Board unanimously recommends that Shareholders VOTE AGAINST all resolutions.

The Board intends to VOTE AGAINST the Resolutions in respect of their holdings of Shares amounting to 1,282,227 Shares in aggregate (representing approximately 0.78 per cent. of the issued share capital of the Company as at the date of this document, where individual members of the Board are not precluded from doing so).

The Requisition is an attempt to subjugate an independent board from carrying out its fiduciary duties. Invesco have resigned, they have declined to participate in open competition for the management contract and they now seek to change the independence of the Board's composition by populating it with nominees better suited to their liking.

Yours sincerely,

Donald Adamson

Chairman

If you would like to discuss the Extraordinary General Meeting with us directly, please call 0800 694 0471 and leave your name and contact telephone number. This facility is available 24 hours a day.

You will also be able to hear a message from the Chairman Donald Adamson.

If you would prefer to send an email, please contact our shareholder communications advisor Georgeson at 'IPE@georgeson.com'

APPENDIX - DEFINITIONS

Board or Directors means the directors of the Company at the date of this document, being Donald Adamson, Michael Lombardi, Clive Spears, Peter Yates and Richard Williams

Company or IPE means Invesco Perpetual Enhanced Income Limited

Extraordinary General Meeting means the extraordinary general meeting of the Company's Shareholders to be held in accordance with the Notice

FCA means the UK Financial Conduct Authority

Form of Proxy means the form of proxy enclosed with this document

Invesco means Invesco Fund Managers Limited, the Company's investment manager

Investment Management Agreement means the investment management agreement dated 23 February 2005 (amended and restated on 30 May 2008 and on 1 December 2014) between the Company and Invesco

J.P. Morgan Cazenove means J.P. Morgan Securities plc (which conducts its UK investment banking business as J.P. Morgan Cazenove)

Notice means the notice of extraordinary general meeting set out in Part 3 of this document

Requisition means the requisition of an extraordinary general meeting served on the Company on 22 May 2018

Requisitionists means Invesco Perpetual and Practical Investment Fund

Resolutions means the resolutions set out in the Notice

Shareholder means a holder of ordinary shares of 5p each in the capital of the Company