Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | gweiler | 23-Nov-07 17:25 | 07-23275-1.aa | Sequence: 1 CHKSUM Content: 27695 Layout: 43579 Graphics: 45695 CLEAN

HANSA TRUST PLC

HALF YEARLY REPORT For the six months to 30 September 2007

JOB: 07-23275-1 CYCLE#;BL#: 4; 0 TRIM: 5.827" x 8.268" AS: Merrill : 011-44-20-7422-6100 COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: hansa_lion_ko_logo.eps V1.5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | gweiler | 23-Nov-07 17:25 | 07-23275-1.aa | Sequence: 2 CHKSUM Content: No Content Layout: 32194 Graphics: No Graphics CLEAN

JOB: 07-23275-1 CYCLE#;BL#: 4; 0 TRIM: 5.827" x 8.268" AS: Merrill London: 011-44-20-7422-6100 COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: none V1.5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | mmonson | 29-Nov-07 05:18 | 07-23275-1.ba | Sequence: 1 CHKSUM Content: 9830 Layout: 31229 Graphics: 23972 CLEAN

KEY INFORMATION

INVESTMENT POLICY AND BENCHMARK To achieve growth of shareholder value, Hansa absolute benchmark derived from the three-year Trust PLC invests in a portfolio of special situations, average rolling rate of return of a five year UK where individual holdings or specific sectors may government bond, plus two percent with interest constitute a significant proportion of the portfolio being re-invested semi-annually. Investments are or that of the equity of the companies concerned. intended to add value over the medium to longer This investment approach may produce returns term through a non-market correlated, conviction which are not replicated by movements in any based investment style. market index. Performance is measured against an STATISTICS

30 September 2007 31 March 2007 % change Shareholders’ Funds £248.4m £249.5m (0.4) Borrowings £750K –– Dividends – Interim 3.50p 3.50p – Final – 9.00p –

Net Asset Value per Ordinary share 1,035.2p 1,039.4p (0.4) ‘A’ non-voting Ordinary share 1,035.2p 1,039.4p (0.4) Benchmark – – 3.4

Share Price Ordinary shares 1,015.0p 1,123.0p (9.6) ‘A’ non-voting Ordinary shares 1,018.0p 1,022.5p (0.4) FTSE All-Share Index 3,317 3,283 1.0

Discount/(Premium) Ordinary shares 2.0% (8.0%) – ‘A’ non-voting Ordinary shares 1.7% 1.6% –

Total Return Ordinary Shares (8.9%) 34.1% – ‘A’ non-voting Ordinary shares 0.4% 26.6% – FTSE All-Share Index – Total Return 2.9% 11.5% – CAPITAL STRUCTURE The Company has 8,000,000 Ordinary shares of 5p non-voting Ordinary shares do not entitle the and 16,000,000 ‘A’ non-voting Ordinary shares of holders to vote or receive notice of meetings but in 5p each in issue. The Ordinary shareholders are all other respects they have the same rights as the entitled to one vote per Ordinary share held. The ‘A’ Company’s Ordinary shares. INTERIM DIVIDEND The Board is declaring an unchanged interim amounting to £840,000. The dividend will be paid dividend of 3.5p per share payable on both on 21 December 2007, to shareholders on the Ordinary and ‘A’ non-voting Ordinary shares register of members on 7 December 2007.

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CHAIRMAN’S STATEMENT

HALF YEAR RESULTS:

NAV 1,035.2p p share (-0.4%)

We suffered a very small decline in the net asset index reached nearly 7,000. However, the news value in the first six months of the current year; it concerning banking problems just got worse and fell from 1,039.4p per share to 1,035.2p – a decline worse. Eventually we had the first run on a bank in of 0.4%. It came about as a consequence of a small 140 years – Northern Rock – and the momentum in decline in the value of the portfolio and the the price of stocks and shares came to an end. The payment of the final dividend (which, under the index recovered somewhat by the end of new accounting standards, relates to last year’s September leaving it marginally higher than at 31st income!), offset by the net income earned in this March 2007. period. The table below summarises the returns Our own portfolio bears very little resemblance to per ordinary and A ordinary shares: any index – rightly so, for we are paid to be different Starting net asset value: 1,039.4p and to do better thereby. John Alexander’s Final dividend -9.0p investment manager’s report, which follows this Net income earned 8.3p statement, goes into considerable detail on the Decline in the value of the portfolio -3.5p returns of the different themes that make up the Closing net asset value: 1,035.2p portfolio and of the underlying holdings. Our top three contributors to our net asset value returns As shareholders you are aware that our goal is to were Resolution plc which added 11.7p per Hansa make money – not every year, let alone every half share, Ocean Wilsons 5.9p and BHP Billiton 3.7p. year – but over the longer-term which we determine However at the other end of our attribution list as five years. We have set ourselves an appropriate were the negative returns of -6.8p per Hansa share absolute return benchmark to go with our absolute for our holding in Engel East Europe, -5.3p for return objective and that returned 3.4%. We Wolseley and -3.9p for Melrose Resources. recognise that in difficult stock markets such a benchmark will be difficult to beat. And of course we aim to beat the stock market – we compare our return with the FTSE All-share Index – and that rose by 1.0% to 3,317.

It has been a bit of a roller coaster six months. It started well enough with the stock market continuing the upward trend which had started after the shake out that occurred in May and June 2006. It looked as though it would achieve its old high established at the end of 1999 when the

INTERIM DIVIDEND: 3.5p per share (unchanged)

The Board has declared an interim dividend of 3.5p per Ordinary and A Ordinary share – the same as last year – to be paid to shareholders on 21 December 2007.

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JOB: 07-23275-1 CYCLE#;BL#: 6; 0 TRIM: 5.827" x 8.268" AS: Merrill London: 011-44-20-7422-6100 COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: hansa_lion_289_logo.eps V1.5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | mmonson | 29-Nov-07 05:18 | 07-23275-1.ba | Sequence: 3 CHKSUM Content: 64185 Layout: 31299 Graphics: 42308 CLEAN

CHAIRMAN’S STATEMENT (continued)

VALUE ADDED TAX:

Shareholders will be aware that our manager, investment trust companies, HMRC has confirmed Hansa Capital Partners LLP, has been charging that it will not do so in the future. Although there management fees on which the VAT last year are still one or two issues to sort out, we have amounted to c. £200,000. Following a recent already stopped paying VAT on our management decision by the European Court of Justice that Her fee and we expect to reclaim some of the payments Majesty’s Revenue and Customs should not be made in the past. These potential repayments have levying VAT on the management fees paid by not been reflected in the half year statement.

OUTLOOK:

The short term outlook for equities is not as rosy as markets. This left us with borrowing capacity of it has been in recent times. The provision in the some £19 million to buy shares in the event of a United States of mortgages to a large number of serious stock market decline. However since the households who could not afford them has created period end, we have received bids for three of the a considerable problem in the banking industry – holdings in our portfolio and – as a consequence – the problem being popularly referred to as the our net cash position today stands at circa £32 “sub-prime” crisis. It may also be that there are million to back up the £20 million borrowing other loans that banks have been making in the facility. We are well positioned to take advantage of past few years that are of doubtful value, including any distressed selling that may well occur in these some of those made to hedge and private equity turbulent markets. In addition we are reviewing funds. Any time that there is a banking crisis is derivative strategies designed to provide some usually a bad time for stock markets and it is not protection to the portfolio in the event of a further unreasonable to suppose that they may decline in serious stock market decline. I hope to report to the short term. you more on this matter in the Annual Report. However, the long term outlook for equities still Central banks face the very difficult task of setting remains excellent, as companies benefit from the interest rates at an appropriate level which development of emerging economies (China, India, balances the needs of the banking industry and the etc) and from the powerful electronics revolution economies they operate in and the risk of global and its effect on productivity. Brazil of course is one inflation. It will not be easy. However slow downs, of those countries with an emerging economy and even recessions, are times when past excesses and we have a very considerable exposure to it through misdemeanours are cleared up, setting up a our holding in Ocean Wilsons (c. 30% of our platform for the next phase of economic growth portfolio). Shareholders should be aware that, and a new bull market. We may have to wait a little because it is a large holding, the portfolio’s value is bit for it but the long term fundamentals argue at risk to any mishap in either Brazil or the strongly in favour of it. company; however it should also be remembered that the investment represents a great opportunity for further gains in the net asset value. We retain our confidence in its excellent future prospects. The level of borrowing at 30th September stood at Alex Hammond-Chambers £750,000 drawn down from our facility of £20 Chairman million; the very small level of gearing reflects our 22 November 2007 concern about the near term uncertainties in the

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JOB: 07-23275-1 CYCLE#;BL#: 6; 0 TRIM: 5.827" x 8.268" AS: Merrill London: 011-44-20-7422-6100 COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: alex_chambers_pms289_sig.eps, hansa lion 289 logo eps V1 5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | mmonson | 29-Nov-07 05:18 | 07-23275-1.ba | Sequence: 4 CHKSUM Content: 13201 Layout: 63141 Graphics: 42308 CLEAN

INTERIM MANAGEMENT REPORT

The Directors present their Report and Condensed Financial Statements for the six months ended 30 September 2007.

