Annual Financial Report

RNS Number : 8135K

Acorn Income Fund Ld

26 April 2010

 



ACORN INCOME FUND LIMITED

ANNOUNCEMENT OF ANNUAL RESULTS

The Directors announce the statement of results for the year ended 31 December 2009 as follows:

INVESTMENT OBJECTIVES AND POLICY

For the year ended 31 December 2009

The objectives of Acorn Income Fund Limited (the "Company") are to provide shareholders with a high income and also the opportunity for capital growth.

The Company's portfolio is invested in equities and interest-bearing securities in order to achieve its investment objectives.  It is the aim of the Company to provide both income and capital growth predominantly through investment of approximately 70% of the portfolio in smaller capitalised United Kingdom companies admitted to the Official List of the United Kingdom Listing Authority and traded on the London Stock Exchange or traded on AIM.  The Company also aims to enhance income for shareholders by investing approximately 30% of its assets in high yielding instruments which will be predominantly fixed interest securities (including corporate bonds, preference and permanent interest bearing shares, convertible and reverse convertible bonds and debentures) but may include up to 15% of the portfolio (measured at the time of acquisition) in high yielding investment company shares.

CHAIRMAN'S STATEMENT

For the year ended 31 December 2009

Dear Shareholder,

Following the unprecedented turmoil in financial markets during 2008, the UK market continued to decline during the first two months of 2009 with investors gripped by the fear of further failures in the banking sector and the prospect of a severe recession. The FTSE small cap index fell a further 10% from its year-end level before the market turned in early March. The change of heart was occasioned by a reassessment of the government's economic policy and tentative signs that the worst of the global upheaval was coming to an end. From that low point to the year end the UK equity market staged a robust recovery supported by increasing confidence and appetite for risk as it became clear that monetary easing was working and the recession would not be as deep as had been feared. The FTSE small cap index rallied over 70% from its low point in March to the year end. By and large it was those stocks that had suffered the most severe declines that recovered most strongly, whereas better quality, less speculative small cap stocks lagged the rally, at least initially.

 At the year end 62.7% of gross assets were allocated to the small company portfolio and   30.5% to the income portfolio. Across the whole fund there was 6.8% cash weighting.

Investment performance

The Company's total assets increased 39.7% over the year and the NAV per share rose 45.98% from 89.89p to 131.22p.

Despite a strong absolute return, the small company portfolio underperformed the Hoare Govett Smaller Companies index over the year. This was due principally to the indiscriminate recovery, that occurred in the second quarter, in the more distressed highly leveraged companies to which we had little exposure,

The income portfolio rallied strongly from March onwards as credit spreads tightened dramatically when confidence returned. The portfolio also benefited from numerous positive corporate actions, such as bond tenders, as well as macro factors such as quantitative easing. More than two-thirds of the portfolio remains investment grade with a heavy exposure to financials. The bond portfolio returns are partially immune to gilt returns as potential gilt weakness is hedged.

Dividends

Earnings per share for the year were 47.33p (-73.79p) and dividends totalling 6p (8.2p) were paid during the year.  Whilst the small cap share portfolio experienced some dividend cuts the majority of our stocks maintained their pay-out.  The future outlook for UK corporate earnings is much improved as many companies cut costs aggressively during the recession.  The bond portfolio continued to provide a high income although with both gilt and corporate bond yields lower towards the end of the year the running yield has been reduced.  Whilst not severe there was some reduction in earnings per share and for this reason in the very uncertain conditions that prevailed early in the year the Board decided to cut the 2p quarterly dividend to 1.5p with effect from 1 January 2009. The directors felt that dividends should be substantially covered by earnings and that the yield target should not be set at a level that would damage growth and total return prospects in the longer term.

Gearing and Bank Facility

During 2008 the amount drawn on the company's loan facility had been reduced to ensure that at all times the company maintained a safe margin over all loan covenants.  As the net asset values recovered, markets stabilised and fresh investment opportunities opened up, the board authorised the Manager to increase the amount drawn down on the loan facility particularly as the Company enjoys a relatively favourable margin of 1% over LIBOR.  With one and three month LIBOR declining for much of the year and finishing at 0.6%, the cost of borrowing was exceptionally low and our investment advisers considered that there were good prospects of using this gearing productively to enhance returns. At the year end the £6m loan facility was fully drawn and the banking covenants were (and remain) well covered.

Outlook

Equity markets have continued their recovery during the first quarter of 2010 although with economic recovery in the UK lagging other Western countries, UK investors have remained cautious particularly with regard to smaller companies that are considered to have more exposure to the domestic economy than larger companies. Nevertheless our managers are encouraged by the increased prospects for merger and acquisition activity within the sector and our NAV per share has risen over 15% since the start of the year. With regard to fixed interest markets investors are preoccupied with the equal and opposite dangers of a relapse into recession (caused by a tightening of credit policy) and a resurgence of inflation (caused by leaving interest-rates too low for too long). The latter scenario is probably the more credible of the two and bond spreads could tighten further over the year, although a large amount of the anticipated economic recovery has now been priced into the market. Our managers consider that bonds are exposed to disappointing economic news and developments and will look to reduce credit exposures following recent gains.

Management Fee

The Board are recommending that Shareholders vote in favour of the proposal to increase the minimum management fee as set out further in this Report.

John Boothman

Chairman

INVESTMENT ADVISERS' REPORTS

Smaller Companies Portfolio

The Smaller Companies Portfolio returned a capital gain of 36.1% over the year compared to a return of 49.7% by the Hoare Govett Smaller Companies Index. The year under review was highly volatile with the UK equity market falling sharply until early March, before embarking on a sustained recovery during the remainder of 2009. The Company underperformed during the rebound as market performance was predominantly driven by the successful refinancing of many the UK's most highly geared companies. The Company has deliberately had minimal exposure to such financially distressed companies on the basis that they have probably been rather poorly managed in the past and are unlikely to be able to maintain dividend payments in the future.

Over the twelve month period, the strongest contributions to performance came from cyclical stocks with Lupus up 253%, Weir Group up 131%, BPI up 123%, IMI up 90% and Devro up 67.3%. Only two stocks in the portfolio fell during the year. Laird Group was down by 9.4% whilst Nationwide Accident Repair Services fell by 6.4%.

