Annual Financial Report

Finsbury Worldwide Pharmaceutical Trust PLC Annual Financial Report for the year ended 31 March 2009 ACCESSING THE GLOBAL MARKET Pharmaceuticals is a worldwide industry and accessing the global market as a UK investor can be difficult. Within the UK, there are diminishing options for investment as the universe of companies is shrinking through mergers and acquisitions. Finsbury Worldwide Pharmaceutical Trust PLC offers an opportunity to gain exposure to the pharmaceutical sector on a global scale. PERFORMANCE SUMMARY *31 *31 31 31 31 31 % March March March March March March Change for 2004 2005 2006 2007 2008 2009 the year ended 31 March 2009 Shareholders' funds Â£189.1 Â£226.4m Â£334.8m Â£273.6m Â£224.8m Â£263.0m 17.0 m Net asset value per share 481.3p 414.7p 583.0p 520.9p 486.6p 635.9p 30.7 - basic Net asset value per share 481 .3p 414.7p 564.1 p 511 .2p 482.4p 600.5p 24.5 - diluted~ (dilution for warrants) Share price 466.0p 430.0p 575.0p 477.8p 457.0p 550.5p 20.5 (Discount)/premium of (3.2%) 3.7% 1.9% (6.5%) (5.3%) (8.3%) N/A share price to diluted net asset value per share (Discount)/premium of (3.2%) 3.7% (1.4%) (8.3%) (6.1%) (13.4%) N/A share price to basic net asset value per share Benchmark Indexâ€ 6,154.4 6,173.2 7,787.8 7,507.7 7,049.7 8,101.0 14.9 #Total expense ratio 1 .8% 1.5% 1.4% 1.3% 1.3% 1.2% N/A (excluding performance fees) #Total expense ratio 3.8% 0.8% 1.5% 1.3% 1.3% 1.3% N/A (including performance fees) *Restated for accounting policy introduction of FRS 26 and FRS 21. â€ Datastream World Pharmaceutical and Biotechnology Index, (total return, sterling adjusted). ~There was no dilution in years prior to 2006, dilution for conversion of all outstanding warrants at the conversion price of 464p (see note 7). #Excludes indexation of the deferred fee paid to M and I Investors, Inc. on 24 January 2006. CHAIRMAN'S STATEMENT Review of the Year and Performance In my first statement covering a full financial year I am delighted to report that the Company's undiluted net asset value per share rose by 30.7% compared to a rise of 14.9% in the Company's benchmark index during the same period. This was against a background of particularly difficult market conditions generally and by way of comparison, the MSCI World index declined by 22.2% in sterling terms over the same period. It is particularly pleasing to report that your Company benefitted from solid investment performance, arising mainly from a combination of stable earnings and a more buoyant merger and acquisition environment. This result demonstrates clearly the defensive characteristics of the pharmaceutical and biotechnology sector, and against this background our Investment Manager increased the Company's net debt position from c.Â£3m of net funds to c.Â£30m of net debt over the course of the year. The Company's performance was also helped by the significant weakening of sterling against the U.S. dollar during the year. At 31 March 2009 the exchange rate was 1.4334 compared with 1.9875 at 31 March 2008, a fall of 28%. During the year, after taking into account the number of warrants outstanding, the Company's fully diluted net asset value per share rose by 24.5% which compares to a rise in the Company's share price of 20.5%, as the discount of share price to the fully diluted net asset value per share widened slightly during the year to close at 8.3% compared to 5.3% a year ago. This discount level at the year end was slightly wider than the 6% target; however I would like to remind shareholders that it remains possible for the share price to trade slightly wider than the discount target and the discount reflects the balance of supply and demand for the Company's shares on any one day. During the calendar year to 31 December 2008, the Company's share price total return ranked second out of approximately 250 UK listed investment companies (Source: Winterflood Securities Limited) and the Company was awarded `Best Specialist Trust 2008' by Investment Trust magazine. Capital The Board continued to implement its policy of active discount management whereby consideration is given to buying back shares at prices representing a discount greater than 6% to the fully diluted net asset value per share, if there is demand in the market for it to do so. In line with this policy, a total of 4,841,800 shares were repurchased and held in treasury during the year at a cost of Â£24,746,000 (including expenses), representing 10.5% of the shares in issue (excluding treasury shares) at the beginning of the year. Since the Board implemented a policy of protecting a 6% discount in late 2004, 16.3 million shares have been repurchased representing 30% of the shares in issue following the fund raising in 2004. I would like to remind shareholders that the Board has resolved that any shares held in treasury will be cancelled on the date of the Annual General Meeting each year and consequently all shares held in treasury on 17 July 2009 will be cancelled. Shareholder approval to renew the authority to repurchase the Company's shares will be sought at the Annual General Meeting. The Board has recently announced that is considering proposals for a bonus issue of subscription shares to shareholders. The Board believes that subscription shares represent an attractive way in which investors can participate in future net asset value growth through subscribing for ordinary shares. Documents containing recommended proposals will be posted to shareholders following the passing of the resolution that the Company should continue as an investment trust company, to be proposed at this year's Annual General Meeting. At the regular warrant exercise date of 31 July a total of 13,070 warrants were exercised raising Â£61,000 as at 31 July 2008. Warrantholders have one remaining opportunity to exercise their warrants at a price of 464p on 31 July 2009. A separate circular providing full details of this remaining opportunity will be dispatched to warrantholders. Derivatives and Portfolio Investments The Company continues to use derivative instruments to enhance the total return to shareholders, within certain limits so that no more than 5% of the Company's assets are exposed to the strategy. The Board is pleased to note that gains of Â£1.7 million were generated during the year from the strategy by our Investment Manager. In excess of Â£8.5 million of additional returns have now been generated since the inception of the strategy in 2006. Also, during the year, the Board agreed that up to 5% of the portfolio could be allocated to each of debt instruments, convertibles and royalty bonds issued by Pharmaceutical and Biotechnology companies, as the Company's Investment Manager believes that there are good investment opportunities available in these areas. Revenue and Dividends The revenue return for the year was Â£2.4 million (2008: Â£1.7 million) and the Board, in order to maintain investment trust status, has declared an interim dividend of 5.0p per share (2008: 3.0p). The interim dividend will be payable on 27 July 2009 to equity shareholders on the register of members on 26 June 2009. The shares will go ex-dividend on 24 June 2009. VAT As shareholders will be aware from my previous statements, VAT is no longer charged on investment management fees following the ruling by the European Court of Justice in October 2007. Negotiations with the Company's previous Manager, Close Investments Limited (`Close'), are continuing with respect to recovering VAT previously written off as irrecoverable and the Company expects, subject to the co-operation of Close, to have recovered such VAT by 30 September 2009. Outlook The economic outlook remains uncertain and stock market conditions will continue to be volatile and difficult. The Board and your Investment Manager continue to monitor closely developments in the healthcare sector and to explore new investment opportunities. Despite a difficult market backdrop in the short term, the Board believes that continued merger and acquisition activity will be a key driver for the healthcare sector, together with the expected successful development of a number of important new products. Improved regulatory efficiency at the U.S. Food and Drug Administration is also expected to result in a more positive stance towards new drug approvals. However, we remain cautious concerning the prospects for large pharmaceutical companies which are facing the prospect of low research productivity and a wave of patent expirations over the coming years. The Board continues to believe that in OrbiMed, the Company has at its disposal a first class investment management team and that the portfolio is well positioned to take advantage of not only a bright outlook for the sector, but also any recovery in stock markets generally. The Board remains optimistic for the fortunes of the sector as a whole and for the Company and would like to thank shareholders for their continued support. Continuation vote The Board has undertaken that every five years there will be a continuation resolution tabled at the Annual General Meeting falling in that year, and accordingly such a resolution is included in the notice of Annual General Meeting contained within the annual report. In light of the Company's track record, the prospects for the healthcare sector and the Company, the Board unanimously recommends that shareholders vote in favour of Resolution 14 to allow the Company to continue as an investment trust. Annual General Meeting The Annual General Meeting of the Company will be held at the Barber-Surgeons' Hall, Monkwell Square, Wood Street, London EC2Y 5BL on Friday, 17 July 2009 from 12 noon. I hope as many shareholders as possible will attend. This will provide an opportunity to hear from Mr Samuel D Isaly of OrbiMed Capital LLC, the Company's Investment Manager, on the period under review, recent developments in the healthcare sector and the prospects for the future. Martin Smith Chairman 11 June 2009 YOUR BOARD The Board of Directors, all of whom are non-executive, supervise the management of Finsbury Worldwide Pharmaceutical Trust PLC and look after the interests of shareholders. MARTIN SMITH+ (CHAIRMAN) Martin Smith, aged 66, joined the Board in 2007. He was a founder and was a non executive director of New Star Asset Management Group PLC. He attended Oxford University and has an MBA from Stanford University. He was a founder of Phoenix Securities, a private investment banking firm. Following the acquisition of Phoenix in 1997 by Donaldson Lufkin and Jenrette (DLJ), he chaired DLJ's European Investment Banking Group. Previously he worked at Citicorp and Bankers Trust. JOSEPHINE DIXON*+ Josephine ("Jo") Dixon, aged 49, joined the Board in 2004. A Chartered Accountant, Jo is Chairman of the Audit Committee. Jo is self-employed and is also a non-executive director of Baring Emerging Europe PLC and a member of the Greenwich Hospital Advisory Board and Panel. Until 2003 Jo held a number of senior executive positions in investment banking, leisure and support services. PROFESSOR DUNCAN GEDDES*+ Professor Geddes, aged 67, joined the Board at launch in 1995 and has been designated as the Senior Independent Director. An author of numerous publications on respiratory medicine, Professor Geddes is self-employed. PAUL GAUNT+ Paul Gaunt, aged 60, joined the Board at launch in 1995. Paul is self-employed and has 30 years' experience in the investment industry. He was formerly Senior Investment Manager and an Assistant General Manager of The Equitable Life Assurance Society and a Director of Brit Insurance Holdings PLC and Oasis Healthcare PLC. Paul is a Director of RCM Technology Trust PLC and also of The Biotech Growth Trust PLC; OrbiMed Capital LLC, the Company's Investment Manager, also acts as Investment Manager for The Biotech Growth Trust PLC. YOUR BOARD(continued) DR DAVID HOLBROOK*+ Dr David Holbrook, aged 49, joined the Board in 2007. He is a qualified physician and a Director of MTI Partners Limited, a leading technology venture capital investor. He attended London and Oxford Universities, and has an MBA from Harvard Business School. He has held senior positions in a of blue chip biopharmaceutical organizations including GlaxoSmithKline and Roche. SAMUEL D ISALY+ Sam Isaly, aged 64, joined the Board at launch in 1995. Sam is Managing Partner of OrbiMed Capital LLC, the Company's Investment Manager, and has been a worldwide pharmaceutical investment specialist for more than 20 years having worked in New York and Europe with Chase Manhattan, SociÃ©tÃ© GÃ©nÃ©rale, CrÃ©dit Suisse and UBS Warburg. Other than those stated above, none of the Directors has any other connections with the Investment Manager and is not employed by any of the companies in which the Company holds an investment. * Member of the Audit Committee. +Member of the Nominations and Remuneration Committees. ANTHONY TOWNSEND*+ Anthony Townsend, aged 61, joined the Board at launch in 1995. Anthony has spent 40 years working in the City and was Chairman of The Association of Investment Companies from 2001 to 2003. Anthony is Chairman of iimia Investment Trust plc, British & American Investment Trust PLC, F&C Global Smaller Companies PLC and Finsbury Growth & Income Trust PLC. A SPECIAL RELATIONSHIP FINSBURY WORLDWIDE PHARMACEUTICAL TRUST PLC OUTSOURCES THE MANAGEMENT OF ITS PORTFOLIO TO ORBIMED CAPITAL LLC, A NEW YORK BASED BOUTIQUE COMPANY WHICH SPECIALISES EXCLUSIVELY IN THE MANAGEMENT OF ASSETS IN THE GLOBAL HEALTH SCIENCES INDUSTRY. PERSONAL INVESTMENT, THROUGH COMPANY OWNERSHIP, MEANS THAT THE TEAM IS COMMITTED TO PRODUCING EXCELLENT PERFORMANCE. OrbiMed has managed the portfolio since the Company's launch in 1995, and the many awards won by the Company over the years are a testament to the strength and talent harnessed by the OrbiMed team. OrbiMed had approximately US$4 billion in assets under management as at 31 March 2009, across a range of funds, including investment trusts, hedge funds and private equity funds. OrbiMed's investment management activities were founded in 1989 by Samuel D Isaly. OrbiMed Capital LLC - Investment Manager THE TEAM OrbiMed's investment team, headed up by Samuel D Isaly, includes over 30 experienced professionals with expertise in science, medicine, finance and law, many of whom have advanced degrees and broad experience in science and medicine. Collectively, the team currently serves on the boards of over 25 biotechnology and healthcare companies. With a coverage universe of over 750 public companies, OrbiMed's professionals maintain an exceptional level of research intensity. The team has a demonstrated record of investing successfully across market cycles in both public and private companies. INVESTMENT STRATEGY AND PROCESS `Bottom-up' fundamental research provides the investment thesis for all positions. In addition to meeting frequently with industry executives and healthcare practitioners, OrbiMed attends many major medical conferences worldwide. Portfolio positions are discussed and selected during daily portfolio management meetings. OrbiMed invests with a worldwide perspective, selecting ideas from across all major geographical markets. OrbiMed emphasises investments in companies with under-appreciated products in the pipeline, high quality management teams and adequate financial resources. A disciplined portfolio construction process is utilised to ensure that the portfolio is focused on 30 to 40 `high conviction' positions. Finally, the portfolio is subject to a rigorous risk management process to moderate portfolio volatility. We present with pleasure our annual Review of Investments for Finsbury Worldwide Pharmaceutical Trust PLC, which was launched in April 1995. PERFORMANCE REVIEW We are delighted to report very strong performance results this year from both an absolute and a relative perspective. The Company's undiluted net asset value per share increased by 30.7%, a rate of increase approximately double the 14.9% increase recorded by our benchmark index. Since inception in 1995, the cumulative increase of the Company's undiluted net asset value per share now measures 535.9% compared to a cumulative increase of only 264.6% in the benchmark index. There were major movements in exchange rates in the course of the year with, for example, the U.S. dollar appreciating against sterling by 28%. These exchange movements had a favourable, although difficult to quantify specifically, impact on the net asset value of the Company. About 70% of portfolio holdings are denominated in U.S. dollars and the companies represented do business on a worldwide scale. The Company's accounting currency is sterling and a strong U.S. dollar has helped the Company's returns when their value is translated back into sterling. However, we should note that as these companies trade on a global basis, movements in exchange rates have had an effect, both positive and negative, on their own results. As we have been touting for several years, investors in the healthcare sector have an opportunity to earn outsized rewards by investing in companies which are subsequently acquired. This strategy was essential to our success over the past year, as four of the Company's top performing stocks received acquisition offers during the year. These acquisitions include Tepnel, Imclone, Genentech and Schering-Plough. The only concentrated area of weakness for the Company's performance last year was in smaller biotechnology companies, which were generally punished by the collapse of the financial markets. As investors became more risk averse, development-stage companies such as Xoma and Amylin suffered profound stock price declines despite having continued strong fundamental prospects. Following agreement