THE BOARD AND ITS OBJECTIVES

Your Board consists of the following persons each of whom brings certain individual and complementary skills and experience to the Board’s workings. Individual profiles for each member of the Board can be found in the company’s annual report. Mr Hammond-Chambers – (Chairman) Mr Salomon Lord Borwick Professor Wood The Board’s primary objective is to achieve growth of Shareholders value over the medium to long-term. BUSINESS REVIEW FOR THE FINANCIAL YEAR TO DATE

The business review for the financial year to date is covered in the Chairman’s Statement and the Investment Manager’s Report. KEY RISKS FOR THE FINANCIAL YEAR TO 31 MARCH 2008

The key risks for the financial year to 31 March 2008 are covered in the Chairman’s Statement and the Investment Manager’s Report. RELATED PARTY TRANSACTIONS During the period Hansa Capital Partners LLP charged investment management fees to the Company amounting to £871,000 (2006: £543,000). Amounts outstanding at 30 September 2007 were £174,000 (2006: £102,000). With effect from 1 April 2007 the investment management fee which Hansa Capital Partners LLP charges has been changed from 0.75% to 1% of the net asset value of the Company, after deducting the investment of Ocean Wilson Holdings Limited on which no fee is payable. In addition the management fee is not to be reduced by costs charged by the administrators, which had been the case prior to April 2007. THE BOARD’S RESPONSIBILITIES

The Board is charged by the Shareholders with the responsibility for looking after the affairs of the Company. It involves the ‘STEWARDSHIP’ of the Company’s assets and liabilities and ‘THE PURSUIT OF GROWTH OF SHAREHOLDER VALUE’. Except for the items detailed below these responsibilities remain unchanged from those detailed in the last Annual Report. The Directors confirm to the best of their knowledge that: • the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with International Accounting Standard 34 ‘Interim Financial Reporting’; and • the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FSA’s Disclosure and Transparency Rules. The above Interim Management Report was approved by the Board on 22 November and the above responsibility statement was signed on its behalf by:

Alex Hammond-Chambers Chairman 22 November 2007

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INVESTMENT MANAGER’S REPORT

The investment manager presents its report for the six months ended 30 September 2007.

BACKGROUND

Interest rates had been rising since mid-2004, but Investment Vehicles (SIVs). These SIVs invest in slowly and from ultra-low levels, as markets long-term assets such as mortgages and credit card became more optimistic about the outlook for receivables, but are on the whole financed by three global growth, and central banks became more month commercial paper, a maturity mismatch determined to check inflationary expectations, between assets and liabilities. Although banks and against the background of rising oil prices and fast other financial organisations established the SIVs, money supply growth. The mortgage crisis in the they were kept off their balance sheets while still US is the result of throwing caution to the wind. being deeply affiliated to them. When there was a Home Loans were granted to private homeowners sudden re-pricing of risk in the credit markets the whose credit rating was not as high as it should commercial paper market dried up, and these same have been, the result of a collective overestimation banks and financial organisations faced the of the growth of residential property prices and the prospect of calls for help from the SIVs to cope with stability of interest rates. Houses belonging to large amounts of expiring commercial paper. The ordinary Americans mortgaged to the hilt rapidly banks and other financial organisations are having became the fragile basis for an entire financial to deal with putting the conduits and SIVs back industry. Concerns that US sub-prime defaults onto their own balance sheets. could lead to a global credit crunch led to a high Ben Bernanke, Federal Reserve Chairman, level of stock market volatility, as worries about surprised the markets with a half-point cut in both global inflation were replaced by credit market the Fed funds rate and the discount rate, while the jitters and the fear of the impact of market scale of the credit squeeze forced the Bank of disruption on the availability of credit and to a , as it recognised the potential for the consequent threat of recession. turmoil to hit households and companies, to put a While the financial crisis started in the US sub- break on interest rate rises that had seemed all but prime mortgage market, it then spread to money certain a month or so ago. For the first time in eight markets in all industrialised countries in spite of a years, The Bank issued a public statement concerted injection of funds by central banks. alongside its decision to keep its official rate Interbank lending rates leapt as banks conserved unchanged at 5.75%, indicating that it had a lower cash to meet extended credit lines to Structured expectation for inflation in the short term.

OVERALL PERFORMANCE

During the six months under review, the capital and and ‘A’ non-voting Ordinary shares fell by 9.6% and revenue returns per Ordinary and ‘A’ non-voting 0.4% respectively. This compares with a rise of Ordinary shares amounted to 4.8p or 0.47%, while 3.36% in the company’s benchmark and rise of the ‘A’ non-voting Ordinary shares showed little 2.86% in the total return FTSE All-Share Index over movement in the discount, the Ordinary shares the period. The two largest positive contributors moved from an 8% premium to a 2% discount over were Resolution +11.7p and Ocean Wilsons the same period. The share price of the Ordinary Holdings Ltd. +5.9p.

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INVESTMENT MANAGER’S REPORT (continued)

SECTOR WEIGHTING AND PERFORMANCE

Portfolio Value Portfolio Weighting Six months’ Performance at 30 September 2007 at 30 September 2007 to 30 September 2007 Sector £000 % % Strategic 75,290 29.9 1.8 Smaller cap/Aim 63,309 25.1 0.7 Natural Resources 28,748 11.4 9.9 Closed Life Funds 25,503 10.1 12.3 Property 8,882 3.5 (7.3) Large Cap 15,480 6.2 (9.9) 11,790 4.7 6.2 Utilities 10,800 4.3 (1.0) Mid Cap 7,498 3.0 (10.3) Investment Trusts 4,646 1.8 (7.8)

SECTOR REVIEW

STRATEGIC (Sector Performance: 1.8% Portfolio Weighting: 29.9%)

The Board of Ocean Wilsons Holdings Ltd and the over-allotment option. Following the exercise of the Board of Wilson Sons Ltd decided to proceed with over-allotment option the total proceeds (net of a primary and secondary offering of Wilson Sons expenses) received by Ocean Wilsons Holdings Ltd Ltd on the Sao Paulo Stock Exchange and the in respect of the flotation of Wilson Sons Ltd will be Luxembourg Stock Exchange. The offer price was approximately U$206.0m, and Ocean Wilsons U$11.74 per Wilson Sons Ltd share, which implied Holdings Ltd retained 41,444,000 shares in Wilson a Wilson Sons Ltd market capitalisation (including Sons Ltd, representing 58.25% of the enlarged issue proceeds to be retained by Wilson Sons Ltd) share capital of Wilson Sons Ltd. of approximately U$835.2m. There was also an The IPO creates two distinct business arms for over- allotment option under which up to a further Ocean Wilsons Holdings Ltd, namely a majority 3.3 million shares might be sold by Ocean Wilsons shareholding in Wilson Sons Ltd, the newly listed Holdings Ltd as a result of stabilisation company owning the Brazilian business, and the transactions in the 30 days following the listing. On management of a U$275m portfolio of international 31st May, Ocean Wilsons Holdings Ltd received investments. The IPO provides more visibility for notice of the exercise of the over-allotment in Wilson Sons Ltd and access to capital to fund the respect of 3.3 million Wilson Sons Ltd shares, accelerated growth of the Brazilian business. which represented all of the shares originally Secondly, it has allowed Ocean Wilsons Holdings designated for the over-allotment option. The over- Ltd to realise value for shareholders through the allotment option was exercised at U$11.74 per sale of a minority shareholding in Wilson Sons Ltd Wilson Sons Ltd share, the same price as the offer whilst preserving a controlling and ongoing price announced on 27th April 2007. Ocean interest. Wilsons Holdings Ltd received additional proceeds of approximately U$37.0m from the exercise of the

