Annual Report and Accounts

Finsbury Worldwide Pharmaceutical Trust PLC Announcement of Annual Financial Report for the year ended 31 March 2008 Finsbury Worldwide Pharmaceutical Trust PLC announces its Annual Financial Report for the year ended 31 March 2008. This document is compiled from extracts from the Company's Annual Financial Report but does not form the full Report. A full copy of the Company's Annual Financial Report can be found on the Company's website at www.finsburywp.com Performance Summary % Change for the year ended 31 *31 *31 31 31 31 31 March March March March March March March 2003 2004 2005 2006 2007 2008 2008 Shareholders' funds Â£143.5m Â£189.1m Â£226.4m Â£334.8m Â£273.6m Â£224.8m (17.8) Net asset value per share - 365.3p 481 .3p 414.7p 583.0p 520.9p 486.6p (6.6) basic+ Net asset value per share - 365.3p 481 .3p 414.7p 564.1 p 511 .2p 482.4p (5.6) diluted~ (dilution for warrants) Share price 330.5p 466.0p 430.0p 575.0p 477.8p 457.0p (4.4) Premium/(discount) of share - - - 1 .9% (6.5%) (5.3%) N/A price to diluted net asset value per share Premium/(discount) of share (9.5%) (3.2%) 3.7% (1.4%) (8.3%) (6.1%) N/A price to basic net asset value per share Benchmark Indexâ—† 5,855.7 6,154.4 6,173.2 7,787.8 7,507.7 7,049.7 (6.1) #Total expense ratio - 3.8% 0.8% 1 .5% 1 .3% 1.3% N/A (including performance fees) #Total expense ratio - 1.8% 1.5% 1 .4% 1 .3% 1.3% N/A (excluding performance fees) â—†Datastream World Pharmaceutical and Biotechnology Index, (total return, sterling adjusted) *Restated for accounting policy change ~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) +Total return, including portfolio income #Excludes indexation of the deferred fee paid to M and I Investors, Inc. on 24 January 2006 The Following are included: - Chairman's Statement - The Board - OrbiMed Capital LLC - Review of Investments - Investment Portfolio - Report of the Directors - Corporate Governance - Income Statement - Reconciliation of Movements in Shareholders' Funds - Balance Sheet - Cash Flow Statement - Notes to the Financial Statements For further information please contact Mark Pope at Frostrow Capital on 020 3008 4913 Chairman's Statement REVIEW OF THE YEAR AND PERFORMANCE The year under review has been a challenging one for stock markets as a whole and in this, my last statement as Chairman, I must report that the Company's undiluted net asset value per share declined by 6.6%. The diluted net asset value per share fell by 5.6% over the year. The Company's benchmark index fell by 6.1% during the same period. The Company's share price fell by slightly less, by 4.4%, as the discount of share price to the diluted net asset value per share finished the year at 5.3% compared to 6.5% a year ago. THE BOARD As mentioned at the interim stage I shall be retiring from the Board at the Annual General Meeting. I have been a Director since the launch of the Company in 1995 and in that period the Company's share price has grown by almost 400.0% compared to a rise in the Company's benchmark of nearly 320.0% (both measured on a total return basis). Your Board is delighted that Martin Smith, who joined the Board in November 2007, is to succeed me as Chairman at the forthcoming Annual General Meeting. 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 6.0% to the 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 6,351,307 shares, 896,000 of which are currently held in treasury, were repurchased during the year at a cost of Â£ 30,852,000 (including expenses), representing 12.1% of the shares in issue at the beginning of the year. Since the year end and to 16 June 2008, a further 1,387,750 shares costing Â£6,470,000 (including expenses), have been repurchased to be held in treasury. The execution and timing of any share buy-back will continue to be at the absolute discretion of the Board. The Board has agreed that any shares held in treasury will be Cancelled on the date of the Annual General Meeting each year. Shareholder approval to renew the authority to repurchase the Company's shares will be sought at the Annual General Meeting. At the regular warrant exercise date of 31 July a total of 14,687 warrants were exercised raising a further Â£68,148 as at 31 July 2007. The remaining two opportunities to exercise the warrants are on 31 July 2008 and 31 July 2009. DERIVATIVES The Company continues to use derivative instruments to enhance the total return to shareholders, within certain limits so that no more than 5.0% of the Company's assets are exposed to the strategy. The Board is pleased to note that gains of Â£2.1 million were generated during the year from the strategy by our Investment Manager. In excess