Final Results

Preliminary Announcement Final Accounts of Blue Planet Financials Growth & Income Investment Trust No 1 plc for year ending 31 March 2006 Financial Record as at 31 March 2006 2005 2004 2003 2002 (Restated)(Restated)(Restated)(Restated) Total assets less current liabilities (£'000) 5,827 2,924 2,558 2,127 2,727 Loans (£'000) (1,923) (750) (750) (750) (750) Shareholders' funds (£'000) 3,904 2,174 1,808 1,377 1,977 Net asset value per share (p) 287.56 160.84 133.06 100.97 142.44 Share price (p) - (Bid) 192.00 115.80 95.00 78.80 106.50 Discount (%) 33.2 28.0 28.6 22.0 25.2 Gearing (%)* 46.5 28.7 23.7 12.9 17.6 Year to 31 March 2006 2005 2004 2003 2002 Revenue available for shareholders (£'000) 1 16 47 50 66 Revenue Return per share (p) 0.07 1.15 3.48 3.65 4.72 Dividend per share (net) (p) - 2.25 3.40 3.60 4.00 Dividend yield on our shares (%) - 1.94 3.58 4.57 3.76 Dividend yield on FTSE All Share Index (%) 3.35 3.51 3.71 3.87 2.99 Expenses ratio - net basis (%) ** 2.95 3.27 3.64 3.87 3.14 Expenses ratio - gross basis (%) *** 1.72 2.35 2.53 2.61 2.21 The figures for all the years have been restated for the impact of FRS 21 FRS 25 and FRS 26 to enable comparison. * Net debt as a percentage of shareholders' funds ** Net basis - Administrative expenses as a percentage of the average net asset value of the Company *** Gross basis - Administrative expenses as a percentage of the average gross asset value of the Company Portfolio Information At 31 March 2006 Valuation % of (£) Portfolio 2006 Equities 1,073 Sberbank RF Russia 911,049 15.8 28,800 Banco Bilbao Vizcaya Argentaria S.A. Spain 345,911 6.0 102,976 Finansbank AS Turkey 334,079 5.8 6,733 Raiffeisen International Bank Holding Austria 327,560 5.7 3,710 Societe Generale France 321,133 5.5 15,700 Banco Bradesco SA Brazil 291,298 5.0 5,380 BNP Paribas SA France 287,629 5.0 36,900 DnB NOR ASA Norway 286,088 4.9 225,920 Bank Millennium SA Poland 285,293 4.9 4,085 Blue Planet Global Financials Fund Ireland 284,925 4.9 205,000 Grupo Financiero Banorte SA Mexico 277,923 4.8 3,645 Bank Austria Creditanstalt Austria 269,541 4.7 20,622 Banco Nossa Caixa SA Brazil 260,566 4.5 1,760 Bank Przemyslowo-Handlowy BPH Poland 242,601 4.2 2,720 UBS AG Switzerland 172,281 3.0 5,057 Bank Pekao SA Poland 170,893 3.0 6,100 National Bank of Greece SA Greece 165,082 2.8 2,450 Deutsche Bank AG Germany 160,803 2.8 67,105 Turkiye Garanti Bankasi AS Turkey 143,227 2.5 6,000 Danske Bank A/S Denmark 128,137 2.2 6,503 Piraeus Bank SA Greece 113,848 2.0 421 Central Cooperative Bank AD Bulgaria 924 - Total 5,780,791 100.0 At 31 March 2006 the portfolio yield, as reported to the Association of Investment Trust Companies, was 1.7% (2005 - 3.1%). Classification of Investments At 31 March 2006 Investment Total Total Banks Insurance Companies Other 2006 2005 % % % % % % Russia 15.8 - - - 15.8 3.4 Poland 12.1 - - - 12.1 25.9 France 10.5 - - - 10.5 14.2 Austria 10.4 - - - 10.4 6.8 Brazil 9.5 - - - 9.5 - Turkey 8.3 - - - 8.3 - Spain 6.0 - - - 6.0 7.2 Norway 4.9 - - - 4.9 - Ireland - - 4.9 - 4.9 - Greece 4.8 - - - 4.8 - Mexico 4.8 - - - 4.8 - Switzerland 3.0 - - - 3.0 - Germany 2.8 - - - 2.8 4.0 Denmark 2.2 - - - 2.2 - Bulgaria - - - - - - UK - - - - - 13.0 Hungary - - - - - 12.1 Netherlands - - - - - 7.3 Belgium - - - - - 4.1 Czech Republic - - - - - 2.0 Totals 2006 95.1 - 4.9 - 100.0 - Totals 2005 98.5 - 1.5 - - 100.0 Benchmark* 63.2 18.0 2.8 16.0 100.0 - *Our benchmark is the Bloomberg World Financials Index (sterling denominated). Chairman's Statement This year has been one of excellent growth in your Company. We began the year with a share price of 115.80p (or £11.58 per Share Unit) and ended it with one of 192.0p per share (or £19.20 per Share Unit). This is a rise of 65.8% over the year. If dividends are included the total return on the share price was 67.8%. This is the highest total return that the Company has generated in any single year since the Company's floatation in 1996. At the Extraordinary General Meeting on 24th January 2006 it was agreed that the investment remit of the Fund should be widened from a purely European focus to an international focus. As a consequence, the benchmark index was changed to the Bloomberg Worldwide Financials Index. The performance of the Fund has been measured against the composite index over the past financial year, comprising of the FTSE Eurofirst 300 Financial Index up until the end of January 2006, and then the Bloomberg World Financials Index for the remainder of the year. The composite benchmark index made a total return of 32.4%. Your company made a total return (net asset value plus dividends reinvested) of 80.1%, which is 2.5 times more than the index. Portfolio The companies we have invested in have performed very well in 2005. The pre-tax earnings in the 2005 financial year grew by between 18.3% and 132.7% for our top ten investments. The performance of investments is discussed in more detail in the Investment Manager's Report. With the investment remit change in January 2006, there has been some reshaping of the portfolio to include international investments. Figure 1 shows the geographical movements in the portfolio over the last year. With regards to geographic distribution, we continue to have a sizeable proportion of the fund invested in Central and Eastern markets ("CEE"). We have also looked to South Eastern Europe ("SEE"). Strong prospects for economic growth are coupled with a low penetration of banking services in many of these countries, signalling much room for further expansion of banking services. In addition banking regulation, corporate governance and the fundamentals of the banks are strengthening in many of these markets. At the end of the Fund's financial year 25.3% of the Fund's assets were invested in CEE, 13.1% in SEE and 15.8% in Russia. New investments have been made in Latin America - specifically Brazil and Mexico. We believe that economic growth prospects are better in Latin America than in many of the more mature world economies over the next five to ten years. Investments in markets, such as Latin America, offer greater possibilities of reward, but are not without risk. The structural reforms and improved financial stability within many of these countries is mitigating these risks, but 2006 is a year in which a number of Latin American countries have elections. Where the prospects of political instability increase risk, the specialist approach of the investment manager means that the situation is closely monitored and an informed risk/reward trade-off can be made for any individual investment. Elsewhere in Europe we have sought out economies with particular strengths, such as Norway, which benefited