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INVESTMENT MANAGER’S REPORT (continued)

In the middle of May, Wilson Sons Ltd announced while ABN-AMRO and Credit Suisse have taken up their first quarter figures with revenues and coverage of Wilson Sons Ltd. Analysts are operating profits rising by 7.1% and 11.2% pencilling in Brazilian GDP forecasts of 4.6% for respectively, mainly as a result of the increases in 2007, low inflation, a continuing improvement in the Port Terminal and Towage segments. UBS have the trade balance surplus, and a strong currency. now taken up coverage of Ocean Wilsons Holdings,

SMALLER CAP/AIM (Sector Performance: 0.7% Portfolio Weighting: 25.1%)

Ark Therapeutics (-6.3%) has achieved solid projects. Management has enough cash to progress in its key projects. Cerepro, the gene- maintain its projected research into mid-2009. based medicine for operable malignant glicoma, Hargreaves Services (+8.3%) remains strongly has successfully completed all the regulatory focused on services to the energy sector and now hurdles needed for approval, barring the definitive comprises the largest independent supplier of solid proof of efficacy. This is currently being addressed fuels to the generators, whilst additionally enjoying through a 250 patient Phase III trial that is now fully very strong market positions in supplies to the enrolled. The necessary data is likely to be foundry, cement and chemical industries. The generated within the first six months of 2008. group’s excellent port facilities at Immingham and Assuming a positive outcome, this suggests a Newport enable extremely efficient distribution of launch in 2009 is feasible. Vitor is an ACE inhibitor imported products by road, rail and water as well as being evaluated for use in the muscle wasting the export of specialist products, notably to associated with many cancers. It is awaiting Scandinavia. NCC Group (+20.9%) announced a finalisation of the structure of the pivotal Phase III strong start to the year and has acquired Secure trial, with 250 patients expected to be enrolled. Test Ltd, an ethical testing company. NCC Group Trinam is also a gene-based device being evaluated moved up from AIM to the official list in the middle to prevent blood vessels blocking after vascular of July, and remains cash generative with a high surgery, notably access grafts for haemodialysis. level of recurring revenue. Morson Group (-8.4%) is Phase III studies are being prepared following the far more defensive in nature than typical continued success of the Phase II trial. The patent recruitment peers due to the exposure to long-term portfolio was boosted materially during the period infrastructure and engineering projects, which by the granting of the European patent for the use usually enjoy long-term committed funding. Goal of ACE inhibitors and Angiotensin II blockers in Soccer Centres (+5.4%) is trading well and has a treating stroke. This not only results in the strong development programme. Leadcom triggering of a milestone payment from Boehringer integrated Solutions (+20.2%) is showing strong Ingelheim but also clears the way for other organic growth and has won significant contracts in companies operating in this sphere to be India, Gabon, Tanzania and Ghana, and has approached. Looking ahead, we expect the acquired Ytelcom, which widens the companies’ manufacturing of Cerepro to US standards to be reach in Africa. The strong order book provides confirmed towards the end of October, enrolment visibility and confidence in performance for 2008. of patients into the Phase III studies for Vitor and Trinam to start before the year end, together with Cape (+2.1%) is a long-established leading provider the out-licensing of at least one of the non-core of essential support services operating in the UK,

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INVESTMENT MANAGER’S REPORT (continued)

Middle East, Asia-Pacific and the former Soviet wool manufacturer, providing pure exposure to the Union, with a strong focus on the energy and rapidly increasing demand for insulation products resources sectors. Cape’s Service offering is being brought about by the energy efficiency drive. predicated around the provision of common-user DEFRA estimated in 2005 that buildings account for access scaffolding. An acquisitive-led focus centred 44% of the UK’s carbon emissions, and glass fibre on Australia will dilute the UK revenue stream is one of the most economical building insulation towards 50%, while 60% of Cape’s revenues are materials. The Group’s strong cash flow dynamics on long-term contracts, predominantly with major will facilitate the payment of a significant and multi-national companies. growing dividend stream. Finally, we took a new holding in AIM listed All Leisure Group, which only Acertec (-30.5%) announced that its Stadco started trading on the stock market at the division will be establishing the first stamping and beginning of October. All Leisure Group is the assembly facility in Russia to supply the major holding company of All Leisure, an established international automotive OEM’s for the local cruise holiday company, which owns the tour market. Camco International (+2.4%) announced operators Voyages of Discovery, Swan Hellenic and the acquisition of ESD, a sustainable energy Discover Egypt. Voyages of Discovery and Swan consultancy, which will solidify the company’s Hellenic offer destination-led cruises to a number offering in the US, a key market in the future. We of countries and are focused on the market for sold our holding in International Nuclear Solutions mature passengers, whilst Discover Egypt offers (+3.3%) to Babcock Intl, while Xansa (+51.9%) package holidays to Egypt, including cruises and received an agreed cash offer from a French excursions on the Nile. Most operations are company called Steria at a 70% premium to the outsourced to third parties, leaving All Leisure to undisturbed price. Shortly after our half-year end, concentrate on management and marketing. Salvesen (+12.1%) received an agreed cash offer Earnings visibility tends to be good, as passengers, from a leading transportation and logistics services some 35% of which are repeat customers, book company in continental Europe, while Foseco well in advance, so the company is highly cash- (+9.5%) announced that it is has reached generative and will be on the dividend list. Given agreement on terms of a recommended cash offer that many costs are fixed, a third ship could have a by Cookson for the entire share capital at 295p per significant impact on the bottom line. share.

We took a new holding in a fully listed IPO called EAGA (+9.4%), a UK market leader in the delivery of residential energy efficiency solutions. Eaga’s core focus is working with government, local authorities and utility companies to lower carbon emissions, combat fuel poverty, improve living conditions, and reduce energy consumption. The work undertaken is principally focused on the housing and social needs of low income and vulnerable households. On the same theme of insulation, we have taken a new holding in another fully listed IPO called Superglass (+23.9%), the UK’s second largest glass

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INVESTMENT MANAGER’S REPORT (continued)

NATURAL RESOURCES (Sector Performance: 9.9% Sector Weighting: 11.4%)

We have decent sized holdings in ENI (+11.6%), BG are still being felt. Mining executives increasingly Group (+16.5%), BP (+4.8%) and Royal Dutch Shell argue that this commodities cycle is in fact a (+21.2%). There has been a growing deficit “super-cycle”, and the growing competition between oil discoveries and consumption since the between western mining companies and emerging early 1990’s. In fact, oil discoveries peaked in the market producers reflects the fact that high quality mid-1960’s, while the industrialization and mining assets are increasingly scarce. Hence the urbanization of Asia, and in particular China, has current wave of consolidation and the buying of created a new and growing source of energy existing mines which enables companies to cash in demand. Oil services stocks have been the big on high prices immediately. winners of the global tightening of energy supplies Meanwhile consolidation will bring synergies and as oil majors struggle to develop new fields. Oil more discipline in matching production to demand, services stocks have traded up to price /earnings helping to break the old pattern of boom and bust. multiples in the high teens, while the oil majors, Hence our decision to buy back in to BHP BILLITON which are funding huge capital expenditure (+17.8%), the world’s largest global resources programmes in their struggle to grow output, trade company, whose volume growth is being driven on about half that multiple. Energy stock P/E’s through the commissioning of significant projects have barely risen because investors are unwilling in iron ore, copper, nickel and petroleum. The to bet that this upturn will prove long lasting. We potential value of the Uranium deposits in their suspect the energy market will stay stronger for Olympic Dam mine is significant. Diversification longer. Tony Hayward, the new Chief Executive at across both a range of commodities and exchange BP has called for profound changes in BP’s rate exposures help to make it a less risky structure, culture and behaviour. The strategy is to investment than some of its smaller peers. simplify and standardise BP’s operations and improve their reliability and efficiency. The Supply is not rising anywhere near as fast in the oil restructuring involves cutting layers of sector as it is in the mining sector. While BHP management and central costs. Billiton and Rio Tinto will add about 8 and 6 per cent to production this year, BP and Shell will put in China’s strong economic growth and its hunger for closer 1 to 2 per cent volume growth. The mining raw materials such as copper, iron ore and sector has attractive qualities in that Copper and aluminium have provided the foundations for sharp Iron ore, the sector’s key commodities, are in huge rises in commodities prices over the past five years. demand. Even if US house-building drops off a cliff, Prices have also been driven higher by new mines halving requirements for copper, that would taking longer than expected to develop, because probably only reduce global consumption by about both skilled workers and specialist equipment have 1 per cent. Costs are rising more slowly than in the been in short supply, while established mines are oil sector, and super-normal profits tend to be less reaching the end of their lives and few new major vulnerable to windfall taxes. mineral discoveries have been made in the last decade. The mining industry is now investing again but it takes years to find new deposits and sometimes more than a decade to bring them in to production, so the effects of the previous cut backs

