Annual Financial Report

RNS Number : 4177U

Edinburgh Dragon Trust plc

15 October 2010

 



15 October 2010

EDINBURGH DRAGON TRUST plc

ANNUAL FINANCIAL REPORT FOR THE YEAR TO 31 AUGUST 2010

Edinburgh Dragon Trust's objective is long-term capital growth through investment in the Far East (excluding Japan and Australasia).  The Company's benchmark is the MSCI All Country Asia (ex Japan) Index.

•     Edinburgh Dragon delivered a strong performance for the year to 31 August 2010.  Thenet asset value rose 35.0% on a total return basis compared to a rise of 24.2% in the MSCI All Country Asia (ex Japan) Index in sterling terms.

•     Asian valuations remain reasonable and Dragon will continue to seek out and invest in companies that will profit from Asia's domestic-orientated growth. 

For further information please contact:-

Andrew Gillan, Senior Investment Manager,

Aberdeen Asset Management Asia                                                                        0065 6395 2700

Ian Massie, Head of Investment Trust Investor Relations,                                          0131 528 4000

Aberdeen Asset Management

CHAIRMAN'S STATEMENT

Background

I am pleased to report that during the 12 months to 31 August 2010, your Company delivered a strong performance. The net asset value per share at the financial year end was 240.1p (2009 -179.3p), a rise of 35.0% on a total return basis, compared with a gain in the benchmark, the MSCI AC Asia ex Japan Index, of 24.2% in sterling terms. The share price rose by 30.8% to 219.0p, reflecting a slight widening in the discount from 6.6% to 8.8%.

Asia's financial markets, underpinned by strong fundamentals, all rose by double digits, led by Thailand, Indonesia and Malaysia. Although the short-term economic outlook appears more clouded of late, the long-term outlook for Asia remains upbeat, as regional economies continue to decouple from the West.

Overview

Asian equities rose despite recurring fears that the global economic recovery might stall as stimulus measures were withdrawn. In May, markets fell to their lowest point in 10 months, as risk aversion triggered a sell-off. Sentiment was hurt by renewed fears of a debt crisis in Europe, while China's monetary tightening threatened to jeopardise Asia's recovery.

Underpinning the markets' rise was the resilience of Asian economies. In 2009, Asia grew 5.8% despite contractions in key economies such as Singapore and Taiwan. This year, the consensus forecast is for the region (excluding Japan) to grow by 8.6%, its fastest pace of expansion in 20 years. Driving the recovery are two key factors. First, low debt levels have allowed regional governments to implement large fiscal stimulus in the face of weak demand in key Western markets. Second, Asian exports rebounded strongly, driven by intra-regional trade. China has provided a more structural source of demand, as it steps into its new role as the next engine of global growth. The mainland, which overtook Japan as the world's second largest economy in the second quarter, is providing the growth impetus for the industrialised economies of Taiwan and Korea, as well as resource-based ones such as Indonesia. Notably, China's trade with Southeast Asia rose by 54.7% in the first half of 2010 alone.

The remarkable expansion, however, came with a price. Inflationary pressures, which had been a problem before the credit crisis began, started to build again, particularly in China and India. Part of the upward pressure on consumer prices was due to disruptions in the food supply, which may be short-lived, but rising wages, particularly in China, signal the start of a structural shift. Rising property prices caused further problems for policymakers in the mainland, as well as in Hong Kong and Singapore. While India has raised benchmark interest rates to contain price increases, China used other measures, such as raising the amount of capital lenders were required to hold in reserve, along with stricter rules for property purchases.

Against this backdrop, your Company posted a good performance though it should be noted that sterling weakness against most Asian currencies accounted for 9.4% of these returns, in part reflecting the strength of the region's economies relative to that of the UK. Notable among the holdings that contributed most to Edinburgh Dragon's outperformance were Jardine Strategic, Unilever Indonesia and India's Housing Development Finance Corp, companies whose businesses are aligned with the structural rise of the wealth of Asia's middle class.

It should also be noted that the Indian market outperformed China's by a significant margin over the period, despite the latter's higher growth trajectory. Though some of this can be attributed to China's tighter monetary stance, India's more market-driven economy enables its companies to more effectively translate top line growth into sustainable growth at the bottom line.

Discount

The Board monitors closely the discount level of the Company's shares and has in place a buyback mechanism whereby the Manager is authorised to buy back shares within certain limits.  In December 2009, the Company announced a Tender Offer for up to 15% of the Ordinary shares of the Company at a discount of 3 per cent. to Formula Asset Value.  As a result some 34,643,156 Ordinary shares were bought back at the Repurchase Price of 197.2794 pence per share and subsequently cancelled.

Following the implementation of the Tender Offer, the Company had 196,311,219 shares in issue. There were no further buy-backs of shares during the financial year and there have been no buy-backs subsequent to the year end. 

The Board believes the authority to buy-back shares for cancellation should remain in place and, accordingly, a resolution to renew the authority to buy-back shares for cancellation will be proposed at this year's Annual General Meeting. 

Gearing

During the year the Company had a gearing facility in place via a £40 million multi-currency loan facility with the Royal Bank of Scotland.  No drawdowns were made on the facility during the financial year and this facility expired at the end of September 2010.  The Board is supportive of gearing and further gearing options are currently under consideration, including the possibility of extending the Company's capital base and expects to report on progress at the Annual General Meeting on 8 December 2010.

Revenue Account

The revenue return per share was 2.62p, compared to 2.31p in the previous year.  The Board recommends the payment of a final dividend of 1.90p per Ordinary share which, if approved by shareholders at the Annual General Meeting, will be paid on 10 December 2010.

The Board

In line with Edinburgh Dragon's strong commitment to its corporate governance responsibilities, the Board regularly reviews its performance and structure to ensure it has the correct mix of relevant skills and experience for the good conduct of the Company's business. As part of this process the Board was pleased to appoint Iain McLaren, a former senior partner of KPMG, as a non-executive director of the Company on 6 September 2010.   Iain will stand for election at the Annual General Meeting.  After many years of valuable service to the Board of Edinburgh Dragon, Peter Tyrie will be stepping down as a director. The Board joins me in thanking Peter for his valuable contribution to the success of the Company over many years.

The coming years will see an ongoing refreshment of the Board as highlighted in the 2009 annual report.