from the high oil prices in 2005, or banks that have strong management with scope to improve efficiency and profitability, such as selected banks in France. Figure 1 Portfolio movements 2005 to 2006 Country 2006 2005 Russia 15.8 3.4 Poland 12.1 25.9 France 10.5 14.2 Austria 10.4 6.8 Brazil 9.5 - Turkey 8.3 - Spain 6.0 7.2 Norway 4.9 - Ireland 4.9 - Greece 4.8 - Mexico 4.8 - Switzerland 3.0 - Germany 2.8 4.0 Denmark 2.2 - UK - 13.0 Hungary - 12.1 Netherlands - 7.3 Belgium - 4.1 Czech Republic - 2.0 Independent Rating of the Fund Trustnet is an independent company providing factual, unbiased assessment of the performance of funds to private investors and Independent Financial Advisers. The excellent performance of the Fund has led to it being ranked 1st out of 26 funds in the Equity Growth and Income Sector for NAV appreciation over one year and 3rd out of 28 trusts for share price appreciation over one year. Over the longer-term the NAV and share price appreciation are rated in the 1st quartile over both three and five years. Out of all 259 investment trusts analysed by Trustnet for share price performance over the one year period to the end of March 2006 your Company is rated as a top 10% performer in the conventional investment trust category for both NAV and share price appreciation. It is rated 11th out 246 trusts for NAV and 24th out of 259 trusts for share price performance. We were pleased to see that the Fund was tipped in the Spring 2006 edition of the Investment Trusts Magazine (http://www.investment-trusts-magazine.co.uk/ ) by Chris Macdonald of Brooks Macdonald Financial Consulting as one of "six to succeed in 2006". Our Warrants The price of our warrants rose by 228% over the year to a bid price of £12.80 on the 31st March 2006. Shareholders can view the warrant price on the website of Blue Planet Investment Management (www.blueplanet.eu.com). The warrants are exercisable on 31st July or, if later, 30 days after the distribution of the Annual Report and Accounts in any year up to and including 2010. Each warrant unit confers the right to subscribe to a Financials Growth & Income unit at a price of £10 per unit. Dividend As highlighted in the Interim Accounts, the repositioning of the portfolio, whilst maximising capital gains, has meant that there is no income available for the payment of a dividend this year. Although investment income increased this year, that increase was a modest 8%. The substantial increase in the Company's assets and the increased borrowings caused management fees to increase by 54% and interest payable by 27%. As highlighted above the total return on the shares was 67.8% over the past financial year. Without the dividends the share price rose by 65.8%. This means that a substantial amount of the returns on your shares were generated by the capital growth of the underlying fund and that even without dividends the share price appreciation of your Company was twice that of the benchmark total return - i.e the benchmark capital growth including dividends. We know the importance of dividends to shareholders and will resume a dividend payment when it is possible to do so. There are two considerations. One is the level of revenue available. Of our 11 largest holdings, the 6 that have issued dividends in 2004 and 2005 increased their dividends in 2005 by an average of 40%, further increases are expected in 2006. This augurs well for future income. The other is the costs that are set against that income. The expenses ratio, the administrative expenses as a percentage of the average gross asset value of the Company, has been steadily reducing for the past four years. Over the last year it reduced by almost 27%. Borrowings and gearing Gearing for the fund is provided by a £0.75m fixed loan facility and a €1.68m revolving loan facility, part of which is drawn down in Sterling. The purpose of the loans is to fund the acquisition of investments in the expectation that the returns from these will exceed the cost of the loan. With strongly performing markets in 2005 the gearing of the fund has been increased and stood at 46.5% of NAV by the end of the financial year. With the interest rates on the loans ranging from 3.13% to 6.00% and the total returns being higher than 20% from more than three quarters of the investments held at the end of the year and over a third of those providing returns of greater than 50%, the NAV of your Company has been very successfully boosted by the use of gearing this past year. Blue Planet Services and Price Information Sources Shareholders can view the Company's share price and additional information about the Fund on the website of Blue Planet Investment Management Ltd (www.blueplanet.eu.com) and the London Stock Exchange (www.londonstockexchange.com). To find the Company's share price on the London Stock Exchange website go to the Home page and type "BPFU" in the "Price Search" field. Our share price is also published in the Financial Times. Blue Planet Investment Management offers a Blue Planet Savings Plan to enable lump sum investments or regular savings. This is administered on their behalf by Lloyds TSB plc and has just been updated and may be obtained by completing and returning the form enclosed with these accounts or from Blue Planet by calling them on 0131 466 6666. Blue Planet has also arranged a low cost stock-market dealing service via Stocktrade. Full details of these services are in this annual report, and are also given on their website www.blueplanet.eu.com. Outlook Your Company has made excellent progress over the past year, with the fund growing at 2.5 times the rate of its Benchmark Index. It is our aim to build on that progress and further enhance the performance of the fund. The widening of the investment remit to include international investments gives the fund access to an exciting new range of investment opportunities. With the growth in the share price of the Fund the price of the Share Unit has been approaching £20. The Directors have decided that this is an opportune time to carry out a 10 for 1 share split. This share split should increase the liquidity of the shares. A resolution to this effect is included in the agenda for the Annual General Meeting and we recommend that you vote in favour of this resolution. We continue to see excellent value in the financial sector, particularly amongst banks. Historically the financial sector and, in particular the banking sector has been one of the best performing sectors in the stock market. As of the beginning of March 2006 the US Russell 3000 Financials services sub-sector was ranked 1st out of 12 sectors since records began 10 ½ years ago. The UK FTSE banking sub-sector was ranked 