by the Board that up to 5% of the portfolio could be allocated to each of debt instruments, convertibles and royalty bonds issued by pharmaceutical and biotechnology companies, two such investments have been made to date, one in a convertible bond issued by genetics company Affymetrix and the other in a bond issued by biotechnology company Elan. HEALTHCARE IN THE EYE OF THE FINANCIAL MARKET STORM Amidst the worst financial market collapse in over a generation, the healthcare sector validated its reputation as a defensive sector, providing something of a safe haven and largely preserving investor capital. Underpinning the strong relative performance of the sector has been a combination of reasonably stable earnings for the larger companies, resurgent mergers and acquisition ("M&A") activity and a rotation of investor capital into the healthcare sector away from more cyclical and consumer-discretionary related sectors. This rotation into healthcare stocks is reminiscent of the 1990/1991 economic slowdown, a period with many parallels to today's declining housing markets, financial markets stresses, rising corporate and individual default rates and poor economic growth. The biotechnology sector posted extraordinary gains during this period, with the Amex Biotechnology Index increasing 46% in 1990 and over 190% in 1991. Looking forward over the next five years, the global economy will clearly have to contend with the ramifications of the deleveraging of the U.S. consumer. As of last year, the U.S. economy represented approximately a quarter of the global economy, and of this figure nearly 70% was accounted for by consumer spending, compared with 50% to 60% for many European countries. At its nadir last year, the U.S. savings rate actually turned negative, meaning U.S. consumers spent more than 100% of their disposable income. As the U.S. retrenches from this consumer-driven growth bubble, many sectors of the global economy that are tied to discretionary spending (and the U.S. consumer in particular) will face significant headwinds over the coming years. We expect healthcare companies will be well-positioned to maintain their growth rates during this period, as their products are largely non-discretionary and are often funded by government expenditures. We believe investors should maintain a larger than normal allocation to healthcare investments, such as the Company, over the coming years. HEALTHCARE MEETS OBAMANOMICS In February President Obama unveiled his plans for healthcare reform as part of the release of his $3.6 trillion 2010 budget proposal. The broad outline was for a combination of tax increases and spending cuts to free up $630 billion over the next ten years to dramatically expand healthcare coverage. Obama appears determined to deliver on his campaign promise to expand access to the U.S. healthcare system for the nearly 50 million uninsured Americans without implementing a UK-style single payor system. The healthcare sector experienced a dramatic sell-off in the days following publication of this plan as investors began to fear implementation of a radical healthcare overhaul dominated by the federal government. During March however the sell-off abated and investor sentiment turned more neutral as investors began to examine the proposals and recognise that there were no incremental negative industry implications in the budget plans. Looking ahead, the broad push to reform the U.S. healthcare system will drive changes and growth that we expect to be largely beneficial to the generic pharmaceutical, hospital and healthcare technology sectors, while creating headwinds for traditional large pharmaceutical companies, managed care providers and selected large biotechnology companies at risk of generic competition. An additional $6 billion of proposed funding to the National Institutes of Health ("NIH") will BIOTECHNOLOGY ACQUISITION ANNOUNCEMENTS Announcement Target Acquiror Deal Size Premium Date Paid 12/03/09 CVTherapeutics Gilead Sciences $1.4 billion 25% 27/02/09 Arana Cephalon $210 million 69% Therapeutics 30/01/09 Tepnel Life Gen-Probe $132 million 126% Sciences 13/01/09 Targanta Medicines Co. $50 million 72% 05/01/09 Indevus Endo Pharmaceuticals $370 million 45% 24/11/08 Alpharma King Pharmaceuticals $1.6 billion 54% 24/11/08 Omrix Johnson & Johnson $465 million 18% 30/10/08 Genelabs GlaxoSmithKline $57 million 430% 06/10/08 Imclone Systems Eli Lilly $6.5 billion 51% 01/09/08 Sciele Pharma Shionogi $1.4 billion 57% 25/07/08 Acambis Sanofi Aventis Â£275 million 65% 15/07/08 Lev ViroPharma $443 million 49% Pharmaceuticals 10/07/08 Speedel Novartis $880 million 94% 08/07/08 SGX Eli Lilly $64 million 119% Pharmaceuticals 07/07/08 APP Fresenius $3.6 billion 29% Pharmaceuticals 03/07/08 Jerini Shire $521 million 73% 23/06/08 Barrier Stiefel Labs $148 million 136% Therapeutics 09/06/08 Third Wave Tech. Hologic $580 million 7% 05/06/08 Tercica Ipsen $665 million 104% 29/05/08 Kosan Biosciences Bristol-Myers Sqibb $190 million 233% 12/05/08 Iomai Intercel $189 million 128% 22/04/08 Sirtris GlaxoSmithKline $720 million 84% 11/04/08 Millennium Takeda $8.8 billion 53% stimulate new basic research, particularly in oncology, while an additional $1 billion of funding for the U.S. Food and Drug Administration ("FDA") will help to expedite decision-making and hopefully improve efficiency and morale after a period of lacklustre effectiveness by the agency. President Obama's pick to run the FDA, Dr. Margaret Hamburg, is viewed as a reasonable, pragmatic leader for the agency, able to draw on her past experience as the former Health Commissioner of New York City and previous work at the NIH. MERGERS AND ACQUISITIONS BONANZA As mentioned earlier, our investment theme focused on M&A targets which yielded strong results during the year. The recent surge in acquisitions coupled with high premiums paid for the acquired companies demonstrate continued strong demand from large pharmaceutical companies as they look to smaller discovery companies to offset their generally low research productivity. As shown in the table on the previous page, the past year has seen over a score of acquisitions of smaller discovery companies. Fortunately for the investors in these acquired companies, the premium paid for them has averaged upwards of 50%. In addition to these smaller deals, there have been several blockbuster announcements over the past year, such as Pfizer's $68 billion bid for Wyeth, Merck's $41 billion bid for Schering-Plough, and Roche's $44 billion bid for the balance of Genentech. We have been adept at positioning the Company advantageously to profit from M&A activity with several of the Company's stocks having received acquisition offers during the year. The Company is well structured to continue profiting from the high level of M&A activity, as a substantial number of our holdings are in small and mid-sized companies with products that would be attractive to numerous larger strategic buyers. OUR GAME PLAN FOR 2009 AND BEYOND The coming years promise to be an exciting time for investors in the healthcare sector as we expect a continued flurry of M&A activity, the successful development of several "blockbuster" new products, improved regulatory efficiency particularly in the U.S., and a broad push towards expanded healthcare coverage for consumers in many large markets such as the U.S. and China. We are focused on finding investment opportunities that will benefit from these trends. Some key elements of our portfolio strategy going into 2009 include: * Substantial investments in several undervalued major biotechnology companies that are trading near historically low valuations despite 15% to 20% expected future earnings growth rates, full product pipelines, low risk of generic competition, and high product margins; * Holdings of selected biotechnology companies that are clear acquisition targets. We have generated substantial profits from our M&A investment strategy in previous years and we expect 2009 to be no exception; * Investments in selected emerging biotechnology companies which have recently launched or will soon launch a potential "break out" product. Companies transitioning from development stage to commercial stage often experience significant relative valuation increases as the investment thesis becomes de-risked, attracting a broader base of potential investors; and * Cautious stance towards some of the 15 remaining large pharmaceutical stocks, which are facing a "perfect storm" challenge to their business model. They are confronting low research productivity and an unprecedented wave of patent expirations over the coming years, as over $100 billion in branded drug sales will be genericised by 2014. Thus within this segment we are focused selectively on finding contrarian deep-value investments in companies with high dividends, trough valuations, potential to be acquired and favourable product-specific catalysts. As always, we appreciate and thank you for your support. Samuel D Isaly OrbiMed Capital LLC Investment Manager 11 June 2009 Review of Investments (continued) CONTRIBUTION BY INVESTMENT - EXCLUDING DERIVATIVES Contribution Contribution for the year per share to 31 March (pence)* 2009 Top Five Contributors Â£'000 Tepnel Life Sciences 12,922 29.53 Imclone Systems 9,584 21.90 Genentech 8,662 19.80 Schering-Plough 6,312 14.43 Bristol-Myers Squibb 4,989 11 .40 97.06 Bottom Five Contributors Xoma (4,248) (9.71) BioMarin Pharmaceutical (4,226) (9.66) Amylin (2,495) (5.70) GlaxoSmithKline (1,927) (4.40) Par Pharmaceutical (1,244) (2.84) (32.31) based on the weighted average number of shares in issue during the year to 31 March 2009 of 43,756,755. Source: Frostrow Capital LLP INDUSTRY LEADING INVESTMENTS IN THE PORTFOLIO 1) ROCHE Roche is a good example of how a traditional "Big Pharma" company can reinvent itself as a more dynamic, high growth biopharmaceutical company. Thanks to their long standing affiliation with Genentech, which recently culminated in an outright acquisition of Genentech, Roche has developed a broad pipeline of valuable, innovative biologics therapies such as Avastin for cancer and Lucentis for Macular Degeneration. With the acquisition now complete, Roche has cemented for itself a place among the truly dominant global biopharmaceutical companies worldwide, with expected 2009 total revenues of over $40 billion. 3) BRISTOL-MYERS SQUIBB Bristol-Myers is one of the remaining approximately dozen traditional "Big Pharma" companies with worldwide sales of approximately $20 billion in 2008. The company markets a broad set of products across therapeutic areas including oncology, cardiovascular disease, psychiatric disorders, and infectious disease. However, their current portfolio of marketed products spans both primary and specialty care as well as biologics and small molecules. With top tier earnings growth and an impressive pipeline of late stage product candidates, the company is a prime M&A candidate in the ongoing consolidation of major pharmaceutical companies. 2) BIOGEN IDEC Founded in 1978, Biogen Idec has emerged as one of the foremost major biotechnology companies worldwide. They are a global leader in the discovery, development, manufacturing, and commercialisation of innovative therapies. Patients in more than 90 countries benefit from Biogen Idec's significant products, which include Avonex and Tysabri for multiple sclerosis and Rituxan for lymphoma. The company also has one of the largest biologics manufacturing capabilities in the world. In 2008, Biogen Idec's total revenues grew 29% over 2007 to $4.1 billion. 4) ALLOS THERAPEUTICS Allos is an emerging biotechnology company focused on developing drugs for the treatment of cancer. The company's lead product candidate, Pralatrexate, has been submitted to the FDA for approval. Pralatrexate has shown convincing efficacy for the treatment of peripheral T-cell lymphoma. The drug is also being evaluated in patients with other cancers, including non-small cell lung cancer, bladder cancer and a range of lymphomas. The company currently retains exclusive worldwide rights to Pralatrexate, making Allos a potentially attractive acquisition candidate by larger companies. Portfolio as at 31 March 2009 Country Market value % of Â£'000 investments Security Tepnel Life Sciences UK 20,054 6.6 Novartis Switzerland 19,048 6.2 Bristol-Myers Squibb USA 16,761 5.5 Gilead Sciences USA 16,080 5.3 GlaxoSmithKline UK 13,594 4.5 Wyeth USA 13,032 4.3 Amgen USA 12,048 3.9 Biogen Idec USA 11,681 3.8 Vertex Pharmaceuticals USA 11,425 3.8 Genzyme USA 11,180 3.7 Top 10 investments 144,903 47.6 Shionogi & Company Japan 10,844 3.6 Roche Switzerland 9,928 3.3 Mylan USA 9,543 3.1 Onyx Pharmaceuticals USA 8,217 2.7 Abbott Laboratories USA 7,887 2.6 Shire UK 7,650 2.5 Merck KGaA Germany 7,167 2.4 OSI Pharmaceuticals USA 7,154 2.4 United Therapeutics USA 6,541 2.1 Elan Ireland 6,286 2.0 Top 20 investments 226,120 74.3 Gen-Probe USA 6,215 2.0 Alexion Pharmaceuticals USA 5,899 1.9 Sawai Pharmaceutical Japan 5,859 1.9 NPS Pharmaceutical USA 5,395 1.8 BioMarin Pharmaceutical USA 4,451 1.5 Towa Pharmaceutical Japan 4,443 1.5 Genomic Health USA 4,335 1.4 Cubist Pharmaceuticals USA 4,221 1.4 Intermune Inc. USA 3,938 1.3 Par Pharmaceutical USA 3,860 1.3 Top 30 investments 274,736 90.3 Nichi-Iko Pharmaceutical Japan 3,199 1.0 Affymetrix 3.5% 15/01/2038 USA 2,930 1.0 (Conv) Allos Therapeutics USA 2,760 0.9 Johnson & Johnson USA 2,751 0.9 Exelixis USA 2,562 0.8 Elan Finance 7.75% 15/11/11 Ireland 2,344 0.8 Xoma USA 1,664 0.5 Nippon Chemiphar Japan 1,119 0.4 PDL Biopharma USA 863 0.3 Total equities, warrants and 294,928 96.9 fixed income Wyeth# USA 146 0.1 Ishares Nasdaq Biotech~ # USA 73 - Merck~ # USA 52 - Genzyme# USA (60) - Celgene~ USA (314) (0.1) Johnson & Johnson~ # USA (851) (0.3) Total Options (954) (0.3) M&A Basket OTC equity Swap USA 10,321 3.4 Total investments including 304,295 100.0 options and swap #includes Call Options ~ includes Put Options THE PORTFOLIO As at 31 March 2009 Market % of Value Â£ investments '000 Tepnel Life Sciences 288,700 94.8 Imclone Systems 2,930 1.0 Genentech 2,344 0.8 Schering-Plough 10,321 3.4 Total of all investments 304,295 100.0 Note: For the purposes of these charts a small capitalisation company is defined as being one with a market capitalisation of less than U.S.$5bn and a large capitalisation company is one with a market capitalisation of more than U.S.$5bn. Report of the Directors (incorporating the Business Review) The Directors present their report and the audited financial statements for the year ended 31 March 2009. STATUS AND ACTIVITIES OF THE COMPANY During the year under review the Company has continued to conduct its affairs so as to qualify as an investment company, as defined under s833 of the Companies Act 2006, and an investment trust within the meaning of s842 of the Income and Corporation Taxes Act 1988. HM Revenue & Customs approval of the Company's status as an investment trust has been received for all years up to and including the year ended 31 March 2008. This is, however, subject to review should there be any enquiry under Corporation Tax Self Assessment. The Directors are of the opinion that the Company has subsequently directed its affairs so as to enable it to continue to obtain HM Revenue & Customs approval as an investment trust. The Company's shares are eligible for inclusion in the stocks and shares component of an Individual Savings Account. CONTINUATION OF THE COMPANY It is not the Directors' intention that the Company should have a limited life. However, in accordance with the Company's Articles of Association, shareholders have an opportunity to vote on the continuation of the Company at this year's Annual General Meeting and every five years thereafter. INVESTMENT OBJECTIVE AND BENCHMARK The Company invests worldwide in the shares of pharmaceutical and biotechnology companies and related securities with the objective of achieving a high level of capital growth. Performance is measured against the Datastream World Pharmaceutical and Biotechnology Index (total return, sterling adjusted). INVESTMENT POLICY In order to achieve its investment objective, the Company invests in a diversified portfolio of shares in pharmaceutical and biotechnology companies and related securities on a worldwide basis. It uses gearing and derivative transactions to mitigate risk and also to enhance capital returns. Investment Limitations and Guidelines The Board seeks to manage the Company's risk by imposing various investment limits and restrictions: * The Company will not invest more than 15% of its assets in other UK listed investment companies; * The Company will not invest more than 15% of the portfolio in any one individual stock at the time of acquisition; * 60% of the portfolio will normally be invested in larger companies (i.e. with a market capitalisation of at least US$5bn); * 20% of the portfolio will normally be invested in smaller companies (i.e. with a market capitalisation of less than US$5bn); * Investment in unquoted securities will not exceed 10% of the portfolio at the time of acquisition; * A maximum of 5% of the portfolio may be invested in each of debt instruments, convertibles and royalty bonds issued by pharmaceutical and biotechnology companies; * The Company's gearing policy is to borrow up to the lower of Â£70m or 20% of the Company's net asset value; * Derivative transactions can be used to mitigate risk or enhance capital returns and will be restricted to 5% of the portfolio; and * Equity Swaps (e.g. M&A Basket) may be used in order to meet the Company's investment objective of achieving a high level of capital growth and is restricted to 5% of the portfolio. Compliance with the Board's