In accordance with the corporate governance procedures endorsed by the Board, all Directors who have attained more than nine years' service will retire from the Board and submit themselves for re-election on an annual basis. Messrs Frame and Watt will retire and be proposed for re-election at the Annual General Meeting.  In accordance with the Company's articles, Mr Lowrie will retire from the Board and will offer himself for re-election at the Annual General Meeting.  The Board recommends that shareholders vote in favour of the re-election of these Directors at the Annual General Meeting. 

Ongoing management of the Company

As announced in the interim report, the Board agreed a succession plan with the Manager following the departure of Peter Hames which resulted in the appointment of Andrew Gillan as the named manager and Adrian Lim as his deputy.  Both Andrew and Adrian have been with Aberdeen in the Far East region for nine years and have considerable experience of the region and working with investment trusts.

The Board recognises the proven strength of Aberdeen's collective, team-based, investment approach over many years and many market cycles. Extensive and regular company contact is at the heart of their investment process. They never invest in a company without having first met the management. Company visits are rotated among the Asian equity investment management team of over 30 investment professionals, led by Hugh Young.

AIFM Directive

We continue to monitor developments closely with regard to the above proposed piece of European legislation (sometimes wrongly called the "Hedge Fund Directive").  It was feared that this may have a significant impact upon the way that investment trusts operate.  There has been much lobbying on behalf of the industry, led by the Association of Investment Companies, and  I am hopeful that the major causes of concern are now understood by the legislators and that changes in the final draft will reflect them.  It is too early to be complacent, however, and we await the much delayed decision from Europe.

Annual General Meeting

The venue and format of this year's Annual General Meeting has been changed from previous years.  The meeting will be held at Aberdeen's London office on Wednesday 8 December at 12.00 noon followed by a lunch for shareholders.  This will give shareholders the opportunity to meet the Directors and Manager after the formal AGM business has concluded and we welcome all shareholders to attend. Going forward the intention is to rotate the AGM between Edinburgh and London in successive years.

Outlook

Looking ahead, Asian stockmarkets are likely to remain volatile in the short term. This is because fund flows into Asia remain very much linked to what is happening in Western financial markets, despite the significant strides Asian economies have made to decouple from developed ones.

Nevertheless, the region still faces several challenges. Inflationary pressures are rising in tandem with the fast pace of economic growth. Governments and their central banks may be forced to shift away from exchange rate-based policies, under which monetary policy is effectively imported from major developed world trading partners, to policies which better reflect the strong economic realities in their own countries. In particular, China's policy-induced slowdown may prove to be a drag on the entire region, as trade links with the mainland have grown substantially as demand from the more traditional export markets in the West has waned. Furthermore, countries in the region continue to link their currencies to Western currencies to varying degrees, even as their growth paths diverge. 

That said, Asia is not encumbered by the same structural problems as the debt-laden developed world. After a decade of austerity, large reserves of foreign exchange and solid fiscal foundations give policymakers a panoply of options, among them the ability to extend stimulus measures further in the event that the global economic recovery stalls.

Despite the run-up in equity markets, your Manager believes that valuations in Asia are still reasonable and remains comfortable with the Company's existing holdings. As such, Edinburgh Dragon will continue to seek out and invest in companies that will profit from Asia's domestic-oriented growth.

Allan McKenzie

Chairman

14 October 2010

MANAGER'S REVIEW

Overview

Asian equities rose strongly in the year under review as corporate earnings rebounded, aided by low interest rates and fiscal stimulus. Thailand was the best performing market as it shrugged off violent protests in Bangkok between government forces and the "red shirts" to gain 56.1% in sterling terms. Indonesia was next, thanks to its large, domestically-orientated economy that was mostly shielded from ongoing external uncertainties.

At the outset of the period, economic conditions across Asia were improving quickly. The region's sizable foreign reserves and healthy fiscal positions helped governments execute generous and effective stimulus packages. In particular, China's own massive US$585 billion package, combined with a big expansion in bank credit, drove demand higher for its neighbours' commodities and other products. As such, the export-orientated economies of Singapore, Hong Kong and Taiwan, which had contracted sharply in 2008 and early 2009, rebounded quickly. 

The rapid economic improvement, however, gave rise to concerns of overheating. Beijing applied the brakes in two sectors that had helped propel the recovery, ordering a clampdown on property speculation and bank lending to local government investment vehicles. Elsewhere, Malaysia and India were the most aggressive in raising interest rates - three times each since the beginning of the calendar year - while South Korea, Taiwan and Thailand lifted policy rates at least once. This stood in contrast to the West, where interest rates were kept at record lows as economies struggled with high unemployment and consumer debt.

Regional currencies, as measured by the Bloomberg-JPMorgan Asia Currency Index, rose to a two-year high in the second quarter, driven by a pick-up in fund inflows. China's move to increase the flexibility of its exchange rate against the US dollar in June (although viewed as largely political) further buoyed hopes that currencies would rise significantly over the next few years. 

Performance Attribution Analysis

The portfolio's net asset value rose 35.0% on a total return basis during the 12 months to 31 August 2010, compared with a rise in its benchmark of 24.2%. Asset allocation, stock selection and the currency effect all contributed positively to relative performance.

Our positioning in Hong Kong, China and Sri Lanka contributed the most to relative performance. In Hong Kong, our stock holdings were beneficiaries of robust growth in China. Jardine Strategic's tender offer to repurchase its own shares, along with upbeat full-year results, boosted its share price. Both Hang Lung Group and Hang Lung Properties, which have significant exposure to the mainland, rose as investors focused on the growing rental income from its premium shopping malls.

The underweight to China boosted relative returns, as the market lagged amid government cooling measures. Stock selection, which was also positive, was driven mainly by CNOOC, the country's largest offshore oil and gas exploration company, as it was bolstered by record first-half production and earnings growth. Your Manager remains cautious about China. There is a disparity between the economy, which continues its inexorable rise, and the stockmarket, where cashflows do not always end up in the hands of shareholders. Many of the larger state-run enterprises, including the banks, have to balance shareholders' interests with the country's socio-economic goals. While we have a small number of Chinese companies in our portfolio at present, our Hong Kong holdings provide a more effective exposure to the mainland. We plan to increase our investments in China over time as we find well-managed and attractively-priced companies with proven track records.  