3rd out of 34 sectors since records began more than 20 years ago. The Bloomberg European 500 Banking and Financial Services sub-sector was ranked 5th out of 37 sectors since records began over 9 years ago. (Source: Bloomberg). The message is clear, the banking sector has produced very high returns to investors in the past and we believe that, for sound economic reasons, it will continue to do so in the future. Index Region Financial Sector Ranking Time since inception Russell 3000 Index US 1/12 10 years, 9 months FTSA All-Share Index UK 3/34 20 years, 2 months Bloomberg European 500 Index Europe 5/37 9 years, 2 months In our opinion, many banks remain undervalued by the market. The Bloomberg World Financials Index is at a 23% discount to the all-sector Bloomberg World Index in terms of price-earnings ratio, despite the expectation that earnings per share will be 19% higher in 2006 for the Bloomberg World Financials Index. We believe that the banking sector will benefit from a continuing growth in revenues, further consolidation and efficiency gains. This coupled with a sharp rise in profitability of banks in certain emerging markets as demand for banking services in these countries increases, should lead to an upward re-rating of the price-earnings ratios on which the banks sell. This will provide your Company with potentially profitable investment opportunities. We are the top-performing investment trust in the growth and income sector, and we believe that our approach of specialising in only the financial sector and running a relatively concentrated portfolio of well researched stocks is set to continue to deliver good returns, and we look forward to the future with confidence. I thank you for your continuing support and look forward to welcoming you to the Annual General Meeting on the 2 August 2006. Victoria Killay Chairman 30 May 2006 Investment Manager's Report Portfolio Performance Analysis As has already been highlighted in the Chairman's Statement, the Trust's shares provided a total return of 67.8% over the year, substantially more than the Fund's benchmark index which had a total return of 32.4% in Sterling terms. The Fund's NAV rose by 78.8% to £28.75 over the same period. Asset Allocation Blue Planet Investment Management's investment process is top down. First, we identify countries with good economic prospects and acceptable levels of political risk. The economic backdrops in these countries are assessed in detail and ranked accordingly. The listed banks and other financial institutions in the highest ranked countries are then investigated. Capital is allocated to those banks and other financial institutions which we believe are likely to offer the best total returns over the long term. This process involves meeting with the senior management of companies we are contemplating investing in. Where possible, we also like to meet with local Central Banks to discuss the economic policies being pursued in the countries concerned. Once we are invested in a company, we aim to meet regularly with its senior management to monitor its progress. Since the last year end we have visited financial institutions in Austria, Czech Republic, Denmark, Estonia, France, Greece, Hungary, Poland, Russia, Slovak Republic, Spain, Sweden and Turkey. In addition, we had meetings in the UK with the management of many overseas financial institutions. For 2006 we retain our positive stance on the global banking sector, and in emerging market banks in both North and South Eastern Europe in particular. The growth prospects for these regions look to be significantly better than Western Europe. Overall the growth in GDP's in the Central and Eastern Europe region are forecast to be over 5% in both 2006 and 2007 with the average for Western Europe being around 2% in both 2006 and 2007. During the year the Fund invested in banks in Greece and Turkey in South East Europe. The banking penetration is low in Turkey, household loans to GDP was at 6% at the start of 2005, compared to 49% in Western Europe. A change in legislation from the start of 2006 should add impetus to the surge in loan growth by stimulating the mortgage loan market. Turkish banks are transforming and improving profitability, and foreign interest in the Turkish banking sector is increasing. Your Company held investments in Finansbank A.S. and Turkiye Garanti Bankasi A.S. Greece enjoys one of the highest growth rates in the EU. Between 1995 and 2003 Greece's sovereign rating was increased five times by Fitch. Although it has weaknesses in its public finances, the country benefits from a strong financial sector. Your Company held investments in Piraeus Bank S.A. and National Bank of Greece S.A. In Eastern Europe, the Company cut back on investments in Poland and Hungary. In Poland the Fund was invested in four banks at the time of the last annual report and is now invested in three banks. In Hungary the unsustainable fiscal deficits had a negative impact on both Hungary's sovereign rating and the currency, the Forint. In the light of the increasing economic risks and of deteriorating conditions in the domestic banking market, the fund decided to realise the very substantial profits it had made on its holding in OTP, the leading bank in Hungary. In Western Europe your Company invested in UBS in Switzerland, DnB NOR ASA in Norway and Danske Bank A/S in Denmark. UBS's business is Retail Banking, Investment Banking and Wealth Management. 2005 was a very successful year for Investment Banks and UBS provided a good exposure to this market in the Fund. Norway and Denmark both saw strong economic growth in 2005. Norway was one of the economies that benefited from the high oil prices in 2005. Inflation and interest rates were low last year, stimulating loan growth. Retail loans grew through 2005 and the second half of the year saw a significant increase in corporate lending. DnB NOR's 2005 results reflected the growth in the economy and further strong performance is expected in 2006. Danske Bank is the largest financial institution in Denmark. Denmark's economy had both a budget and current account surplus in 2005, and unemployment was at its lowest level for 30 years. As in Norway, the low interest rates stimulated retail banking business and the re-mortgaging market in particular was very strong. Latin America provides a similar story to the emerging markets of North and South Eastern Europe. The area has countries with strong GDP growth prospects, improving financial stability and low banking penetration. In the past inflation has been very high. Brazil and Mexico both have achieved lower levels of inflation and since the end of last year, both countries have