of Â£7 million of additional returns have now been generated since the inception of the strategy in 2006. REVENUE AND DIVIDENDS The revenue return for the year was Â£1.7 million (2007: Â£1.9 million) and the Board has recommended an interim dividend of 3.0p per share (2007: 3.0p). The Company continues to charge 95.0% of the sum of the investment management and management fees to capital and at 31 March 2008 the total expense ratio (excluding performance fees) was 1.3% (31 March 2007: 1.3%). The interim dividend will be payable on 25 July 2008 to equity shareholders on the register of members on 20 June 2008. The shares will go ex-dividend on 18 June 2008. THE COMPANY'S ARTICLES OF ASSOCIATION (THE "ARTICLES") The Board believes that as a result of various legislative and regulatory developments the Articles should be amended to bring them into line with current best practice. This will include a provision for the future use of communications with shareholders both in electronic form and via the website. A Special Resolution will be proposed at the Annual General Meeting which will, if approved, ratify the adoption of new Articles. The material differences between the current and the proposed Articles are summarised in a separate circular to shareholders. VAT The Company is currently in the process of reviewing its position concerning VAT in light of the result of the legal case initiated by the Association of Investment Companies and JPMorgan Claverhouse Investment Trust plc. The amounts involved are not expected to have a material impact on the Company's net asset value. The Company will take credit for VAT recovered if any such recovery can be assessed with reasonable certainty and will continue to follow guidance issued by the Association of Investment Companies in this matter. SAVINGS PLANS The investment plans managed by Close Investments on behalf of the Company have, subject to FSA rules, recently been transferred to Alliance Trust Savings Limited ("ATSL"). It is our hope that being included in the much larger, market-wide scheme run by ATSL will lead to increased private investor interest in the Company. Existing plan members should have received confirmation of the transfer including their new account details. OUTLOOK The economic outlook remains uncertain and stock market conditions will continue to be volatile and difficult in the short term. The Board continues to closely monitor developments in the healthcare sector and to explore new investment opportunities within the sector. The stock market performance of the sector as a whole has trailed that of the general market over the last several years. Over that time, earnings per share of major biotechnology companies have advanced rapidly, while those of major pharmaceutical companies have grown more slowly. At the same time, scientific advance at discovery biotechnology companies has been notable, resulting in several major successes in the investment portfolio. However, there is risk in this sector, and occasional failures have detracted from returns, but we are confident that the pace of scientific advance will contribute to multiple opportunities for future profit. Merger and Acquisition activity should continue, and expected enhancements at the US Food and Drug Administration should result in a more positive stance towards new drug approvals Your Board believes that the investment portfolio is well positioned to take advantage of not only a brighter outlook for the sector in the medium term, but also a recovery in stock markets generally. Your Board remains optimistic for the fortunes of the sector and for the Company and would like to thank shareholders for their continued support. 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 Wednesday, 23 July 2008 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 pharmaceutical sector and the prospects for the future. Ian Ivory Chairman 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. Ian Ivory+ (Chairman) Ian Ivory, aged 64, joined the Board at launch in 1995. As well as being Chairman of the Company, Ian also chairs the Nominations and Remuneration Committees. A Chartered Accountant, Ian is self-employed and is a Director of Hardy Underwriting PLC and was previously a Director of Ivory & Sime and Stewart Ivory. Ian is not employed by and does not have any other connections with the Investment Manager and does not have any shared directorships or employment with any of the companies in which the Company holds an investment. Josephine Dixon*+ Josephine (`Jo') Dixon, aged 48, joined the Board in 2004 and 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 including that of Finance