Our investments to Sri Lanka also boosted performance, as the market rose more than 80% over the period on the back of hopes that the end of the 25-year-long civil war would usher in a new era of stability. Tourism has been the clear beneficiary so far, having risen steadily since June last year with John Keells and its portfolio of hotels, ports and retail leading the rally. Similarly, DFCC Bank's share price doubled. The lender managed to post steady results despite the heavy tax burden on the sector.

The portfolio's overweight in South-east Asia also contributed considerably to relative performance. In Thailand, positive asset allocation outweighed negative stock selection; PTT Exploration and Production failed to keep pace with the rising market after the September 2009 oil spill incident at Montara. Conversely, in the Philippines, Ayala Land's expansion into mid-range residential property and into second-tier cities paid off, while Jakarta-listed Unilever Indonesia's share price was underpinned by steady revenue growth, complemented by margin expansion from lower raw material costs. The portfolio also has exposure to Indonesia's long-term growth prospects via Hong Kong-listed Jardine Strategic, which owns conglomerate Astra International, in addition to Singapore's Oversea-Chinese Banking Corp and United Overseas Bank, which have local subsidiaries in the archipelago. 

From a sector perspective, our large exposure to financials aided performance. In addition to DFCC Bank and Ayala Land, which have been mentioned above, CIMB Group also rose in response to the success of its South-east Asian expansion strategy with Indonesia now accounting for 20% of its profits. Other notable performers in the sector included Indian mortgage provider HDFC and Malaysia's Public Bank.

On the flip side, India's Grasim Industries was the year's biggest laggard on fears of overcapacity and fierce competition in the cement sector, although the share price reversed some of the poor performance towards the period-end.

Portfolio Activity

Turning to portfolio activity, your Manager divested Singapore-listed conglomerate Fraser and Neave; Hong Kong retailer Giordano; and Singapore-listed SATS, shares of which the Company had received as an in specie distribution from Singapore Airlines. These were sold for company-specific factors. Also sold were automation services provider ABB India, after its parent made an attractive open offer and Indian gas transportation company GAIL, following the sharp-run up in its share price.

Against this, we initiated a position in Li & Fung, a leading trading company with an excellent track record of growth and a top-tier client base. We also topped up a number of existing holdings whose stock prices we felt had lagged underlying business performance. As we already hold several of the best companies in Asia, adding them to the portfolio at attractive valuations remains an important part of our investment process.

Gearing

As highlighted in the Chairman's statement the Company did not drawdown on the £40 million loan facility during the year.  This facility expired at the end of September 2010 and further gearing options are currently under consideration

Outlook

Asia has survived the financial crisis remarkably well, but growth rates are likely to slow for the remainder of this year because of China's tightening measures and continued weakness in the West. In the US, unemployment remains high and house prices are still depressed. The Eurozone faces sovereign debt risks, while reducing public spending to trim burgeoning budget deficits will only slow the process of economic recovery.

In view of these global uncertainties, Asian policymakers may be reluctant to tighten policy further. Real interest rates are likely to remain negative in several countries, most evidently in India, where food price inflation has stayed above 20% year-on-year for most of the period under review.

Despite these headwinds, your Manager is upbeat on Asia's growth prospects. Current valuations offer good value for the long-term investor as both economic growth and domestic consumption are picking up. Most crucially, corporate earnings have recovered and the balance sheets of our companies are in good shape, placing them in excellent position to benefit from the growth of the region.  

Aberdeen Asset Management Asia Limited*

14 October 2010

(* on behalf of Aberdeen Asset Managers Limited

Both companies are subsidiaries of Aberdeen Asset Management PLC).

MANAGER'S REVIEW - THE INVESTMENT PROCESS

Philosophy and Style

Our investment philosophy is that markets are not always efficient. We believe that superior investment returns are therefore attainable by identifying good companies which are cheap in terms of the fundamentals that in our opinion drive share prices over the long term. We undertake substantial due diligence before initiating any investment including company visits in order to assure ourselves of the quality of the prospective investment. We are then careful not to pay too high a price when making the investment. Subsequent to that investment we then keep in close touch with the company, aiming to meet management at least twice a year. Given our long-term fundamental investment philosophy, one would not expect much change in the companies in which we invest. We do, however, take opportunities offered to us by what we see as anomalous price movements within stock markets to either top up or top slice positions, which typically accounts for the bulk of the activity within the portfolio during the year under review.

AAM Asia is based in Singapore. Founded in 1992, the office is run by Hugh Young, the founding managing director who oversees a team of portfolio managers in Singapore who act as generalists, cross-covering the region. In addition, AAM Asia has offices in Kuala Lumpur, Hong Kong, Sydney, Taipei, Tokyo and Bangkok.

Risk Controls

We seek to minimise risk by our in-depth research. We do not view divergence from a benchmark as risk - we view investment in poorly run expensive companies that we do not understand as risk. In fact where risk parameters are expressed in benchmark relative terms, asset - including sector - allocation constitutes a significant constraint on stock selection. Hence diversification of stocks provides our main control.

Aberdeen's performance and investment risk unit independently monitors portfolio positions, and reports monthly. As well as attributing performance it also produces statistical analysis, which is used by the Manager primarily to check the portfolio is behaving as expected, not as a predictive tool.

Aberdeen Asset Management Asia Limited*

* on behalf of Aberdeen Asset Managers Limited

PERFORMANCE TABLES

	31 August 2010	31 August 2009	% change
Performance
Equity shareholders' funds (£'000)	471,324	414,074	+13.8{A}
MSCI AC Asia (ex Japan) Index (in sterling terms; capital return basis)	583.85	481.71	+21.2
Net asset value per share (including net revenue) (p)	240.09	179.29	+33.9
Share price (p)	219.00	167.40	+30.8
Revenue return per share (p)	2.62	2.31
Total return per share (p)	62.11	17.31
Gearing
Maximum potential gearing (%)	8.5{B}	9.7{B}
Actual gearing (%)	nil	nil
Discount
Level of discount at which the shares trade (%)	8.8	6.6
Total expense ratio (TER)
- as % of average total assets less current liabilities	1.28	1.31
- as % of average shareholders' funds	1.28	1.36
{A}    The comparison of equity shareholders' funds was affected by the Tender Offer, when 15% of the Company's assets were distributed in cash to shareholders.
{B}     Based on £40 million facility available.

