New Star Inv Regulatory News (NSI)

NEW STAR INVESTMENT TRUST PLC - Half-yearly Report

PR Newswire

London, February 25

The Company's shares are traded on the London Stock Exchange and their prices

Discount of share price to net asset value 37.1% 30.6% n/aFTSE World Index (total return, sterling

Your Company's net assets rose 5.3% to £71.7 million over the half year to 31stDecember 2012. Over this period, the FTSE World Total Return Index gained 6.4%while the FTSE All-Share Total Return Index gained 8.7%. At the period end, thenet asset value per ordinary share was 100.94p. The Company's cautious positioning,with cash and cash equivalents accounting for a substantial proportion of its assets,was the principal factor behind this marginal underperformance relative to global equities.

The net revenue gain for the period was £172,000. As in previous years, yourdirectors are not recommending payment of an interim dividend to shareholders.

Market review

Increasing optimism that the eurozone crisis would be resolved was a key driverof stockmarkets over the period under review. Shares began to rally in lateJuly after Mario Draghi, the European Central Bank (ECB) president, said he was`ready to do whatever it takes to preserve the euro' adding that `believe me,it will be enough'. Policy action, he said, could include buying bonds issuedby weaker member countries to drive down yields.

A second factor was the evidence that the US was regaining economic momentumand that Congress would agree terms to prevent the country going over its`fiscal cliff', triggering mandatory tax rises and budget cuts of such sizethat recession would result. The US reported economic growth for the second andthird quarters of 2012 in contrast to the eurozone, which contracted as aresult of recessions in Greece, Italy, Portugal and Spain.

Monetary authorities responded to economic strains with various initiatives.The ECB reduced its repo rate by a quarter percentage point to 0.75% in Julywhile the Bank of England announced a £50 billion increase in its assetpurchase programme. In September, the US Federal Reserve announced `QE3', anopen-ended $40-billion-a-month programme to buy mortgage-backed securities,adding that it would maintain ultra-low interest rates until 2015. The dollarweakened in response, falling 3.5% against sterling and 3.7% against the euro.

Geographically, emerging markets outperformed, gaining 9.9%, with Asiareturning 11.3%. Among developed markets, Europe excluding the UK gained 15.3%.Currency weakness affected Japanese and US returns, up 1.3% and 2.4%respectively. At the sector level, financial stocks outperformed as euroconfidence revived, returning 14.1%. Other strong sectors included industrials,up 9.2%, and basic materials, up 7.4%. Defensive areas were weak, withutilities down 0.9%. In bond markets, reviving eurozone confidence resulted inoutperformance among peripheral countries such as Italy and Spain, wheregovernment bonds returned 11.4% and 9.8% respectively. Emerging market bondsalso outperformed, returning 6.5%. By contrast, UK gilts returned 0.7%.

Portfolio review

During the period under review, a net £4.2 million was invested in markets,with seven holdings added, two sold and four reduced. Of the additions, IFDSBrompton Global Income and IFDS Brompton Diversified are multi-asset classfunds while Brompton UK Quant invests in UK equities. In Asia, the companybought First State Indian Subcontinent while Liontrust Asia Income wassubstituted for Liontrust Asia. In Europe, Standard Life European Income wassubstituted for SW Mitchell Small Cap European while Fidelity GlobalInflation-Linked Bond was added in fixed income. The partial disposalscomprised Atlantis China, Henderson Private Equity, M&G Optimal Income andPolar Capital Global Technology.

Your Company ended the period with 62.5% of its assets in retail funds, 5.2% ininvestment trusts, 3.8% in exchange-traded funds, 3.2% in hedge funds, 7.2% inother securities and 18.1% in cash. Geographically, the biggest non-cashexposures were the UK, at 22.3%, Europe excluding the UK, at 12.8%, andemerging markets, at 12.4%. In asset class terms, the biggest non-cash holdingswere in equities, at 61.6%, and commodities, at 11.2%.

Outlook

Economic growth is likely to regain momentum in 2013 for various reasons.First, the global inflation-adjusted money supply, typically a precursor ofeconomic growth, was expanding in late 2012. The strongest growth was in the USand the eurozone core countries while Japanese and UK monetary conditions werealso improving. Secondly, yield spreads between high-quality and low-qualitybonds narrowed in late 2012, improving the prospects for companies wishing toraise capital. Thirdly, sentiment among businesses and consumers, though notuniversally positive, was broadly robust. One reason for this was the gradualUS house price recovery; another was that US financial service burdens as apercentage of disposable incomes had fallen to levels not seen since the 1980s.