Brewin Dolphin the UK's largest stockbroker was added to the portfolio during the year. Brewin is likely to benefit from rising stock markets and increased regulation. Lookers was introduced to the portfolio following an equity issue. New holdings in Cineworld, Castings and Harvey Nash were also added to the portfolio. A number of stocks were reduced including RPC and Rotork, both of which had performed very strongly, whilst total disposals of Halma, Pendragon and Abbey Protection were also made.

A number of holdings were added to during the period including IMI, Fenner, Stobart, VP Group and Mucklow.

We continue to focus on stocks with significant overseas earnings potential and on exporters who have benefited from currency weakness. Our focus on companies with sound balance sheets, which generate cash and which are likely to generate consistent dividend payments will continue. We believe that dividends will continue to be an important component of total return over the long term. Corporate activity is also likely to increase as overseas buyers recognise the considerable relative value offered by UK quoted companies. The Company remains focused on the key investment fundamentals which have served it well over the long term and are likely to feature more prominently in the years ahead.  

John McClure

Unicorn Asset Management Limited

Income Portfolio

The portfolio produced significant returns over the year despite a weak first quarter. Amongst the many positive factors the bond markets experienced were; a surge in demand, increased bond issuance, tighter market quotes, and increased liquidity. Given the portfolio's small and nimble size we were able to position and benefit from this credit rally.

The Monetary Policy Committee ("MPC") cut interest rates from 2% at the start of the year down to 0.5% in March 2009 and this is where they remained for the rest of the year. March also witnessed the introduction of the Asset Purchase Programme (the "APP"); this unorthodox monetary policy tool was tasked with increasing money supply in the economy and improving liquidity in the credit markets to stimulate economic growth. The APP has most recently been extended to a target total of £200 billion and will continue to be reviewed on a monthly basis at MPC meetings. We believe quantitative easing will soon stop and the bond markets will have to stand on their own feet again. Although liquidity and credit markets have improved greatly since the introduction of the APP it is still not clear how effective the scheme has been.

Short term interest rates remained extremely low throughout the year until October when inflation concerns returned, partly due to the size of the APP, and a few economic releases began to depict the potential for an economic recovery. Short term interest rates finished the year at a significantly higher level than seen in late September and we see this as a strong indication that we have already seen the bottom of the money market curve.

With concerns over rate rises, inflation, the end of quantitative easing, the UK's budget deficit and even doubt surrounding the security of the UK's AAA credit rating we started to hedge the portfolio's exposure to Gilt returns through selling Gilt Futures. The hedge was introduced in August and, as a result, the portfolio has since become less responsive to the returns from Gilts.

Credit spreads tightened rapidly during the year leading to some of the greatest bond returns ever seen. The best performing sectors were those most penalised during the previous two years, namely the financial and cyclical sectors. In addition, bonds issued by companies with the greatest leverage which had been priced as if moments away from default experienced huge capital gains as they were able to refinance. Those companies quick enough to buy back their bonds at the discounted prices seen in the first half of the year, not only banked a significant accounting profit but also facilitated cheaper financing as their credit spreads tightened dramatically. Credit spreads still remain considerably higher than prior to the credit crisis and although we do not expect spreads to tighten back to those levels there still remains further upside in the bond market. We believe that credit spreads will be able to tighten further given that the current bond default rate is likely to decrease sharply.

Portfolio activity at the beginning of the year was concentrated on increasing the upside potential in anticipation of a credit rally. We were partially restricted to investment grade bonds due to bank covenants becoming a factor following the declines in the Company's overall size. However, at the time the majority of financials were still rated investment grade and so almost two-thirds of the Income portfolio was allocated to this sector; investing in companies such as ICAP and HSBC. We also invested in longer duration bonds issued by companies that we already held and had become increasingly confident in surviving the next few years such as 3i Group Plc and Casino Guichard. The high exposure to financials has been retained throughout the year however a reasonable degree of switching from subordinated to more senior bonds occurred in the latter months.

Outlook

The economic recovery is likely to be a long drawn-out process. Notwithstanding the difficult economic environment during the next few years, we still predict that credit spreads have further to tighten. By historic standards the bond market remains attractive.

Paul Smith

Premier Fund Managers Limited

SCHEDULE OF PRINCIPAL INVESTMENTS

As at 31 December 2009

TOP 10 HOLDINGS		NOMINAL HOLDINGS		VALUATION		TOTAL ASSETS
				GBP		%
Smaller Companies portfolio
James Halstead plc		122,750		699,675		3.93
Devro plc		525,000		698,250		3.92
Diploma plc		378,135		665,518		3.74
Fenner plc		395,788		662,945		3.72
RPC Group plc		275,000		643,500		3.61
VP plc		352,914		610,541		3.43
IMI plc		113,800		590,053		3.31
Primary Health Properties		193,969		560,570		3.15
Stobart Group Limited		426,000		523,980		2.94
Mucklow (A&J) Group plc		156,000		473,070		2.66
				6,128,102		34.41
Income portfolio
Tsy 2 1/2% 2024I/L Stock		150,000		391,068		2.20
LBG Capital No 1 plc		350,000		281,750		1.58
Enterprise Inns plc		280,000		226,750		1.27
ICAP Group Holdings plc		250,000		226,313		1.27
HSBC Holdings plc		200,000		195,600		1.10
Aviva plc		250,000		193,296		1.09
Invesco Leveraged High Yield		350,000		184,625		1.04
Bear Stearns Co Inc		200,000		173,997		0.98
Bellway plc		150,000		162,750		0.91
Greenwich Loan Income Fund Limited		625,000		162,500		0.91
				2,198,649		12.35
TOTAL				8,326,751		46.76

SCHEDULE OF PRINCIPAL INVESTMENTS

As at 31 December 2008

TOP 10 HOLDINGS		NOMINAL HOLDINGS		VALUATION		TOTAL ASSETS
				GBP		%
Smaller Companies portfolio
RPC Group plc		375,000		631,875		4.96
Primary Health Properties plc		172,230		494,300		3.88
Rotork plc		58,990		466,906		3.66
Diploma plc		378,135		461,325		3.62
James Halstead plc		112.750		411,538		3.23
Devro plc		525,000		409,500		3.21
Renishaw plc		80,703		398,673		3.13
Consort Medical plc		95,671		364,507		2.86
Nationwide Accident Repair plc		345,000		293,250		2.30
Abbey Protection plc		474,423		275,165		2.16
				4,207,039		33.01
Income portfolio
Royal Bank of Scotland 10.5% 01/03/2013		200,000		220,740		1.73
HBOS 6.3673% Perpetual		350,000		177,808		1.40
Punch Taverns 5% 14/12/2010		200,000		169,000		1.33
Bear Stearns 26/09/2013		200,000		165,129		1.30
Bellway plc		150,000		151,500		1.19
Firstgroup 6.875% 15/04/2013		150,000		144,402		1.13
Marks & Spencer 5.875% 29/05/2012		150,000		137,283		1.08
Barclays 10.9% 16/08/2010		200,000		127,400		1.00
Aviva 5.9021% Perpetual		250,000		126,059		0.99
Merrill Lynch 4.875% 30/05/2014		150,000		121,180		0.95
				1,540,501		12.10
TOTAL				5,747,540		45.11

COMPANY DETAILS

History

The Company was incorporated on 5 January 1999 and commenced its activities on 11 February 1999. 29,600,002 Ordinary shares were issued.