Performance (total return)

	1 year return	3 year return	5 year return
	%	%	%
Share price	+32.0	+56.6	+122.7
Net asset value	+35.0	+52.2	+127.2
MSCI AC Asia (ex Japan) Index (currency adjusted)	+24.2	+23.5	+105.5

Changes in Asset Distribution

	Value at				Value at
	31 August 2009	Purchases	Sales proceeds	Appreciation	31 August 2010
Country	£'000	£'000	£'000	£'000	£'000
China	30,809	2,461	3,322	5,985	35,933
Hong Kong	98,143	2,820	18,709	30,257	112,511
India	68,685	6,273	25,066	18,795	68,687
Indonesia	8,564	-	5,130	6,324	9,758
Malaysia	19,282	683	3,826	8,580	24,719
Philippines	10,552	1,259	1,775	5,208	15,244
Singapore	91,320	7,797	27,297	20,956	92,776
South Korea	34,608	2,553	7,396	6,911	36,676
Sri Lanka	5,378	2,454	-	8,042	15,874
Taiwan	19,689	4,920	2,762	3,441	25,288
Thailand	23,743	1,884	5,041	9,824	30,410
	_________	_________	_________	_________	_________
Total investments	410,773	33,104	100,324	124,323	467,876
Net current assets	3,301	-	-	147	3,448
	_________	_________	_________	_________	_________
Net assets	414,074	33,104	100,324	124,470	471,324
	_________	_________	_________	_________	_________

BUSINESS REVIEW

Business Review

This Business Review, in conjunction with the rest of the Report and Accounts, is intended to provide shareholders with the information and measures that the Directors use to assess, direct and oversee the Manager in the management of the Company's portfolio.  The Business Review is prepared in accordance with the requirements of Section 417 of the Companies Act 2006.

Principal Activity

The Company is registered as a public limited company and is an investment company as defined by Section 833 of the Companies Act 2006.  The Company's registration number is SC106049.

The Company carries on business as an investment trust and the Directors do not envisage any change in this activity in the foreseeable future. The Company has received requisite approval of investment trust status from the Inland Revenue for accounting periods up to and including 31 August 2009.

The Directors are of the opinion, under advice, that the Company has conducted its affairs for the year ended 31 August 2010 so as to be able to obtain approval as an investment trust under Section 1158 of the Corporation Tax Act 2010 (formerly Section 842 of the Income and Corporation Taxes Act 1988) for that year, although approval for the period would be subject to review were there to be any enquiry under the Corporate Tax Self Assessment regime.

The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.

Investment Objective and Policy

The Company's objective is to achieve long term capital growth through investment in the Far East. The Company's benchmark is the MSCI All Country Asia (ex Japan) Index.  Investments are made in stock markets in the region with the exception of Japan and Australasia, principally in large companies. 

Review of Performance

An outline of the performance, market background, investment activity and portfolio strategy during the year under review, as well as the investment outlook, is provided in the Chairman's Statement and Manager's Review.

Future Trends

The region's economies have high rates of growth, strong trade and fiscal surpluses and rapidly developing capital markets. Nevertheless the past has demonstrated regional risks and the outlook for the region is provided in the Chairman's Statement and Manager's Review.

Risk Management

The major risks associated with the Company are detailed below:

· Resource risk: The Company is an investment trust and has no employees. The responsibility for the management of the Company has been delegated to Aberdeen Asset Managers Limited ('the Manager') under the management agreement. The terms of the management agreement cover the necessary duties and conditions expected of the Manager. The Board reviews the performance of the Manager on a regular basis and their compliance with the management contract formally on an annual basis.

· Investment and market risk: The Company is exposed to the effect of variations in share prices due to the nature of its business. Investment in Asian equities involves a greater degree of risk than that usually associated with investment in the major securities markets. These include a greater risk of social, political and economic instability including changes in government which may restrict investment opportunities and have an adverse effect on economic reform. Changes in legal, regulatory and accounting policies can also affect the value of the Company's investments.  The lower volumes of trading in certain securities of emerging markets may result in lack of liquidity and price volatility. In addition, currency fluctuations and high interest rates may affect the value of the Company's investments and the income derived therefrom. 

  The Board continually monitors the investment policy of the Company, taking account of stockmarket factors, and reviews the Company's performance compared to its benchmark index and peer group. Further details on other risks relating to the Company's investment activities, including market price, liquidity and foreign currency risks, are provided in note 18 to the financial statements. 

· Gearing risk: During the year to 31 August 2010 the Company had in place a £40 million multi-currency loan facility.  As at 31 August 2010 no drawdowns had been made on this facility and the facility subsequently expired on 29 September 2010.  The Board is considering further gearing options available to the Company.  Gearing has the effect of exacerbating market falls and gains. In order to manage the level of gearing, the Board has set a maximum gearing ratio of 20%. 

· Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Serious breaches of regulations, such as section 1158 of the Corporation Tax Act 2010, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage.  The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager.

· Discount volatility: The Company's share price can trade at a discount to its underlying net asset value. The Board monitors the discount level of the Company's shares and has in place a buyback mechanism whereby the Manager is authorised to buy back shares within certain limits.

Monitoring Performance - Key Performance Indicators

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives.  The key performance indicators (KPIs) are established industry measures, and are as follows:

· Net asset value (total return)

· Share price (total return)

· Performance attribution

· Discount to net asset value

A record of these measures is disclosed above.  Performance is measured against the Company's benchmark, the MSCI All Country Asia (ex Japan) Index and the Board also considers peer group comparative performance. 

Social, Community, Employee Responsibilities and Environmental Policy

As an investment trust, the Company has no employees and has no direct social, community, employee or environmental responsibilities.  Details of the Company's Socially Responsible Investment policy are set out in the Corporate Governance Report.