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INVESTMENT MANAGER’S REPORT (continued)

CLOSED LIFE FUNDS (Sector Performance: 12.3% Sector Weighting: 10.1%)

Resolution and confirmed that Resolution and Friends Provident adjusted the they are seeking a nil-premium merger, which terms of their planned £8bn merger, seemingly in would create a combined group with a market an effort to thwart a rival bid from Pearl. Under the capitalisation of about £8.5bn, in a deal that would new structure, the threshold of approval required create the UK’s fourth largest life assurer trading from Resolution’s shareholders was lowered to a under the name of Friends Financial. Resolution simple majority, whereas it had previously required shareholders would own 50.9% and Friends 49.1%. the approval of shareholders representing at least Resolution, which mainly manages closed life funds 75% of the group by value. Resolution published that are no longer writing new business, is strongly details of its merger with Friends at the beginning cash generative, while Friends suffers from of October, setting 5th November as the date for insufficient capital for growth because new their extraordinary general meeting to approve the insurance policies require capital up front, but merger and 29th November as the completion date. generate cash flow later. The deal would marry At the beginning of October, Pearl bid 660p cash for Resolution’s cash flows with Friends growth Resolution, and it is ironic that Royal London, a key potential, offering insurance investors growth plus acquisition target for Resolution, has joined forces cash generation in a single stock. There are with Pearl in agreeing to buy £1.25bn of sizeable operating synergies, while Resolution’s Resolution’s assets. Resolution argues that any bid 7m policyholders represent a big opportunity for for it needs to exceed the potential value of its Friends, which would be able to cross-sell its post-merger stake in Friends. Meanwhile Standard products to them. The deal does represent a Life is talking to about a possible joint substantial broadening of Resolution’s business approach for Resolution. We sit, watch, and wait. model of buying up closed books of business, or in other words, the acquisition of policies that come without sales operations. The fact that this proposed transaction involves a life company open to new business should not come as a surprise, because Resolution chairman Clive Cowdery has been quite clear that his vision for the next stage of the company’s development is “normalisation”, that is, to re-open to new business. The closed fund acquisition strategy has been a clever alternative customer acquisition model, while the other majors have been engaged in a value-destructive battle for new business market share.

Pearl Group, owned by Hugh Osmond’s Sun Capital vehicle and TDR, has now gate-crashed the party by taking a stake of almost 16% in Resolution, arguing that there is further mileage in the closed fund strategy and that the Friends Provident merger would not maximise value for RSL shareholders.

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INVESTMENT MANAGER’S REPORT (continued)

PROPERTY (Sector Performance: (7.3%) Portfolio Weighting: 3.5%)

Sentiment in the real estate market changed In August Mid City Place was sold for £325m, dramatically, largely due to the global liquidity producing a profit on the transaction of over crisis. The gloom hanging over the commercial £100m, of which DV3’s share was £41.5m, property industry deepened when the Royal reflecting an equity multiple of 3.4x and an IRR of Institution of Chartered Surveyors said there would 82.5% per annum compound over the investment be a “short and sharp” adjustment that would force holding period. Following this disposal, a yields upwards, while Capital Economics are proportion of the Mid City Place disposal proceeds forecasting a 12% drop in pricing between 2008 were utilised to redeem all bar a nominal amount of and 2010. Transactional prices were falling even the £31.4m of preference share capital before the credit squeeze of the late summer, outstanding. As at 30th September 2007, total which has caused a multitude of potential deals in funds of £264m (80% of total commitments of the sector to fall through. £330.8m) had been drawn down from shareholders. Virtually all of the £264m has now DV3 had largely sold all its properties where it was been returned by way of five capital redemptions, not actively adding value before the credit squeeze representing 100% of drawn down funds. took hold. The managers had correctly taken the view that yields would be unlikely to compress We made a £10m commitment to DV4, the follow further on “passive” property investments. As at on real estate investment venture to DV3. DV4 is 31st March 2007, total funds of £237.5 million expected to close at around £1bn in assets, and is (72%) out of the total commitment of £330.8 the first opportunity for a select group of investors million had been drawn down from shareholders of to invest alongside a proven management team the unquoted DV3. At this date, a total of £150.6 with the capacity to make investments across the million had been returned by way of two capital entire breadth of the real estate spectrum in the redemptions, which represented 46% of the total British Isles and Mainland Europe. £40m has been commitment. On 13th April 2007, following the committed to DV4 by the Founder Investor whilst disposal of DV3 Ltd’s interest in Hammersmith the individual members of the Advisory Team have Business Park a further £64 million was redeemed. collectively committed between £8m and £16m. On 14th May 2007, £26.5 million was drawn down DV4 has made its first acquisition, a freehold site from shareholders to enable the investment in the located on the historic Brooklands circuit, the Rolls building. On 20th June 2007, £18 million was birthplace of British motor racing, in Weybridge, redeemed, following the sale of 7 Moorgate and Surrey. Detailed planning consent has been the release of proceeds from the Metro Shopping secured for a new landmark 120 bedroom hotel in Fund refinancing. one of the most affluent catchment areas in the UK, where there is a very limited quality hotel offer. As at 30th June 2007, total funds of £264 million (80%) out of the total commitments of £330.8 Engel East Europe (-42.1%) has confirmed the million had therefore been drawn down from appointment of a new Chairman and CEO. The shareholders. Of this, a total of £232.6 million had business is good at having built and expanded its been returned to shareholders by way of four landbank, but has been poor at timely build capital redemptions, which represents 88% of programmes. It has one of the largest landbanks drawn down funds and 70% of total commitments. among Eastern European housing developers,

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INVESTMENT MANAGER’S REPORT (continued) concentrating on capital cities and the local end- now trading at a steep discount to their embedded user market, not buy-to-let apartments in tourist value. Hansteen (+1.5%) is accelerating and spots. The main metropolitan areas are Warsaw in broadening its strategy of acquiring high yielding Poland, Sofia in Bulgaria, Prague in the Czech Western European property assets. Republic and Budapest in Hungary. The shares are

LARGE CAP (Sector Performance: (9.9%) Sector Weighting: 6.2%)

Wolseley (-29.8%), the world’s number one selling/demerging the consumer products division, distributor of heating and plumbing products to the which represents some 15% of group turnover. professional market and leading supplier of Experian Group’s (-10.8%) first half trading update building materials has seen investor sentiment turn indicated that the markets are more challenging in very negative about the 50% of group sales in the US and the UK, but the company said that it North America, about half of which is exposed to expects to meet consensus profit estimates for the the residential housing market. We expect interest year, because tightening credit conditions are rates to head lower at some stage and sentiment to working to the advantage of some of Experian’s turnaround. The Company aims to improve profit counter cyclical operations, with lenders now more margins to 7% over the next four years compared focused on portfolio management rather than the to the 5.4% for 2007, as well as reduce gearing to origination of new business. HSBC (+4.7%) has 60%. The pharmaceutical sector offers strong cash come under the scrutiny of Knight Vinke, the generation and the financial flexibility to return activist shareholder, who claims the group is cash to shareholders, whilst being able to provide undervalued by 40%-50%. The criticism is that substantial cost savings. GlaxoSmithKline (-6.3%) capital allocation in recent years has been poor, has up to twenty-five launches of products in with 70% of group assets in Europe and North 2007-2009, and has increased its share buyback America generating just 49% of the profits. Looking programme from £8bn to £12bn (17% of equity) in at things another way, HSBC is 51% Hong the next two years. A new CEO designate has just Kong/Asia/Emerging Markets versus 49% been announced, who may in time take a strategic Europe/US, preferable to those banks where the decision about raising the dividend payout and sole exposure is the UK mortgage market.