been reducing interest rates, Brazil from highs of 19.75% and Mexico from highs of 9.75%. The reduction in interest rates has stimulated the already high demand for loans, and loan growth in these two countries is between 25% and 30%. Since the change in remit of the fund in January 2006, your Company has invested in Banco Bradesco SA and Banco Nossa Caixa SA in Brazil, and Grupo Financiero Banorte SA in Mexico. Currency The fund is exposed to a range of currencies. The table below shows the percentage of the portfolio holdings in each currency and how those currencies have performed against the pound over the period in which the investments have been held in the Trust during the financial year. Currency % of equity portfolio Appreciation/depreciation in currency against £ for the length of time the currency has been held in the portfolio Euro 39.4% 1.7% US Dollar 15.8% 8.7% Polish Zloty 12.1% 5.9% Brazilian Real 9.5% 0.3% Turkish Lira 8.3% 5.7% Norwegian Krona 4.9% 3.7% Mexican Peso 4.8% -2.3% Swiss Franc 3.0% -1.0% Danish Kroner 2.2% 3.6% The positive currency movements had a beneficial impact on our performance. The negative currency movements reduced the performance of the shares denominated in that currency when translated into sterling. The risks associated with this exposure to a range of currencies is discussed below, but overall we believe that Sterling will continue to weaken against a broad basket of currencies over the coming year as the deteriorating position of the UK economy becomes more apparent to investors and as other countries do better relative to the UK. Some Latin American countries may prove an exception, as their currencies have already strengthened significantly in 2005. Risk Market risk arises mainly from the uncertainty regarding the future price performance of the equities held by your Company. This risk is magnified by the significant level of gearing that is used to bolster performance and the fact that the Company is invested in a single industry sector. Being invested in a single sector exposes the Fund to the risk that the Financial Sector will under perform relative to other sectors of the market In mitigation of these risks the financials sector in which we are invested is the largest sector of the market and constituted 25.5% of the Bloomberg World Index on 1st March 2006. The prices of the individual securities invested in are monitored on a daily basis and the Board, which meets quarterly, imposes borrowing limits to ensure gearing levels are appropriate to market conditions. The securities dealt in are all listed on recognised exchanges and are readily realisable. The Fund is exposed to currency risk, due to the range of currencies in which investments are held. The largest exposure is to the Euro currency. This risk is mitigated in the case of the Euro by part of the Fund's loan facility being denominated in Euros. The fund manager tracks currency movements on a month-by-month basis and hedging is considered on a case-by-case basis. In the 2006 financial year there was no hedging in place on any of the currencies we are invested in, although Euro denominated borrowings provide a "natural" hedge for our Euro denominated investments. An interest rate swap has been entered into to hedge against potential variations in the finance cost of some of the long term borrowing. The interest rate swap expires on 23 January 2012 Credit risk arises from the exposure to non-delivery of an investment that has been purchased. The Company only buys and sells investment through Blue Planet Investment Management's approved list of brokers. Review of the Top 11 Investments at year end 1. Sberbank RF In terms of market share and assets, Sberbank RF is the largest bank in Russia, and its assets account for over a quarter of Russia's banking sector. The Central Bank of Russia holds a majority stake in accordance with the bank's charter. Sberbank has the largest branch network in Russia with over 20,000 branches countrywide. Driven by robust economic growth, commercial banking in Russia has quickly evolved into a dynamic sector of the economy. Sberbank holds the dominant position in Russia's retail deposit and retail lending markets and also holds significant market shares in both corporate and retail loans. The bank has superior growth potential over the next 5 to 10 years with considerable room for efficiency gains which will further increase its profits. Russia itself is a country with strong economic fundamentals, with GDP growth of 7.9% in 2005. It has a population of 143m, vast natural resources and an underdeveloped banking sector which will expand rapidly as the country exploits its rich resources. We initially purchased this stock before the start of this financial year. Over the year it has made a total return of 172% in Sterling terms. We have added to our holding during the course of the year and the additional purchases, plus the share price appreciation, mean that Sberbank is our largest single holding, comprising 16.6% of the total value of our portfolio by the end of the Fund's financial year. Sberbank has not yet published its full IFRS accounts for 2005. The figures that are published show that net operating profits rose 248% in 2005 and net income rose to $2,323m as corporate lending surged. This is a four-fold increase on its net income for 2004. Key statistics relating to this investment are given below: For the year ended 31 December: 2004 2003 Change Total Assets $ 69,206 $ 50,162 +38.0% Cost: Income Ratio 69.2% 70.8% -160bps Profits before Taxation $ 853m $ 527m +61.9% Earnings per Share (diluted) $ 35.0 $ 23.7 +47.7% Dividends per Share $ 6.25 $ 4.64 +34.7% Dividend Cover 5.6x 5.1x Return on Equity 13.5% 10.8% +270bps 2. Banco Bilbao Vizcaya Argentaria Banco Bilbao Vizcaya Argentaria ("BBVA") is a major financial services group based in Spain that also plays a leading role in Latin America. It employed almost 95,000 people and had 35 million customers spread across 30 countries, as of the end of 2005. BBVA is split into five business areas - Retail banking in Spain and Portugal, Wholesale Businesses, Mexico, South America & USA. The Americas accounted for almost 48% of profit in 2005. In March 2005 BBVA launched a bid for Italy's Banca Nazionale del Lavoro (BNL). This bid never reached fruition, and BBVA has since agreed to sell its stake in BNL to the French bank BNP Paribas earning a profit of €600m in the process. BBVA has instead concentrated on expansion in the Americas. It acquired the remaining shares in BBVA Bancomer, the largest bank in Mexico, and acquired Hipotecaria Nacional in Mexico in January 2005. In the USA it purchased Laredo National Bancshares