DIRECTOR'S RESPONSIBILITY STATEMENT

The Directors are responsible for preparing the annual report and accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

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 profit or loss of the Company for that period.  In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgments and estimates that are reasonable and prudent;

· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and 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 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm that to the best of their knowledge that:

· the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

· the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

For Edinburgh Dragon Trust plc

Allan McKenzie

Chairman

14 October 2010

FINANCIAL STATEMENTS AND NOTES TO THE ACCOUNTS

INCOME STATEMENT (audited)

		Year ended 31 August 2010			Year ended 31 August 2009
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments	9	-	124,323	124,323	-	36,147	36,147
Currency gains/(losses)		-	205	205	-	(1,502)	(1,502)
Income	2	12,067	-	12,067	12,028	-	12,028
Investment management fee	3	(4,476)	-	(4,476)	(3,393)	-	(3,393)
Administration expenses	4	(1,279)	-	(1,279)	(1,152)	-	(1,152)
		_______	______	_____	_______	______	_____
Net return before finance costs and taxation		6,312	124,528	130,840	7,483	34,645	42,128
Interest payable and similar charges	5	(130)	-	(130)	(1,513)	-	(1,513)
		_______	______	_____	_______	______	_____
Return on ordinary activities before taxation		6,182	124,528	130,710	5,970	34,645	40,615
Taxation on ordinary activities	6	(698)	-	(698)	(633)	-	(633)
		_______	______	_____	_______	______	_____
Return on ordinary activities after taxation		5,484	124,528	130,012	5,337	34,645	39,982
		_______	______	_____	_______	______	_____
Return per share (pence):	8	2.62	59.49	62.11	2.31	15.00	17.31
		_______	______	_____	_______	______	_____
The total column of this statement represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the financial statements.

BALANCE SHEET (audited)

		As at	As at
		31 August 2010	31 August 2009
	Notes	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	9	467,876	410,773
Current assets
Debtors and prepayments	10	910	1,371
Cash and short term deposits		4,525	3,308
		_____________	_____________
		5,435	4,679
		_____________	_____________
Creditors: amounts falling due within one year
Other creditors	11	(1,987)	(1,378)
		_____________	_____________
Net current assets		3,448	3,301
		_____________	_____________
Net assets		471,324	414,074
		_____________	_____________
Share capital and reserves
Called-up share capital	12	39,262	46,190
Share premium account		4,285	4,285
Special reserve	12	6,726	75,770
Capital redemption reserve		16,945	10,017
Capital reserve	13	393,419	268,891
Revenue reserve		10,687	8,921
		_____________	_____________
Equity shareholders' funds	14	471,324	414,074
		_____________	_____________
Net asset value per Ordinary share (pence)	14	240.09	179.29
		_____________	_____________

RECONCILIATION OF MOVEMENT IN SHAREHOLDERS FUNDS (audited)

For the year ended 31 August 2010
		Share		Capital
	Share	premium	Special	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2009	46,190	4,285	75,770	10,017	268,891	8,921	414,074
Return on ordinary activities after taxation	-	-	-	-	124,528	5,484	130,012
Dividends paid	-	-	-	-	-	(3,718)	(3,718)
Tender offer of own shares	(6,928)	-	(69,044)	6,928	-	-	(69,044)
	______	_______	_______	_______	_______	_______	_______
Balance at 31 August 2010	39,262	4,285	6,726	16,945	393,419	10,687	471,324
	______	_______	_______	_______	_______	_______	_______
For the year ended 31 August 2009
		Share		Capital
	Share	premium	Special	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2008	46,190	4,285	75,770	10,017	234,246	7,279	377,787
Return on ordinary activities after taxation	-	-	-	-	34,645	5,337	39,982
Dividends paid	-	-	-	-	-	(3,695)	(3,695)
	______	_______	_______	_______	_______	_______	_______
Balance at 31 August 2009	46,190	4,285	75,770	10,017	268,891	8,921	414,074
	______	_______	_______	_______	_______	_______	_______
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
The accompanying notes are an integral part of the financial statements.

CASHFLOW STATEMENT (audited)

		Year ended		Year ended
		31 August 2010		31 August 2009
	Notes	£'000	£'000	£'000	£'000
Net cash inflow from operating activities	15		7,036		7,505
Servicing of finance
Bank and loan interest paid			(130)		(2,030)
Taxation
Net tax paid			(867)		(505)
Financial investment
Purchases of investments		(32,516)		(48,526)
Sales of investments		100,251		53,434
		_______		_______
Net cash inflow from financial investment			67,735		4,908
Equity dividend paid			(3,718)		(3,695)
			_______		_______
Net cash inflow before financing			70,056		6,183
Financing
Tender offer of own shares (including expenses)			(69,044)		-
Sale of Certificates of Deposit			-		33,071
Repayment of Loan Notes			-		(55,446)
			_______		_______
Net cash outflow from financing			(69,044)		(22,375)
			_______		_______
Increase/(decrease) in cash	16		1,012		(16,192)
			_______		_______
Reconciliation of net cash inflow to movements in net funds
Increase/(decrease) in cash as above			1,012		(16,192)
Sale of Certificates of Deposit			-		(33,071)
Repayment of Loan Notes			-		55,446
Exchange movements			205		(1,502)
			_______		_______
Movement in net funds in the year			1,217		4,681
Net funds/(debt) at 1 September			3,308		(1,373)
			_______		_______
Net funds at 31 August			4,525		3,308
			_______		_______

NOTES TO THE ACCOUNTS (audited)

1.	Accounting policies
	(a)	Basis of accounting
		The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009).  They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis which the the Directors believe is appropriate.
		The financial statements, and the net asset value per share figures, have been prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP').
	(b)	Investments
		Listed investments have been designated upon initial recognition as fair value through profit and loss. Investments are recognised and de-recognised on the trade date at cost. Subsequent to initial recognition, investments are valued at fair value, which for listed investments is deemed to be bid market prices. Gains and losses arising from changes in fair value are included as a capital item in the Income Statement and are ultimately recognised in the capital reserve except to the extent where they are readily convertible to cash.
	(c)	Income
		Dividends (other than special dividends), including taxes deducted at source, are included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are reviewed on a case-by-case basis and may be credited to capital, if circumstances dictate. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis so as to reflect the effective yield on shares. Other returns on non-equity are recognised when the right to return is established. The fixed return on a debt security, if material, is recognised on a time apportioned basis so as to reflect the effective yield on each security. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend is recognised as income. Any excess in the value of the shares received over the amount of cash dividend is recognised in capital reserves. Interest receivable on bank balances is dealt with on an accruals basis.
	(d)	Expenses
		All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Income Statement with the exception of expenses directly relating to the acquisition or disposal of an investment, in which case, they are added to the cost of the investment or deducted from the sale proceeds. Such transaction costs are disclosed in accordance with the SORP. These expenses are charged to the capital column of the Income Statement and are separately identified and disclosed in note 9.
	(e)	Deferred taxation
		Deferred taxation is provided on all timing differences, that have originated but not reversed at the Balance Sheet date, where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Balance Sheet date, measured on an undiscounted basis and based on enacted tax rates. 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 future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to obtain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
	(f)	Capital reserves
		Gains and losses on investments and changes in fair values of investments which are readily convertible to cash, without accepting adverse terms, are transferred to the capital reserve.
	(g)	Foreign currency
		Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Balance Sheet date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on the realisation of foreign currencies are recognised in the Income Statement and are then transferred to the capital reserve.
	(h)	Dividends payable
		Final dividends are dealt with in the period in which they are paid.