INSURANCE (Sector Performance: 6.2% Portfolio Weighting: 4.7%)

The hurricane season officially ends attractive UK operation. Brit has announced the 30th November, but by mid October the risk of creation of a dedicated Gibraltar based reinsurer, major loss has diminished materially, so the which will participate in the reinsurance of its two likelihood of another very strong year for principal operations, Brit Insurance Ltd. and underwriting profits is increasing, and in its wake, Syndicate 2987. Its impact will be to increase Brit’s the pressure to return capital. On the other hand overall premium income, with the intention of limited loss activity in 2007 could accelerate the increasing earnings per share over the medium downward rating trend and lead to a dampening of term. As expected, the global operations were the expectations. Brit Insurance Holdings (+8.8%) main driver to underwriting profits at the half year, really needs to see the UK insurance market harden with a strong performance from the smaller significantly and demonstrate that it has built an Reinsurance book.

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INVESTMENT MANAGER’S REPORT (continued)

Kiln (-7.2%) announced disappointing first half originally planned. Fortunately, a lower tax rate due results as a result of lower premium growth than to Kiln’s new Bermuda domicile led to a more the market was forecasting, as weaker than favourable tax charge and resulting effect on eps. expected pricing in areas targeted for growth Kiln has increased its full year cross-cycle minimum meant Kiln chose not to grow as aggressively as dividend by 25% to 5p.

UTILITIES (Sector Performance: (1.0%) Portfolio Weighting: 4.3%)

We sold National Grid (10.1%) because the strategy the efficient operation of, and investment in, a of restructuring the group along global lines of balanced range of regulated and non-regulated business has been completed. Wireless energy-related business, mainly focussing on energy infrastructure and Basslink have been sold, and the networks, electricity generation, energy supply and acquisition of KeySpan will double the size of the US gas storage. The asset base is set to grow utility operations, after which the group balance significantly, as £2bn will be invested in energy sheet is much more efficient. British Gas Residential networks, electricity generation, energy supply and which is owned by Centrica (+0.7%) is now in pole gas storage over the next three years, which position in the supply market, and has clawed back management expects to enhance earnings and nearly 1m customers after a number of price cuts this shareholder value. The Regulatory Asset Value (RAV) year. These price cuts throw down the gauntlet to the of SSE’s electricity network will grow from £2.6bn to other major residential suppliers, and indicate the £3.0bn by 2010, while the gas network’s RAV of start of BGR’s fight back on customer churn. Scottish 1.6bn will “increase significantly”, ensuring growth in and Southern Energy’s (+0.8%) strategy remains to their regulated revenues, the management deliver sustained real growth in the dividend through estimates.

MID CAP (Sector Performance: (10.3%) Portfolio Weighting: 3.0%)

We sold FKI (+19.8%) at favourable prices on the Premier has effectively accelerated the timetable. announcement of there being a potential offer for the Galliford Try (-13.8%), a leading hybrid construction company, while SSL International (+7.3%) continues company has suffered because of the market concern to be subject to bid rumours because its brand regarding the residential housing market. Matching contributions would fit well in to a larger sales and the cash generative nature of construction with cash- marketing portfolio. Comments on the outlook for its absorbing housebuilding creates a largely self- local collection business in June and in a further funding business model. After applying notional Interim Management Statement in July contributed finance costs to each business area Galliford actually to a sharp fall in Biffa’s (-34.5%) share price. Biffa has a very balanced profit before tax profile between appears to have stopped the slippage in this division construction and housebuilding, and the group following a new pricing policy and implementation of balance sheet is in good shape to grow. Galliford is customer services initiatives. Premier Foods (-23.1%) also becoming a major player in the affordable has suffered because of the dramatic increase in housing market. Meeting the increasing demand for wheat prices and the consequent impact on bread affordable housing is at the forefront of the profitability, and Hovis’s loss of market share. The Government’s agenda, and the shift from decent integration of RHM is a significant undertaking, but homes to sustainable communities is becoming the integration process is going sufficiently well that increasingly evident.

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INVESTMENT MANAGER’S REPORT (continued)

INVESTMENT TRUSTS (Sector Performance: (7.8%) Portfolio Weighting: 1.8%)

We took a new holding in Herald Investment Trust patient. The latest manufacturing data confirms (-7.8%), which has net assets approaching £400m, that tech new orders have risen sharply relative to 10% gearing, and trades at a 12% discount to net inventories, and growth in IT spending is outpacing asset value. Herald’s manager believes that the other business investment for the first time in valuations of technology stocks are historically several years, all of which suggests that tech sector cheap, and we agree, although we may need to be profits are geared to outperform.

OUTLOOK

The fear is that the credit market contagion could Lasting through economic and credit cycles move from the financial sector in to the real requires managers to get their hands dirty and re- economy, hitting companies and households, engineer companies’ businesses, not just their thereby eroding global economic growth. In the balance sheets. Corporate balance sheets are on short term markets have taken heart from the the whole in rude health, and many companies moves by Central Banks to inject liquidity in to the continue to buy in their own shares, with a record financial system, whilst also being encouraged by £11.25bn worth of stock being repurchased by UK the decision of the world’s big banks to draw a line companies in the third quarter of the calendar year. under the credit crisis by announcing huge write- It is also noticeable that insider/director buying has downs, which have not weakened them as much picked up markedly during this period of volatile as was earlier feared. stock markets. The secular forces of globalization and ensuing efficiency gains suggest that corporate We believe that lower interest rates will gradually profitability is likely to stay higher and for longer reflate the economy and prevent the US from than investors expect. The corporate sector is tipping into recession, while there are signs that looking at strategic and value-creating acquisition confidence and stability are returning to credit and and merger opportunities as witnessed in our money markets. In the UK inflationary pressures portfolio. We sold our stake in International Nuclear are retreating, while the economy appears to have Solutions to Babcock Intl, while a French IT topped out in response to previous tightening company called Steria made an agreed cash offer measures. The RICS house price survey has fallen for our Xansa holding at a 70% premium to the in to negative territory, a survey that tends to lead undisturbed price. We sold our FKI at favourable retail sales and suggests much softer spending prices on the announcement of there being a numbers in the months ahead. House price potential offer for the company, and since our half inflation in the UK has rolled over at a point when year end a leading transportation and logistics valuations are looking stretched, so interest rates services company in continental Europe made an are more likely to fall than rise in the next six to agreed cash offer for Salvesen, again at over a 70% twelve months. premium to the undisturbed price at the beginning The credit squeeze has made lenders more of October. This was shortly followed by an cautious and private equity deals are likely to slow announcement from Foseco that the company has markedly, particularly in the case of the larger buy- reached agreement on terms of a recommended out market of £1bn plus. The credit boom made offer by Cookson at 295p per share. conservatively financed companies easy targets.

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INVESTMENT MANAGER’S REPORT (continued)

There is a lot of caution in the developed markets, and a great deal of cash sitting on the sidelines. Capitalist economies tend to surprise on the upside in two ways, namely by their ability to generate productivity growth and depress costs, and by the flexibility and elasticity of their credit systems. A mid-cycle growth slowdown could provide relief from higher interest rates and the threat of inflation and in time provide the backdrop for an expansion in multiples.