investment limitations and guidelines is monitored continuously by Frostrow Capital LLP ("Frostrow"or the "Manager") and OrbiMed Capital LLC ("OrbiMed"or the "Investment Manager") and is reported to the Board on a monthly basis. PERFORMANCE In the year to 31 March 2009, the Company's undiluted net asset value per share increased by 30.7% compared to a rise of 14.9% in the Datastream World Pharmaceutical and Biotechnology Index (total return, sterling adjusted). The Company's share price rose by 20.5% in the same period. The Review of Investments on pages includes a review of the principal developments during the year, together with information on investment activity within the Company's portfolio. Report of the Directors (continued) (incorporating the Business Review) RESULTS AND DIVIDENDS In order to maintain investment trust status the Directors have declared an interim dividend for the year of 5.0p per share (2008: interim dividend of 3.0p) payable on 27 July 2009. KEY PERFORMANCE INDICATORS (`KPIs') At each Board meeting the Board assesses the Company's performance in meeting the investment objective against the following key performance indicators: * Net asset value total return * Share price total return * Stock contribution analysis * Share price premium/discount to net asset value per share * Total expense ratio * Benchmark and peer group performance * Issue of new shares/repurchase of own shares The management of the portfolio is conducted by the Investment Manager and the management of the Company's affairs, including marketing, administration and company secretarial matters is conducted by the Manager. Each provider is responsible to the Board which is ultimately responsible to the shareholders for performing against, inter alia, the above KPIs within the terms of their respective agreements by utilising the capabilities of the experienced professionals within each firm. PRINCIPAL RISKS AND THEIR MITIGATION The Company's assets consist principally of listed equities; its main area of risk is therefore stockmarket-related. The specific key risks faced by the Company, together with the Board's mitigation approach, are as follows: Objective and Strategy - The Company and its investment objective become unattractive to investors The Board regularly reviews the investment mandate and the long-term investment strategy in relation to market and economic conditions, and the operation of the Company's peers, thereby monitoring whether the Company should continue in its present form. A continuation vote is to be held at this year's Annual General Meeting and every five years thereafter. Each month the Board receives a monthly review, which monitors the Company's investment performance (both on an absolute basis and against the benchmark and peer group) and its compliance with the investment guidelines. Additional reports and presentations are regularly presented to investors by the Company's Manager, Investment Manager and Corporate Stockbroker. Level of discount/premium - Share price performance lags NAV performance The Board undertakes a regular review of the level of discount/premium and consideration is given to ways in which share price performance may be enhanced, including the effectiveness of marketing and share buy-backs, where appropriate. The Board has implemented a discount control mechanism intended to establish a maximum level of 6% discount of share price to the diluted net asset value per share. Shareholders should note that it remains possible for the share price discount to net asset value per share to be greater than 6% on any one day and is due to the fact that the share price continues to be influenced by overall supply and demand for the Company's shares in the secondary market. The average month end share price discount during the year was 7%, a level that has been broadly maintained since the year end. The making and timing of any share buy-backs is at the absolute discretion of the Board. Market Price and Industry 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. Industry risk exists in all specialist industries. Risks are inherent in pharmaceutical companies with, for example, the potential for drug withdrawals from the market or failures after launch and lack of expected profit growth. The Board meets on a quarterly basis during the year and on an ad hoc basis if necessary. At each meeting they consider the asset allocation of the portfolio in order to minimise the risk associated with particular countries or instruments. The Investment Manager has responsibility for selecting investments in accordance with the Company's investment objective and seeks to ensure that individual stocks meet an acceptable risk-reward profile. Report of the Directors (continued) Liquidity Risk The Company's assets comprise mainly realisable securities, which can be sold to meet funding requirements if necessary. Portfolio Performance and Financial Instruments - Investment performance may not be meeting the investment objective or shareholder requirements The Board regularly reviews investment performance against the benchmark and against peer group. The Board also receives regular reports that show an analysis of performance compared with other relevant indices. The Investment Manager provides an explanation of stock selection decisions and an overall rationale for the make-up of the investment portfolio. The Investment Manager discusses current and potential investment holdings with the Board on a regular basis in addition to new initiatives, which may enhance shareholder returns. Operational and Regulatory - Compliance with s842, Income and Corporation Taxes Act 1988 A breach of s842 could lead to the Company being subject to capital gains tax on the sale of its investments, whilst serious breach of other regulatory rules may lead to suspension from the Stock Exchange or to a qualified Audit Report. Other control failures, either by the Manager, the Investment Manager or any other of the Company's service providers, may result in operational and/or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations. The Manager reviews the level of compliance with s842 and other financial regulatory requirements on a daily basis. All investment transactions and income and expenditure forecasts are reported to the Board. The Board regularly considers all risks, the measures in place to control them and the possibility of any other risks that could arise. The Board ensures that satisfactory assurances are received from service providers. The Compliance Officer of the Manager and the Investment Manager produce regular reports for review by the Company's Audit Committee and are available to attend meetings in person if required. Currency Risk A significant proportion of the Company's assets are, and will continue to be, invested in securities denominated in foreign currencies, in particular U.S. dollars. As the shares are denominated and traded in sterling, the return to shareholders will be affected by changes in the value of sterling relative to those foreign currencies. The Board has made clear the Company's position with regard to currency fluctuation, which is that it does not currently hedge against currency exposure. Loan Facility Risk - The provider of the Company's loan facility may no longer be prepared to lend to the Company The Board and the Investment Manager are kept fully informed of any likelihood of the withdrawal of the loan facility so that repayment can be effected in an orderly fashion. Credit Risk Certain of the Company's assets are held by Goldman Sachs & Co. New York as collateral for the loan provided by them to the Company. Such assets held by Goldman Sachs & Co. New York are available for rehypothecation (see Glossary). Further information on financial instruments and risk, as required by FRS 29, can be found in note 18 to the financial statements. LOAN FACILITY Following the expiry of the Company's committed multicurrency loan facility with Allied Irish Banks p.l.c. on 31 December 2008, its borrowing requirements are now met through the utilisation of a loan facility, repayable on demand, provided by Goldman Sachs & Co. New York. SHARE CAPITAL A total of 13,070 shares were allotted on 4 August 2008, raising Â£61,000, as a result of certain holders of the Company's warrants exercising their subscription rights on 31 July 2008. At the Annual General Meeting held on 23 July 2008, authority was granted for the repurchase of 6,656,521 shares of 25p, representing 14.99% of the issued share capital at that time. In the year under review, the Company bought back a total of 4,841,800 shares, 3,058,050 of which are held in treasury, at a cost of Â£24,746,000 (including expenses). Since the year end and to 11 June 2009, a further 1,352,097 shares, costing Â£6,973,000 (including expenses), have been repurchased, 927,347 of which are held in treasury and 424,750 have been cancelled as the Company has now reached the maximum amount of shares that it can hold in treasury. In aggregate, to 11 June 2009, the shares bought back equate to a total of 13.4% of the issued share capital at the beginning of the year. As indicated in the Chairman's Statement, the Board has agreed that any treasury shares remaining on 17 July 2009, the date of the Annual General Meeting, will be cancelled. A total of 2,679,750 shares held in treasury were cancelled on 24 July 2008. PROSPECTS The economic outlook remains uncertain and stock market conditions will continue to be volatile and difficult. The Board continues to closely monitor developments in the healthcare sector and to explore new investment opportunities within it. Continued merger and acquisition activity is expected in the sector, together with the successful development of a number of important new products, improved regulatory efficiency at the U.S. Food and Drug Administration which should result in a more positive stance towards new drug approvals and a movement towards expanded healthcare coverage for consumers in many large markets such as the U.S. and China. However, there are concerns with regard to the prospects for large pharmaceutical companies which are facing the prospect of low research productivity and an unprecedented wave of patent expirations over the coming years. Further information can be found in the Review of Investments, provided by the Company's Investment Manager. MANAGEMENT Management, Administrative and Secretarial Services Agreement: Management, Administrative, Secretarial and other services are provided to the Company by the Manager. The Manager is authorised and regulated by the Financial Services Authority. Frostrow Capital LLP, as Manager, receives a periodic fee equal to 0.30% per annum of the Company's market capitalisation up to Â£1 50m and 0.20% per annum of the market capitalisation in excess of Â£ 150m, plus a fixed amount equal to Â£50,000 per annum. The notice period on the Management, Administration and Company Secretarial Agreement with Frostrow is 12 months, termination can be initiated by either party. The Manager, under the terms of the agreement provides, inter alia, the following services: * marketing and shareholder services; * administrative services; * advice and guidance in respect of corporate governance requirements; * maintaining the books of account and record in respect of Company dealing, investments, transactions, dividends and other income, the income account, balance sheet and cash books and statements; * preparation and despatch of the audited annual and unaudited interim report and accounts and interim management statements; and * attending to general tax affairs where necessary. INVESTMENT MANAGEMENT Investment Management Agreement: Investment Management Services are provided by the Investment Manager. The Investment Manager is authorised and regulated by the U.S. Securities and Exchange Commission. The Investment Manager receives a periodic fee equal to 0.65% p.a. of the Company's net asset value. The Investment Management Agreement may be terminated by either party giving notice of not less than 12 months. The Investment Manager under the terms of the agreement provides, inter alia, the following services: * seeking out and evaluating investment opportunities; * recommending the manner by which monies should be invested, disinvested, retained or realised; * advising on how rights conferred by the investments should be exercised; * analysing the performance of investments made; and * advising the Company in relation to trends, market movements and other matters which may affect the investment policy of the Company. Performance Fee: Dependent on the level of performance achieved, the Manager and Investment Manager are also entitled to the payment of a performance fee. The performance fee is calculated by reference to the amount by which the Company's portfolio has out-performed the Datastream World Pharmaceutical and Biotechnology Index (total return, sterling adjusted) (the "Benchmark"). The fee is calculated quarterly by comparing the cumulative performance of the Company's portfolio with the cumulative performance of the Benchmark since the launch of the Company in 1995. The performance fee amounts to 16.5% of any outperformance of the net asset value over the Benchmark, the Investment Manager receiving 15.0% and the Manager receiving 1.5% of the outperformance. At each quarterly calculation date any performance fee payable is based on the lower of: i. the cumulative outperformance of the portfolio over the Benchmark as at the quarter end date; and ii. the cumulative out-performance of the portfolio over the Benchmark as at the corresponding quarter end date in the previous year. In the year under review no performance fee was paid. However, a performance fee of Â£224,000 was accrued as at 31 March 2009 (see note 3). CONTINUING APPOINTMENT OF THE MANAGER AND INVESTMENT MANAGER The Board has concluded that it is in shareholders' interests that the Manager and the Investment Manager continue in their roles. The review undertaken by the Board considered the Company's investment performance over both the short and longer terms, together with the quality and adequacy of other services provided. The Board also reviewed the appropriateness of the terms of the Investment Management and Management Agreements, in particular the length of notice period and the fee structures. GOING CONCERN Notwithstanding that an ordinary resolution will be proposed at the forthcoming Annual General Meeting that the Company continues as an investment trust, the Directors believe that it is appropriate to adopt the going concern basis in preparing the financial statements as the assets of the Company consist mainly of securities that are readily realisable and, accordingly, the Company has adequate financial resources to continue in operational existence for the foreseeable future. CREDITORS PAYMENT POLICY Terms of payment are negotiated with suppliers when agreeing settlement details for transactions. While the Company does not follow a formal code, it is the Company's continuing policy to pay amounts due to creditors as and when they become due. As at 31 March 2009, the Company did not have any trade creditors (2008: Nil). CHARITABLE AND POLITICAL DONATIONS The Company has not in the past and does not intend in future to make any charitable or political donations. ENVIRONMENTAL AND ETHICAL POLICY The Company's primary objective is to achieve a high level of capital growth by investment in pharmaceutical and biotechnology companies and recognises that this should be done in an environmentally responsible way. The Company supports the action being taken by the major pharmaceutical companies to make products more affordable to patients in developing countries. The Directors believe that the Company would be in breach of its fiduciary duties to shareholders if investment decisions were based solely on ethical or environmental considerations. DIRECTORS The Directors of the Company, who served throughout the year except where stated, are all non-executive and are listed below. Martin Smith (Chairman) Josephine Dixon Paul Gaunt Professor Duncan Geddes Dr David Holbrook Samuel D Isaly Ian Ivory (retired 23 July 2008) Anthony Townsend Report of the Directors (continued) DIRECTORS' INTERESTS The beneficial interests of the Directors and their families in the Company were as set out below: Shares Warrants to subscribe of 25p each for Shares 31 March 2009 1 April 2008* 31 March 2009 1 April 2008* Martin Smith - - - - Josephine Dixon - 3,400 25,680 88,180 Paul Gaunt - - - - Professor Duncan Geddes 38,250 38,250 4,000 4,000 Dr David Holbrook - - - - Samuel D Isaly 235,673 235,673 407,134 407,134 Anthony Townsend 17,370 12,987 1,415 1,415 *or date of appointment if later. As at 11 June 2009 there had been no changes in the above details. Samuel D Isaly is a partner in OrbiMed Capital LLC which is party to the Investment Management Agreement with the Company. A number of the partners at OrbiMed Capital LLC have a minority financial interest totaling 20% in Frostrow Capital LLP, the Company's Manager. DIRECTORS' & OFFICERS' LIABILITY INSURANCE COVER Directors'& officers' liability insurance cover was maintained by the Board during the year ended 31 March 2009. It is intended that this policy will continue for the year ending 31 March 2010 and subsequent years. SUBSTANTIAL SHAREHOLDINGS As at 20 May 2009 the Company was aware of the following interests in the shares of the Company, which exceeded 3% of the issued share capital (excluding treasury shares): Shareholder Registered holder Number of % of issued shares share capital Newton Investment Management Various Nominees 3,293,260 8.22 Rensburg Sheppards Ferlim Nominees/Hero 