		2010	2009
2.	Income	£'000	£'000
	Income from investments{A}
	UK dividend income	436	364
	Overseas dividends	11,043	11,252
	Scrip dividends	579	10
		_____________	_____________
		12,058	11,626
		_____________	_____________
	Other income{B}
	Deposit interest	9	402
		_____________	_____________
	Total income	12,067	12,028
		_____________	_____________
	{A} Derived from financial assets at fair value through profit and loss.
	{B} Derived from financial assets not at fair value through profit and loss.
	Income from investments
	Listed UK	436	364
	Listed overseas	11,622	11,262
		_____________	_____________
		12,058	11,626
		_____________	_____________

		2010			2009
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment management fee	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fee	4,476	-	4,476	3,393	-	3,393
		_______	______	______	_______	______	______
	The management fee paid to Aberdeen Asset Managers Limited ('the Manager') is 0.25% per quarter of the total net assets less (i) the value of any investment funds managed by the Manager and (ii) 50% of the value of any investment funds managed or advised by investment managers other than the Manager.
	The management agreement is terminable by the Company on 3 months' notice or in the event of a change of control in the ownership of the Manager. The notice period required by the Manager is 6 months.

			2010	2009
4.	Administrative expenses		£'000	£'000
	Share Plan marketing contribution		187	212
	Directors' fees		125	127
	Safe custody fees		516	366
	Auditors' remuneration:
	-	Fees payable to the Company's auditors for the audit of the Company's annual accounts	16	14
	-	Fees payable to the Company's auditors for the review of the Company's half yearly accounts	4	4
	Secretarial fee		76	75
	Other expenses		355	354
			____________	____________
			1,279	1,152
			____________	____________
	The secretarial fee is paid to the Manager and adjusted annually in line with the Retail Prices Index.  The contribution to Share Plan Marketing was paid to the Manager in respect of marketing and promotion of the Company.
	During the year £4,000 (2009 - £4,000) was paid to the auditors' for non-audit services. This related to further assurance work regarding the interim and regulatory reporting.
	During the year an additional amount of £10,000 (2009 - nil) was paid to KPMG for services relating to the tender offer. This figure is reflected within the tender offer of own shares in the Reconciliation of Movements in Shareholders' Funds.
	No pension contributions were made in respect of any of the Directors.
	The Company does not have any employees.

		2010	2009
5.	Interest payable and similar charges	£'000	£'000
	Loans repayable in less than 1 year{A}	130	1,513
		_____________	_____________
	{A} Derived from liabilities not at fair value through profit and loss.

			2010			2009
			Revenue	Capital	Total	Revenue	Capital	Total
6.	Taxation		£'000	£'000	£'000	£'000	£'000	£'000
	(a)	Analysis of charge for the year
		Corporation tax	-	-	-	347	-	347
		Double tax relief	-	-	-	(202)	-	(202)
		Overseas tax	698	-	698	488	-	488
			______	______	______	______	______	______
		Taxation on ordinary activities	698	-	698	633	-	633
			______	______	______	______	______	______
	(b)	Factors affecting the tax charge for the year
		The tax assessed for the year is lower than the standard rate of corporation tax in the UK.
			2010			2009
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
		Return on ordinary activities before taxation	6,182	124,528	130,710	5,970	34,645	40,615
		Corporation tax at 28% (2009 - 28%)	1,731	34,868	36,599	1,672	9,700	11,372
		Deduct effect of capital:
		UK dividend income	(122)	-	(122)	(102)	-	(102)
		Gains on investments not taxable	-	(34,810)	(34,810)	-	(10,121)	(10,121)
		Currency (gains)/losses not taxable	-	(58)	(58)		421	421
		Other non-taxable income	(3,254)	-	(3,254)	(1,104)	-	(1,104)
		Increase/(decrease) in excess expenses and loan relationship deficit	1,645	-	1,645	(357)	-	(357)
		Double tax relief taken	-	-	-	(202)	-	(202)
		Movement in taxable accrued income	-	-	-	238	-	238
		Overseas tax suffered	698	-	698	488	-	488
			______	______	______	______	______	______
		Current tax charge for year	698	-	698	633	-	633
			______	______	______	______	______	______
		At 31 August 2010, the Company had unutilised loan relationship losses of £130,000 (2009 - £nil) and unrelieved excess management expenses of £5,745,000 (2009 - £nil).  No deferred tax asset has been recognised on the unutilised loan relationship losses and unrelieved excess management expenses.

7.	Dividends
	In order to comply with the requirements of Sections 1158 -1159 of the Corporation Tax Act 2010 (formerly S842 ICTA 1988) and with company law, the Company is required to make a final dividend distribution.
	The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
	The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158 - 1159 are considered. The revenue available for distribution by way of dividend for the year is £5,484,000 (2009 - £5,337,000).
		2010	2009
		£'000	£'000
	Proposed final dividend for 2010 - 1.90p per Ordinary share (2009 - 1.61p)	3,730	3,718
		_______	_______
	The final dividend will be paid on 10 December 2010 to shareholders on the register at the close of business on 10 November 2010.