Director for Newcastle United Plc. Jo is also a member of Durham University Business School Advisory Board. Jo is not employed by and does not have any other connections with the Investment Manager and does not have any shared directorships or employment with any of the companies in which the Company holds an investment. Professor Duncan Geddes*+ Professor Geddes, aged 66, joined the Board at launch in 1995 and has been designated as the Senior Independent Director. He is self-employed and is a Consultant physician in respiratory medicine at the Royal Brompton and National Heart Hospital. He is the author of numerous publications on respiratory medicine. Professor Geddes is not employed by and does not have any other connections with the Investment Manager and does not have any shared directorships or employment with any of the companies in which the Company holds an investment. Paul Gaunt+ Paul Gaunt, aged 59, joined the Board at launch in 1995. Paul is self-employed and has over 30 years' experience in the investment industry. Paul 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 The Biotech Growth Trust PLC whose investment portfolio is managed by OrbiMed Capital LLC, the Investment Manager to the Company, and RCM Technology Trust PLC. Paul is not employed by and does not have any other connections with the Investment Manager and is not employed by any of the companies in which the Company holds an investment. Dr David Holbrook*+ Dr David Holbrook, aged 48, joined the Board in November 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 number of blue-chip biopharmaceutical organisations including GlaxoSmithKline and Roche. Dr Holbrook is not employed by and does not have any other connections with the Investment Manager and does not have any shared directorships or employment with any of the companies in which the Company holds an investment. Martin Smith+ Martin Smith, aged 65, joined the Board in November 2007. He was a founder and is 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. Martin is not employed by and does not have any other connections with the Investment Manager and does not have any shared directorships or employment with any of the companies in which the Company holds an investment. Samuel D Isaly+ Sam Isaly, aged 63, joined the Board at launch in 1995. Sam is employed as Managing Partner of OrbiMed Capital LLC 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 SG Warburg. Sam is not employed by any of the companies in which the Company holds an investment. OrbiMed Capital LLC also acts as the Investment Manager to The Biotech Growth Trust PLC, which is also managed by Frostrow Capital LLP. Sam, and a number of the partners at OrbiMed Capital LLC, have a minority financial interest of 20.0% in Frostrow Capital LLP. Anthony Townsend*+ Anthony Townsend, aged 60, joined the Board at launch in 1995. Anthony has spent over 35 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. Anthony does not have any other connections with the Investment Manager and is not employed by any of the companies in which the Company holds an investment. All members of the Board are non-executive * Member of the Audit Committee + Member of the Nominations and Remuneration Committees Finsbury Worldwide Pharmaceutical Trust PLC outsources the management of its investment 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. A Special Relationship OrbiMed has managed the investment 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 over US$ 4 billion in assets under management as at 31 March 2008, across a range of funds, including investment trusts, hedge funds and other investment vehicles. 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 25 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 20 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 across all major geographical markets. OrbiMed emphasises investments in companies with under-appreciated products in the pipeline, 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. Review of Investments We present with pleasure our thirteenth Review of Investments for Finsbury Worldwide Pharmaceutical Trust PLC, which was launched in April 1995. PERFORMANCE REVIEW The Company's undiluted net asset value per share slightly underperformed the benchmark during the past year. The Company's share price decline of 4.4% and the undiluted net asset value decline of 6.6% compares to a fall in the benchmark index of 6.1%. We are never pleased to report a loss in value and we are very focused on delivering positive returns for our investors over the years to come. Our longer term record remains strong, with the Company's net asset value