The degree to which such trends will feed through into sustained stockmarketperformance is, however, unclear. Sentiment among global fund managers ended2012 near the top of its recent range, suggesting possible over-optimism. Thismay lead to selling at some point. One possibility is that economic growthmight pick up to the point where the liquidity created by inflation-adjustedmoney supply rises is absorbed. Such a trend may be felt first in bond markets,leading to pressure on equity valuations. In such circumstances, relativeperformance among stocks and sectors is likely to vary significantly,emphasising the importance of security selection in generating performance.

In the six months to 31stDecember 2012 the net asset value per Ordinary shareincreased by 5.3% to 100.94p. In the same period the share price decreased by4.5% to 63.50p. This compares to increases of 8.7% and 6.4% respectively in theFTSE All Share Index and the FTSE World Index. Further details of the Company'sperformance may be found in the Chairman's Statement.

Investment objective

The Company's investment objective is to achieve long-term capital growth.

Investment policy

The Company's investment policy is to allocate assets to global investmentopportunities through investment in equity, bond, commodity, real estate,currency and other markets. The Company's assets may have significantweightings to any one asset class or market, including cash.

The Company will invest in pooled investment vehicles, exchange traded funds,futures, options, limited partnerships and direct investments in relevantmarkets. The Company may invest up to 15% of its net assets in directinvestments in relevant markets.

The Company will not follow any index with reference to asset classes,countries, sectors or stocks. Aggregate asset class exposure to any one of theUnited States, the United Kingdom, Europe ex UK, Asia ex Japan, Japan orEmerging Markets and to any individual industry sector will be limited to 50%of the Company's net assets, such values being assessed at the time ofinvestment and for funds by reference to their published investment policy or,where appropriate, their underlying investment exposure.

The Company may invest up to 20% of its net asset value in unlisted securities(excluding unquoted pooled investment vehicles) such values being assessed at the time ofinvestment.

The Company will not invest more than 15% of its net assets in any single investment, suchvalues being assessed at the time of investment.

Derivative instruments and forward foreign exchange contracts may be used forthe purposes of efficient portfolio management and currency hedging. Derivativesmay also be used outside of efficient portfolio management to meet the Company's investmentobjective. The Company may take outright short positions in relation to up to30% of its net assets, with a limit on short sales of individual stocks of up to 5% of its netassets, such values being assessed at the time of investment. The Company mayborrow up to 30% of net assets for short-term funding or long-term investmentpurposes. No more than 10%, in aggregate, of the value of the Company's totalassets may be invested in other closed-ended investment funds except where suchfunds have themselves published investment policies to invest no more than 15%of their total assets in other listed closed-ended investment funds.

Share capital

The Company's share capital comprises 305,000,000 Ordinary shares of 1p each,of which 71,023,695 (2011: 71,023,695) have been issued fully paid. No Ordinaryshares are held in treasury, and none were bought back or issued during the sixmonths to 31st December 2012.

Risk management

The principal risks associated with the Company that have been identified bythe Board, together with the steps taken to mitigate them, are as follows:

Investment strategy: inappropriate long-term strategy, asset allocation andmanager selection might lead to the underperformance of the Company. TheCompany's strategy is kept under regular review by the Board. Investmentperformance is discussed at every Board meeting and the Directors receive amonthly report which details the Company's asset allocation, portfolio changesand performance.

Business conditions and general economy: the Company's investment returns areinfluenced by general economic conditions in the UK and globally. Factors suchas interest rates, inflation, investor sentiment and the availability and costof credit could adversely affect investment returns. The Board regularlyconsiders the economic environment in which the Company operates. The portfoliois managed with a view to mitigating risk by investing in a spread of differentasset classes and geographic regions.

Portfolio risks - market price, foreign currency and interest rate risks: thedownward valuation of investments contained in the portfolio would lead to a reduction in theCompany's net asset value. A proportion of the Company's portfolio is invested in investmentsdenominated in foreign currencies and movements in exchange rates can significantly affecttheir sterling value. It is the Board's policy to hold an appropriate spread of investmentsin order to reduce the risk arising from factors specific to a particularinvestment or sector. The Investment Manager takes account of foreign currencyrisk and interest rate risk when making investment decisions.