Hansa Capital Partners LLP

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INVESTMENT PORTFOLIO at 30 September 2007

Fair Value Percentage of £000 investments

Strategic Ocean Wilsons Holdings Ltd 75,290 29.9 75,290 29.9 Utilities Scottish and Southern Energy Plc 6,044 2.4 Centrica Plc 4,756 1.9 10,800 4.3 Small Caps/Aim Hargreaves Services Plc 6,120 2.4 Ark Therapeutics Group Plc 6,099 2.4 NCC Group Plc 4,687 1.9 EAGA Plc 4,376 1.7 Goals Soccer Centres Plc 3,940 1.6 Morson Group Plc 3,850 1.5 Superglass Holdings Plc 3,840 1.5 Cape Industries Plc 3,484 1.4 All Leisure 3,000 1.2 Helesi Plc 2,263 0.9 Foseco Plc 2,057 0.8 Xansa Plc 1,931 0.8 18 Other Investments 17,662 7.0 63,309 25.1 Mid Cap Galliford Try Plc 3,308 1.3 SSL International Plc 2,019 0.8 Premier Foods Plc 1,673 0.7 Biffa Plc 498 0.2 7,498 3.0 Closed Life Funds Resolution Plc 25,503 10.1 25,503 10.1

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INVESTMENT PORTFOLIO (continued) at 30 September 2007

Fair Value Percentage of £000 investments

Insurance Brit Insurance Holdings Plc 10,124 4.0 Kiln Plc 1,666 0.7 11,790 4.7 Investment Trusts Herald Investment Trust Plc 4,646 1.8 4,646 1.8 Natural Resources BG Group Plc 5,922 2.4 BHP Billiton Plc 5,862 2.3 BP Plc 5,675 2.2 Eni S.p.a 5,451 2.2 Royal Dutch Shell Plc 2,891 1.1 Melrose Resources Plc 2,785 1.1 Ramco Energy Plc 162 0.1 28,748 11.4 Property Hansteen Holdings Plc 3,615 1.4 DV3 Ltd # 2,539 1.0 Engel East Europe NV 2,228 0.9 DV4 Ltd # 500 0.2 8,882 3.5 Large Cap HSBC Holdings Plc 4,975 2.0 Glaxosmithkline Plc 4,539 1.8 Wolseley Plc 3,719 1.5 Experian Group Ltd 2,247 0.9 15,480 6.2

Total Investments 251,946 100.0

Marketable securities are valued at the bid price # Unquoted

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CONDENSED GROUP INCOME STATEMENT for the six months ended 30 September 2007

(Unaudited) (Unaudited ) (Audited) Six months ended Six months ended Year ended 30 September 2007 30 September 2006 31 March 2007 Revenue Capital Total Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 £000 £000 £000 (Loss)/Gains on investments – (846) (846) – (3,013) (3,013) – 52,403 52,403 Loss on derivative –––––––(20) (20) Exchange gains/(loss) on currency balances –––– 5 5 – (10) (10) Investment income (see note 2) 3,427 – 3,427 3,152 – 3,152 5,215 – 5,215 3,427 (846) 2,581 3,152 (3,008) 144 5,215 52,373 57,588 Investment management fees (1,045) – (1,045) (645) – (645) (1,312) – (1,312) Other operating expenses (361) – (361) (262) – (262) (561) – (561) (1,406) – (1,406) (907) – (907) (1,873) – (1,873) Profit/(Loss) before finance costs and taxation 2,021 (846) 1,175 2,245 (3,008) (763) 3,342 52,373 55,715 Finance costs (1) – (1) (225) – (225) (226) – (226) Profit/(Loss) before taxation 2,020 (846) 1,174 2,020 (3,008) (988) 3,116 52,373 55,489 Taxation (38) – (38) (33) – (33) (58) – (58) Profit/(Loss) for the period 1,982 (846) 1,136 1,987 (3,008) (1,021) 3,058 52,373 55,431 Return per Ordinary and ‘A’ non-voting Ordinary share (see note 3) 8.3p (3.5p) 4.8p 8.3p (12.5p) (4.2p) 12.8p 218.2p 231.0p

The total column of this statement represents the Group’s Income Statement, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations.

The Statement above is regarded as being in a condensed form due to the fact that no explanatory notes are available as would be the case in the Annual Report.

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CONDENSED STATEMENT OF CHANGES IN EQUITY for the six months ended 30 September 2007 (Unaudited)

Capital redemption Retained Share Capital reserve Earnings Total £000 £000 £000 £000 Net assets at 1 April 2007 1,200 300 247,966 249,466 Profit for the period – – 1,136 1,136 Dividends paid – – (2,160) (2,160) Balance at 30 September 2007 1,200 300 246,942 248,442

CONDENSED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 September 2006 (Unaudited)

Capital redemption Retained Share Capital reserve Earnings Total £000 £000 £000 £000 Net assets at 1 April 2006 1,200 300 194,875 196,375 Profit for the period – – (1,021) (1,021) Dividends paid – – (1,500) (1,500) Balance at 30 September 2006 1,200 300 192,354 193,854

CONDENSED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 March 2007 (Audited)

Capital redemption Retained Share Capital reserve earnings Total £000 £000 £000 £000 Net assets at 1 April 2006 1,200 300 194,875 196,375 Profit for the year – – 55,431 55,431 Dividends paid – – (2,340) (2,340) Balance at 31 March 2007 1,200 300 247,966 249,466

The Statements above are regarded as being in a condensed form due to the fact that no explanatory notes are available as would be the case in the Annual Report.

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CONDENSED CONSOLIDATED BALANCE SHEET as at 30 September 2007

(Unaudited) (Unaudited ) (Audited ) 30 September 30 September 31 March 2007 2006 2007 £000 £000 £000 Non-current investments Investments held at fair value through profit and loss 251,946 170,534 243,641 Current Assets Other receivables 574 1,598 737 Investments 10 – 4,667 Cash and cash equivalents 15 21,959 1,424 599 23,557 6,828 Current Liabilities Other payables falling due within one year (4,103) (237) (1,003) Net current assets/(liabilities) (3,504) 23,320 5,825 Net assets 248,442 193,854 249,466 Equity Called up share capital 1,200 1,200 1,200 Capital redemption reserve 300 300 300 Retained earnings 246,942 192,354 247,966 Total equity shareholders’ funds 248,442 193,854 249,466 Net asset value per Ordinary and ‘A’ non-voting Ordinary share (see note 5) 1,035.2p 807.7p 1,039.4p

The Statement above is regarded as being in a condensed form due to the fact that no explanatory notes are available as would be the case in the Annual Report.

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CONDENSED CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30 September 2007

(Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30 September 30 September 31 March 2007 2006 2007 £000 £000 £000 Profit/(Loss) before finance costs and taxation 1,175 (763) 55,715 Adjustments for: Realised gains on investments (5,158) (22,171) (32,063) Unrealised gains/(loss) on investments 6,004 25,185 (20,340) Effect of foreign exchange rate changes – (5) 10 Increase/(decrease) in prepayments and accrued income 82 (186) (391) Decrease/(increase) in other creditors and accruals 2,349 (58) – Taxes paid (38) (9) (58) Purchase of non-current investments (24,479) (17,286) (65,752) Sale of non-current investments 15,409 45,331 77,905 Net cash (outflow)/inflow from operating activities (4,656) 30,038 15,026 Cash flows from financing activities Interest paid on bank loans – (225) (226) Dividends paid (2,160) (1,500) (2,340) Drawdown/(repayment) of loans 750 (6,600) (6,600) Net cash (outflow) from financing activities (1,410) (8,325) (9,166) (Decrease)/Increase in cash and cash equivalents (6,066) 21,713 5,860 Cash and cash equivalent at 1 April 6,091 241 241 Effect of foreign exchange rate changes – 5 (10) Cash and cash equivalents at end of period 25 21,959 6,091

The Statement above is regarded as being in a condensed form due to the fact that no explanatory notes are available as would be the case in the Annual Report.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