outperforming the benchmark index by several percentage points over the past three years, and over 13 percentage points over the past five years. Our biggest winners all came from the biotechnology sector, including names such as BioMarin, MedImmune, Genzyme, Onyx and Millenium. These companies were supported by strong fundamental progress in general and, in the case of MedImmune and Millenium, acquisition bids from large pharmaceutical companies. Our two biggest losers came from the pharmaceutical sector: Chugai Pharmaceutical and Schering-Plough. Schering-Plough was affected after releasing the outcome of a very small clinical trial that showed that one of their key cholesterol drugs showed no benefit compared to an older generic medicine. The resulting fallout from the media frenzy was swift and Schering-Plough fell over 25.0% in the past quarter. A much larger clinical trial has been underway for several years, which is expected to show a meaningful clinical benefit to this drug for patients. Thus we maintained our position and so far in the new fiscal year the stock has recovered from US$15 to over US$19 per share. VALUATION EROSION CONTINUES The last seven years have witnessed a remarkable underperformance of the healthcare sector relative to the broader markets. We are convinced the cycle will turn soon based on many factors: unprecedented low valuations, continued high expected earnings growth rates for biotechnology companies and the growth of new consumer markets in Asia. With respect to valuations, large capitalisation biotechnology companies now trade at the cheapest valuations in history. P/E ratios have fallen to an average of approximately 20, dragged down by Amgen which now trades at less than 11x 2008 projected earnings. In addition to opportunities in larger biotechnology companies, we also see attractive valuations in the middle and smaller sized biotechnology companies, in particular those companies we perceive to be "fallen angels". Approximately one third of biotechnology companies now trade more than 50.0% below their 52 week high. This level of carnage has not been seen since 2002. The very low valuations of that year presaged a sharp rebound in the form of a near 30.0% positive return for the Company in 2003. We are seeking to add additional holdings from among a selection of "fallen angel" names which are fundamentally attractive but have been hardest hit in the market. Within the pharmaceutical sector, valuations are also continuing to erode, and we now can find some dividend yields above 5.0% and P/E ratios that are in the single digits. We have been underweight in these companies relative to our benchmark for some time, and although great challenges remain ahead (notably a cliff of patent expirations beginning next year and legislative/political pressure) we now believe that selected contrarian value plays are warranted. Many of these companies are trading with high dividend yields (3.0-5.0%), P/E ratios that are deeply discounted to the market, and bloated expense bases which leave significant room to grow earnings through cost cutting in the absence of top-line growth. PLAYING POLITICS WITH OUR HEALTH The 2008 US Presidential election season is well under way and the many campaign proposals offer some hope of increased utilisation of healthcare goods and services for the approximately 45 million Americans with no health insurance. Most of the leading candidates espouse a vision of achieving universal coverage without a "single payer" model. Individuals would continue to receive employer-provided coverage, public healthcare access programs would be expanded, and subsidies would be provided for individuals to purchase private insurance. If these 45 million under-served consumers are brought into the healthcare system the resulting increase in volume of many healthcare products would provide a much needed growth driver for industry. However the possibility that new legislation could lift the restriction on Government price controls in the Medicare prescription drug benefit, in addition to other possible industry-unfriendly actions such as patent reforms favourable to generics companies, may provide an offset to the volume growth in the form of lower margins. With the anticipated flurry of healthcare reform headlines during the election year, we expect the coming pharma-political environment could be reminiscent of the 1994 Hillary Clinton healthcare reform proposals. Thus, we are dusting off our play book from 1994 and will evaluate several strategies to reposition the Company to profit from this environment, such as increasing exposure to both non-US companies and to sectors which