The special resolution proposed at the Company's Annual General Meeting in 2006, that the Company ceased as an investment company, was not carried by the necessary 75% majority of votes cast. Nevertheless, to provide an exit opportunity for the shareholders the Company made a Tender Offer to repurchase up to all of its Ordinary shares at net asset value, calculated after taking account of all costs.  Applications under the Tender Offer were received for 20,660,212 Ordinary shares, leaving 8,939,790 Ordinary shares in issue after the Extraordinary General Meeting on 5 January 2007.

At the 5 January 2007 Extraordinary General Meeting, it was resolved that the issued share capital of the Company be reduced from £7,400,000.50 to £296,000.02, effected by the cancellation of 24p per issued Ordinary share, thus reducing the nominal amount of such shares from 25p to 1p per Ordinary share. It was also resolved that £17,000,000 standing to the credit of the Company's share premium account be cancelled. The £7,104,000.48, resulting from the cancellation of share capital, and the £17,000,000, resulting from the cancellation of the share premium account, were credited to a distributable reserve.

As part of the Tender Offer the Manager changed from Collins Stewart Fund Management Limited to Premier Asset Management (Guernsey) Limited.

Investment Objectives

The Company's investment objectives are to provide Shareholders with a high income and also the opportunity for capital growth.

Investment Policy

The Company's investment policy is to allocate approximately 70% of the Company's assets to the Smaller Companies portfolio with the balance to the Income portfolio.  (Prior to the Tender Offer, this was approximately 75% to the Smaller Companies portfolio with the balance allocated to the Income portfolio.) 

The Smaller Companies portfolio is principally invested in UK equities with a market capitalisation of under £1 billion. Unicorn as the Investment Adviser of the Smaller Companies portfolio, focuses on companies with experienced and well motivated management products or services supplying growth markets, sound operational and management controls, good cash generation and a progressive dividend.

Premier Fund Managers Limited manages the Income portfolio and aim to maximise income with the objective of capital protection. The Income portfolio includes sterling denominated fixed interest securities including corporate bonds, preference and permanent interest bearing shares, convertibles, reverse convertibles, debentures and other similar securities. The Income portfolio may also contain higher yielding shares of other investment companies, including property investment companies, however these will not exceed 15% of the overall portfolio (at the time of acquisition).

Bank Loan

On 13 February 2007, a new £6 million revolving credit loan facility was arranged with the Bank of Scotland. The interest payable on this facility is 1% over LIBOR with a non-utilisation charge of 0.5% on any undrawn part of the facility.

The capital covenant on the facility requires a ratio of specified investment to debt of 2:1. Specified investments includes UK listed securities with a market capitalisation of over £50 million, investment grade bonds and reverse convertible bonds meeting certain criteria relating to the issuer and the reference equity.

Management Fees

The management fee is 0.7% per annum of total assets together with a performance fee of 15% over a total return of 10% per annum.  No performance fee was payable in 2009.  The total expenses ratio ("TER") of the Company is capped at 1.5% of total assets, excluding performance fees and non-routine administration and professional fees and with adjustments made to allow for repayment of debt or the buy back of shares.  The application of these calculations for 2009 indicates that a refund of £47,238 is due from the Manager.  This amount has been reflected in the financial statements together with the refund for 2008 (£43,175), which was only noted in the 2008 financial statements. The net management fee charged in 2009 was £99,544. The Board have considered the level of fees charged on comparable investment trusts and recognised the importance of setting a level that enables the management contract to be commercially viable for the Manager.

There is a proposal that the minimum fee, payable to the Manager with effect from 1 January 2010, included in the TER calculation will be raised to £100,000 from its current level of £50,000. The proposal will be put forward to Shareholders as a Special Resolution at the General Meeting to be held 24 August 2010.

MANAGEMENT REPORT

For the year ended 31 December 2009

A description of important events which have occurred during the financial period, their impact on the performance of the Company as shown in the financial statements and a description of the principal risks and uncertainties facing the Company is given in the Chairman's Statement, Investment Advisers' Reports, the schedule of Risk Factors and the notes to the financial statements and is incorporated here by reference.

There were no material related party transactions which took place in the financial period.

Going Concern

The Directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future.  Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.  A more detailed statement regarding Going Concern can be found in the Directors' Report .

Responsibility Statement

The Directors confirm to the best of their knowledge and belief:

(a)        This annual report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces; and

(b)        The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profits of the Company.

Helen Green                           

Director                                              

26 April 2010

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2009

		Year ended 31 Dec 2009						Year ended 31 Dec 2008
	Note	Revenue GBP		Capital GBP		Total GBP		Total GBP
Net gains / (losses) on financial assets designated as at fair value through profit or loss	8	-		3,700,285		3,700,285		(6,930,545)
Gains / (losses) on foreign currency contracts	3	-		99,340		99.340		(303,763)
Investment income	2	841,983		-		841,983		1,322,352
Total income and gains		841,983		3,799,625		4,641,608		(5,911,956)
Expenses	4	(217,513)		(102,703)		(320,216)		(351,057)
Return on ordinary activities before finance costs and taxation		624,470		3,696,922		4,321,392		(6,263,013)
Interest payable and similar charges		(22,463)		(67,390)		(89,853)		(333,739)
Return on ordinary activities before taxation		602,007		3,629,532		4,231,539		(6,596,752)
Taxation on ordinary activities		-		-		-		-
Total comprehensive income for the year attributable to shareholders		602,007		3,629,532		4,231,539		(6,596,752)
		Pence		Pence		Pence		Pence
Return per Ordinary share	7	6.73		40.60		47.33		(73.79)
Dividend per Ordinary share	6	6.00		0.00		6.00		8.20

The Total column of this statement is the Statement of Comprehensive Income of the Company. The Company had no other comprehensive income during the year other than that reflected in the above Statement of Comprehensive Income The supplementary revenue return and capital return columns have been prepared in accordance with the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC").