		2010		2009
8.	Return per Ordinary share	£'000	pence	£'000	pence
	Revenue return	5,484	2.62	5,337	2.31
	Capital return	124,528	59.49	34,645	15.00
		______	______	______	______
	Total return	130,012	62.11	39,982	17.31
		______	______	______	______
	Weighted average Ordinary shares in issue		209,314,267		230,954,375

				Listed	Listed
				overseas	in UK	Total
9.	Investments			£'000	£'000	£'000
	Fair value through profit or loss:
	Opening book cost			267,191	6,773	273,964
	Opening fair value gains on investments held			135,693	1,116	136,809
				_________	_________	_________
	Opening fair value			402,884	7,889	410,773
	Movements in year:
	Purchases at cost			32,467	637	33,104
	Sales	-	proceeds	(100,324)	-	(100,324)
		-	gains on sales	40,630	-	40,630
	Current year fair value gains on investments held			81,639	2,054	83,693
				_________	_________	_________
	Closing fair value			457,296	10,580	467,876
				_________	_________	_________
	Closing book cost			239,964	7,410	247,374
	Closing fair value gains on investments held			217,332	3,170	220,502
	Closing fair value			457,296	10,580	467,876
				_________	_________	_________
					2010	2009
					£'000	£'000
	Listed on a recognised overseas investment exchange				457,296	402,884
	Listed in the UK				10,580	7,889
					_________	_________
					467,876	410,773
					_________	_________
					2010	2009
	Gains on investments held at fair value through profit or loss				£'000	£'000
	Realised gains on sales				40,630	117
	Increase in fair value gains on investments held				83,693	36,030
					_________	_________
					124,323	36,147
					_________	_________
	Transaction costs
	During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:
					2010	2009
					£'000	£'000
	Purchases				111	88
	Sales				268	194
					_________	_________
					379	282
					_________	_________

		2010	2009
10.	Debtors and prepayments	£'000	£'000
	Accrued income	769	1,306
	Amounts due from brokers	73	-
	Other debtors and prepayments	68	65
		_________	_________
		910	1,371
		_________	_________

		2010	2009
11.	Creditors: amounts falling due within one year	£'000	£'000
	Outstanding purchase settlements	588	-
	Corporation tax payable	-	145
	Other creditors	1,399	1,233
		_________	_________
		1,987	1,378
		_________	_________
	A multi-currency revolving advance facility of £40 million was implemented with The Royal Bank of Scotland on 30 September 2008. The commitment period of the new facility commenced on 30 September 2008 and ends on 29 September 2010.  Interest will be charged at the margin above the rate at which Sterling/foreign currency deposits of comparable amount to the relevant advance are offered by LIBOR on the date on which the advance is required. A covenant has been imposed by The Royal Bank of Scotland that the gearing ratio, being gross borrowings divided by adjusted assets shall not exceed 25%.

		2010	2009
12.	Called up share capital	£'000	£'000
	Authorised
	325,000,000 (2009 - 325,000,000) Ordinary shares of 20p	65,000	65,000
		_________	_________
	Called-up, allotted and fully paid
	196,311,219 (2009 - 230,954,375) Ordinary shares of 20p	39,262	46,190
		_________	_________
	During the 12 months to 31 August 2010 the Company announced a Tender Offer for up to 15% of the Ordinary shares of the Company, which resulted in 15% being tendered (34,643,156 Ordinary shares). As a result, 15% of the assets of the Company (valued at £68,343,809) was distributed to exiting Ordinary shareholders. The costs of the Tender Offer were wholly borne by the exiting Ordinary shareholders. The buyback of the Ordinary shares under the Tender Offer has been accounted for through the special reserve which was created in 1998 following Court approval to cancel the share premium account. The buyback represented 17.65% of the issued Ordinary share capital at 31 August 2010. No Ordinary shares were bought back during the year to 31 August 2009.

		2010	2009
13.	Capital reserve	£'000	£'000
	At 1 September	268,891	234,246
	Movement in fair value gains	124,323	36,147
	Foreign exchange movement	205	(1,502)
		_________	_________
	At 31 August	393,419	268,891
		_________	_________
	The capital reserve includes investment holding gains amounting to £220,502,000 (2009 - £136,809,000), as disclosed in note 9.

14.	Net asset value per share
	The net asset value per share and the net asset values attributable to the Ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows:
		2010	2009
	Net assets attributable (£'000)	471,324	414,074
	Number of Ordinary shares in issue (excluding shares held in treasury)	196,311,219	230,954,375
	Net asset value per share (p)	240.09	179.29

15.	Reconciliation of net return before finance costs and	2010	2009
	taxation to net cash inflow from operating activities	£'000	£'000
	Net return before finance costs and taxation	130,840	42,128
	Adjusted for:
	Gains on investments	(124,323)	(36,147)
	Currency (gains)/losses	(205)	1,502
	Decrease/(increase) in accrued income	561	(109)
	(Increase)/decrease in other debtors	(3)	7
	Increase in sundry creditors including management fee due	166	124
		_________	_________
	Net cash inflow from operating activities	7,036	7,505
		_________	_________

		1 September	Cash	Currency	31 August
		2009	flow	movements	2010
16.	Analysis of changes in net funds	£'000	£'000	£'000	£'000
	Cash and short term deposits	3,308	1,012	205	4,525
	Net funds	3,308	1,012	205	4,525

17.	Capital management policies and procedures
	The Company's capital management objectives are:
	-	to ensure that the Company will be able to continue as a going concern; and
	-	to maximise the capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Board normally seeks to limit gearing to 20% of net assets.
	The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market, and the extent to which revenue in excess of that which is required to be distributed should be retained. The Company has no externally imposed capital requirements.