in May 2005. Then in October 2005 BBVA announced the purchase of Granahorrar in Colombia. BBVA's financial results in 2005 were very strong. It claims its ROE figure of 37.0% is the highest returns of any of the major financial institutions in the European Union. It has built upon those results with year-on-year growth of 25.1% in net attributable profit in the first quarter of 2006, and in appears to be well-placed to continue to provide good investor returns. We have held this stock in the portfolio throughout the year and the total returns over the year have been 44% in Sterling terms. Key statistics relating to this investment are given below: For the year ended 31 December: 2005 2004 Change Total Assets € 392bn € 329bn +19.1% Cost:Income Ratio 43.2% 44.6% -140bps Profits before Taxation € 5,592m € 4,137m +35.2% Earnings per Share € 1.12 € 0.87 +28.7% Dividends per Share € 0.53 € 0.44 +20.5% Dividend Cover 2.1x 2.0x Return on Equity 37.0% 33.2% +380bps 3. Finansbank AS Finansbank AS ("Finansbank") is the 5th largest bank in Turkey by assets, with 222 branches across Turkey and 10,300 employees. It began in 1987 as a wholesale and investment bank, it moved into leasing in 1990 and in 1995 it entered the retail banking market. It is the Turkish bank with the largest international presence with operations in 11 other countries including Switzerland, Holland, Russia, Romania, Malta and Bahrain. Finansbank's history has been characterised by its rapid development both at home in Turkey and abroad. Fiba Holding is the major shareholder in Finansbank. Finansbank grew its loan portfolio by 35.0% in 2005. Its profits before taxation increased 49.7%. This stock has been included in the portfolio since June 2005. Throughout its 10 months in the portfolio it has generated a total return of 145%. At the end of 2005 the FIBA Holding announced that they were looking for an international investor. At the start of April 2006 Finansbank agreed a deal with the National Bank of Greece ("NBG"). NBG are to buy 46% of Finansbank and will make an offer for the minority holdings. Should they fail to secure a majority holding through the tender offer then FIBA Holding and its associates will sell sufficient shares for NBG to acquire the necessary 50.01% ownership position. The deal excludes the international business of Finansbank, which will be sold to Fiba Holding. Fiba Holding will retain a 9.7% stake in Finansbank. NBG will launch a mandatory offer to remaining shareholders, once it has acquired the necessary shares in Finansbank and received regulatory approval. Thus it is unlikely that the company will still exist in its current form by the end of the calendar year. We have subsequently sold out of our holding in Finansbank. Key statistics relating to this investment are given below: For the year ended 31 December: 2005 2004 Change Total Assets YTL 17,721 m YTL 13,870 m +27.8% Cost: Income Ratio 47% 51% -400bps Profits before Taxation YTL 725 m YTL 490 m +48.0% Earnings per Share YTL 0.048 YTL 0.033 +45.5% Dividends per Share - - Dividend Cover - - Return on Equity 34% 28% +600bps 4. Raiffeisen International Bank Holding AG Raiffeisen International Bank Holding AG ("Raiffeisen") is the holding company and steering unit for the banks owned by the RZB Group in Central and Eastern Europe. Raiffeisen is pursuing an aggressive growth strategy centred on Central and Eastern Europe and South Eastern Europe. Its focus is on the retail and SME segments. At the end of 2005 it had 9.7 million customers and more than 43,600 employees. Raiffeisen had an initial public offering (IPO) in April 2005. The issue was 22 times oversubscribed and placed shares to the value of €1.1 billion. This money has been used for further expansion efforts. The free float following the IPO is 30% of the company. Raiffeisen acquired Bank Aval in Ukraine in 2005. The deal was closed on 20th October 2005. Ukraine has a population of 47million. Bank Aval is one of the leading banks in the Ukraine, as well as being present in Albania, Bosnia and Herzegovina and Serbia and Montenegro. It has 3.3m customers in total. At the start of 2006 Raiffeisen acquired Impexbank in Russia. With their existing operations this gives them a 1.9% market share - but this still makes them the number 7 bank in Russia. Raiffeisen now has coverage of almost 70% of the population in Russia. The Fund purchased shares in Raiffeisen on 1 February 2006. In its two months in the portfolio it produced a total return in Sterling of 14%. Raiffeisen has been growing rapidly, its balance sheet has doubled in the past two years and its 2005 annual results reported a 66.9% increase in profits before tax. Its two latest acquisitions give it a very broad platform for growth in 2006 and beyond. In the first quarter of 2006 Raiffeisen passed the 10 million customer mark. Its numbers of customers is growing by over 100,000 per month, demonstrating the growth potential in CEE. It has started 2006 well with a year-on-year increase in consolidated net income of 34% in the first quarter of 2006. Key statistics relating to this investment are given below: For the year ended 31 December: 2005 2004 Change Total Assets € 40,695m € 28,907m +40.8% Cost:Income Ratio 61.6% 63.5% -190bps Profits before Taxation € 569m € 341m +66.9% Earnings per Share € 2.79 € 1.93 +44.6% Dividends per Share € 0.45 - Dividend Cover 6.2x - Return on Equity 17.6% 17.6% - 5. Societe Generale The French bank Société Générale is one of the largest banks in the Euro Zone and employs 103,000 people in 76 countries. During 2006 it expects that it will have over 50% of its staff outside of France. It is currently pursuing a strategy of organic growth and value-creating acquisition. Its core activities are Retail & Banking Services, Global Investment Management and Services and Corporate and Investment Banking. 