In arriving at the results for the financial year, all amounts above relate to continuing operations.

No operations were acquired or discontinued in the year.

STATEMENT OF FINANCIAL POSITION

As at 31 December 2009

				Notes		31 Dec 2009		31 Dec 2008
						GBP		GBP
NON-CURRENT ASSETS
Financial assets designated as at fair value through profit  or loss				8		16,347,910		11,277,410
CURRENT ASSETS
Receivables				9		388,018		812,949
Cash and cash equivalents						958,929		653,898
Derivative financial assets						108,563		-
						1,421,510		1,466,847
TOTAL ASSETS						17,803,420		12,744,257
CURRENT LIABILITIES
Derivative financial liabilities				15		-		237,350
Payables - due within one year				10		72,414		71,053
NON-CURRENT LIABILITIES
Payables - due after one year				11		6,000,000		4,400,000
TOTAL LIABILITIES						6,072,414		4,708,403
NET ASSETS						11,731,006		8,035,854
EQUITY
Share capital				12		89,398		89,398
Share premium						79,173		79,173
Revenue reserve						1,348,416		1,282,796
Special reserve						10,000,000		10,000,000
Capital reserve						214,019		(3,415,513)
TOTAL EQUITY						11,731,006		8,035,854
						Pence		Pence
Net asset value per Ordinary Share						131.22		89.89

The financial statements were approved by the Board of Directors on 26 April 2010 and signed on its behalf by:

Helen Green                                                    John Boothman

Director                                                           Director

STATEMENT OF CASHFLOWS

For the year ended 31 December 2009

				Notes		Year ended 31 Dec 2009		Year ended 31 Dec 2008
						GBP		GBP
Operating activities
Return on ordinary activities before taxation						4,231,539		(6,596,752)
Less: Net (gains) / losses on financial assets designated as at fair value through profit or loss				8		(3,700,285)		6,930,545
Less: Investment income				2		(841,983)		(1,322,352)
Add: Interest expense						89,853		333,739
Less: (Decrease) / Increase in derivative financial liabilities				15		(311,913)		205,147
Add: Increase / (Decrease) in payables and appropriations				10		1,361		(40,280)
Add: Decrease / (Increase) in receivables excluding accrued investment income and investing activities				9		8,825		(114,999)
Net cash outflow from operating activities before investment income						(522,603)		(604,952)
Investment income received						907,043		1,297,132
Net cash inflow from operating activities before taxation						384,440		692,180
Tax paid						-		-
Net cash inflow from operating activities before taxation						384,440		692,180
Investing activities
Purchase of financial assets				8		(7,783,012)		(7,408,639)
Sale of financial assets						6,729,843		9,059,948
Net cash (outflow) / inflow from investing activities						(1,053,169)		1,651,309
Financing activities
Equity dividends paid				6		(536,387)		(733,063)
Drawdown / (Repayment) of bank loan				11		1,600,000		(1,100,000)
Bank loan interest paid						(89,853)		(333,739)
Net cash inflow / (outflow) from financing activities						973,760		(2,166,802)
Increase in cash and cash equivalents						305,031		176,687
Cash and cash equivalents at beginning of year						653,898		477,211
Cash and cash equivalents at end of year						958,929		653,898

STATEMENT OF CHANGES IN EQUITY

As at 31 December 2009

	Share Capital	Share Premium	Capital Redemption Reserve	Revenue Reserve	Special Reserve	Capital Reserve	Total
	31 Dec 2009	31 Dec 2009	31 Dec 2009	31 Dec 2009	31 Dec 2009	31 Dec 2009	31 Dec 2009
	GBP	GBP	GBP	GBP	GBP	GBP	GBP
Balances as at 1 January 2009	89,398	79,173	-	1,282,796	10,000,000	(3,415,513)	8,035,854
Total comprehensive income for the year attributable to shareholders	-	-	-	602,007	-	3,629,532	4,231,539
Dividends	-	-	-	(536,387)	-	-	(536,387)
Transfer between reserves	-	-	-	-	-	-	-
Balance as at 31 December 2009	89,398	79,173	-	1,348,416	10,000,000	214,019	11,731,006

	Share Capital	Share Premium	Capital Redemption Reserve	Revenue Reserve	Special Reserve	Capital Reserve	Total
	31 Dec 2008	31 Dec 2008	31 Dec 2008	31 Dec 2008	31 Dec 2008	31 Dec 2008	31 Dec 2008
	GBP	GBP	GBP	GBP	GBP	GBP	GBP
Balances as at 1 January 2008	89,398	79,173	206,602	805,250	10,000,000	4,185,246	15,365,669
Total comprehensive income for the year attributable to shareholders	-	-	-	1,004,007	-	(7,600,759)	(6,596,752)
Dividends	-	-	-	(733,063)	-	-	(733,063)
Transfer between reserves	-	-	(206,602)	206,602	-	-	-
Balance as at 31 December 2008	89,398	79,173	-	1,282,796	10,000,000	(3,415,513)	8,035,854

Following implementation of The Companies (Guernsey) Law, 2008, the Company is no longer required to maintain a Capital Redemption Reserve. Accordingly the balance brought forward on this account has been transferred to the Revenue Reserve.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2009

1          ACCOUNTING POLICIES

(a)        Basis of preparation

The financial statements, which give a true and fair view, have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB"), the AIC's SORP (as revised in January 2009) where this is consistent with the requirements of IFRS and all in compliance with The Companies (Guernsey) Law, 2008.  All accounting policies adopted for the period are consistent with IFRS issued by the IASB and as adopted by the European Union.  The financial statements have been prepared on an historical cost basis except for the measurement at fair value of certain financial instruments.

Amendments to IFRS 7 were issued by the International Accounting Standards Board in March 2009, effective for annual periods beginning on or after 1 January 2009.  The amendment to IFRS 7 requires fair value to be disclosed by the source of inputs, using a three-level hierarchy:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The following Standards or Interpretations have been issued by the IASB but not yet adopted by the Company:

IFRS 2 (revised June 2009) Share-based Payment effective for annual periods beginning on or after 1 January 2010.

IFRS 9 (revised April 2009) Financial Instruments - Classification and Measurement effective for annual periods beginning on or after 1 January 2013.

