HIT - Financials - Interim 1996

The trading background for most stocks in the Herald orbit continues to be strong overall. There are signs that the growth in average profits may be slowing slightly, but it still exceeds 20% for most companies and thus remains significantly in excess of the economy as a whole. The investment focus of the ordinary shares remains heavily in UK companies, whereas about one third of the C share assets have been invested in the United States. The performance of the two classes of share must therefore be considered separately until the funds have merged, which will occur by the end of September this year.

There has been a pronounced re-rating in the portfolio, beginning in April 1995 continuing until May 1996. When combined with the strong growth in underlying profits, this has led to a continued healthy rise in net asset values in the first half.

Inception

End Dec

End June

End July

1995

1996

Herald basic NAV/share

98.7p*

137.8p

160.9p

152.2p

% changes since 31 Dec 1995

+17.1%

+11.1%

FT-SE1OO % change since 31 Dec 1995

+0.6%

+0.4%

HGSC % change since 31 Dec1995

+14.2%

+9.0%

*	The Net Asset Value per share raised net of expenses on 16 Feb1994, when 65m share, were placed at 100p per share with warrants attached on a 1 for 5 basis.

There has been a sharp (8.4%) correction in asset values in June and July, but the manager regards this as a healthy consolidation which provides an important reminder to investors that some companies, aided by brokers and investment bankers, can inflate stock market expectations to an unsustainable level in certain stocks. The Herald universe is markedly vulnerable to this trend, reflecting the extraordinary rates of growth achieved by some companies. The manager is wary of venture capital type situations, which the trust continues to avoid, and sees long-term growth opportunities in established companies.

In April, �30m was raised in the C share issue with the intention of broadening the geographic remit. The manager argues that analytical cross-referencing on a global basis is essential for investment in leading-edge companies. There are strong parallels between the US and UK sectors in terms of growth, restructuring of media and telecommunications companies, and regulatory influences. However, the US market cycle in technology stocks has been consolidating for the last year and has proved particularly volatile over the short term.

	Inception	End June	End July 1996
	l0 April 1996	1996	1996

Herald C basic NAV/share	98.5p	96.9p	91.3p
% changes since 10 April 1996		-1.6%	-7.3%
Morgan Stanley HT % change since 10 April 1996		+0.9%	-4.9%
Russell 2000 % change since 10 April 1996		+4.7%	-4.5%

After a strong rally the market corrected, leading to a 22% decline in the Morgan Stanley High Technology Index, between mid-May and mid-July. Similarly, a 16% fall in the Russell 2000 has had an adverse effect on the C share assets, with the net decline in the US element of the portfolio a similar magnitude. However, the manager saw the correction as an opportunity to invest the significant cash balances (or index-linked gilt holdings) in both the C share and the main fund at the end of June.

The board has passed a resolution for ordinary shares to be transferred and settled by means of CREST; but for the warrants to be so transferred and settled it is necessary for warrant holders to pass an extraordinary resolution, for which a meeting has been convened on 13 September 1996.

Although stock market conditions are uncertain, the underlying growth in the industries in which the fund invests continues to provide a helpful background in the endeavour to achieve above average long-term growth.

The information on this page is taken from the Interim Report for the six months ended 30^th June 1996