could benefit from expanded government involvement in healthcare (such as generic drug markets, distributors and acute care hospitals). We will seek to avoid the companies most vulnerable to pharma-political issues, such as pharmaceutical companies with high-priced "me too" products. An example of the international exposure that we have been adding to insulate the Company from potential political headwinds is our investment in several Japanese generic drug companies. We believe that the coming years will see an increase in utilisation of generic drugs in Japan from the current mid-teens market share towards a level more consistent with other developed markets (US generic utilisation is nearly 60.0% of the drug market by volume). This investment thesis received an important boost recently as new legislation was passed in Japan which creates financial incentives for pharmacies to issue at least 30.0% of their prescriptions with generics. We expect additional regulatory and legislative actions in Japan to continue supporting this theme over the coming years. FDA CHASING ITS TAIL The US Food and Drug Administration ("FDA") has been stuck for several years now in a cautious mode with more emphasis on safety than innovation. As a result of this climate, combined with continued low R&D productivity from pharmaceutical companies, only 17 new pharmaceutical products (so called "new chemical entities", or NCEs) were approved during 2007. The last time FDA approvals were at this low level was in 2002, and before that in 1983. The return to majority status for the Democrats in Congress is partly to blame for this regulatory malaise. The Democrats have presided over more scrutiny of the FDA, as evidenced by several high profile Congressional hearings to debate FDA's management of safety issues involving several products, including Avandia, Epogen, Aranesp and Ketek. The Commissioner of FDA, Andrew von Eschenbach, does not yet appear to have solid footing with respect to his leadership role as evidenced by inconsistent performances during FDA budget and oversight hearings. He has done little so far to address industry concerns that the FDA remains overly concerned with drug safety to the potential detriment of new drug approvals as evidenced by the slow pace of approvals for new chemical entities (only 7 this year so far). In some cases, such as Zimulti from Sanofi-Aventis, drugs have been delayed or rejected despite approval in Europe and other markets. This higher approval hurdle is more of an issue for drugs addressing chronic diseases vs. acute care therapies (such as oncology drugs). As a result, this regulatory burden falls more heavily on pharmaceutical companies than the biotechnology sector. We are not optimistic that strong leadership will be reasserted at FDA during an election year and thus the industry will likely continue to face product approval headwinds in 2008. However a new President (regardless of party) would likely appoint a new FDA Commissioner in 2009. At this point any change would be a welcome opportunity to reinvigorate agency leadership. MERGER & ACQUISITIONS (M&A) IN FITS & STARTS Within the biotechnology sector, our focus on investments in acquisition targets worked well for the Company in the early part of the year, as over a dozen acquisitions of biotechnology companies occurred during the year. In particular, the Company's investment in MedImmune was our second biggest winner as AstraZeneca offered a stunning $15.6 billion for the company. This valuation equates to over ten times revenue and is indicative of the lengths to which the traditional pharmaceutical companies will go in order to acquire attractive biotechnology growth opportunities. Since December, the level of M&A activity has been subdued as Biogen Idec (BIIB) announced that its auction process had failed to produce any satisfactory bids for the company and it would remain as an independent entity for the foreseeable future. BIIB's stock price fell nearly 25.0% and triggered a broad sell off in the biotechnology indexes during the month of December. However a final chapter may still play out: the Swiss biotechnology company Serono went through a similar auction process in 2005 which resulted in no acquisition bids. Once the acquisition premium had leached out of the stock, German drug maker Merck KGaA stepped in to acquire Serono in September 2006. Looking ahead however, in the coming year we expect biotechnology M&A will re-accelerate and remain as a defining theme as other large companies continue to acquire smaller discovery companies to bolster their pipelines and offset patent expirations A BUSY SUMMER AHEAD One of