IAS 24 (revised November 2009) Related Party Disclosures effective for annual periods beginning on or after 1 January 2011.

IAS 32 (revised 2009) Financial Instruments - Presentation effective for annual periods beginning on or after 1 February 2010.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments effective for annual periods beginning on or after 1 July 2010.

Some of these Standards and Interpretations may require additional disclosure in future financial statements.  None are expected to affect the financial position of the Company.

(b)        Use of estimates and judgements

Management use estimates and judgements in allocating expenses between Revenue and Capital.

(c)        Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity.

(d)        Taxation

The Company has been granted exemption under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 from Guernsey Income Tax, and has elected to remain exempt following changes in the Guernsey tax regime.  The Company pays an annual fee of £600.

(e)        Capital reserve

The following are accounted for in this reserve:

-           gains and losses on the realisation of investments;

-           expenses charged to this account in accordance with the policy below:

-           increases and decreases in the valuation of the investments held at the year end; and

-           unrealised exchange differences of a capital nature.

(f)         Expenses

All expenses are accounted for on an accruals basis.  Expenses are charged to the capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated.

75% of the Company's management fee and financing costs are charged to the capital reserve in line with the Board's expected long-term split of returns between income and capital gains from the investment portfolio.

100% of any performance fee is charged to the capital account.

All other expenses are charged through the revenue account.

(g)        Investment income

Interest income and distributions receivable are accounted for on an accruals basis.  Interest income relates only to interest on bank balances. Bond income is accounted for on the effective interest rate ("EIR") basis.

(h)        Foreign currency translation

The currency of the primary economic environment in which the Company operates (the functional currency) is Great British Pounds (GBP) which is also the presentational currency.

Transactions denominated in foreign currencies are translated into GBP at the rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities, other than investments, denominated in foreign currencies at the statement of financial position date are translated to the functional currency at the foreign exchange ruling at that date.  Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income.  Foreign exchange differences relating to investments are taken to the capital reserve.  Realised and unrealised foreign exchange differences on non-capital assets or liabilities are taken to the Statement of Comprehensive Income in the period in which they arise.

(i)         Cash and cash equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits and short term, highly liquid investments readily convertible to known amounts of cash and subject to an insignificant risk of changes in value.  For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash, deposits at bank and money market deposits.

(j)         Investments

All investments have been designated as financial assets at "fair value through profit or loss".  Investments are initially recognised on the date of purchase at cost, being fair value of the consideration given.  Subsequently, investments are measured at fair value, with unrealised gains and losses on investments recognised in the Statement of Comprehensive Income.  Investments are derecognised on the date of sale.  Gains and losses on the sale of investments will be taken to the Statement of Comprehensive Income in the period in which they arise.  For investments actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices as at the close of business on the date of the statement of financial position.

(k)        Derivatives

Derivatives consist of forward exchange contracts which are stated at market value, with the resulting net realised and unrealised gains and losses being reflected in the Statement of Comprehensive Income.

(l)         Trade date accounting

All "regular way" purchases and sales of financial assets are recognised on the "trade date", i.e. the date that the entity commits to purchase or sell the asset.  Regular way purchases or sales are purchases or sales of financial assets that require delivery of the asset within the timeframe generally established by regulation or convention in the market place.

(m)      Segment reporting

The Board has considered the requirements of IFRS 8, 'Operating Segments'.  The Board is of the view that the Company is engaged in a single segment of business, being investment in diversified portfolio of equity and bond instruments.  The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company.

The Board is charged with setting the Company's investment strategy in accordance with the Prospectus. They have delegated the day to day implementation of this strategy to its Investment Adviser but retain responsibility to ensure that adequate resources of the Company are directed in accordance with their decisions. The investment decisions of the Investment Adviser are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Board. The Investment Adviser has been given full authority to act on behalf of the Company, including the authority to purchase and sell securities and other investments on behalf of the Company and to carry out other actions as appropriate to give effect thereto. Whilst the Investment Adviser may make the investment decisions on a day to day basis re the allocation of funds to different investments, any changes to the investment strategy or major allocation decisions have to be approved by the Board,

even though they may be proposed by the Investment Adviser. The Board therefore retains full responsibility as to the major allocation decisions made on an ongoing basis.  The Investment Adviser will always act under the terms of the Prospectus which cannot be radically changed without the approval of the Board and the Shareholders.

The key measure of performance used by the Board to assess the company's performance and to allocate resources is the total return on the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

The schedule of principal investments held as of the period end are presented in the Investment Adviser's Report.

(n)        Going concern

The Company has adequate financial resources and as a consequence, the directors believe the Company is well placed to manage its business risks successfully despite the current economic climate.  After making enquiries, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.  Accordingly, the directors have adopted the going concern basis in preparing the financial information.

2          INVESTMENT INCOME

				Year ended 31 Dec 2009		Year ended 31 Dec 2008
				GBP		GBP
Bank interest				817		18,775
Dividend income				406,781		844,171
Bond income				343,972		438,525
Sundry income				90,413		20,881
				841,983		1,322,352

3          FOREIGN CURRENCY CONTRACTS

				Year ended 31 Dec 2009		Year ended 31 Dec 2008
				GBP		GBP
Unrealised gain / (loss) on forward foreign currency contracts				210,518		(221,727)
Realised loss on forward foreign currency contracts				(111,178)		(82,036)
				99,340		(303,763)

4          EXPENSES

		Year ended 31 Dec 2009
		Revenue		Capital		Total
		GBP		GBP		GBP
Manager's fee		26,574		79,722		106,296
Administrator's fee		55,000		-		55,000
Registrar's fee		3,040		-		3,040
Directors' fees		50,000		-		50,000
Custody fees		14,251		-		14,251
Audit fees		19,929		-		19,929
Directors' and Officers' insurance		11,247		-		11,247
Annual fees		17,230		-		17,230
Bank charges		7,612		-		7,612
Commission paid		-		22,981		22,981
Sundry costs		5,489		-		5,489
Legal and professional fees		8,761		-		8,761
Loss on foreign exchange		(1,620)		-		(1,620)
		217,513		102,703		320,216

		Year ended 31 Dec 2008
		Revenue		Capital		Total
		GBP		GBP		GBP
Manager's fee		30,705		92,114		122,819
Administrator's fee		53,985		-		53,985
Registrar's fee		2,681		-		2,681
Directors' fees		49,999		-		49,999
Custody fees		3,978		-		3,978
Audit fees		36,298		-		36,298
Directors' and Officers' insurance		10,297		-		10,297
Annual fees		13,544		-		13,544
Bank charges		9,915		-		9,915
Commission paid		-		24,033		24,033
Sundry costs		(4,503)		-		(4,503)
Legal and professional fees		2,242		-		2,242
Loss on foreign exchange		25,769		-		25,769
		234,910		116,147		351,057

5          DIRECTORS' REMUNERATION

Under the terms of appointment, each Director is paid a fee of £15,000 per annum by the Company, except for the Chairman, who receives £20,000 per annum.