2005 provided a favourable economic environment in which the Group achieved an organic growth rate on banking income of 14.5%. Operating costs grew at much slower rates than revenues, with only a 7.9% increase on 2004. These figures, along with a very low cost of risk in 2005, led to an earnings per share increase of 35.3% and a Group ROE figure of 25.3%, up from 20.1% in 2004. Société Générale's International Retail division is very well placed in high growth regions in Central and Eastern Europe and the Mediterranean basin with the number 2 bank in both the Czech Republic (Komercni Banca) and Romania (BRD). It has the 4th largest bank in Morocco (SGMB) and the 5th largest in Bulgaria (SG Expressbank) as well as a leading bank in Egypt (MI Bank). In addition it has a 50.01% stake in the General Bank in Greece. Societe Generale also has branches in Russia - 23 by end February 2006. Société Générale's broad expansion strategy in Europe should continue to provide good revenue growth in 2006. In its first quarter of 2006 results Société Générale reported net income up 20.0% from the first quarter of 2005. We held our investment in this company throughout the year, and over this period the total return was 64%. Key statistics relating to this investment are given below: For the year ended 31 December: 2005 2004 Change Total Assets € 848.4bn € 601.4bn +41.1% Cost:Income Ratio 63.4% 67.5% -410bps Profits before Taxation € 6,720m € 4,999m +34.4% Earnings per Share € 10.88 € 8.04 +35.3% Dividends per Share € 4.50 € 3.30 +36.4% Dividend Cover 2.4x 2.4x Return on Equity 25.3% 20.1% +520bps 6. Banco Bradesco SA At the end of 2005 Banco Bradesco SA was Brazil's largest private bank in terms of assets and branch structure. Its services and products include banking operations such as lending and deposit-taking, credit card issuance, insurance, leasing, payment collection and processing, pension plans, asset management and brokerage services. In 2005 its income was derived 32% from loans, 29% from insurance, 26% from services and 13% from marketable securities. Interest rates in Brazil rose to a very high level in the middle of 2005, peaking at 19.75%, as they were raised to dampen inflationary pressures. Despite the high interest rates, loan growth was strong in Brazil in 2005. Interest rates are now being lowered and are expected to end the year at the 14% level. Inflation is on track to end 2006 at 4.5%. Bradesco is predicting that its loan portfolio will increase by between 20% and 25% in 2006, with significant growth from the retail sector. Bradesco had very robust financial results in 2005, with net income increasing 80% and efficiency improving from 55.5% to 44.8%. First quarter 2006 results showed a year-on-year loan growth of 28%, with net income increasing 27%, a positive step towards achieving Bradesco's 2006 financial targets. Bradesco has been included in the portfolio since the middle of February 2006. Some share price weakness in emerging markets as US interest rates increased in March 2006, and an initial negative reaction by the markets in Brazil to the resignation of the finance minister mean that the share price has fallen by 9% in sterling terms since the investment was made. We do not anticipate that this price weakness will persist over the long term. Key statistics relating to this investment are given below: For the year ended 31 December: 2005 2004 Change Total Assets BRL 209bn BRL 185bn +13.0% Cost:Income Ratio 44.8% 55.5% -1,070bps Profits before Taxation BRL 7,747 BRL 3,627 +113.6% Earnings per Share BRL 5.63 BRL 3.22 +74.8% Interest on own Capital / Dividends BRL 1.881bn BRL 1.325bn +42.0% Dividend Cover - - Return on Equity 32.1% 22.0% +1,010bps 7. BNP Paribas SA BNP Paribas S.A ("BNP Paribas") is the largest French bank in terms of profit and market capitalisation. Operating in over 85 countries it employs in excess of 100,000 employees, with the majority in Europe, and a quarter in the Americas. The company derives its strength from three core businesses; Corporate & Investment Banking, Retail Banking and Asset Management & Services. BNP Paribas posted good results for 2005. With net banking income up 17.7% and operating expenses growing 14.3%, income before tax was up 18.3% year-on-year. All three core businesses performed well with Corporate & Investment Banking's pre-tax profits up 35.3%, the Retail Bank's income before tax was up 22.6%, and the Asset Management & Services sector's pre-tax profits were up 19.5%. The majority of its growth in 2005 was organic. In 2006 BNP Paribas are in process of carrying out a major retail banking acquisition in Italy of BNL. In terms of 2005 numbers BNL will add 12% to BNP Paribas' net banking income, making the retail divisions of BNP Paribas 59% of the total business. This acquisition is to be financed by a €5.5bn rights issue and the issuance of hybrid securities of €2bn. Additionally in 2006 Corporate Banking will continue to consolidate its franchises and strengthen its positions in Europe and the United States. On the retail side BNP Paribas are increasing cross-selling, pursuing back-end productivity gains, and stepping up the pace of expansion in emerging markets. The Asset Management division will concentrate on maximising the profitability of its 2005 investments. BNP Paribas' active dividend distribution policy led to an increase in the dividend of 30% in 2005. We held this stock throughout the Company's financial year. Over the year BNP Paribas generated a total return of 49% in Sterling terms. In our view, this year's solid performance should be repeated in 2006. BNP Paribas' revenue growth is strong. In their home market of France the rate of growth in retail loans was increasing in fourth quarter 2005 and BNP Paribas are growing their business ahead of the market rate. The acquisition of BNL appears to be a good fit with their existing business and the price is reasonable. Furthermore additional efficiency gains should be achievable. In its first quarter 2006 results BNP Paribas reported good revenue growth and a strong performance from its Corporate & Investment Banking division resulting in a 17.0% increase in net income year-on-year. Key statistics relating to this investment are given below: For the year ended 31 December: 2005 2004 Change Total Assets € 1,258bn € 1,002bn +25.5% Cost: Income Ratio 61.2% 62.8% -160bps Profits before Taxation € 8,424m € 7,119m +18.3% Earnings per Share (2004 figure revised for IFRS) € 7.02 € 5.87 +19.6% Dividends per Share € 2.60 € 2.00 +30.0% Dividend Cover 2.7x 2.9x Return on Equity 20.2% 18.0% +220bps 8. DnB NOR ASA DnB NOR ASA ("DnB NOR") is Norway's largest financial services group with total assets of NOK 1,463bn and almost 11,500 employees. The group commands around 38% of lending to the retail market in Norway with more than 2.1 million customers. It also leads the Norwegian market for corporate banking, life assurance, capital markets and asset management. DnB NOR compliment their extensive domestic presence with varied international partnerships both in Norway and overseas. In 2005 they strengthened future growth prospects negotiating a joint venture with Norddeutsche Landesbank in the Baltic Sea region and acquiring Monchebank in Russia. Norway's economy benefited from the high oil prices in 2005 and grew strongly over the period. Inflation and interest rates were low in 2005. The second half of 2005 saw a significant increase in corporate lending. In these benign macroeconomic conditions DnB NOR reported