Annual Report and Accounts

Ruffer Investment Company Limited
24 February 2005



                       RUFFER INVESTMENT COMPANY LIMITED

                        PRELIMINARY PROFITS ANNOUNCEMENT

                              For the period ended
                               31st December 2004



Investment Objective

The principal objective of the Company is to achieve a total annual return,
after all expenses, of at least twice the Bank of England base rate (4.75 per
cent. as at 31 December 2004) by investing in internationally listed or quoted
equities or equity related securities (including convertibles) or bonds which
are issued by corporate issuers, supra-nationals or government organisations.

Investment Review

From the launch date on 8 July 2004 to 31 December 2004 the NAV rose 8.9% (net
of fees and expenses), compared to the FTSE All Share Index which rose 11.9% and
the Government All Stocks Index which rose 5.5%.

This investment review is divided into two parts. The first sets out why we
believe that we are in danger of entering a financial crisis, and the second
part of the report sets out what we are doing about it.

The economic statistics emerging from world economies at the end of 2004 are
unexceptional and largely benign. The US has completed its fifty second
consecutive quarter of annualised economic growth, up 3.2% last year, and much
the same is expected in 2005. The stock markets have made solid progress, and
are not looking obviously expensive; interest rates are in Goldilocks territory
and inflation is steady at lowish levels. Those who are on the qui vive for the
onset of bad news will not find it amongst these statistics. Nevertheless we are
concerned that there is an exogenous factor which could prove destructive. Many
pay lip service to the large trade deficit which the United States enjoys - if
that is the appropriate word. The danger is manifest more in the precarious
nature of the imbalances which have created it rather than in the deficit
itself. Deficits can be matched by capital inflows, and there is clear evidence
that the Far Eastern trading nations, China in particular, regard their surfeit
of dollars as the equivalent of red cabbage, the value of which is a second
order issue compared with the need to keep the 20 million urban refugees from
the countryside in employment.

The real issue is why the American populace are able to spend so much more than
they earn, and to do so without any sense of the enormity of what they are doing
to the futures of their own, and their children's, balance sheets. Maynard
Keynes believed that monetary disorder allowed a nation to postpone and cover up
'what may be almost unendurable facts - that people struggle to maintain their
previous standards by living off their capital, and the whole apparatus of
monetary unsoundness stops them recognising what they are doing'. That is
exactly the case in America today. As asset prices rise, it is possible to
borrow money, spend it on day to day living, and still to feel richer, because
the increase in the value of the property has exceeded the borrowing. Since the
overspend - and the borrowing - is a chronic problem, not an acute one, the veil
is not removed until asset prices stop going up - they do not even need to fall.
No one wishes to precipitate a crisis, and so, of course, it can continue for a
long time. This impasse, which, emphatically, could last for the whole of 2005
and beyond, will end in one of two ways. Either the American authorities will
revert to sound principles, and this will certainly generate a deep recession as
the consumer retrenches and asset values equilibriate (that's a jolly word for
dropping). The alternative is that the currency will take the strain. We believe
that Greenspan and his successors will take the easier course, and allow the
dollar to fall - and that fall could be precipitate.

Will these grim truths become apparent in the very near future? Certainly! Could
the world muddle through for a long time with no apparent crisis? Certainly!
Could this analysis be quite wrong, and the imbalances prove to be as
sustainable as New York's problems in 1975 and Mexico's in 1982? Certainly! We
have tried to create a balance of assets within the investment trust which will
bring about a decent return whichever of these comes about.

What are these assets? The biggest position is in short dated gilts - 38% or so.
It should be observed that the performance of the fund has been achieved with
almost half its value in either cash or these cash-equivalent counters. The most
interesting part of the portfolio is in the Swiss Franc, either in long bonds
(almost 25% of the fund) or in Swisscom. The other bets that we have taken have
been in oil (this was particularly good in the Autumn, less so more recently);
the same could be said of gold and Japan. The saving grace of the latter has
been a strong performance in Japan Tobacco. The remainder of the portfolio
represents individual stock specific situations which owe more to their
individual situations than the macro picture.


Ruffer LLP
7 February 2005




                            Profit and Loss Account

For the period from 8 July 2004 to 31 December 2004                  08.07.04 to
                                                                      31.12.04

                                            Revenue     Capital          Total
                                                 £            £              £
Interest income                            675,749            -        675,749
Dividend income                            216,378            -        216,378
Net gains on financial assets at                 -    3,679,257      3,679,257
fair value through profit or loss
Other gains                                 12,344            -         12,344
Total investment income                    904,471    3,679,257      4,583,728
Management fees                            (64,761)    (194,285)      (259,046)
Expenses                                  (482,214)           -       (482,214)
Total operating expenses                  (546,975)    (194,285)      (741,260)

Operating profit before taxation           357,496    3,484,972      3,842,468

Withholding tax                            (18,201)           -        (18,201)

Increase in net assets attributable to
holders of redeemable participating
preference shares from operations (after
taxation)                                  339,295    3,484,972      3,824,267

Earnings per share *                          0.68p        6.97p          7.65p


*Earnings per share is based on the weighted average number of redeemable
participating preference shares. There being no change in the number of shares
in issue during the period, the weighted average number of shares for the period
is 50,000,000.





           Statement of changes in net assets attributable to holders
                 of redeemable participating preference shares

For the period from 8 July 2004 to 31 December 2004                 08.07.04 to
                                                                      31.12.04
                                                                             £

Net assets attributable to holders of redeemable                             -
participating preference shares at the start of the period

Movement due to issues and redemptions of shares                    49,350,000
Proceeds from redeemable participating
preference shares issued
Net increase from share transactions                                49,350,000

Increase in net assets attributable to holders of                    3,824,267
redeemable participating preference shares from operations

Net assets attributable to holders of redeemable                    53,174,267
participating preference shares at the end of the period





                                Balance Sheet

As at 31 December 2004
                                                                      31.12.04
                                                                             £
ASSETS
Cash and cash equivalents                                              859,956
Receivables                                                            588,384
Financial assets at fair value through profit or loss               52,026,929

Total Assets                                                        53,475,269

EQUITY

Capital and reserves attributable to the
Company's shareholders
Management share capital                                                     2
Net assets attributable to holders of redeemable                    53,174,267
participating preference shares

Total Equity                                                        53,174,269

LIABILITIES
Payables                                                               301,000
Total Liabilities                                                      301,000

Total Equity and Liabilities                                        53,475,269

Net assets attributable to holders of redeemable                         1.063
participating preference shares (per share)




                              Cash Flow Statement

For the period from 8 July 2004 to 31 December 2004                 08.07.04 to
                                                                      31.12.04
                                                                             £
Cash flows from operating activities
Purchase of financial assets and settlement of financial           (56,514,371)
liabilities
Proceeds from sale of investments (including realised gains)         8,245,668
Amount paid to brokers                                                 (78,969)
Dividends received                                                     161,965
Interest received                                                      189,387
Withholding tax                                                        (18,201)
Operating expenses paid                                               (456,966)
Net cash utilised in operating activities                          (48,471,487)

Cash flows from financing activities
Proceeds from issue of redeemable participating preference shares   50,000,000
Issue expenses relating to issue of redeemable participating
preference shares                                                     (650,000)

Net cash flow from financing activities                             49,350,000

Net increase in cash and cash equivalents                              878,513

Cash and cash equivalents at beginning of period                             -
Exchange losses on cash and cash equivalents                           (18,557)

Cash and cash equivalents at end of period                             859,956






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