6.         DIVIDENDS IN RESPECT OF EQUITY SHARES

				Year ended 31 Dec 2009
				GBP		Pence per share
First interim payment				134,097		1.5
Second interim payment				134,097		1.5
Third interim payment				134,097		1.5
Fourth interim payment				134,096		1.5
				536,387		6.0

				Year ended 31 Dec 2008
				GBP		Pence per share
First interim payment				178,796		2.0
Second interim payment				178,796		2.0
Third interim payment				187,736		2.1
Fourth interim payment				187,735		2.1
				733,063		8.2

7          EARNINGS PER SHARE

Ordinary shares

The total return per Ordinary share is based on the total return on ordinary activities for the year attributable to Ordinary shareholders of £4,231,539 (2008: -£6,596,752) and on 8,939,790 (2008: 8,939,790) shares, being the weighted average number of shares in issue during the year.  There are no dilutive instruments and therefore basic and diluted gain per share are identical.

The revenue return per Ordinary share is based on the revenue return on ordinary activities for the year attributable to Ordinary shareholders of £602,007 (2008: £1,004,007) and on 8,939,790 (2008: 8,939,790) shares, being the weighted average number of shares in issue during the year.  There are no dilutive instruments and therefore basic and diluted gain per share are identical.

The capital return per Ordinary share is based on the capital return on ordinary activities for the year attributable to Ordinary shareholders of £3,629,532 (2008: -£7,600,759) and on 8,939,790 (2008: 8,939,790) shares, being the weighted average number of shares in issue during the year.  There are no dilutive instruments and therefore basic and diluted gain per share are identical.

8          FINANCIAL ASSETS DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR  LOSS

INVESTMENTS

				31 Dec 2009		31 Dec 2008
				GBP		GBP
FINANCIAL ASSETS DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR LOSS
Opening portfolio cost				14,230,035		18,019,037
Unrealised (depreciation) / appreciation on valuation brought forward				(2,952,625)		2,292,000
Opening valuation				11,277,410		20,311,037
Movements in the year
Purchases at cost				7,783,012		7,408,639
Sales
- proceeds				(6,378,797)		(9,511,721)
- realised losses on sales				(453,805)		(1,685,920)
Unrealised appreciation / (depreciation) on valuation for the year				4,120,090		(5,244,625)
Fair value of investments at 31 December 2009				16,347,910		11,277,410
Closing book cost				15,180,445		14,230,035
Closing unrealised appreciation / (depreciation)				1,167,465		(2,952,625)
				16,347,910		11,277,410
Realised losses on sales				(453,805)		(1,685,920)
Decrease in unrealised appreciation / (depreciation)				4,120,090		(5,244,625)
Appreciation on fair value of derivative financial assets				34,000		-
Net gains / (losses) on financial assets designated as at fair value through profit or loss				3,700,285		(6,930,545)

As at 31 December 2009, the closing fair value of investments comprises £11,418,223 (2008: £7,051,998) of equity shares and £4,929,687 (2008: £4,225,412) of fixed income securities.

The Investments held by the Company have been classified as Level 1.  This is in accordance with the fair value hierarchy.

Details of the value of each classification are listed in the table below.  Values are based on the market value of the investment as at the statement of financial position date:

Financial assets designated as at fair value through profit or loss				Market Value		Market Value
				%		GBP
Level 1				100		16,347,910
Total				100		16,347,910

There have been no transfers between levels of the fair value hierarchy during the year under review.

DERIVATIVE FINANCIAL ASSETS

The derivative financial assets held by the Company have been classified as Level 1.  This is in accordance with the fair value hierarchy.

Details of the value of each classification are listed in the table below.  Values are based on the market value of the derivative financial asset as at the statement of financial position date:

Derivative financial assets designated as at fair value through profit or loss				Market Value		Market Value
				%		GBP
Level 1				100		108,563
Total				100		108,563

There have been no transfers between levels of the fair value hierarchy during the year under review.

9          RECEIVABLES

				31 Dec 2009		31 Dec 2008
				GBP		GBP
Prepayments				2,426		1,910
Accrued income				179,567		244,627
Investment transactions not settled				100,727		451,773
Sundry receivables				105,298		114,639
				388,018		812,949

10        PAYABLES

(amounts falling due within one year)				31 Dec 2009		31 Dec 2008
				GBP		GBP
Accrued expenses				72,414		71,053

11        PAYABLES

(amounts falling due after one year)				31 Dec 2009		31 Dec 2008
				GBP		GBP
Long term bank loan				6,000,000		4,400,000

Under a loan agreement dated 13 February 2007 between the Company and the Bank of Scotland a £6,000,000 Revolving Credit Facility was arranged for a period of 5 years.  The interest rate payable on this facility is 1% over Libor with a non-utilisation charge of 0.5% on any undrawn part of the facility.

The capital covenant on the facility requires a ratio of specified investment to debt of 2:1.  Specified investments include UK listed securities with a market capitalisation of over £75 million, investment grade bonds and reverse convertible bonds meeting certain criteria relating to the issuer and the reference equity, gifts or US treasury stock and cash.  During the year, the Company has compiled with all loan covenants.

12        SHARE CAPITAL

Authorised					GBP
Ordinary shares of 1p each					10,000,000
Issued					SHARES
Number of shares in issue at 31 December 2009 and 31 December 2008					8,939,790
					GBP
Issued capital as at 31 December 2009					89,398
The issue of shares took place as follows:					Number of shares
Ordinary shares		11 February 1999			29,600,002
Tender offer		17 January 2007			(20,660,212)
					8,939,790

13        RELATED PARTIES

Premier Asset Management (Guernsey) Limited is the Company's Manager and operates under the terms of the management agreement in force which gives it complete control over the Company's investment portfolio.  For further details regarding the terms of the management agreement see the section in Directors' Report on page 19.