The Company does not normally hedge against foreign currency movementsaffecting the value of the investment portfolio, although hedging techniquesmay be employed in appropriate circumstances.

Investment Manager: the quality of the management team employed by theInvestment Manager is an important factor in delivering good performance andthe loss by the Investment Manager of key staff could adversely affectinvestment returns. With effect from the beginning of 2011 the Company'sportfolio has been managed by Gill Lakin. The Board receives a monthlyfinancial report which includes information on performance, and arepresentative of the Investment Manager attends each Board meeting. The Boardis kept informed of any personnel changes to the investment team employed bythe Investment Manager.

Tax and regulatory risks: a breach of sections 1158 to 1165 Corporation Tax Act2010 could lead to a loss of investment trust status, resulting in capitalgains realised within the portfolio being subject to United Kingdom capitalgains tax. A breach of the UKLA Listing Rules could result in suspension of theCompany's shares, while a breach of company law could lead to criminalproceedings, or financial or reputational damage. The Board employs BromptonAsset Management LLP as Investment Manager and Phoenix Administration ServicesLimited as Company Secretary and Administrator to help manage the Company'slegal and regulatory obligations. The Board receives a monthly financial reportwhich includes information on the Company's compliance with section 1158.

Operational: disruption to, or failure of, the Investment Manager's andAdministrator's accounting, dealing or payment systems or the Custodian's recordscould prevent the accurate reporting and monitoring of the Company's financialposition. The Company is also exposed to the operational risk that one or moreof its suppliers may not provide the required level of service.

Investment Management Arrangements and Related Party Transactions

In common with most investment trusts the Company does not have any executivedirectors or employees. The day-to-day management and administration of theCompany, including investment management, accounting and company secretarialmatters, and custodian arrangements are delegated to specialist third partyservice providers.

Details of related party transactions are contained in the Annual Report. Therehave been no material transactions with related parties during the period whichhave had a significant impact on the performance of the Company.

Going Concern

The Directors believe that it is appropriate to continue to adopt the goingconcern basis in preparing the accounts as the assets of the Company consistmainly of securities that are readily realisable or cash and it has nosignificant liabilities. Accordingly, the Company has adequate financialresources to continue in operation existence for the foreseeable future.

Auditors

The half year financial report has been reviewed, but not audited, by Ernst &Young LLP pursuant to the Auditing Practices Board guidance on the Review of InterimFinancial Information.

Responsibility statement

The Directors named on page 2 confirm that to the best of their knowledge:

We have been engaged by the Company to review the condensed set of financialstatements in the half year financial report for the six months ended 31stDecember 2012 which comprises the consolidated statement of comprehensiveincome, consolidated statement of changes in equity, consolidated balancesheet, consolidated cash flow statement and related explanatory notes 1 to 8.We have read the other information contained in the half year financial reportand considered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of financialstatements.

This report is made solely to the Company in accordance with guidance containedin International Standard on Review Engagements 2410 (UK and Ireland) "Reviewof Interim Financial Information Performed by the Independent Auditor of theEntity" issued by the Auditing Practices Board. To the fullest extent permittedby law, we do not accept or assume responsibility to anyone other than theCompany, for our work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half year financial report is the responsibility of, and has been approvedby, the Directors. The Directors are responsible for preparing the half year financialreport in accordance with the Disclosure and Transparency Rules of the United Kingdom'sFinancial Services Authority.

As disclosed in note 1, the annual financial statements of the Group areprepared in accordance with IFRSs as adopted by the European Union. The condensed set offinancial statements included in this half year financial report has been prepared inaccordance with International Accounting Standard 34, "Interim Financial Reporting", asadopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half year financial report based on ourreview.

Scope of review

We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the Auditing PracticesBoard for use in the United Kingdom. A review of interim financial informationconsists of making enquiries, primarily of persons responsible for financial and accountingmatters, and applying analytical and other review procedures. A review is substantially lessin scope than an audit conducted in accordance with International Standards on Auditing(UK and Ireland) and consequently does not enable us to obtain assurance that we wouldbecome aware of all significant matters that might be identified in an audit.Accordingly, we do not express an audit opinion.