2,731,873 6.82 Investment Management Nominees Asset Value Investors Various Nominees 2,414,515 6.02 Alliance Trust Savings Alliance Trust Savings 2,012,121 5.02 Nominees Legal & General Investment Various Nominees 1,814,565 4.53 Management East Riding of Yorkshire Nortrust Nominees 1,395,492 3.48 Council Investec Asset Management Various Nominees 1,382,116 3.45 Report of the Directors (continued) INDEPENDENT AUDITORS Ernst & Young LLP have indicated their willingness to continue to act as Auditors to the Company and a resolution for their re-appointment, will be proposed at the forthcoming Annual General Meeting. AUDIT INFORMATION The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are aware, there is no relevant audit information of which the Auditors are unaware; and that each Director has taken all steps they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the auditors are aware of such information. SECTION 992 OF THE COMPANIES ACT 2006 The following disclosures are made in accordance with Section 992 of the Companies Act 2006. . Voting Rights in the Company's shares Details of the voting rights in the Company's shares at the date of this Annual Report are given in note 9 to the Notice of Annual General Meeting. CORPORATE GOVERNANCE A formal statement on Corporate Governance is set out in the Corporate Governance section of this Report. BENEFICIAL OWNERS OF SHARES - INFORMATION RIGHTS Beneficial owners of shares who have been nominated by the registered holder of those shares to receive information rights under section 146 of the Companies Act 2006 are required to direct all communications to the registered holder of their shares rather than to the Company's registrar, Capita Registrars, or to the Company directly. ARTICLES OF ASSOCIATION Due to a technical irregularity in the manner in which notice of the special resolution proposing the adoption of new Articles of Association was given at last year's Annual General Meeting, the resolution was ineffective and therefore the proposed new Articles of Association were not adopted by the Company. It is therefore proposed that in order to reflect certain of the provisions of the Companies Act 2006 which have or will come into force, that a number of alterations be made to the Company's current Articles of Association. Shareholders should be mindful that the 2006 Act is being implemented over a period of time, with the final stage taking effect in October 2009. NOTICE PERIOD FOR GENERAL MEETINGS The proposed amendments to the Company's Articles of Association include a provision allowing general meetings of the Company to be called on the minimum notice period provided for in the Companies Act 2006. For meetings other than Annual General Meetings this is currently a period of 14 clear days. The provisions in the Companies Act 2006 relating to meetings are due to be amended with effect from 3 August 2009 as a result of the implementation of the EU Shareholder Rights Directive (2007/36/EC) (the `Directive') in the UK. The government has still to finalise the details of the amendments that are to be made and is not expected to publish the final draft of the amendments until later in the year. One of the amendments to be made will, in accordance with the Directive, be to increase the minimum notice period for listed company General Meetings to 21 clear days, but with an ability for companies to reduce this period back to 14 clear days (other than for Annual General Meetings), provided that two conditions are met: i. that the Company offers facilities for shareholders to vote by electronic means. It is not yet clear what this will require and the details will be set out in the final regulations when published; and ii. that there is an annual resolution of shareholders approving the reduction in the minimum period for notice of general meetings (other than Annual General Meetings) from 21 clear days to 14 clear days. Although the final form of the regulations is unlikely to be known before the publication of this annual report, the Board believes that it should ensure that the minimum period for notice of General Meetings of the Company (other than Annual General Meetings) remains at 14 clear days after August 2009. The Board is therefore proposing Resolution 13 as a special resolution to approve 14 clear days as the minimum period of notice for all general meetings of the Company other than Annual General Meetings. The notice period for Annual General Meetings will remain 21 clear days. ANNUAL GENERAL MEETING The formal Notice of Annual General Meeting is set out on pages 54 to 58 of this Annual Report. Resolutions relating to the following items of special business will be proposed at the forthcoming Annual General Meeting: Adoption of New Articles of Association Special Resolution 8 seeks shareholder approval that new Articles of Association be adopted in substitution for, and to the exclusion of, the existing Articles of Association. Issue of Shares Ordinary Resolution 9 in the Notice of Annual General Meeting gives authority to the Directors to allot the unissued share capital up to an aggregate nominal amount of Â£1,000,233 (equivalent to 4,000,933 shares, or 10% of the Company's existing issued share capital on 11 June 2009, being the nearest practicable date prior to the signing of this Report). Such authority will expire on the date of the next Annual General Meeting or after a period of 15 months from the date of the passing of the resolution, whichever is earlier. This means that the authority will have to be renewed at the next Annual General Meeting. When shares are to be allotted for cash, Section 89(1) of the Companies Act 1985 (the "Act") provides that existing shareholders have pre-emption rights and that the new shares must be offered first to such shareholders in proportion to their existing holding of shares. However, shareholders can, by special resolution, authorise the Directors to allot shares otherwise than by a pro rata issue to existing shareholders. Special Resolution 10 will, if passed, give the Directors power to allot for cash equity securities up to 10% of the Company's existing share capital on 11 June 2009 (reduced by any treasury shares sold by the Company pursuant to Special Resolution 11, as described below), as if Section 89(1) of the Act does not apply. This is the same nominal amount of share capital which the Directors are seeking the authority to allot pursuant to Resolution 9. This authority will also expire on the date of the next Annual General Meeting or after a period of 15 months, whichever is earlier. This authority will not be used in connection with a rights issue by the Company. Under the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (as amended) (the "Treasury Share Regulations") the Company is permitted to buy back and hold shares in treasury and then sell them at a later date for cash, rather than cancelling them. The Treasury Share Regulations require such sale to be on a pre-emptive, pro rata, basis to existing shareholders unless shareholders agree by special resolution to disapply such pre-emption rights. Accordingly, in addition to giving the Directors power to allot unissued share capital on a non pre-emptive basis pursuant to Resolution 10, Resolution 11, if passed, will give the Directors authority to sell shares held in treasury on a non pre-emptive basis. Under the Treasury Share Regulations, the holding of treasury shares is restricted to 10% of the Company's issued share capital, no dividends may be paid on any shares held in treasury and no voting rights will attach to such shares. The benefit of the ability to hold treasury shares is that such shares may be resold. This should give the Company greater flexibility in managing its share capital, and improve liquidity in its shares. It is the intention of the Board that any re-sale of treasury shares would only take place at a narrower discount to the net asset value per share than that at which they had been bought into treasury, and in any event at a discount no greater than 5% to the prevailing net asset value per share, and this is reflected in the text of Resolution 11. It is also the intention of the Board that sales from treasury would only take place when the Board believes that to do so would assist in the provision of liquidity to the market. The number of treasury shares which may be sold pursuant to this authority is limited to 10% of the Company's existing share capital on 11 June 2009 (reduced by any equity securities allotted for cash on a non-pro rata basis pursuant to Resolution 10, as described above). This authority will also expire on the date of the next Annual General Meeting or after a period of 15 months, whichever is earlier. The Directors intend to use the authority given by Resolutions 9 and 10 to allot shares and disapply pre-emption rights only in circumstances where this will be clearly beneficial to shareholders as a whole. The issue proceeds would be available for investment in line with the Company's investment policy. No issue of shares will be made which would effectively alter the control of the Company without the prior approval of shareholders in General Meeting. Share Repurchases At the Annual General Meeting held on 23 July 2008, shareholders approved the renewal of the authority permitting the Company to repurchase its own shares. The Directors wish to renew the authority given by shareholders at the previous Annual General Meeting. The principal aim of a share buy-back facility is to enhance shareholder value by acquiring shares at a discount to net asset value, as and when the Directors consider this to be appropriate. The purchase of shares, when they are trading at a discount to net asset value per share, should result in an increase in the net asset value per share for the remaining shareholders. This authority, if conferred, will only be exercised if to do so would result in an increase in the net asset value per share for the remaining shareholders and if it is in the best interests of shareholders generally. Any purchase of shares will be made within guidelines established from time to time by the Board. It is proposed to seek shareholder authority to renew this facility for another year at the Annual General Meeting. Under the current Listing Rules, the maximum price that may be paid on the exercise of this authority must not exceed the higher of (i) 105% of the average of the middle market quotations for the shares over the five business days immediately preceding the date of purchase and (ii) the higher of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out. The minimum price which may be paid is 25p per share. Shares which are purchased under this authority will either be cancelled or held as treasury shares. Special Resolution 12 in the Notice of Annual General Meeting will renew the authority to purchase in the market a maximum of 14.99% of shares in issue on 11 June 2009, being the nearest practicable date prior to the signing of this Report, (amounting to 5,997,399 shares). Such authority will expire on the date of the next Annual General Meeting or after a period of 15 months from the date of passing of the resolution, whichever is earlier. This means in effect that the authority will have to be renewed at the next Annual General Meeting or earlier if the authority has been exhausted. General Meetings Special Resolution 13 seeks shareholder approval for the Company to hold General Meetings (other than Annual General Meetings) at 14 clear days' notice. Continuance of Company In accordance with Article 155.1 of the Articles of Association of the Company, the Directors are required to propose an ordinary resolution at this and at every fifth Annual General Meeting of the Company thereafter, that the Company continues as an investment trust for a further period of five years. Ordinary Resolution No 14 seeks shareholder approval for such continuation. The authorities being sought under Resolutions 9, 10, 11, 12 and 13 will last until the conclusion of the next Annual General Meeting or, if less, a period of 15 months. The Directors consider that the resolutions relating to the above items of special business are in the best interests of shareholders as a whole. Accordingly, the Directors unanimously recommend to shareholders that they vote in favour of the above resolutions to be proposed at the forthcoming Annual General Meeting. By order of the Board Frostrow Capital LLP Company Secretary 11 June 2009 The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable United Kingdom law and regulation. Company law in the United Kingdom requires the Directors to prepare financial statements for each financial year. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the net return of the Company for that period. Under this law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice, (United Kingdom standards and applicable law). In preparing these financial statements, the Directors have: * selected suitable accounting policies and applied them consistently; * made judgements and estimates that are reasonable and prudent; and * followed applicable United Kingdom accounting standards. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 1985 and the Companies Act 2006 as in force from time to time. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The financial statements are published on the Company's website (website address: www.finsburywp.com), which is a website maintained by the Manager. The maintenance and integrity of the website is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and accordingly, the auditors accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction. The Directors confirm that to the best of their knowledge the financial statements, within the annual report, have been prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and the profit for the year ended 31 March 2009, and that the Chairman's Statement, Review of Investments and the Report of the Directors include a fair review of the information required by 4.1 .8R to 4.2.11 R of the FSAs Disclosure and Transparency Rules. On behalf of the Board Martin Smith Chairman 11 June 2009 COMPLIANCE The Board has considered the principles and recommendations of the AIC Code of Corporate Governance ("AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in Section 1 of the Combined Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to Finsbury Worldwide Pharmaceutical Trust PLC. The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the Combined Code), will provide better information to shareholders. The Company has complied with the recommendations of the AIC Code and the relevant provisions of Section 1 of the Combined Code throughout the year ended 31 March 2009 and up to the date of this report, except with regard to the fact that the Chairman of the Company is Chairman of the Remuneration Committee and as set out below. The Combined Code includes provision relating to: * the role of the chief executive (section A.2); * executive directors' remuneration (section B.1); and * the need for an internal audit function (section C.3). For the reasons set out in the AIC Guide, and in the preamble to the AIC Code, the Board considers these provisions are not relevant to the position of Finsbury Worldwide Pharmaceutical Trust PLC, being an externally managed investment company. The Company has therefore not reported further in respect of these provisions. BOARD INDEPENDENCE, COMPOSITION AND TENURE The Board, chaired by Martin Smith, currently consists of seven non-executive Directors. The Directors' biographical details, demonstrate a breadth of investment, commercial and professional experience. Professor Duncan Geddes has been designated as the Senior Independent Director. The Directors review their independence annually. The Directors retire by rotation at every third Annual General Meeting and any Directors appointed to the Board since the previous Annual General Meeting also retire and stand for election. Any Director who has served on the Board for more than nine years is subject to annual re-election. Paul Gaunt is a Director of The Biotech Growth Trust PLC for which OrbiMed also acts as Investment Manager; he has also served on the Board for over nine years. He is therefore not considered to be an Independent Director. Samuel D Isaly is Managing Partner of OrbiMed, the Company's Investment Manager, and has also served on the Board for over nine years. Mr Isaly is therefore not considered to be an Independent Director. Professor Geddes and Anthony Townsend have both also served on the Board for over nine years. However, the Board considers them to be independent in character and judgement and, in accordance with the AIC Code, does not believe that the criterion of length of service should necessarily preclude them from being considered independent; they also have no other links to the Investment Manager and have a wide range of other interests. The Board has considered the position of Messrs Gaunt, Isaly, Townsend and Professor Geddes, as part of the evaluation process, and believes that it would be in the Company's best interests to propose them for re-election at the forthcoming Annual General Meeting. None of the Directors has a service contract with the Company. New Directors are appointed with the expectation that they will serve for a minimum period of three years. Any Director may resign in writing to the Board at any time. The terms of their appointment are detailed in a letter sent to them when they join the Board. These letters are available for inspection at the offices of the Company's Manager and will be available at the Annual General Meeting. When a new Director is appointed to the Board, they