our recent challenges has been a lack of fundamental stock-specific catalysts, such as new clinical trial data, new product approvals and high profile acquisitions. Fortunately this situation will change dramatically over the coming quarters as numerous catalysts are expected to occur, all of which present significant opportunities to generate meaningful returns. We highlight below three specific examples of these catalysts: * Bapineuzumab ("Bmab") data. Nothing ignites the life sciences sector like the prospect of a new blockbuster drug. Bmab is a humanized monoclonal antibody from Elan and Wyeth that is the most promising new treatment in development for Alzheimer's disease. Data will be released this summer that could demonstrate Bmab's ability to profoundly improve the current standard of care for Alzheimer's patients. The market potential for such a therapeutic is potentially enormous, with approximately 8 million Alzheimer's sufferers in the US alone. If results from the on-going phase III trial are positive, the drug could easily become the largest selling therapeutic worldwide, surpassing current leader Lipitor at over $12 billion annually. * ASCO conference and FLEX data. The cancer drug Erbitux is being tested in Non-Small Cell Lung Cancer (NSCLC), with data expected this quarter at the upcoming American Society of Clinical Oncology (ASCO) conference. NSCLC is one of the largest oncology markets in the US, and Erbitux could potentially generate over $1 billion in sales from this indication. * Prasugrel decision. The FDA is currently evaluating approval of Prasugrel, a potential competitor to Plavix, one of the world's current best-selling drugs. In addition to impact on Eli Lilly, this decision will impact two Japanese companies, Daiichi and Ube, which will receive royalties on Prasugrel. The marketers of Plavix (Bristol-Myers Squibb and Sanofi Aventis) also will be impacted significantly by this decision, as the companies derive a large percentage of their profits from Plavix. Although efficacy data for Prasugrel has been strong there is also evidence of greater side effects, including excess bleeding in some patients leading to higher mortality than Plavix. Finally, we are pleased to announce that we have recently recruited a new analyst, Kuhn Tsai, to lead our research efforts in healthcare services and medical device companies. Kuhn has previous experience as a biotechnology analyst at Goldman Sachs and Galleon Group and healthcare investment banking experience from Lehman Brothers. His academic training includes an MD/MBA from the University of Chicago and an AB from Harvard. We appreciate your patience during these difficult markets as we seek to return to the high level of returns which the Company has historically delivered to its shareholders. Samuel D. Isaly OrbiMed Capital LLC Investment Manager Finsbury Worldwide Pharmaceutical Trust PLC Contribution by Investment - excluding derivatives Top and bottom five contributors to net asset value performance over the year to 31 March 2008 Contribution Contribution for the year to per share 31 March 2008 (pence)* Â£'000 Top Five Contributors BioMarin Pharmaceutical 5,242 10.65 MedImmune 4,658 9.46 Genzyme 2,423 4.92 Onyx Pharmaceuticals 2,346 4.77 Millenium Pharmaceutical 1,743 3.54 33.34 Bottom Five Contributors Chugai Pharmaceutical (8,243) (16.74) Schering-Plough (6,049) (12.29) Amgen (3,987) (8.10) Bristol-Myers Squibb (2,721) (5.53) Momenta (2,640) (5.36) (48.02) * based on the weighted average number of shares in issue during the year to 31 March 2008 (49,231,108) Champions of Innovation Industry leading investments in the investment portfolio VERTEX PHARMACEUTICALS Vertex is a leading biotechnology company focused on the discovery of breakthrough small molecule drugs for viral diseases, inflammation, cancer and other serious diseases. The company's strategy is to commercialize its products both independently and in collaboration with major pharmaceutical companies. Vertex co-discovered the HIV protease inhibitor, Lexiva, with GlaxoSmithKline. Their lead program, telaprevir, is expected to provide patients with a quantum leap in the treatment of Hepatitis C virus. BIOMARIN PHARMACEUTICAL A biotechnology company focused on developing innovative products for niche markets. BioMarin has two drugs approved for marketing and a pipeline of additional drugs in development. The marketed drugs help patients who suffer from lysosomal storage diseases, which are rare diseases in which patients lack specific enzymes required for elimination of certain biological waste products. BioMarin's two approved products are direct replacements of these