Conclusion

Neptune Russia & Greater Russia Fund Investment Fund 1,604 2.72First State Indian Subcontinent Fund Investment Fund 1,562 2.65Polar Capital Global Technology Fund Investment Fund 1,550 2.63PFS Brompton UK Recovery Unit Trust Investment Fund 1,512 2.56Standard Life Investment Euoprean Income Investment Fund 1,456 2.47M&G Optimal Income Fund

Fidelity Global Inflation Linked Investment Bond Fund 1,427 2.42Aberdeen Asia Pacific Fund

The investment portfolio can be further analysed asfollows:

All the Company's investments are either unlisted or are unit trust/OEIC fundswith the exception of Henderson Private Equity Investment Trust, AberforthGeared Income Trust, BH Global Limited, MAM Funds, Gold Bullion Securities ETF,Immedia Broadcasting, Westhouse Holdings and Bumi Plc.

The total column of this statement represents the Group's profit and lossaccount, prepared in accordance with IFRS. The supplementary revenue return andcapital return columns are both prepared under guidance published by theAssociation of Investment Companies. All items in the above statement derivefrom continuing operations. No operations were acquired or discontinued duringthe period.

All income is attributable to the equity holders of the parent company. Thereare no minority interests.

for the six months ended 31st December 2011 and the year ended 30th June 2012

The total column of this statement represents the Group's profit and lossaccount, prepared in accordance with IFRS. The supplementary revenue return andcapital return columns are both prepared under guidance published by theAssociation of Investment Companies. All items in the above statement derivefrom continuing operations. No operations were acquired or discontinued duringthe periods.

All income is attributable to the equity holders of the parent company. Thereare no minority interests.

TOTAL ASSETS LESS CURRENT LIABILITIES 71,862 69,503 68,216

This half year report was approved and authorised for issue by the Board on22nd February 2013.

Net funds at start of period/year 17,181 15,495 15,495

NET FUNDS AT END OF PERIOD / YEAR 12,980 17,321 17,181

Profit/(loss) before finance costs 3,646 (6,573) (7,860)and taxation

1. Accounting policies

The consolidated half year financial statements on pages 15 to 24 comprise theunaudited results of the Company and its subsidiary, JIT Securities Limited,for the six months to 31st December 2012. The comparative information for thesix months to 31st December 2011 and the year to 30th June 2012 do notconstitute statutory accounts under the Companies Act 2006. Full statutoryaccounts for the year to 30th June 2012 included an unqualified audit report,did not contain any statements under section 498 of the Companies Act 2006, andhave been filed with the Registrar of Companies.

The half year financial statements have been prepared in accordance withInternational Accounting Standard 34 `Interim Financial Reporting', and arepresented in pounds sterling, as this is the Group's functional currency.

The same accounting policies have been followed in the interim financialstatements as applied to the accounts for the year ended 30th June 2012, whichare prepared in accordance with IFRSs as adopted by the European Union.

The management fee is payable in arrears and is calculated at a rate of 3/16%per quarter of the total assets of the Company and its subsidiary after thededuction of the value of any investments managed by the Investment Manager (asdefined in the management agreement). The Investment Manager is also entitledto a performance fee of 15% of the growth in net assets over a hurdle of3-month Sterling LIBOR plus 1% per annum, payable six monthly in arrears,subject to a high water mark. The aggregate of the Company's management fee andany performance fee are subject to a cap of 4.99% of net assets in anyfinancial year (with any performance fee in excess of this cap capable of beingearned in subsequent periods). The performance fee will be charged 100% tocapital, in accordance with the Board's expectation of how any out-performancewill be generated. No performance fee is payable for any period.

Weighted average number of Ordinary 71,023,695 71,023,695 71,023,695shares

Revenue return per Ordinary share 0.24p 0.02p (0.11)pCapital return per Ordinary share 4.86p (8.68)p (10.33)pTotal return per Ordinary share

5. Investments at fair value through profit or loss

Unrealised investment holding gains/ 6,802 (3,181) 3,621(losses)

* Listed investments include unit trust and OEIC funds

Decrease in investment holding gains 2,472 (8,395) (10,015)

The components of retained earnings are set out below:

7. Net asset value per Ordinary share

Net assets attributable to Ordinary 71,691 69,334 68,067shareholders

Ordinary shares in issue at end of 71,023,695 71,023,695 71,023,695period

Net asset value per Ordinary share 100.94p 97.62p 95.84p

8. Related party transactions

There have been no related party transactions that have materially affected thefinancial position or performance of the Group. The Company has four (2011:one) investments managed by the Investment manager.