are provided with all relevant information regarding the Company and their duties and responsibilities as a Director. In addition, a new Director will also spend time with representatives of the Manager and Investment Manager in order to learn more about their processes and procedures. The Board also receives regular briefings from, amongst others, the Auditors and the Company Secretary regarding any proposed developments or changes in laws or regulations that could affect the Company and/or the Directors. THE BOARD'S RESPONSIBILITIES The Board is responsible for efficient and effective leadership of the Company and regularly reviews the schedule of matters reserved for its decision. The Board meets at least on a quarterly basis and at other times as necessary. The Board is responsible for all aspects of the Company's affairs, including the setting of parameters for and the monitoring of investment strategy, the review of investment performance (including peer group performance) and investment policy. It also has responsibility for all corporate strategy issues, dividend policy, share buy-back policy, gearing, share price and discount/premium monitoring and corporate governance matters. To enable them to discharge their responsibilities, prior to each meeting the Directors are provided, in a timely manner, with a comprehensive set of papers giving detailed information on the Company's transactions, financial position and performance. Representatives of the Manager and Investment Manager attend each Board meeting, enabling the Directors to seek clarification on specific issues or to probe further on matters of concern; a full written report is also received from the Manager and Investment Manager at each quarterly meeting. In light of these reports, the Board gives direction to the Investment Manager with regard to the Company's investment objectives and guidelines. Within these established guidelines, the Investment Manager takes decisions as to the purchase and sale of individual investments. There is an agreed procedure for Directors, in the furtherance of their duties, to take independent professional advice, if necessary, at the Company's expense. The Directors have access to the advice and services of the Company Secretary, through its appointed representative, who is responsible to the Board for ensuring that Board procedures are followed. PERFORMANCE EVALUATION The Board has carried out an evaluation process for the year ended 31 March 2009, independently managed by Professor Geddes, the Senior Independent Director. This took the form of a questionnaire followed by discussions to identify how the effectiveness of its activities, including its committees, policies and processes might be improved. The results of the evaluation process were presented to and discussed by the Board and, as a result, it was agreed that the current Directors contributed effectively and that all had the skills and experience which are relevant to the leadership and direction of the Company. COMMITTEES OF THE BOARD During the year the Board delegated certain responsibilities and functions to committees. Copies of the full terms of reference, which clearly define the responsibilities of each Committee, can be obtained from the Company Secretary, will be available for inspection at the Annual General Meeting, and can be found at the Company's website at www.finsburywp.com. Following a review by the Board in 2008, it was agreed that due to the size of the Board, the membership of the Remuneration and Nominations Committees should comprise the whole Board, both under the chairmanship of the Chairman of the Company (provided that a majority of the Directors present are independent). It was further agreed that the membership of the Audit Committee comprise the following independent Directors: Jo Dixon (Chairman), Dr David Holbrook, Professor Duncan Geddes and Anthony Townsend. Directors who are not members of the Audit Committee may attend at the invitation of the Chairman. Details of the membership of the Committees as at 31 March 2009 are shown with the Directors' Biographies. The table overleaf details the number of Board and Committee meetings attended by each Director. During the year there were five Board meetings, two Audit Committee meetings, one meeting of the Nominations Committee and one meeting of the Remuneration Committee. MEETING ATTENDANCE The number of meetings held during the year of the Board and its Committees, and each Director's attendance level, is shown below: Type and number of Board Audit Nominations Remuneration meetings held in Committee Committee Committee 2008/9 (5) (2) (1) (1) Martin Smith 5 N/A 1 1 Ian Ivory* 2 N/A N/A N/A Josephine Dixon 5 2 1 1 Paul Gaunt 4 N/A 1 1 Professor Duncan 5 2 1 0 Geddes Dr David Holbrook 5 2 1 1 Samuel D Isaly 5 N/A 1 1 Anthony Townsend 5 2 1 1 *Retired from the Board on 23 July 2008. All of the Directors attended the Annual General Meeting held on 23 July 2008. NOMINATIONS COMMITTEE The Nominations Committee is responsible for the Board appraisal process and for making recommendations to the Board on the appointment of new Directors. Where appropriate, each Director is invited to submit nominations and external advisers may be used to identify potential candidates. REMUNERATION COMMITTEE The level of Directors' fees is reviewed on a regular basis relative to other comparable investment companies and in the light of Directors' responsibilities. Neither the Chairman nor individual Directors participate in discussions involving personal remuneration. Details of the fees paid to the Directors in the year under review are detailed in the Directors' Remuneration Report. AUDIT COMMITTEE The Audit Committee meets at least twice a year and is responsible for the review of the interim and annual financial statements, the nature and scope of the external audit and the findings therefrom and the terms of appointment of the Auditors, including their remuneration and the provision of any non-audit services by them. The Audit Committee meets representatives of the Manager and Investment Manager and their Compliance Officers who report as to the proper conduct of business in accordance with the regulatory environment in which the Company, Manager and Investment Manager operate. The Company's external Auditors also attend meetings of this Committee at its request and report on their work procedures and their findings in relation to the Company's statutory audit. They also have the opportunity to meet with the Committee without representatives of the Manager or the Investment Manager being present. The Audit Committee reviews the need for non-audit services and authorises such on a case by case basis, having consideration to the cost effectiveness of the services and the independence and objectivity of the Auditors. Non-audit fees of Â£4,000 were paid to Ernst & Young LLP during the year for their review of the Company's options strategy. The Board has concluded, on the recommendation of the Audit Committee, that the Auditors continued to be independent and that their reappointment be proposed at the Annual General Meeting. INTERNAL CONTROLS The Combined Code requires the Directors, at least annually, to review the effectiveness of the Company's system of internal control and to report to shareholders that they have done so. This encompasses a review of all controls, which the Board has identified as including business, financial, operational, compliance and risk management. This accords with the guidance contained in the Turnbull Report published in 1999 and revised in 2005. The Directors are responsible for the Company's system of internal control which is designed to safeguard the Company's assets, maintain proper accounting records and ensure that financial information used within the business, or published, is reliable. Such a system, however, is designed to manage rather than eliminate the risks of failure to achieve the Company's business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. In view of particularly difficult market conditions during the year, the Directors devoted additional time to reviewing the Company's internal controls and key risks. The Directors continue to monitor this area closely. Unlike the boards of most other listed companies, the boards of investment trust companies obtain the majority of their evidence as to whether internal controls are operating effectively from third party suppliers to whom investment management, custody, administration, accounting and secretarial matters have been delegated. This means that an understanding of the internal controls for an investment trust company requires Directors to consider information from a number of independent sources, rather than from a consolidated single source covering a typical listed company's system of internal control. The Company does not have an internal audit function. The Audit Committee considers annually whether there is any need for an internal audit function. As most of the Company's functions are delegated to third parties, it has been agreed that it is inappropriate for the Company to have its own internal audit function. The Directors, through the procedures outlined below, have kept the effectiveness of the Company's internal controls under review throughout the period covered by these financial statements and up to the date of their approval. The Manager and the Investment Manager have established an internal control framework to provide reasonable assurance on the effectiveness of the internal controls operated on behalf of their clients. Their compliance monitoring programmes assess the effectiveness of and provide the Board with regular reports on all aspects of internal control (including financial, operational and compliance control, risk management and relationships with external service providers). Business risks have been analysed and recorded in a Risk Register, which is reviewed at each meeting of the Audit Committee and at other times as necessary. RELATIONS WITH SHAREHOLDERS The Board reviews the shareholder register at each Board meeting. The Company has regular contact with its institutional shareholders particularly through the Manager. The Board supports the principle that the Annual General Meeting be used to communicate with private investors. The full Board attends the Annual General Meeting under the Chairmanship of the Chairman of the Board. Details of proxy votes received in respect of each resolution are made available to shareholders at the meeting and are also published on the Company's website at www.finsburywp.com. Representatives from the Investment Manager attend the Annual General Meeting and give a presentation on investment matters to those present. The Company has adopted a nominee share code. The Board receives marketing and public relations reports from the Manager to whom the marketing function has been delegated. The Board reviews and considers the marketing plans of the Manager on a regular basis. The annual and interim financial reports, the interim management statements and a monthly fact sheet are available to all shareholders. The Board considers the format of the annual and interim financial reports so as to ensure they are useful to all shareholders and others taking an interest in the Company. In accordance with best practice, the annual report, including the Notice of the Annual General Meeting, is sent to shareholders at least 20 working days before the Meeting. Separate resolutions are proposed for substantive issues. EXERCISE OF VOTING POWERS The Board has delegated authority to the Investment Manager to vote the shares held by the Company through its nominee, The Bank of New York (Nominees) Limited, which accords with current best practice whilst maintaining a primary focus on financial returns. The Investment Manager may refer to the Board on any matters of a contentious nature. ACCOUNTABILITY AND AUDIT The Board has delegated contractually to external agencies, including the Manager and the Investment Manager, the management of the portfolio, custodial services (which includes the safeguarding of the Company's assets), the day to day marketing, accounting administration, company secretarial requirements and registration services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of the services offered, including the control systems in operation in so far as they relate to the affairs of the Company. The Board receives and considers regular reports from the Manager and the Investment Manager and ad hoc reports and information are supplied to the Board as required. NOMINEE SHARE CODE Where shares are held in a nominee company name, the Company undertakes: * to provide the nominee company with multiple copies of shareholder communications, so long as an indication of quantities has been provided in advance; * to allow investors holding shares through a nominee company to attend General Meetings, provided the correct authority from the nominee company is available; and * that investors in the Alliance Trust Savings Scheme or ISA are automatically sent shareholder communications, including details of General Meetings, together with a form of direction to facilitate voting and to seek authority to attend. Nominee companies are encouraged to provide the necessary authority to underlying shareholders to attend the Company's General Meetings. The Board has prepared this report in accordance with the requirements of Schedule 7A to the Companies Act 1985 (the Regulations). An ordinary resolution for the approval of this report will be put to the members at the forthcoming Annual General Meeting. The law requires the Company's auditors to audit certain of the disclosures provided. Where disclosures have been audited, they are indicated as such. REMUNERATION COMMITTEE The Company has seven non-executive Directors, five of whom are considered by the Board to be independent. The whole Board fulfils the function of the Remuneration Committee (provided that a majority of the Directors present are independent). The Board may utilise the services of the Company Secretary or external advisers to provide advice when the Directors consider the level of Directors' fees. The Directors' fees are reviewed annually by the Remuneration Committee; such review will not necessarily result in a change to the rates paid. In March 2009, the Remuneration Committee carried out a review of the level of Directors `fees in relation both to fees paid to the boards of other investment trust companies and also to the Board's corporate governance obligations. The Board decided, on the advice of the Remuneration Committee, that the amounts should remain unchanged for the present. POLICY ON DIRECTORS' FEES The Board's policy is that the remuneration of Directors should reflect the experience of the Board as a whole, be fair and comparable to that of other investment trusts that are similar in size, have a similar capital structure (Ordinary shares), and have a similar investment objective. It is intended that this policy will continue for the year ending 31 March 2010 and subsequent years. The fees for the Directors are determined within the limits set out in the Company's Articles of Association, the maximum aggregate amount currently being Â£200,000. Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits. The policy is for the Chairman of the Board and Chairman of the Audit Committee to be paid higher fees than the other Directors to reflect their more onerous roles and additional responsibilities. DIRECTORS' SERVICE CONTRACTS It is the Board's policy that none of the Directors has a service contract. The terms of their appointment provide that Directors shall retire and be subject to election at the first Annual General Meeting after their appointment and re-election at least every three years thereafter. The terms also provide that a Director may resign by notice in writing to the Board at any time and may be removed without notice and that compensation will not be due on leaving office. The Company's policy is for the Directors to be remunerated in the form of fees payable quarterly in arrears, to the Director personally or to a specified third party. YOUR COMPANY'S PERFORMANCE The Regulations require a line graph be included in the Directors' Remuneration Report comparing, for a period of five years, on a cumulative basis, the total return (assuming all dividends are reinvested) to shareholders and the total shareholder return on a notional investment made up of shares of the same kind and number as those by reference to which the Datastream World Pharmaceutical and Biotechnology Index (total return, sterling adjusted), chosen as it is the Company's stated benchmark, is calculated. DIRECTORS' EMOLUMENTS FOR THE YEAR (AUDITED) The Directors who served in the year received the following emoluments in the form of fees: Fees 2009 Â£'000 Fees 2008 Â£'000 Martin Smith* 27 8 Josephine Dixon 21 22 Paul Gaunt 19 20 Professor Duncan Geddes 19 20 Dr David Holbrook* 19 8 Ian Ivory** 9 30 James Nobleâ€ - 6 Samuel D Isaly 19 20 Anthony Townsend 19 19 152 153 * Appointed to the Board on 8 November 2007 and became Chairman on 23 July 2008. **â€ Retired from the Board on 23 July 2008. Retired from the Board on 9 July 2007. APPROVAL The Directors' Remuneration Report was approved by the Board of Directors on 11 June 2009 and signed on its behalf by Martin Smith (Chairman). We have audited the financial statements of Finsbury Worldwide Pharmaceutical Trust PLC for the year ended 31 March 2009, which comprise the Income Statement, Reconciliation of Movements in Shareholders' Funds, Balance Sheet, Cash Flow Statement and the related notes 1 to 20. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors' Remuneration Report that is described as having been audited. This report is made solely to the Company's members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an Auditors' Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this Report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Directors' responsibilities for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements and the part of the Directors' Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view, the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and the information given in the Report of the Directors is consistent with the financial statements. We also report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors' remuneration and other transactions is not disclosed. We review whether the Corporate Governance statement reflects the Company's compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board's statements on internal controls cover all risks and controls, or form an opinion on the effectiveness of the Company's corporate governance procedures or its risk and control procedures. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only: Who are we? Why Invest in the Pharmaceutical Sector? Why choose us? Performance Summary, Chairman's Statement, Your Board, A Special Relationship, Review of Investments, Champions of Innovation, the Portfolio, Analysis of the Portfolio, Report of the Directors Incorporating the Business Review, the Statement of Directors' Responsibilities, Corporate Governance, Shareholder Analysis, the unaudited part of the Directors' Remuneration Report, the Explanatory Notes of Principal Changes to the Company's Articles of Association, Notice of the Annual General Meeting, Alliance Trust Savings Limited and Capita Registrars Share Dealing Service, Glossary, Company Information and Disability Act. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. BASIS OF AUDIT OPINION We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors' Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors' Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors' Remuneration Report to be audited. OPINION In our opinion: * the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Company's affairs as at 31 March 2009 and of its return for the year then ended; * the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and the Companies Act 2006 as in force from time to time; and * the information given in the Report of the Directors is consistent with the financial statements. Ernst & Young LLP Registered Auditor London 11 June 2009 Notes 2009 2009 2009 2008 2008 2008 Revenue Capital Total Â£ Revenue Capital Total Â£ Â£'000 Â£'000 '000 Â£'000 Â£'000 '000 Gains/(losses) 9 - 76,505 76,505 - (16,666) (16,666) on investments held at fair value through profit or loss Exchange - (12,042) (12,042) - 1,332 1,332 (losses)/gains on currency balances Income from 2 4,018 - 4,018 3,404 - 3,404 investments held at fair value through profit or loss Investment 3 (116) (2,436) (2,552) (122) (2,323) (2,445) management, management and and performance fees Other expenses 4 (588) - (588) (708) - (708) Net return/ 3,314 62,027 65,341 2,574 (17,657) (15,083) (loss) before finance charges and taxation Finance charges 5 (29) (543) (572) (51) (976) (1,027) Net return/ 3,285 61,484 64,769 2,523 (18,633) (16,110) (loss) on ordinary activities before taxation Taxation on net 6 (866) 360 (506) (782) 372 (410) return/(loss) on ordinary activities Net return/ 2,419 61,844 64,263 1,741 (18,261) (16,520) (loss) on ordinary activities after taxation Return/(loss) 7 5.5p 141 .4p 1 46.9p 3.5p (37.1 p) (33.6p) per share - basic Return/(loss) 7 5.4p 1 38.2p 1 43.6p 3.5p (37.1 p) (33.6p) per share - diluted The "Total "column of this statement is the Income Statement of the Company. The "Revenue "and "Capital "columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations. The Company has no recognised gains and losses other than those disclosed in the Income Statement and Reconciliation of Movements in Shareholders' Funds. Accordingly no separate Statement of Total Recognised Gains and Losses has been presented. No operations were acquired or discontinued in the year. For the year ended 31 March 2009 Called-up Share Warrant Capital Capital Revenue Total Â£ share premium reserve reserve redemption reserve '000 capital Â£ account Â£'000 Â£'000 reserve Â£'000 '000 Â£'000 Â£'000 At 31 March 2008 11,772 117,639 7,426 81,611 3,008 3,327 224,783 Net return on - - - 61,844 - 2,419 64,263 ordinary activities after taxation Dividend paid in - - - - - (1,344) (1,344) respect of year ended 31 March 2008 Proceeds from 3 58 - - - - 61 exercise of warrants Transfer from - 9 (9) - - - - warrant reserve following exercise of warrants Shares purchased (670) - - (24,746) 670 - (24,746) including expenses At 31 March 2009 11,105 117,706 7,417 118,709 3,678 4,402 263,017 For the year ended 31 March 2008 Called-up Share Capital share premium Warrant Capital redemption Revenue capital account reserve reserve reserve reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 31 March 2007 14,401 117,565 7,436 130,724 375 3,130 273,631 Net (loss)/return on - - - (18,261) - 1,741 (16,520) ordinary activities after taxation Dividend paid in - - - - - (1,544) (1,544) respect of year ended 31 March 2007 Proceeds from 4 64 - - - - 68 exercise of warrants Transfer from - 10 (10) - - - - warrant reserve following exercise of warrants Shares purchased (2,633) - - (30,852) 2,633 - (30,852) including expenses At 31 March 2008 11,772 117,639 7,426 81,611 3,008 3,327 224,783 as at 31 March 2009 Notes 2009 Â£'000 2008 Â£'000 Fixed assets Investments held at fair value 9 294,928 220,587 through profit or loss M&A Basket - OTC equity swap 9 & 12 10,321 10,244 305,249 230,831 Current assets Debtors 10 1,307 4,399 Cash at bank 16 9,979 7,050 11,286 11,449 Current liabilities Creditors: amounts falling due 11 (52,564) (17,035) within one year Derivative (options) - 9 & 12 (954) (462) financial instruments (53,518) (17,497) Net current liabilities (42,232) (6,048) Total net assets 263,017 224,783 Capital and reserves Called-up share capital 13 11,105 11,772 Share premium account 117,706 117,639 Warrant reserve 7,41 7 7,426 Capital reserve 19 118,709 81,611 Capital redemption reserve 3,678 3,008 Revenue reserve 4,402 3,327 Total equity 263,017 224,783 shareholders'funds Net asset value per share - 14 635.9p 486.6p basic Net asset value per share - 14 600.5 p 482.4p diluted The financial statements on pages 33 to 50 were approved by the Board of Directors and authorised for issue on 11 June 2009 and were signed on its behalf by: Martin Smith Chairman Notes 2009 Â£'000 2008 Â£ '000 Net cash outflow from operating 15 (61) (332) activities Servicing of finance Interest paid (582) (1,023) Taxation Taxation recovered 91 124 Financial investments Purchases of investments and (251,520) (219,443) derivatives Sales of investments and derivatives 257,286 269,680 Net cash inflow from financial 5,766 50,237 investment Equity dividends paid (1,344) (1,544) Net cash inflow before financing 3,870 47,462 Financing Issue of shares 61 68 Purchase of own shares (25,068) (30,618) Repayment of short term loans (14,813) (10,308) Net cash outflow from financing (39,820) (40,858) (Decrease)/increase in cash for the 16 (35,950) 6,604 year Notes to the Financial Statements 1. ACCOUNTING POLICIES The principal accounting policies, all of which have been applied consistently throughout the year in the preparation of these financial statements, are set out below: a. Basis of Preparation The financial statements have been prepared in accordance with United Kingdom generally accepted accounting standards (UK GAAP) and with the Statement of Recommended Practice `Financial Statements of Investment Trust Companies' dated January 2009 (the `SORP'). The Company's financial statements are presented in sterling. All values are rounded to the nearest thousand pounds (Â£'000) except where otherwise indicated. b. Investments held at fair value through profit or loss Listed investments have been designated by the Board as held at fair value through profit or loss and accordingly are valued at fair value, deemed to be bid market prices. Unquoted investments are valued by the Directors using primary valuation techniques such as earnings multiples, option pricing models, recent transactions and net assets. Changes in the fair value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as `gains or losses on investments held at fair value through profit or loss'. Also included within this caption are transaction costs in relation to the purchase or sale of investments, including the difference between the purchase price of an investment and its bid price at the date of purchase. All purchases and sales are accounted for on a trade date basis. c. Investment Income Dividends receivable on equity shares are recognised on the ex-dividend date. Where no ex-dividend date is quoted, dividends are recognised when the Company's right to receive payment is established. Income from fixed interest securities is recognised on a time apportionment basis so as to reflect the effective interest rate. Deposit interest is accounted for on an accruals basis. d. Expenses All expenses are accounted for on an accruals basis. Expenses are charged through the Income Statement (revenue) except as follows: i. expenses which are incidental to the acquisition or disposal of an investment, categorised as fixed assets held at fair value through profit or loss are charged to capital; and i. expenses are charged to the capital column of the Income Statement where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment management and management fees have been charged to the Income Statement in line with the Board's expected long-term split of returns, in the form of capital gains and income, from the Company's portfolio. As a result 5% of the investment management and management fees are charged to the revenue column of the Income Statement and 95% are charged to the capital column of the Income Statement. Any performance fee accrued or paid is charged in full to the capital column of the Income Statement. (e) Finance costs Finance costs are accounted for on an accruals basis. Finance costs are charged to the Income Statement in line with the Board's expected long-term split of returns, in the form of capital gains and income, from the Company's portfolio. As a result 5% of the finance costs are charged to revenue and 95% are charged to capital. Finance charges, if applicable, including interest payable and premiums on settlement or redemption, are accounted for on an accruals basis in the Income Statement using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Notes to the Financial Statements (continued) 1. ACCOUNTING POLICIES (CONTINUED) f. Taxation The tax effect of different items of expenditure is allocated between capital and revenue using the marginal basis. Deferred taxation is provided on all timing differences that have originated but not been reversed by the Balance Sheet date other than those differences regarded as permanent. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the reversal of timing differences can be deducted. Any liability to deferred tax is provided for at the average rate of tax expected to apply. Deferred tax assets and liabilities are not discounted to reflect the time value of money. f. Foreign Currency The results and financial position of the Company are expressed in sterling, which is the functional and presentational currency of the Company. Sterling is the functional currency because it is the currency of the primary economic environment in which the Company operates. Transactions recorded in overseas currencies during the year are translated into sterling at the appropriate daily exchange rates. Assets and liabilities denominated in overseas currencies at the Balance Sheet date are translated into sterling at the exchange rates ruling at the date. Any gains or losses on the translation of foreign currency balances, whether realised or unrealised, are taken to the capital or the revenue column of the Income Statement, depending on whether the gain or loss is of a capital or revenue nature. g. Derivative Financial Instruments The Company uses derivative financial instruments (namely put and call options and an OTC equity swap also referred to as the M & A Basket). The merits and rationale behind such strategies are to enhance the capital return of the portfolio, facilitate management of the portfolio volatility and improve the risk-return profile of the Company relative to its benchmark. All derivative instruments are valued at fair value in the Balance Sheet in accordance with FRS 26: `Financial instruments: measurement'. Each investment in options is reviewed on a case-by-case basis and are all deemed to be capital in nature. As such, all gains and losses on the above strategies have been debited or credited to the capital column of the Income Statement. All gains and losses on the OTC equity swap, during the swap term are accounted for as investment holding gains or losses on investments. Where there has been a re-positioning of the swap, gains and losses are accounted for on a realised basis. All such gains and losses have been debited or credited to the capital column of the Income Statement. h. Reserves Capital reserves The following are charged to the capital column of the Income Statement and transferred to this reserve: * gains and losses on the realisation of investments; * realised and unrealised exchange differences of a capital nature; * expenses, together with the related taxation effect, in accordance with the above policies; * increases and decreases in the valuation of investments held at the year end; and * unrealised exchange differences of a capital nature. Notes to the Financial Statements (continued) 1. ACCOUNTING POLICIES (CONTINUED) Rate of exchange against sterling at 31 March 2009 2008 U.S. dollar 1.4334 1.9875 Japanese yen 141 .5720 197.8260 Swiss franc 1.6298 1.9658 Euros 1.0796 1.2543 2. INCOME FROM INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS 2009 2008 Â£'000 Â£'000 Income from investments UK listed dividends 212 3 Overseas dividends 3,594 3,029 Money market dividend 48 144 Fixed interest income 71 - 3,925 3,176 Other income Interest receivable 93 228 Total income from investments held at fair 4,018 3,404 value through profit or loss Total income comprises: Dividend 3,854 3,176 Interest 164 228 4,018 3,404 3. INVESTMENT MANAGEMENT, MANAGEMENT AND PERFORMANCE FEES 2009 2009 2009 2008 2008 2008 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Investment 83 1,584 1,667 84 1,607 1,691 Management fee Management fee 33 628 661 38 716 754 Performance fee - 224 224 - - - accrual 116 2,436 2,552 122 2,323 2,445 In accordance with the performance fee arrangements described in the Report of the Directors no performance fee was paid during the year (2008: nil). At the year end a performance fee of Â£224,000 was accrued (2008: nil). Notes to the Financial Statements (continued) 4. OTHER EXPENSES 5. 2009 2008 Revenue Revenue Â£'000 Â£'000 Secretarial services fee - 37 Directors' remuneration 53 153 Auditors' remuneration for the audit of 152 22 the Company's financial statements Auditors' remuneration for other services 22 4 Marketing 4 14 PEP, ISA and savings scheme expenses 38 83 Registrar 18 33 Custody 41 42 Other 276 320 588 708 Details of the amounts paid to Directors are included in the Directors' Remuneration Report. 5. FINANCE CHARGES 2009 2009 2009 2008 2008 2008 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Finance charges 29 543 572 51 976 1,027 6.TAXATION ON ORDINARY ACTIVITIES 2009 2009 2009 2008 2008 2008 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 UK Corporation tax at 28% (2008:30%) Tax relief to capital 360 (360) - 372 (372) - Overseas taxation 506 - 506 410 - 410 866 (360) 506 782 (372) 410 6. TAXATION ON ORDINARY ACTIVITIES (CONTINUED) b. Factors affecting current tax charge for the year The tax charged for the year is lower than the standard rate of corporation tax in the UK for a large company 28% (2008: 30%). c. The difference is explained below. 