The financial statements of the Group and been presented alongside the income statement. In Company have been prepared in accordance with accordance with the Company’s status as a UK International Financial Reporting Standards investment company under section 266 of the (‘IFRS’). These financial statements are presented Companies Act 1985, net capital returns may not be in pounds sterling because that is the currency of distributed by way of dividend. Additionally the net the primary economic environment in which the revenue is the measure that the Directors believe to Group operates. be appropriate in assessing the Company’s compliance with certain requirements set out in (a) Basis of preparation section 842 of the Income and Corporation Taxes This half yearly report is prepared in accordance Act 1988. with IAS 34 and on the basis of the accounting (d) Non- current investments policies set out in the group and company’s Annual Report and Accounts at 31 March 2007. Investments are recognised and de-recognised on the trade date where a purchase or sale is under a The financial statements have been prepared on an contract whose terms require delivery within the historical cost basis, except for the revaluation of timeframe established by the market concerned. certain financial assets. The principal accounting For listed investments, this is deemed to be bid policies adopted are set out below. Where market prices or closing prices for SETS stocks presentational guidance set out in the Statement of sourced from the . SETS is Recommended Practice (‘SORP’) for investment the London Stock Exchange electronic trading trusts issued by the Association of Investment service covering most of the market including all Companies (AIC) is consistent with the FTSE 100 constituents and most liquid FTSE 250 requirements of IFRS, the Directors have sought to constituents along with some other securities. prepare the financial statements on a basis compliant with the recommendations of the SORP Unquoted investments are stated at fair value and with pronouncements on interim reporting through profit and loss as determined by using issued by the Accounting Standards Board. various valuation techniques, in accordance with the International Private Equity and Venture Capital (b) Basis of Consolidation (“IPEVC”) Valuation Guidelines. These include The consolidated financial statements incorporate using recent arms length market transactions the financial statements of the Company between knowledgeable and willing parties where and its subsidiary undertakings made up to available. Over the counter options are valued daily 30 September 2007. by the issuing broker.

(c) Presentation of income statement Gains and losses arising from changes in fair value are included in net profit or loss for the period as a In order to reflect better the activities of an capital item in the income statement and are investment trust company and in accordance with ultimately recognised in the Capital Reserves. guidance issued by the AIC, supplementary information which analyses the income statement between items of a revenue and capital nature has

22

JOB: 07-23275-1 CYCLE#;BL#: 6; 0 TRIM: 5.827" x 8.268" AS: Merrill London: 011-44-20-7422-6100 COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: hansa_lion_289_logo.eps V1.5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | mmonson | 29-Nov-07 05:19 | 07-23275-1.da | Sequence: 2 CHKSUM Content: 47394 Layout: 13237 Graphics: 23972 CLEAN

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued)

(f) Current Asset Investments realised capital reserves via the capital column of the Income Statement; Current asset investments are classified as held for trading and are measured at fair value with gains (ii) Expenses which are incidental to the disposal and losses arising from their changes in fair value of investments are deducted from the sale being included in the Income Statement as a proceeds via the capital column of the Income revenue item. Transaction costs incurred on the Statement; acquisition or disposal of current asset investments (iii) Expenses are charged to the realised capital are expensed and included in the revenue column reserve, via the capital column of the Income of the Income Statement. Statement, where a connection with the (e) Cash and cash equivalents maintenance or enhancement of the value of the investments can be demonstrated. Cash and cash equivalents comprise cash at bank and short term deposits with an original maturity of (i) Taxation three months or less. The tax expenses represent the sum of the tax (g) Investment Income currently payable and deferred tax.

Dividends receivable on equity shares are The tax currently payable is based on taxable profit recognised on the ex-dividend date. Where no ex- for the year. Taxable profit differs from profit before dividend date is quoted, dividends are recognised tax as reported in the income statement because it when the Group’s right to receive payment is excludes items of income or expenses that are established. Dividends and interest on investments taxable or deductible in other years and it further in unlisted shares and securities are recognised excludes items that are never taxable or deductible. when they become receivable. Dividends are stated The Group’s liability for current tax is calculated net of related tax credits. using tax rates that have been enacted or substantially enacted by the balance sheet date. Underwriting commission is recognised in the Deferred taxation is recognised in respect of all revenue column of the Income Statement insofar temporary differences that have originated but not as it relates to shares not required to be taken up. reversed at the balance sheet date where Where a proportion of the shares underwritten are transactions or events that result in an obligation to required to be taken up the same proportion of the pay more or a right to pay less tax in future have commission received is recognised in the capital occurred at the balance sheet date measured on column of the Income Statement, with the balance an undiscounted basis and based on enacted tax taken to the revenue column. rates. This is subject to deferred tax assets only (h) Expenses being recognised if it is considered probable that there will be suitable profits from which the future All expenses are accounted for on an accruals reversal of the underlying temporary differences basis. Expenses are charged through the revenue can be deducted. Temporary differences are column of the Income Statement except as follows: differences arising between the Company’s taxable (i) Material expenses which are incidental to the profits and its results as stated in the accounts, acquisition of an investment are taken to the which are capable of reversal in one or more subsequent periods.

23

JOB: 07-23275-1 CYCLE#;BL#: 6; 0 TRIM: 5.827" x 8.268" AS: Merrill London: 011-44-20-7422-6100 COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: hansa_lion_289_logo.eps V1.5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | mmonson | 29-Nov-07 05:19 | 07-23275-1.da | Sequence: 3 CHKSUM Content: 20170 Layout: 50286 Graphics: 23972 CLEAN

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued)

Due to the Company’s status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

(j) Foreign Currencies Transactions denominated in foreign currencies are recorded in the local currency at the actual exchange rates as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rate of exchange prevailing at the year end. Any gain or loss arising from a change in exchange rates, subsequent to the date of the transaction, is included as an exchange gain or loss in the capital or revenue column of the Income Statement, depending on whether the gain or loss is of a capital or revenue nature respectively.

(k) Reserves Capital reserves – Realised The following are credited or charged to this reserve, via the capital column of the Income Statement: – gains and losses on the realisation of investments; – realised exchange differences of a capital nature; – expenses charged to the capital column of the Income Statement in accordance with the above accounting policies. Capital reserves – Unrealised The following are credited or charged to this reserve, via the capital column of the Income Statement; – increases and decreases in the valuation of investments held at the year end; – unrealised exchange differences of a capital nature.

24

JOB: 07-23275-1 CYCLE#;BL#: 6; 0 TRIM: 5.827" x 8.268" AS: Merrill London: 011-44-20-7422-6100 COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: hansa_lion_289_logo.eps V1.5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | mmonson | 29-Nov-07 05:19 | 07-23275-1.da | Sequence: 4 CHKSUM Content: 65066 Layout: 27400 Graphics: 23972 CLEAN

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued)

2. INVESTMENT INCOME

(Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30 September 30 September 31 March 2007 2006 2007 £000 £000 £000 Income from listed investments Dividends 1,897 2,021 3,562 Overseas dividends 1,425 1,101 1,391 3,322 3,122 4,953 Other operating income Placement and underwriting income – 14 4 Interest receivable AAA rated money market funds 102 – 205 Interest receivable 3 16 53 105 30 262 Total income 3,427 3,152 5,215 Total income comprises: Dividends 3,322 3,122 4,953 Interest 105 16 258 Other income – 14 4 3,427 3,152 5,215

3. RETURNS PER SHARE

The returns stated below are based on 24,000,000 shares, being the weighted average number of shares in issue during the period.

Total Revenue Capital Pence Pence Pence Period £000 per share £000 per share £000 per share Six months ended 30 September 2007 1,136 4.8 1,982 8.3 (846) (3.5) Six months ended 30 September 2006 (1,021) (4.2) 1,987 8.3 (3,008) (12.5) Year ended 31 March 2007 55,431 231.0 3,058 12.8 52,373 218.2

4. FINANCIAL INFORMATION

The financial information contained in this half yearly report is not the Company’s statutory accounts. The financial information for the six months ended 30 September 2007 and 30 September 2006 is not for a financial year, has not been audited or reviewed by the auditors and has been prepared in accordance with accounting policies consistent with those set out in the Annual Report and Accounts for the year ended 31 March 2007.