£106,296 (2008: £122,819) of costs were incurred by the Company with this related party in the year, of which £30,389 (2008: £22,353) was due to this related party as at 31 December 2009.

Directors' remuneration is disclosed in Note 5.

14        FINANCIAL INSTRUMENTS

The Company's main financial instruments comprise:

(a)        Cash and cash equivalents that arise directly from the Company's operations;

(b)        Investments in listed entities and derivative financial assets; and

(c)        Long term bank loan.

15        FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The following table details the categories of financial assets and liabilities held by the Company at the reporting date:

		31 Dec 2009		31 Dec 2008
		GBP		GBP
Financial assets
Financial assets at fair value through profit or loss		16,347,910		11,277,410
Derivative financial assets		108,563		-
Total financial assets at fair value through profit or loss		16,456,473		11,277,410
Loans and receivables		1,346,947		1,466,847
Total assets		17,803,420		12,744,257
Financial liabilities
Financial liabilities at fair value through profit or loss
Accrued expenses		72,414		71,053
Derivative financial liabilities		-		237,350
Total financial liabilities at fair value through profit or loss		72,414		308,403
Financial liabilities measured at amortised cost		6,000,000		4,400,000
Total liabilities excluding net assets attributable to holders of Ordinary shares		6,072,414		4,708,403

Loans and receivables presented above represent cash and cash equivalents, balances due from brokers and other receivables as detailed in the Statement of financial position.

Financial liabilities measured at amortised cost presented above represent accrued expenses and loans payable as detailed in the Statement of financial position.

The main risks arising from the Company's financial instruments are market price risk, liquidity risk, interest rate risk and foreign exchange risk.  The Board regularly review and agrees policies for managing each of these risks and these are summarised below:

(a)        Market Price Risk

Market price risk arises mainly from uncertainty about future prices of financial instruments held.  It represents the potential loss the Company might suffer through holding market positions in the face of price movements.  The Investment Adviser actively monitors market prices and reports to the Board as to the appropriateness of the prices used for valuation purposes.  The Investment Adviser also attempts to minimise market price risk by undertaking a detailed analysis of the risk/reward relationship of each investee company prior to any investment being made.

Details of the Company's Investment Objective and Policy are given inside the front cover of this Report.

Price sensitivity

The following details the Company's sensitivity to a 15% increase and decrease on the market prices, with 15% being the sensitivity rate used when reporting price risk internally to key management personnel and representing management's assessment of the possible change in market prices.

At 31 December 2009, if market prices had been 15% higher with all the other variables held constant, the return attributable to shareholders for the year would have been £2,452,187 (2008: £1,691,612) greater, due to the increase in the fair value of financial assets at fair value through profit or loss.  This would represent an increase in Net Assets of 20.90% (2008: 21.05%).

If market prices had been 15% lower with all the other variables held constant, the net return attributable to shareholders for the year would have been £2,452,187 (2008: £1,691,612) lower, due to the decrease in the fair value of financial assets at fair value through profit or loss.  This would represent a decrease in Net Assets of 20.90% (2008: 21.05%).

(b)        Credit Risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.  The Directors receive financial information on a regular basis which is used to identify and monitor risk.  It is Company policy not to invest more than 20% of the gross assets of the Company in the securities of any one company or group at the time the investment is made.

The Company has no significant concentration of credit risk, with exposure spread over a large number of counterparties.  At 31 December 2009 the Company's largest exposure to a single investment was £699,675 (2008: £631,875), 3.93% (2008: 4.96%) of total assets.

Investors should be aware that the prospective returns to Shareholders mirror the returns under the Quoted Securities held or entered into by the Company and that any default by an issuer of any such Quoted Security held by the Company would have a consequential adverse effect on the ability of the Company to pay some or all of the entitlement to Shareholders.  Such a default might, for example, arise on the insolvency of an issuer of a Quoted Security.

The Company's financial assets exposed to credit risk are as follows:

		31 Dec 2009		31 Dec 2008
		GBP		GBP
Financial assets designated as at fair value through profit or loss		16,347,910		11,277,410
Derivative financial assets		108,563		-
Cash and cash equivalents		958,929		653,898
Balances due from brokers		100,727		451,773
Interest, dividends and other receivables		287,291		361,176
		17,803,420		12,744,257

(c)        Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments.  The Company's main financial commitment is its ongoing operating expenses.

The Investment Adviser ensures that the Company has sufficient liquid resources available to fulfil its operational plans and to meet its financial obligations as they fall due. This is monitored by carrying out a solvency calculation on a quarterly basis by reference to management accounts and revenue projections. The Board will approve, if appropriate, a Solvency Certificate resolution prior to declaring any interim dividend distributions.

The table below details the residual contractual maturities of financial liabilities:

As at 31 December 2009

		1-3 months		Over 1 year
		GBP		GBP
Financial liabilities including derivatives
Accrued expenses		72,414		-
Derivative financial instruments		-		-
Loans payable		-		6,000,000
		72,414		6,000,000

As at 31 December 2008

		1-3 months		Over 1 year
		GBP		GBP
Financial liabilities including derivatives
Accrued expenses		71,053		-
Derivative financial instruments		237,350		-
Loans payable		-		4,400,000
		308,403		4,400,000

(d)        Interest Rate Risk

In order to mitigate the potential risks to the Company should there be significant changes in interest rates, the Company could repay loans if the borrowing rate became no longer attractive. On the investment side, the Company could hedge interest rate risk using various different methods. The following table details the Company's exposure to interest rate risks.  It includes the Company's assets and liabilities at fair values, categorised by the earlier of contractual re-pricing or maturity date measured by the carrying value of the assets and liabilities:

As at 31 December 2009

	Less than 1 Month GBP	1 to 3 months GBP	Over 1 year GBP	Fixed interest GBP	Non-interest Bearing GBP	Total GBP
Financial Assets
Financial assets at fair value through profit or loss on initial recognition	-	-	603,122	4,326,564	11,418,224	16,347,910
Derivative financial instruments	-		-	-	108,563	74,563
Balances due from brokers	-	-	-	-	100,727	100,727
Cash and cash equivalents	958,929	-	-	-	-	958,929
Interest, dividends and other receivables	-	-	-	-	287,291	287,291
Total Financial Assets	958,929	-	603,122	4,326,564	11,904,805	17,803,420