2009 2009 2009 2008 2008 2008 Revenue Capital Total Â£ Revenue Capital Total Â£ Â£'000 Â£'000 '000 Â£'000 Â£'000 '000 Total return/(loss) before 3,285 61,484 64,769 2,523 (18,633) (16,110) tax Corporation tax at 28% 920 17,216 18,136 757 (5,590) (4,833) (2008: 30%) Non-taxable gains on - (18,049) (18,049) - 4,600 4,600 investments held at fair value through profit and loss Overseas withholding tax 506 - 506 410 - 410 not recoverable Non taxable UK dividend (59) - (59) (1) - (1) Expenses charged to capital (479) 473 (6) (618) 618 - available to be utilised Excess expenses unused - - - 205 - 205 Timing differences on (27) - (27) 2 - 2 overseas dividends Disallowed expenses 5 - 5 27 - 27 Current tax charge 866 (360) 506 782 (372) 410 c. Provision for deferred tax The Company has not recognised a deferred tax asset of Â£10,996,000 (2008: Â£1 1,094,000) arising as a result of unutilised expenses. These expenses will only be utilised if the Company generates sufficient taxable profits in the future or if there is a change in the legislation and capital gains become taxable for investment trust companies. It is considered too uncertain that either of these will occur and, therefore, no deferred tax asset has been recognised. There is no capital gains tax payable by the Company because investment trust companies are exempt from this tax. 7. RETURN/(LOSS) PER SHARE 2009 Â£'000 2008 Â£'000 The return/(loss) per share is based in 2,419 61,844 1,741 the following figures: Revenue return (18,261) Capital return/(loss) Total return/(loss) 64,263 (16,520) Weighted average number of shares in 43,756,755 49,231,108 issue during the year - basic Revenue return per share Capital return 5.5p 141.4p 3.5p /(loss) per share (37.1p) Total return/(loss) per share - basic 146.9p (33.6p) Weighted average number of shares in 44,764,156 49,675,682 issue during the year - diluted Revenue return per share Capital return 5.4p 1 38.2p 3.5p* (37.1 /(loss) per share p)* Total return/(loss)per share - diluted 143.6p (33.6p)* *dilution not applicable Notes to the Financial Statements (continued) 8. INTERIM DIVIDEND Under UK GAAP, final dividends are not recognised until they are approved by shareholders and interim dividends are not recognised until they are paid. They are also debited directly from reserves. Amounts recognised as distributable to ordinary shareholders for the year ended 31 March 2009 were as follows: 2009 2008 Â£'000 Â£'000 Interim dividend in respect of the year ended 1,344 - 31 March 2008 Interim dividend in respect of the year ended - 1,544 31 March 2007 1,344 1,544 In respect of the year ended 31 March 2009, an interim dividend of 5.0p per share (2008: 3.0p per share) has been declared. The aggregate cost of this dividend based on the number of shares in issue at 11 June 2009 is estimated to be Â£2,000,000. In accordance with FRS 21 this dividend will be reflected in the interim accounts for the period ending 30 September 2009. Total dividends in respect of the financial year, which is the basis on which the requirements of s842 of the Income and Corporation Taxes Act 1988 are considered, are set out below: 2009 Â£ 2008 Â£ '000 '000 Revenue available for distribution by 2,419 1,741 way of dividend for the year Dividends for the year ended 31 March (2,000) (1,344) * 419 397 * based on 40,009,334 shares in issue as at 11 June 2009. 8. INVESTMENTS Listed Unlisted Options Â£ Derivatives Total Â£ investments investments '000 '000 Â£'000 Â£'000 OTC swap Cost at 1 April 2008 217,977 1,094 (240) 11,459 230,290 Investment holding 1,390 126 (222) (1,215) 79 gains/(losses) at 1 April 2008 Valuation at 1 April 219,367 1,220 (462) 10,244 230,369 2008 Movements in the year: Purchases at cost 204,139 - 12,019 34,895 251,053 Sales - proceeds (203,645) - (14,620) (35,367) (253,632) - realised gains/ 33,694 - 2,683 (956) 35,421 (losses) on sales Net movement in 41,373 (1,220) (574) 1,505 41,084 unrealised holding gains Valuation at 31 294,928 - (954) 10,321 304,295 March 2009 Cost at 31 March 252,165 1,094 (158) 10,031 263,132 2009 Investment holding 42,763 (1,094) (796) 290 41,163 gains/(losses) at 31 March 2009 Valuation at 31 294,928 - (954) 10,321 304,295 March 2009 Notes to the Financial Statements (continued) 9. INVESTMENTS (CONTINUED) 10. Gains/(losses) on investment 2009 Â£'000 2008 Â£'000 Realised gains based on historical cost 35,421 16,984 Less: amounts recognised as investment holding (5,043) (24,281) gains in previous years Realised gains/(losses) based on carrying value 30,378 (7,297) at previous balance sheet date Net movement in investment holding gains in the 46,127 (9,369) year Gains/(losses) on investments 76,505 (16,666) Purchase transaction costs for the year to 31 March 2009 were Â£492,000 (year ended 31 March 2008: Â£349,000). These comprise mainly stamp duty and commission. Sales transaction costs for the year to 31 March 2009 were Â£367,000 (year ended 31 March 2008: Â£395,000). These comprise mainly commission. 10. DEBTORS 11. 2009 Â£'000 2008 Â£'000 Amounts due from brokers 245 3,899 Withholding taxation recoverable 416 273 VAT recoverable 33 36 Prepayments and accrued income 613 191 1,307 4,399 9. CREDITORS 2009 2008 Amounts falling due within one year Â£'000 Â£'000 Amounts due to brokers 100 - Amounts due to brokers - OTC swap 10,794 11,361 Amounts due to brokers - purchase of own 608 919 shares Stamp duty due on purchase of own shares 4 15 Bank loans and overdrafts* 40,183 4,075 Other creditors and accruals 875 665 52,564 17,035 * Following the expiry of the Company's committed multicurrency loan facility with Allied Irish Banks p.l.c. on 31 December 2008, its borrowing requirements are now met through the utilisation of a loan facility, repayable on demand, provided by Goldman Sachs & Co. New York ("Goldman Sachs"). Interest on the overdraft facility is charged at the Federal effective rate plus 1 week OIS+ Spread plus 45 basis points. As at 31 March 2009 assets to the value of approximately 140% of the Company's debt were held by Goldman Sachs as collateral. 12. DERIVATIVE FINANCIAL INSTRUMENTS 13. 2009 Â£'000 2008 Â£'000 Fair value of call and put options Fair value (954) 10,321 (462) 10,244 of OTC equity swap 9,367 9,782 Notes to the Financial Statements (continued) 13.SHARE CAPITAL 2009 2008 Â£'000 Â£'000 Authorised 178,000,000 shares of 25p 44,500 44,500 Allotted, called-up and fully paid 44,419,481 (2008: 47,086,161) shares 11,105 11,772 of 25p At 31 March 2009 the Company held 3,058,050 shares in treasury (2008: 896,000). During the year ended 31 March 2009, a total of 4,841,800 shares (2008: 6,351,307) were purchased to be held in treasury, at a total cost of Â£ 24,746,000 (2008: Â£30,852,000). Of these, 3,058,050 were held in treasury at 31 March 2009 (2008: 896,000). Also during the year a total of 2,679,750 shares which were previously held in treasury have been cancelled. The Company also allotted a total of 13,070 shares for total consideration of Â£ 61,000 on 4 August 2008 as a result of certain holders of the Company's warrants exercising their subscription rights. At the year end there were 10,745,610 warrants in issue (2008: 10,758,680). Holders of warrants have the right to subscribe for the number of shares of the Company equal to the number of warrants held at a price of 464p per share on 31 July 2009, this being the last such subscription date. 14. NET ASSET VALUE PER SHARE 15. 2009 2008 Â£'000 Â£'000 Net asset value per share - basic 635.9p 486.6p Net asset value per share - diluted 600.5p 482.4p The net asset value per share is based on the assets attributable to equity shareholders of Â£263,017,000 (2008: Â£224,783,000) and on the number of shares in issue at the year end of 41,361,431 (excluding shares held in treasury) (2008: 46,190,161). The diluted net asset value per share assumes all outstanding warrants are exercised at 464p resulting in assets attributable to equity shareholders of Â£312,877,000 (2008: Â£274,703,000) and on the resultant number of shares of 52,107,041(2008: 56,948,841). As at 31 March 2009 the Company held 3,058,050 shares in treasury (2008: 896,000). 15. RECONCILIATION OF OPERATING RETURN TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES 16. 2009 Â£'000 2008 Â£'000 Gains/(loss) before finance costs and 65,341 (15,083) taxation Capital (gain)/loss before finance costs (62,027) 17,657 and taxation Revenue return before finance costs and 3,314 2,574 taxation Expenses charged to capital (2,436) (2,323) (Increase)/decrease in accrued income (422) 6 Decrease in other debtors 3 91 Increase/(decrease) in creditors and 220 (112) accruals Net taxation suffered on investment income (740) (568) Net cash outflow from operating activities (61) (332) Notes to the Financial Statements (continued) 16. RECONCILIATION OF NET CASH FLOW MOVEMENT TO MOVEMENT IN NET (DEBT)/FUNDS 2009 Â£'000 2008 Â£'000 (Increase)/decrease in net (35,950) 6,604 debt resulting from cashflows Exchange movements (12,042) 1,332 Decrease in short term loans/ 14,813 10,308 bank overdraft Movement in net debt in the (33,1 79) 18,244 year Net funds/(debt) at start of 2,975 (15,269) year Net (debt)/funds at end of (30,204) 2,975 year Represented by: At 1 Exchange At 31 March April 2008 Cash flows movements 2009 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank 7,050 4,050 (1,121) 9,979 Bank overdraft - (40,000) (183) (40,183) Bank loans (4,075) 14,813 (10,738) - Net funds/(debt) 2,975 (21,137) (12,042) (30,204) 17. RELATED PARTIES Details of the relationship between the Company, Frostrow Capital LLP and OrbiMed Capital LLC are disclosed in the Report of the Directors on pages 17 and 18. Samuel D Isaly is a Director of the Company, as well as Managing Partner of the Company's Investment Manager, OrbiMed Capital LLC. During the year ended 31 March 2009, OrbiMed Capital LLC received Â£1,667,000 in respect of Investment Management fees, of which Â£426,000 was outstanding at the year end. 18. FINANCIAL INSTRUMENTS' EXPOSURE TO RISK AND RISK MANAGEMENT POLICIES The Company's financial instruments comprise securities and other investments, derivative instruments, cash balances, loans, debtors and creditors that arise directly from its operations. As an investment trust, the Company invests in equities and other investments for the long term so as to secure its investment objective as stated on page 14. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in a reduction in the Company's net assets. The main risks that the Company faces arising from its financial instruments are: i. market risk (including foreign currency risk, interest rate risk and other price risk) ii. liquidity risk (iii) credit risk These risks and the Directors' approach to the management of them, are set out in the Report of Directors and have not changed from the previous accounting period. The Investment Manager, in close co-operation with the Board of Directors, co-ordinates the Company's risk management. Notes to the Financial Statements (continued) 18. FINANCIAL INSTRUMENTS' EXPOSURE TO RISK AND RISK MANAGEMENT POLICIES (CONTINUED) 1. Market risk: The Company's portfolio is exposed to market price fluctuations which are monitored by the Investment Manager in pursuance of the investment objective. Management of risk: Derivative instruments are used to mitigate market price risk, the following option strategies or a combination of such have been used during the financial year: * Buy calls: provides leveraged long exposure, facilitates exposure while minimising capital risk. * Buy puts: provides leveraged protection, facilitates exposure while minimising capital at risk. * Sell calls: against an existing position, provides partial protection from a decline in stock price; facilitates commitment to an exit strategy and exit price that is consistent with fundamental analysis. * Sell puts: provides an effective entry price at which to add to an existing position, or provides an effective entry price at which to initiate a new position. In order to meet the Company's objective of achieving a high level of capital growth the Company has entered into an OTC equity swap. OTC equity swaps are over-the-counter derivatives contracts between two counterparties, governed by an ISDA (International Swap Dealer Association) master agreement. Investment in equity swaps is limited to 5% of the portfolio. (a) Foreign Currency risk A significant proportion of the Company's investment portfolio is denominated in currencies other than sterling (the Company's functional currency, and in which it reports its results). As a result, movements in exchange rates can significantly affect the sterling value of those items. Foreign currency exposure and sensitivity The fair values of the Company's monetary items that are denominated in foreign currency as at 31 March 2009 are shown below: 2009 Current 2009 Current 2009 2008 2008 2008 assets Â£'000 Current Current liabilitiesi Investments assets Investments Â£'000 liabilities Â£'000 Â£'000 Â£'000 Â£'000 U.S. dollar 9,619 (52,031) 209,994 8,529 (15,898) 173,683 Swiss franc - - 28,976 103 - 22,930 Japanese yen 147 - 25,464 2,255 - 20,451 Euro - - 7,167 299 - 9,217 9,766 (52,031) 271,601 11,186 (15,898) 226,281 Management of risk: The Investment Manager and Manager monitor the Company's exposure to foreign currencies on a daily basis and report to the Board on a regular basis. The Investment Manager does not hedge against foreign currency movements, but takes account of the risk when making investment decisions. Foreign currency borrowing facilities are available and are currently being utilised, to limit the Company's exposure to anticipated future changes in exchange rates, which might otherwise adversely affect the value of portfolio of investments. Income denominated in foreign currencies is converted into sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that the income is included in the financial statements and its receipt. Notes to the Financial Statements (continued) 18. FINANCIAL INSTRUMENTS' EXPOSURE TO RISK AND RISK MANAGEMENT POLICIES (CONTINUED) Foreign currency sensitivity The following table details the sensitivity of the Company's profit or loss after taxation for the year and of shareholders' funds to a 30% increase and decrease in sterling against the U.S. dollar (2008: 5% increase and decrease), a 30% increase and decrease in sterling against the Japanese yen (2008: 15% increase and decrease), and a 20% increase and decrease in sterling against the Swiss franc (2008: 20% increase and decrease). These percentages have been determined based on market volatility in exchange rates over the previous 12 months. The sensitivity analysis is based on the Company's foreign currency financial instruments held at each balance sheet date. If sterling had weakened against the currencies below this would have had the following effect: 2009 USD Â£'000 2009 2009 2008 2008 2008 CHF YEN Â£ CHF Â£ USD Â£ YEN Â£ Â£'000 '000 '000 '000 '000 Sterling depreciates 76,283 (41,084) 10,899 7,394 9,104 3,280 5,829 Sterling appreciates (5,871) (4,918) (8,311) (2,735) (3,885) (b) Interest rate risk Interest rate movement may affect: * the interest payable on the Company's variable rate borrowings; * the level of income receivable from fixed interest securities and cash at bank and on deposit; * the fair value of investments of fixed interest securities. Management of the risk The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and borrowing under the multicurrency loan facility. The Company, generally, does not hold significant cash balances (except when required for collateral against the Company's derivative positions), with short term borrowing being used when required. Interest rate exposure The Company has a loan facility with Goldman Sachs which is repayable on demand. Â£40,183,000 was drawn down under this facility at 31 March 2009. The exposure of financial assets and liabilities to floating interest rates, giving cash flow interest rate risk when rates are re-set, is shown below. Floating rate The floating interest rate exposure of the financial assets and financial liabilities to interest rate risk at 31 March 2009 in respect of cash was Â£ 9,979,000 (2008: Â£7,050,000) and bank overdraft/bank loans was Â£40,183,000 (2008: Â£4,075,000). Notes to the Financial Statements (continued) 18. FINANCIAL INSTRUMENTS' EXPOSURE TO RISK AND RISK MANAGEMENT POLICIES (CONTINUED) Fixed rate In the year to 31 March 2009, the Company held 1.8% of the portfolio in fixed interest securities. This percentage is deemed not to be material and accordingly no sensitivity analysis has been presented. (c) Other price risk Other price risk may affect the value of the quoted investments. If market prices at the Balance Sheet date had been 20% higher or lower (2008: 10% higher or lower) while all other variables remained constant, the revenue return would have decreased/increased by Â£22,000 (2008: Â£5,000), and the capital return would have increased/decreased by Â£60,273,000 (2008: Â£22,893,000). The calculations are based on the portfolio valuations as at the respective balance sheet dates and assume that the portfolio moves in line with the index. 2. Liquidity risk This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Management of the risk Liquidity risk is not significant as the majority of the Company's assets are investments in quoted equities and other quoted securities that are readily realisable. The Company has a loan facility repayable on demand with Goldman Sachs. Interest on the overdraft facility is charged at the Federal effective rate plus 1 week OIS Spread plus 45 basis points. In order to ensure diversification within the portfolio, the Board gives guidance to the Investment Manager concerning exposure limits to individual companies. Geographical and sectoral exposure are also reviewed regularly by the Directors. Liquidity exposure Contractual maturities of the financial liabilities as at 31 March 2009, based on the earliest date on which payment can be required are as follows: 31 March 2009 3 months or less 2009 Total Â£'000 Â£'000 Not more than one year Â£'000 Current liabilities: Borrowings under the bank 40,183 - 40,183 overdraft agreement Amounts due to brokers and 1,587 10,794 12,381 accruals 41,770 10,794 52,564 2008 3 months Not more or less than one year Total 31 March 2008 Â£'000 Â£'000 Â£'000 Current liabilities: Borrowings under the loan facility and 4,075 - 4,075 bank overdraft agreement Amounts due to brokers and accruals 1,599 11,361 12,960 5,674 11,361 17,035 Notes to the Financial Statements (continued) 18. FINANCIAL INSTRUMENTS' EXPOSURE TO RISK AND RISK MANAGEMENT POLICIES (CONTINUED) 3. Credit risk The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. The carrying amounts of financial assets best represent the maximum credit risk at the Balance Sheet date. The Company's listed investments are held on its behalf by The Bank of New York Mellon and Goldman Sachs acting as the Company's custodian. Bankruptcy or insolvency of a custodian may cause the Company's rights with respect to securities held by that custodian to be delayed, however, the Board monitors the Company's risk to its custodians by reviewing continuously their internal control reports and their credit ratings. Certain of the Company's assets are held by Goldman Sachs as collateral for the loan provided by them to the Company. Such assets held by Goldman Sachs are available for rehypothecation.