18.	Financial instruments
	Risk management
	The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income.
	The Manager has a dedicated investment management process, which ensures that the investment policy is followed. Stock selection procedures are in place based on the active portfolio management and identification of stocks. The portfolio is reviewed on a periodic basis by a Senior Investment Manager and also by the Manager's Investment Committee.
	The Company's Manager has an independent Investment Risk department for reviewing the investment risk parameters of the Company's portfolio on a regular basis. The department reports to the Manager's Performance Review Committee which is chaired by the Manager's Chief Investment Officer. The department's responsibility is to review and monitor ex-ante (predicted) portfolio risk and style characteristics using best practice, industry standard multi-factor models.
	Additionally, the Manager's Compliance department continually monitors the trust's investment and borrowing powers and reports to the Manager's Risk Management Committee.
	The main financial risks that the Company faces from its financial instruments are market price risk (comprising interest rate risk, currency risk and other price risk), liquidity risk and credit risk.
	The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors.
	Market price risk
	The fair value of or future cash flows from a financial instrument held by the Company may fluctuate because of changes in market prices.  This market risk comprises three elements - interest rate risk, currency risk and other price risk.
	Interest rate risk
	Interest rate movements may affect :
	- the level of income receivable on cash deposits;
	- interest payable on the Company's variable rate borrowings.
	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 and borrowing decisions.
	Interest risk profile
	The interest rate risk profile of the portfolio of the Company's financial assets and liabilities, excluding equity holdings which are all non-interest bearing, at the Balance Sheet date was as follows:
				Weighted average				Weighted
				period for which				average		Fixed	Floating
				rate is fixed				interest rate		rate	rate
	At 31 August 2010			Years				%		£'000	£'000
	Assets
	Indian Rupee			-				-		-	50
	UK Sterling			-				0.25		-	902
	US Dollar			-				-		-	3,573
				__________				__________		_______	_________
				n/a				n/a		-	4,525
				__________				__________		_______	_________
				Weighted average				Weighted
				period for which				average		Fixed	Floating
				rate is fixed				interest rate		rate	rate
	At 31 August 2009			Years				%		£'000	£'000
	Assets
	Hong Kong Dollar			-				-		-	1,227
	UK Sterling			-				0.25		-	235
	Taiwanese Dollar			-				-		-	64
	US Dollar			-				-		-	1,782
				__________				__________		_______	_________
				n/a				n/a		-	3,308
				__________				__________		_______	_________
	The weighted average interest rate is based on the current yield of each asset, weighted by its market value.
	The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans.
	The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.
	The Company's equity portfolio and short-term debtors and creditors (excluding bank loans) have been excluded from the above tables.
	Interest rate sensitivity
	Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profit.
	Foreign currency risk
	All of the Company's investment portfolio is invested in overseas securities and the Balance Sheet, therefore, can be significantly affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investments with foreign currency borrowings.
	The revenue account is subject to currency fluctuation arising on dividends paid in foreign currencies. The Company does not hedge this currency risk.
	Foreign currency risk exposure by currency of denomination:
			31 August 2010						31 August 2009
				Net		Total				Net	Total
			Overseas	monetary		currency			Overseas	monetary	currency
			Investments {A}	assets		exposure			Investments {A}	assets	exposure
			£'000	£'000		£'000			£'000	£'000	£'000
	Hong Kong Dollar		137,864	-		137,864			121,063	1,227	122,290
	Indian Rupee		68,687	50		68,737			68,685	-	68,685
	Indonesian Rupiah		9,758	-		9,758			8,564	-	8,564
	Korean Won		36,676	-		36,676			34,608	-	34,608
	Malaysian Ringgit		24,719	-		24,719			19,282	-	19,282
	Philippine Peso		15,244	-		15,244			10,552	-	10,552
	Singapore Dollar		92,776	-		92,776			91,320	-	91,320
	Sri Lankan Rupee		15,874	-		15,874			5,378	-	5,378
	Sterling		10,580	902		11,482			7,889	235	8,124
	Taiwanese Dollar		25,288	-		25,288			19,689	64	19,753
	Thailand Baht		30,410	-		30,410			23,743	-	23,743
	US Dollar		-	3,573		3,573			-	1,782	1,782
			________	________		________			________	________	________
	Total		467,876	4,525		472,401			410,773	3,308	414,081
			________	________		________			________	________	________
	{A} By country of listing.
	Foreign currency sensitivity
	There is no sensitivity analysis included, as the Company's significant foreign currency financial instruments are in the form of equity investments, which have been included within the other price risk sensitivity analysis, so as to show the overall level of exposure.
	Other price risk
	Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.
	It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. Both the allocation of assets and the stock selection process act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges worldwide.
	Other price risk sensitivity
	If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 August 2010 would have increased/decreased by £46,788,000 (2009 - increased/decreased by £41,077,000) and equity reserves would have increased/decreased by the same amount.
	Liquidity risk
	This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not considered to be significant, as the Company's assets mainly comprise readily realisable securities which can be sold to meet funding requirements if necessary.
	The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions, and reviews these on a regular basis. Borrowings comprise a revolving multi-currency credit facility. The Board has imposed a maximum gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of 20%. Details of borrowings at 31 August 2010 are shown in note 11.
	Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities, details of which can be found in note 11. Under the terms of the loan facility, the Investment Manager provides the lender with loan covenant reports on a monthly basis, to provide the lender with assurance that the terms of the facility are not being breached. The Investment Manager will also review the credit rating of a lender on a regular basis. Details of the Board's policy on gearing are shown in the interest rate risk section of this note.
	Liquidity risk exposure
	At 31 August 2010 the Company had no borrowings (2009 - £nil).
	Credit risk
	This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
	The risk is not considered to be significant, and is actively managed as follows:
	-	investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;
	-	the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a monthly basis. In addition, the Custodian carries out a stock reconciliation to third party administrators' records on a monthly basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the Custodian's operations and reports its finding to the Manager's Risk Management Committee. This review will also include checks on the maintenance and security of investments held;
	-	cash is held only with reputable banks with high quality external credit enhancements.
	None of the Company's financial assets are secured by collateral or other credit enhancements.
	Credit risk exposure
	In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 August was as follows:
					2010					2009
					Balance		Maximum			Balance	Maximum
					Sheet		exposure			Sheet	exposure
	Current assets				£'000		£'000			£'000	£'000
	Loans and receivables				910		910			1,371	1,371
	Cash at bank and in hand				4,525		4,525			3,308	3,308
					________		________			________	________
					5,435		5,435			4,679	4,679
					________		________			________	________
	None of the Company's financial assets is past due or impaired.
	Maturity of financial liabilities
	The maturity profile of the Company's financial liabilities at 31 August was as follows:
										2010	2009
										£'000	£'000
	In less than one year									-	-
										________	________

19.	Fair value hierarchy
	The Company adopted the amendments to FRS 29 'Financial Instruments: Disclosures' effective from 1 January 2009. These amendments require an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:
	-      Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
	-      Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and
	-      Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
	The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy at 31 August 2010 as follows:
			Level 1	Level 2	Level 3	Total
		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	467,876	-	-	467,876
			________	________	________	________
	a) Quoted equities
	The fair value of the Company's investments in quoted equities have been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.

20.     The Annual General Meeting will be held 8 December 2010 at Bow Bells House, 1 Bread Street, London.

21.     The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 August 2010 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2010 and 2009 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006. The financial information for 2009 is derived from the statutory accounts for 2009 which have been delivered to the Registrar of Companies. The 2010 accounts will be filed with the Registrar of Companies in due course.

The annual results are circulated to shareholders in the form of an Annual Report, copies of which will be available at the Company's registered office, 40 Princes Street, Edinburgh EH2 2BY or on the Company's website www.edinburghdragon.co.uk.

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.

By Order of the Board

Aberdeen Asset Managers Limited, Secretary

 

END

 

 

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