Financial Liabilities
Derivative financial instruments	-	-	-	-	-	-
Accrued expenses	-	-	-	-	72,414	72,414
Loans payable	6,000,000	-	-	-	-	6,000,000
Total Financial Liabilities	6,000,000	-	-	-	72,414	6,072,414
Total interest sensitivity gap	5,041,071	-	603,122	4,326,564

As at 31 December 2008

	Less than 1 Month GBP	1 to 3 months GBP	3 months to 1 year GBP	Over 1 year GBP	Non-interest Bearing GBP	Total GBP
Financial Assets
Financial assets at fair value through profit or loss on initial recognition	-	73,680	65,300	4,086,432	7,051,998	11,277,410
Balances due from brokers	-	-	-	-	451,773	451,773
Cash and cash equivalents	653,898	-	-	-	-	653,898
Interest, dividends and other receivables	-	-	-	-	361,176	361,176
Total Financial Assets	653.898	73,680	65,300	4,086,432	7,864,947	12,744,257

Financial Liabilities
Derivative financial instruments	-	-	-	-	237,350	237,350
Accrued expenses	-	-	-	-	71,053	71,053
Loans payable	4,400,000	-	-	-	-	4,400,000
Total Financial Liabilities	4,400,000	-	-	-	308,403	4,708,403
Total interest sensitivity gap	3,746,102	73,680	65,300	4,086,432

Interest rate sensitivity only takes account of the effect of interest rate movements on cash balances and loan amounts.  Any other interest rate risks are already reflected in the market price risk disclosures at Note 15(a).

Interest rate sensitivity

If interest rates had been 25 basis points higher and all other variables were held constant, the Company's return attributable to shareholders for the year ended 31 December 2009 would have decreased by approximately £12,603 (2008: £9,365) or 0.07% (2008: 0.07%) of Total Assets due to an increase in the amount of interest receivable on the bank balances of £2,397 (2008: £1,635) offset by an increase in the amount of interest payable on the bank loan of £15,000 (2008: £11,000).

If interest rates had been 25 basis points lower and all other variables were held constant, the Company's return attributable to shareholders for the year ended 31 December 2009 would have increased by approximately £12,603 (2008: £9,365) or 0.07% (2008: 0.07%) of Total Assets due to an decrease in the amount of interest receivable on the bank balances of £2,397 (2008: £1,635) offset by an decrease in the amount of interest payable on the bank loan of £15,000 (2008: £11,000).

(e)        Foreign Exchange Risk

Forward currency transactions are used to hedge the foreign currency exposure in bonds, other investments and cash balances held within the portfolio.  The purpose of the hedge is to protect the Company's assets from a decline in value that might arise from the depreciation of a foreign currency against sterling.

At 31 December 2009, the Company's holdings in forward currency contracts translated into GBP were as specified below:

Type of contract	Expiration	Underlying		Notional amount of contracts outstanding		Fair value assets / (liabilities)
						GBP
Forward	January 2010	Sold USD		420,000		4,311
Forward	January 2010	Sold EUR		1,800,000		72,141
Forward	January 2010	Sold GBP		134,397		(1,533)
Forward	March 2010	Sold AUD		215,000		(356)
						74,563

At 31 December 2008, the Company's holdings in forward currency contracts translated into GBP were as specified below:

Type of contract	Expiration	Underlying		Notional amount of contracts outstanding		Fair value assets / (liabilities)
						GBP
Forward	March 2009	Sold AUD		210,000		(9,561)
Forward	January 2009	Sold EUR		1,280,000		(224,119)
Forward	February 2009	Sold USD		370,000		(3,670)
						(237,350)

Exchange rate exposures are managed by minimising the amount of foreign currency held at any one time and entering into forward exchange contracts.

The following table sets out the Company's total exposure to foreign currency risk and the net exposure to foreign currencies of the monetary assets and liabilities:

	Monetary Assets GBP		Monetary Liabilities GBP		Forward FX Contracts GBP		Net Exposure GBP
Euro	1,531,689		-		(1,668,420)		(136,731)
US Dollar	308,240		-		(264,051)		44,189
Australian Dollar	120,518		-		(118,883)		1,635

Amounts in the above table are based on the carrying value of monetary assets and liabilities and the underlying principle amount of forward currency contracts.

(f)         Capital Management

The principal investment objectives of the Company are to provide shareholders with a high income and also the opportunity for income and capital growth by investing primarily in smaller capitalised United Kingdom companies admitted to the Official List of the United Kingdom Listing Authority and traded on the London Stock Exchange or traded on AIM.

The Company's portfolio is invested in equities and high income and fixed interest and other income-bearing securities in order to achieve its investment objectives.  It is the aim of the Company to provide both income and capital growth predominantly through investment of approximately 70% of the portfolio in smaller capitalised United Kingdom companies.  The Company also aims to further enhance income for shareholders by investing approximately 30% of its assets in high yielding securities which will be predominantly fixed income securities (including corporate bonds, preference and permanent interest bearing shares, convertible and reverse convertible bonds and debentures) but may include up to 15% of the portfolio (measured at time of acquisition) in high yielding investment company shares.

The Company employs gearing in the form of a bank loan.  This gearing means that for any movement, up or down, in the Company's total assets there will, in most circumstances be a greater movement in the net asset value of the Ordinary shares.  This in turn may be reflected in greater volatility in the share price of the Ordinary shares and adds to the risk associated with this investment.  The Company is required to adhere to a number of covenants in respect of its gearing arrangements.  Failure to meet these requirements could jeopardise the Company's future as these borrowings are secured by a prior charge on the Company's assets.  The Board monitors the compliance with any covenants on a regular basis.

As the Company's Ordinary shares are traded on the London Stock Exchange, the Ordinary shares may trade at a discount to their Net Asset Value per Share on occasion.  However, the Directors and the manager monitor the discount on a regular basis.

The Company monitors capital on the basis of the carrying amount of equity as presented on the face of the balance sheet.  Capital for the reporting periods under review is summarised as follows:

						GBP
Distributable reserves						1,348,416
Share capital and share premium						168,571
Non distributable reserves						10,214,019
Total						11,731,006

The distributable reserves comprises the revenue reserve. Included in non distributable reserves are the special reserve and the capital reserve.  The special reserve was created on the cancellation of part of the Company's share premium account.  The Directors have resolved that the capital reserve is a non distributable reserve.

For further information contact:

Anson Fund Managers Limited

Secretary

Tel: Guernsey 01481 722260

26 April 2010

END OF ANNOUNCEMENT

E&OE  - in transmission

 

END

 

 

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