â€ Management of the risk The risk is not significant, and is managed as follows: * by only dealing with brokers which have been approved by OrbiMed Capital LLC and banks with high credit ratings; * by setting limits to the maximum exposure to any one counterparty at any time; * by monitoring the assets subject to rehypothecation; and * in addition, cash is also held as collateral against the Company's investment in the OTC equity swap (M&A Basket). As at 31 March 2009 Â£ 8,838,000 was held as collateral (2008: Â£5,736,000). As at the date of this report, the investment in the OTC equity swap has been reduced and as a result the amount of cash held as collateral, which is subject to the credit risk associated with Goldman Sachs, has fallen to Â£355,000. â€ See Glossary Credit risk exposure 2009 2008 Balance Balance Sheet Sheet Â£'000 Â£'000 Financial assets at fair value through 294,928 220,587 profit or loss M&A Basket - OTC equity swap 10,321 10,244 Current assets: Other receivables (amounts due from 1,307 4,399 brokers, dividends and interest receivable) Cash at bank and on deposit* 9,979 7,050 * Includes cash held as collateral. Fair value of financial assets and financial liabilities The fair value of the financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments and derivatives) or the Balance Sheet amount is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accrual, cash at bank, bank overdraft and amounts due under the loan facility). Capital management policies and procedures The Company's capital management objectives are to ensure that it will be able to continue as a going concern and to maximise the income and capital return to its equity shareholders through an appropriate level of gearing. The Board's policy is to limit gearing to the lower of Â£70m and 20% of the Company's net assets. The capital structure of the Company consists of the equity share capital, retained earnings and other reserves as disclosed on the Balance Sheet on page 35. Gearing for this purpose is defined as net debt as a percentage of total net assets. As at 31 March 2009 the gearing percentage of the Company was 11.5%. Notes to the Financial Statements (continued) 18. FINANCIAL INSTRUMENTS' EXPOSURE TO RISK AND RISK MANAGEMENT POLICIES (CONTINUED) The Board with the assistance of the Investment Manager monitors and reviews the broad structure of the Company's capital on an ongoing basis. This includes a review of: * the planned level of gearing, which takes into account the Investment Manager's view of the market; * the need to buy back equity shares, either for cancellation or to hold in treasury, in light of any share price discount to net asset value per share in accordance with the Company's share buyback policy; * the need for new issues of equity shares, including issues from treasury; and * the extent to which revenue in excess of that which is required to be distributed should be retained. The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. The Company is also subject to several externally imposed capital requirements and are as follows: * as a public company, the Company has a minimum share capital of Â£50,000; and * in order to be able to pay dividends out of profits available for distribution, the Company has to be able to meet one of the two capital restriction tests imposed on investment companies by company law. These requirements are unchanged since last year and the Company has complied with them. 19. CAPITAL RESERVE Capital Capital reserve- reserve - Investment Total Other Holding Gains ToÂ£'000 tal Â£ '000 Â£'000 Â£'000 Â£'000 At 31 March 2008 81,532 79 81,611 Transfer on disposal of 5,043 (5,043) - investments Net gains on investments 30,378 46,127 76,505 Expenses charged to (2,619) - (2,619) capital Repurchase of shares into (24,746) - (24,746) treasury Exchange loss on currency (12,042) - (12,042) balances At 31 March 2009 77,546 41,163 118,709 The Institute of Chartered Accountants in England and Wales has issued guidance (TECH 01/08) stating that profits arising out of a change in fair value of assets, recognised in accordance with Accounting Standards, may be distributed provided the relevant assets can be readily convertible into cash. Securities listed on a recognised stock exchange are generally regarded as being readily convertible into cash. However, under the terms of the Company's Articles of Association, sums with "Other capital reserves" are available for distribution only by way of redemption or purchase of any of the Company's own shares. In addition, in order to maintain investment trust status, the Company may only distribute by way of dividend accumulated revenue profits. 20. CONTINGENT ASSETS On 5 November 2007 the European Court of Justice ruled that management fees should be exempt from VAT. HMRC has announced its intention not to appeal against this case to the UK VAT Tribunal. The Company's previous Investment Manager is currently in the process of quantifying any potential repayment that might be due. However, the amount the Company may receive and the time scale for receipt are all uncertain and hence the Company has made no provision in these financial statements for any such repayment. Explanatory Notes of Principal Changes to the Company's Articles of Association As described in the Report of the Directors, it is proposed that a number of alterations be made to the Company's Articles of Association. The principal changes are set out below. As announced on 28 July 2008 the resolution proposed at the Annual General Meeting held on 23 July 2008, to adopt new Articles of Association was ineffective. As then indicated, a resolution is being proposed at this year's Annual General Meeting to adopt new Articles of Association (the "New Articles") in substantially the same form as was proposed to be adopted last year. Most of the changes proposed to be made compared to the current Articles of Association of the Company (the "Current Articles") are being proposed to reflect changes made by the Companies Act 2006, and to clarify that certain provisions of the New Articles apply subject to any relevant provisions of the Companies Act 2006. Additional changes have been made to bring the New Articles into line with changes being made to English company law pursuant to the EU Shareholder Rights Directive. 1. INTERPRETATION Definition of "authenticated" has been inserted to reflect the new term used under the 2006 Act. Definitions of "ordinary resolution"and "special resolution" have been inserted to reflect the definitions within the 2006 Act. Definitions of "hard copy" and "hard copy form" have been inserted to reflect the definitions within the 2006 Act. Amendments have been made to the meaning of "member"to include reference to a person nominated under the 2006 Act (please see the wording under nomination rights in relation to this). 2. ABOLITION OF EXTRAORDINARY GENERAL MEETINGS AND EXTRAORDINARY RESOLUTIONS Throughout the new Articles, references to a requirement for an "Extraordinary General Meeting" have been replaced by "General Meeting" and all references to "extraordinary resolution" have been removed. The terms "extraordinary general meeting "and "extraordinary resolution" have ceased to be applicable under the 2006 Act. 3. NOTICE OF AND PROCEEDINGS AT GENERAL MEETINGS The provisions in the new Articles dealing with the convening of General Meetings, method of notice and the length of notice required to convene General Meetings are in line with the relevant provisions of the 2006 Act and include reference to the rights of nominees (please see the wording under nomination rights in relation to this). 4. VOTES OF MEMBERS, PROXIES AND CORPORATE REPRESENTATIVES Under the 2006 Act, proxies are entitled to vote on a show of hands as well as on a poll, and members may appoint a proxy to exercise or all of any of their rights to attend, speak and vote at meetings. Multiple proxies may be appointed provided that each proxy is appointed to exercise the rights attached to a different share or shares. The 2006 Act also provides for multiple corporate representatives to be appointed and the new Articles therefore refer to the right to appoint multiple corporate representatives. 5. SECURITY PROCEDURES AT GENERAL MEETINGS The new Articles have been amended so as to clarify the provisions in relation to security at General Meeting. The Board may refuse entry to, or eject from, General Meetings persons who fail to comply with security arrangements made under the Articles. Explanatory Notes of Principal Changes to the Company's Articles of Association (continued) 6. POLLS A new Article has been inserted to clarify that the Company must publish the results of a poll on its website in accordance with the 2006 Act. 7. PROXIES Articles 83 to 92 have been amended to ensure that the provisions in relation to multiple proxies are in line with the 2006 Act. 8. DIRECTORS' INTERESTS AND CONFLICTS OF INTERESTS The Companies Act 2006 sets out Directors `general duties which largely codify the existing law, but with some changes. Under the Companies Act 2006, from 1 October 2008 a Director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict with the company's interests. The requirement is very broad and could apply, for example, if a Director becomes a Director of another company or a trustee of another organization. The Companies Act 2006 allows Directors of public companies to authorize conflicts and potential conflicts where the Articles of Association contain a provision to this effect. The Companies Act 2006 also allows the Articles to contain other provisions for dealing with Directors' conflicts of interest to avoid a breach of duty. The New Articles give the Directors authority to approve such situations and to include other provisions to allow conflicts of interest to be dealt with in a similar way to the current position. There are safeguards which will apply when Directors decide whether to authorize a conflict of potential conflict. First, only Directors who have no interest in the matter being considered will be able to take the relevant decision, and secondly, in taking the decision the Directors must act in a way they consider, in good faith, will be most likely to promote the Company's success. The Directors will be able to impose limits or conditions when giving authorization if they think this is appropriate. It is also proposed that the New Articles should contain provisions relating to confidential information, attendance at board meetings and availability of board papers to protect a Director being in breach of duty if a conflict of interest or potential conflict of interest arises. These provisions will only apply where the position giving rise to the potential conflict has previously been authorized by the Directors. It is the Board's intention to report annually on the Company's procedures for ensuring that the Board's powers to authorize conflicts are operated effectively. 9. SEALS Article 144 has been amended so as to reflect the 2006 Act provision which enables the Company to sign documents by one Director executed in the presence of a witness, rather than having to seal the document. 10. SERVICE OF NOTICES AND OTHER DOCUMENTS Articles 165 to 167 have been amended so as to clarify the methods of service and to reflect the rights of nominees. Explanatory Notes of Principal Changes to the Company's Articles of Association (continued) 11. RIGHT TO STOP SENDING DIVIDEND WARRANTS, NOTICES ETC Article 178 has been inserted to grant the Company the right to: a. stop sending dividend cheques or warrants in certain circumstances namely where they have been returned, undelivered or left uncashed for two consecutive occasions during the periods which they are valid and reasonable enquiries have been made to establish any new address for the relevant member or person; and b. stop sending members and all people granted information rights by virtue of the 2006 Act, notices etc, if they have been returned undelivered on at least two consecutive occasions or if following one such occasion reasonable enquiries have failed to establish a new address for service, subject to the passing of a Directors' resolution confirming that the Company need not send such documents to the said member/person granted information rights. 12. INDEMNITY The new Articles permit the Directors (but not the Auditors) to be indemnified to the fullest extent permitted by the 2006 Act not only in relation to the affairs of the Company but also in relation to the affairs of any subsidiary or subsidiary undertaking of the Company. 13. NOMINATION RIGHTS Articles are to be inserted to reflect the statutory framework within the 2006 Act by which indirect investors who hold their shares through intermediaries may exercise certain membership rights if the Company's Articles allow it. It should be noted that members of a listed company are able to nominate another person to receive information to which they are entitled. Even if the Company does not want a member to have the right to nominate someone to exercise all of the available rights, the Articles should still be amended to provide for members to nominate someone to receive information to which they are entitled. This should cover: * the rights which a nominee may enjoy; * the situations in which a person's nomination rights will terminate and the form and content of nomination notices; and Glossary of Terms INVESTMENT TRUST TERMS Diluted Net Asset Value This is a method of calculating the net asset value ("NAV") of a company that has issued, and has outstanding, convertible loan stocks, warrants or options. The calculation assumes that the holders have exercised their right to convert or subscribe, thus increasing the number of shares among which the assets are divided. Discount or Premium A description of the situation when the share price is lower or higher than the NAV per share. The size of the discount or premium is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage (%) of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium. Gearing Also known as leverage, particularly, in the USA. The term used to describe the process of borrowing money for investment purposes in the expectation that the returns on the investments purchased using the borrowings exceed the costs of those borrowings. NAV per share (pence) Net asset value per share is shareholders' funds expressed as an amount per share. Shareholders'funds are the total value of all of the Company's assets, at current fair value, having deducted all prior charges. NAV Total Return The theoretical total return on shareholders' funds per share, including the assumed Â£100 original investment at the beginning of the period specified, reflecting the change in NAV assuming that dividends paid to shareholders were reinvested at NAV at the time the shares were quoted ex-dividend. A way of measuring investment management performance of investment trusts which is not affected by movements in discounts/premiums. OIS (Overnight Indexed Swap) Overnight indexed swap is an interest rate swap where the periodic floating rate of the swap is equal to the geometric average of an overnight index over every day of the payment period. Rehypothecation The pledging of securities or other assets as collateral to secure a loan such as a debit balance in a margin account. Assets subject to rehypothecation are protected by relevant U.S. SEC Rules. Total Assets Total assets less current liabilities before deducting prior charges. Prior charges include all loans for investment purposes. Total Expense Ratio The total expense ratio is calculated by taking the Company's expenses and dividing by the average net asset value of the Company over the year. Treasury Shares Shares previously issued by a company that have been bought back from shareholders to be held by the company for potential sale or cancellation at a later date. A copy of the Company's Annual Financial Report can be found on the Company's website at www.finsburywp.com By Order of the Board Frostrow Capital LLP Company Secretary 31 July 2009 END REVIEW OF INVESTMENTS REVIEW OF INVESTMENTS (continued) REVIEW OF INVESTMENTS (continued) CHAMPIONS OF INNOVATION Report of the Directors (continued) Report of the Directors (continued) Report of the Directors (continued) Report of the Directors (continued) Report of the Directors (continued) STATEMENT OF DIRECTORS' RESPONSIBILITIES CORPORATE GOVERNANCE CORPORATE GOVERNANCE (continued) CORPORATE GOVERNANCE (continued) CORPORATE GOVERNANCE (continued) CORPORATE GOVERNANCE (continued) DIRECTORS' REMUNERATION REPORT DIRECTORS' REMUNERATION REPORT (continued) INDEPENDENT AUDITORS' REPORT To the members of Finsbury Worldwide Pharmaceutical Trust PLC INDEPENDENT AUDITORS' REPORT (continued) INCOME STATEMENT for the year ended 31 March 2009 RECONCILITAION OF MOVEMENTS IN SHAREHOLDERS' FUNDS BALANCE SHEET as at 31 March 2009 CASH FLOW STATEMENT for the year ended 31 March 2009 * The accompanying notes are an integral part of this statement. The accompanying notes are an integral part of this statement. The accompanying notes are an integral part of this statement. The accompanying notes are an integral part of this statement. The accompanying notes are an integral part of this statement. The accompanying notes are an integral part of this statement. The accompanying notes are an integral part of this statement. The accompanying notes are an integral part of this statement. *dilution not applicable

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