25

JOB: 07-23275-1 CYCLE#;BL#: 6; 0 TRIM: 5.827" x 8.268" AS: Merrill London: 011-44-20-7422-6100 COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: hansa_lion_289_logo.eps V1.5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | mmonson | 29-Nov-07 05:19 | 07-23275-1.da | Sequence: 5 CHKSUM Content: 55750 Layout: 14252 Graphics: 23972 CLEAN

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued)

The statutory accounts for the financial year ended 31 March 2007 have been delivered to the Registrar of Companies and received an audit report which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain statements under section 237(2) and (3) of the Companies Act 1985.

The half yearly financial information was approved by the Board of Directors on 22 November 2007.

5. NET ASSET VALUE PER SHARE

The Net Asset Value per share is based on the net assets attributable to equity shareholders of £248,442,000 (six months ended 30 September 2006: £193,854,000; year ended 31 March 2007: £249,466,000) and on 24,000,000 shares, being the number of shares in issue at the period ends.

6. COMMITMENTS AND CONTINGENCIES

The Company has entered into a two commitment agreement. One with DV3 Limited, an unquoted property investment company. The commitment was for £4 million for a period of four years from 30 March 2004 and the amount outstanding at 30 September 2007 was £807,438 (31 March 2007: £1,127,873). At 30 September 2007 the amount drawn down less amounts received under the agreement was £40 (31 March 2007: £1,050,954). The other was entered into during the period and was with with DV4 Limited, an unquoted property investment company. The commitment was for £10 million for a maximum period of 5 years and 9 months from 8 June 2007 and the amount outstanding at 30 September 2007 was £9,500,000. At 30 September 2007 the amount drawn down under the agreement was £500,000.

Since 1990 fund management fees charged by third party fund managers to investment trust companies have been treated as subject to VAT. In June 2007 the European Court of Justice delivered a judgement in support of the view that management fees charged to investment trusts should be exempt from VAT. HM Revenue & Customs has now accepted this decision and withdrawn from defending the appeal against it. The Company is now working with its current and past investment managers to ascertain the level of VAT which it can expect to be refunded. The amount due is not expected to make a material change to the Net Asset Value of the Group.

26

JOB: 07-23275-1 CYCLE#;BL#: 6; 0 TRIM: 5.827" x 8.268" AS: Merrill London: 011-44-20-7422-6100 COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: hansa_lion_289_logo.eps V1.5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | mmonson | 29-Nov-07 05:19 | 07-23275-1.da | Sequence: 6 CHKSUM Content: 26222 Layout: 47297 Graphics: 23972 CLEAN

INVESTOR INFORMATION

The Company currently manages its affairs so as to be a qualifying investment trust for ISA purposes. As a result, under current UK legislation, the Ordinary and ‘A’ non-voting Ordinary shares qualify for investment in the stocks and shares component of a non-CAT Standard ISA up to the full annual subscription limit. The Company’s Ordinary and ‘A’ non-voting Ordinary shares qualify for inclusion in an existing general PEP. It is the present intention that the Company will conduct its affairs so as to continue to qualify for ISA and PEP products. CONTACT DETAILS SHARE PRICE LISTINGS Please contact the Investment Manager, as below, if The price of your shares can be found in the Financial you have any queries concerning the Company’s Times under the heading Investment Companies. investments or performance. Information is also available from FT City line by Hansa Capital Partners LLP dialling the following numbers: 50 Curzon Street Ordinary shares 0906 003 – 3954 London W1J 7UW or 0906 843 – 3954 Telephone: 020 7647 5750 www.hansagrp.com ‘A’ non-voting Ordinary shares 0906 003 – 3955 or 0906 843 – 3955 Close Investments Limited (Close) are the current Plan (when prompted use the last 4 digits as the code) Manager for ISA, PEP, Milestones and Savings Schemes. However by early next year a new Plan In addition, share price information can be found under Manager will take on the role for those shareholders the following: who so elect. Any query on existing ISA, PEP, Code Milestones and Savings Schemes should continue to be directed to Close but Close are not accepting any new investments. Ordinary shares HAN.L ‘A’ non-voting Ordinary shares HANA.L Close Investments Limited Bloomberg Block C, Western House Ordinary shares HAN LN Lynchwood Business park ‘A’ non-voting Ordinary shares HANA LN Peterborough PE2 6BP SEAQ Free phone: 0800 169 6968 Ordinary shares HAN www.closefinsbury.com ‘A’ non-voting Ordinary shares HANA Please contact the Registrars, as below, if you have a USEFUL INTERNET ADDRESSES query about a certificated holding in the Company’s The Association of Investment shares. Companies www.theaic.co.uk Registrars London Stock The Registry Exchange www.londonstockexchange.com Northern House TrustNet www.trustnet.com Woodsome Park Fenay Bridge FINANCIAL CALENDAR Huddersfield Company year end 31 March West Yorkshire HD8 0LA Preliminary full year results announced June Telephone: 0870 162 3100 Annual Report sent to shareholders July Email: [email protected] Annual General Meeting held August www.capitaregistrars.com Final Dividend payment August Announcement of half yearly results November WEB SITE ADDRESS AND CONTENTS Half yearly Report to shareholders December The Company’s website, www.hansagrp.com contains Half yearly Dividend payment December information on the Company and includes the following: Monthly Fact Sheets Annual and Interim Reports Stock Exchange Announcements Details of the Investment Manager

27

JOB: 07-23275-1 CYCLE#;BL#: 6; 0 TRIM: 5.827" x 8.268" AS: Merrill London: 011-44-20-7422-6100 COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: hansa_lion_289_logo.eps V1.5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | mmonson | 29-Nov-07 05:19 | 07-23275-1.da | Sequence: 7 CHKSUM Content: 17226 Layout: 53336 Graphics: 24681 CLEAN

TOTAL RETURN PERFORMANCE GRAPHS

NET ASSET VALUE

400 350 300 250 200 150 100 50 0 -50 Sep-97 Sep-98Sep-99 Sep-00Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07

NAV (Ex Income) Benchmark

6 months 1 year 3 years 5 years 10 years Net Asset Value 0.51% 30.03% 128.86% 284.14% 320.78% Benchmark 3.36% 6.68% 19.81% 33.52% 74.06%

SHARE PRICE

550 500 450 400 350 300 250 200 150 100 50 0 -50 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07

Ord.Share A Ord.Share FTSE all share

6 months 1 year 3 years 5 years 10 years Ordinary Share -8.88% 18.80% 160.22% 351.03% 397.93% ‘A’ non-voting Ordinary Share 0.43% 26.98% 162.24% 358.19% 417.06% FTSE All-Share 2.86% 12.50% 62.50% 121.01% 87.25%

The returns in the above charts have assumed that the dividends paid by the Company have been reinvested on the payment date, at the prevailing Net Asset Value and Share Price.

Past Performance is not a guide to future performance. Source: Internal Management Information

28

JOB: 07-23275-1 CYCLE#;BL#: 6; 0 TRIM: 5.827" x 8.268" AS: Merrill London: 011-44-20-7422-6100 COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: 23275-1_sep_nav.eps, 23275 1 sep share price eps hansa lion 289 logo eps V1 5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | jihrke | 28-Nov-07 09:21 | 07-23275-1.za | Sequence: 1 CHKSUM Content: No Content Layout: 55064 Graphics: No Graphics CLEAN

JOB: 07-23275-1 CYCLE#;BL#: 5; 0 TRIM: 5.827" x 8.268" AS: LON COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: none V1.5 Merrill Corp - Hansa Trust Semi-Annual Report [Funds] | jihrke | 28-Nov-07 09:21 | 07-23275-1.za | Sequence: 2 CHKSUM Content: 45094 Layout: 33836 Graphics: No Graphics CLEAN

Hansa Trust PLC 50 Curzon Street, London W1J 7UW Tel: 020 7647 5750 Fax: 020 7647 5770 Website: www.hansagrp.com Email: [email protected]

JOB: 07-23275-1 CYCLE#;BL#: 5; 0 TRIM: 5.827" x 8.268" AS: LON COMPOSITE COLORS: PANTONE 289 U, ~note-color 2 GRAPHICS: none V1.5