a 21.4% increase in earnings per share. The favourable economic conditions are forecast to extend through 2006. DnB NOR plan to capitalise on this with strong organic growth in the Norwegian market. The first quarter 2006 results show good progress with earning per share rising 37% on a year-on-year basis. We purchased our holding in the bank in January 2006. In just over 2 months the shares total return to the portfolio was 21% in sterling terms. Key statistics relating to this investment are given below: For the year ended 31 December: 2005 2004 Change Total Assets NOK 1,081bn NOK 912bn +18.5% Cost:Income Ratio 50.2% 56.0% -580bps Profits before Taxation NOK 13,109m NOK 10,484m +25.0% Earnings per Share NOK 7.59 NOK 6.25 +21.4% Dividends per Share NOK 3.50 NOK 2.55 +37.3% Dividend Cover 2.2x 2.5x Return on Equity 18.8% 17.7% +110bps 9. Bank Millennium SA Bank Millennium SA was founded in Poland in 1989. It is principally a commercial bank, but has four separate business lines, Millennium for retail customers, Millennium Biznes for small businesses, Millennium PRESTIGE for affluent customers and Bankowosc Predsiebiorstw for medium and large sized businesses. It offers core banking services, brokerage, investment funds, leasing services and pension and savings plans. At the end of 2005 it had a 6.9% market share in the Polish mortgage market, which is the 5th largest in Poland. Millennium bcp of Portugal owns 50% of Bank Millennium. The Polish banking sector has huge growth potential. The penetration of residential mortgages, mutual funds and credit cards are all in single figures as a percentage of GDP, all of which are far lower than is found in the more developed European Union countries. Millennium is gaining scale and efficiency through organic growth. They have been remodelling their branches to increase brand awareness. In 2005 they achieved a 10% share in new mortgage production, and their total loan portfolio grew 35% in the year. They have a focus on increasing efficiency and improving their risk management. Millennium's 2005 results showed an impressive 139% increase in earnings per share in 2005. These strong results have been carried forward in to 2006, where the first quarter results reported a year-on-year 54% increase in net income. The growth in business was achieved with no increase in operating costs. Millennium has a very high solvency ratio, standing at 19.1% at the end of 2005, as a result Millennium proposed an 81% payout ratio for dividends, equating to PLN 0.54 per share. We held Millennium in the investment portfolio throughout the year. We have added to the holding several times during the year. The total return for the portion of the investment held for the entire year is 147% in sterling terms. Key statistics relating to this investment are given below: For the year ended 31 December: 2005 2004 Change Total Assets PLN 22.2bn PLN 20.1bn +10.4% Cost:Income Ratio (recurrent basis) 74.4% 83.6% -920bps Profits before Taxation PLN 709.7m PLN 349.6m +103.0% Earnings per Share PLN 0.67 PLN 0.28 +139.0% Dividends per Share PLN 0.54 PLN 0.28 +92.9% Dividend Cover 1.2x 1.0x Return on Equity 28.0% 14.5% +1,350bps 10. Blue Planet Global Financials Fund Your Company made an investment in Blue Planet Global Financials Fund at the end of March 2006. This is a new hedge fund run by Blue Planet Investment Management Ltd that was launched on the 31st March 2006. The Global Financials Fund is listed on the Irish stock exchange. 11. Grupo Financiero Banorte SA Grupo Financiero Banorte SA ("Banorte") is one of Mexico's leading financial groups and is the largest domestically-owned financial group in Mexico. Its main subsidiaries are Banorte and Bancen. In addition to traditional banking services it provides insurance, pension fund management, annuities, stock brokerage, leasing, factoring and warehousing. As well as providing banking services in Mexico, Banorte is expanding its operations in the U.S. in order to serve the Mexican population living in that country. It has made, and is continuing to make, a number of acquisitions of small banks in the U.S., the latest being a 70% stake in the Inter National Bank in McAllen, Texas in January 2006. The macroeconomic environment has been very stable in Mexico for the past few years and GDP growth in 2004 and 2005 has boosted demand for loans, particularly consumer loans and mortgages. The outlook for 2006 remains positive with a GDP growth rate of 3% to 3.5% expected. Banorte has recently benefited from a ratings upgrade from Standards & Poors as its performance, capital adequacy and asset quality improve. Its 2005 results were strong with earnings per share increasing 111.2% over the year. In the first quarter 2006 earnings per share increased 21% on a year-on-year basis and performing loans grew 23%. Banorte has been included in the portfolio since the end of January 2006. Some share price weakness in emerging markets as US interest rates increased in March 2006, and a weakening in the Mexican peso mean that the share price of Banorte has risen 1% in sterling terms since the investment was made. Key statistics relating to this investment are given below: For the year ended 31 December: 2005 2004 Change Total Assets MXN 190bn MXN 181bn +5.0% Cost:Income Ratio 56.8% 70.6% -1,380bps Profits before Taxation MXN 7,896m MXN 3,393m +132.7% Earnings per Share MXN 2.83 MXN 1.34 +111.2% Dividends per Share MXN 0.31 MXN 0.25 +24.0% Dividend Cover 9.1x 5.4x Return on Equity 30.8% 17.5% +1,330bps Summary Of our top eleven holdings, excluding the Blue Planet Global Financials Fund, for which no data is available as yet, and Sberbank, for which full IFRS 2005 accounts are not yet published, on average, earnings per share rose by 58.4%. The financial data above was extracted from each Company's latest annual report. Transactions Over the year, sales of investments realised £2.5m and purchases totalled £3.7m. Blue Planet Investment Management Ltd 30 May 2006 Statement of Total Return (incorporating the revenue account) for the year ended 31 March 2006 2006 2005 Notes Revenue Capital Total Revenue Capital Total (£) (£) (£) (£) (£) (£) Capital gains / (losses) on investments Net realised gains / (losses) - 691,532 691,532 - (176,171) (176,171) Unrealised gains on investments - 1,129,272 1,129,272 - 612,393 612,393 Exchange (losses) / gains - (28,264) (28,264) - 1,255 1,255 Net capital gains on investments - 1,792,540 1,792,540 - 437,477 437,477 Income from investments 94,980 - 94,980 82,555 - 82,555 Bank interest receivable 1,705 - 1,705 7,000 - 7,000 Gross revenue and capital gains 96,685 1,792,540 1,889,225 89,555 437,477 527,032 Administrative expenses (55,356) (23,997) (79,353) (46,755) (15,624) (62,379) Net return before interest payable and taxation 41,329 1,768,543 1,809,872 42,800 421,853 464,653 Interest payable (28,442) (28,441) (56,883) (22,443) (22,443) (44,886) Return on ordinary activities before taxation 12,887 1,740,102 1,752,989 20,357 399,410 419,767 Taxation on return on ordinary activities (11,925) - (11,925) (4,750) - (4,750) Return on ordinary activities after taxation 5 962 1,740,102 1,741,064 15,607 399,410 415,017 Return per ordinary share - basic 2 0.07p 128.33p 128.40p 1.15p 29.51p 30.66p Return per ordinary share - diluted 2 0.07p 120.99p 121.06p 1.15p 29.51p 30.66p The total columns of the statement represent the profit & loss accounts of the Company. All revenue and capital items in the above statement derive from continuing operations. There were no recognised gains and losses other than those disclosed above. Accordingly a statement of total recognised gains and losses is not required. The Statement of Total Return together with the movements in reserves shown in note 5 comprise all changes in equity during the year. Balance Sheet at 31 March 2006 2006 2005 (Restated) Notes (£) (£) (£) (£) Fixed assets Listed Equity investments 5,780,791 2,787,651 Current assets Debtors 13,271 23,081 Cash at bank 108,814 126,774 122,085 149,855 Creditors:amounts falling due within one year (75,636) (13,674) Net current assets 46,449 136,181 Total assets less current liabilities 5,827,240 2,923,832 Creditors: amounts falling due after more than one year (1,923,129) (750,000) Net assets 3,904,111 2,173,832 Capital and reserves Called-up share capital 135,850 135,850 Share premium account 5 1,170,956 1,168,746 Other reserves 5 Capital reserve - realised 906,475 277,541 Capital reserve - unrealised 1,602,768 491,600 Capital redemption 8,450 8,450 Warrant reserve 61,920 63,374 Revenue reserve 5 17,692 28,271 Shareholders' funds 3,904,111 2,173,832 Net asset value per ordinary share - basic 2 287.56p 160.84p Net asset value per ordinary share - diluted 2 257.40p 150.82p Victoria W Killay Chairman Cash Flow Statement For the year ended 31 March 2006 2006 2005 (£) (£) (£) (£) Operating activities Investment income received 90,859 97,849 Interest received 1,705 7,169 Investment management and administration fees paid (46,078) (33,824) Cash paid to and on behalf of Directors (2,700) (3,574) Other cash payments (25,756) (24,905) Net cash inflow from operating activities 18,030 42,715 Servicing of finance Interest paid (56,583) (45,261) Taxation Taxation recovered 1,679 1,469 Capital expenditure and financial investment Purchase of investments (3,604,477) (2,211,632) Sale of investments 2,489,311 2,066,011 (1,115,166) (145,621) Cash outflow before financing (1,152,040) (146,698) Dividend paid (16,895) (42,723) Management of liquid resources Cash placed on deposit (315,471) - Cash withdrawn from deposit 314,181 - (1,290) - Financing Purchase of own shares - (6,082) Proceeds from share issue 6,110 - Loan advanced 1,144,860 - 1,150,970 (6,082) Decrease in cash (19,255) (195,503) Notes 1. The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 March 2006 or 31 March 2005 but is derived from those accounts. Statutory accounts for 2005 have been delivered to the Registrar of Companies and those for 2006 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under s237 (2) or (3) Companies Act 1985. 2. Return and Net Assets per ordinary share 2006 2005 The return per ordinary share is based upon the following figures: Revenue return £962 £15,607 Capital return £1,740,102 £399,410 Weighted average number of ordinary shares in issue during the year - basic 1,355,985 1,353,564 Weighted average number of ordinary shares in issue during the year - diluted 1,438,185 1,353,564 The difference between the basic and diluted number of ordinary shares is derived from the total number of warrants in issue multiplied by a factor based on the average price of the ordinary shares in the year and the exercise price of the warrants, as required by FRS 14. The net asset value per ordinary share is calculated on 1,357,680 being the number of ordinary shares in issue at the year end after deducting the treasury shares held. Net asset dilution occurs from the potential exercise of the 260,170 outstanding warrants and is assumed only to take place if the net assets per share exceed the exercise price of £1. 3. The board have decided that no final dividend will be declared this year (1.25p - 2005). 4. The financial information set out in this announcement has been prepared on the basis of the accounting policies as stated in the previous year's financial statements with the exceptions detailed below: 1) listed investments have been valued at fair value through the profit and loss account in accordance with FRS 26 "Financial Instruments: Measurement". The effect is to value investments using bid prices rather than middle market published prices. There is no material difference between these two pricing bases and consequently prior period results have not been restated. 2) in compliance with FRS 21 "Events after the Balance Sheet Date" dividends declared after the period end are no longer treated as a liability at the period end. The effect is to reduce creditors and increase revenue reserves by £16,895 at 31 March 2006 and increase net asset value per share by 1.25p per share. 5. Movement in reserves 2006 2005 (£) (£) Share premium account Balance at 1 April 2005 1,168,746 1,168,746 Transfer from warrant reserve 1,454 - Treasury share issue in year 756 - Balance at 31 March 2006 1,170,956 1,168,746 2006 2005 (£) (£) Capital reserve - realised Balance at 1 April 2005 277,541 491,779 Net gains / (losses) on realisations during the year (includes (£325,352) recognised in prior years as unrealised appreciation). 691,532 (176,171) Administration expense charged to capital (23,997) (15,624) Loan interest payments (28,441) (22,443) Realised exchange differences (10,160) - Balance at 31 March 2006 906,475 277,541 Capital reserve - unrealised Balance at 1 April 2005 491,600 (122,048) Unrealised capital gains in the year 1,129,272 612,393 Unrealised exchange differences (18,104) 1,255 Balance at 31 March 2006 1,602,768 491,600 Warrant reserve Balance at 1 April 2005 63,374 63,374 Transfer to share premium in respect of exercised warrants (1,454) - Balance at 31 March 2006 61,920 63,374 Revenue reserve (distributable) Restated Balance at 1 April 2005 28,271 61,470 Revenue account transfer for the year 962 15,607 Dividends paid (16,895) (42,724) Treasury share issue 5,354 - Purchase of treasury shares - (6,082) Balance at 31 March 2006 17,692 28,271

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