missing enzymes. For example, BioMarin developed Aldurazyme as the first specific therapy approved for the treatment of mucopolysaccharidosis. With two approved products on the market and a fully-integrated infrastructure in place, BioMarin is well positioned to realise continued success. BIOGEN IDEC Founded in 1978 as one of the original pioneering biotechnology companies, Biogen Idec has grown into an industry behemoth by creating new standards of care in therapeutic areas with high unmet medical needs. Biogen Idec is a global leader in the discovery, development, manufacturing, and commercialization of innovative therapies such as Tysabri for Multiple Sclerosis and Rituxan for non-Hodgkin's lymphoma. Biogen Idec boasts a rich pipeline of over a dozen important potential drugs in development, posing the company for continued growth in the years ahead. Investment Portfolio as at 31 March 2008 Investment Portfolio Country Fair value % of Â£'000 investments Genentech USA 13,263 5.8 Genzyme USA 13,218 5.7 Novartis Switzerland 12,934 5.6 Abbott Laboratories USA 12,300 5.3 Bristol-Myers Squibb USA 11,772 5.1 Roche Switzerland 10,215 4.4 Biogen Idec USA 9,668 4.2 Merck KGaA Germany 9,217 4.0 Gen-Probe USA 8,496 3.7 Schering-Plough USA 8,294 3.6 Top 10 investments 109,377 47.4 Shionogi & Company Japan 8,215 3.6 Wyeth USA 7,342 3.2 Vertex Pharmaceuticals USA 6,214 2.7 Xoma USA 6,097 2.6 Imclone Systems USA 6,078 2.6 Onyx Pharmaceuticals USA 6,074 2.6 BioMarin Pharmaceutical USA 5,690 2.5 Amgen USA 5,675 2.5 Par Pharmaceutical USA 5,425 2.4 Pfizer USA 5,079 2.2 Top 20 investments 171,266 74.3 Mylan USA 5,015 2.2 OSI Pharmaceuticals USA 4,968 2.1 Sawai Pharmaceutical Japan 4,648 2.0 Tepnel Life Sciences > + UK 4,550 2.0 Merck & Co USA 4,356 1.9 Millenium Pharmaceutical USA 3,967 1.7 Intermune USA 3,817 1.7 Towa Pharmaceutical Japan 3,411 1.5 Nichi-Iko Pharmaceutical Japan 2,518 1.1 Genomic Health USA 2,423 1.1 Top 30 investments 210,939 91.6 Exelixis USA 2,043 0.9 Amag Pharmaceuticals USA 2,032 0.9 Amylin Pharmaceuticals USA 1,836 0.8 Nippon Chemiphar Japan 1,659 0.7 NPS Pharmaceutical USA 1,429 0.6 Hana Biosciences USA 328 0.2 Ariad Pharmaceuticals USA 321 0.1 GeneProt Series A Conv USA - - Pref + Total Equities and 220,587 95.8 Warrants Elan # USA 78 - Savient Pharmaceutical ~ USA (19) - Imclone Systems ~ USA (21) - Gilead Sciences ~ USA (25) - Genentech # USA (28) - Wyeth ~ USA (34) - Ishares Nasdaq Biotech ~ USA (194) (0.1) Novartis ~ Switzerland (219) (0.1) Total Options (462) (0.2) M & A Basket OTC Swap USA 10,244 4.4 Total investments 230,369 100.0 including options and swap * Includes Call Options ~ Includes Put Options * Includes warrants * Includes unquoted Investment Analysis of the Investment Portfolio The Portfolio as at 31 March 2008 Fair value % of Â£'000 investments Equities (including 218,905 95.1 options) Warrants 1,220 0.5 M&A Basket OTC Swap 10,244 4.4 Total of all investments 230,369 100.0 Report of the Directors Incorporating the Business Review The Directors present their report and the audited financial statements for the year ended 31 March 2008. 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 2007. 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 close company provisions of the Income and Corporation Taxes Act 1988 do not apply to the Company. 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 will have an opportunity to vote on the continuation of the Company no later than the Annual General Meeting in 2009. Investment Objective and Benchmark The Company invests worldwide in pharmaceutical, biotechnology and related securities with the objective of achieving a high level of capital growth. It is the Company's policy to invest no more than 15.0% of its gross assets in other investment companies (including listed investment trusts). No investment of this type is currently held. 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 pharmaceutical, biotechnology 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 15.0% of its assets in other UK listed investment companies * The Company will not invest more that 10.0% of the investment portfolio in any one individual stock at the time of acquisition * 60.0% of the investment portfolio will normally be invested in larger companies (i.e. with a market capitalisation of at least US$5bn) * 20.0% of the investment 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 10.0% of the investment portfolio * The Company' gearing policy is to borrow within a maximum of Â£70m or 20.0% of the Company's net asset value * Derivative transactions can be used to mitigate risk or enhance capital returns and will be restricted to 5.0% of the investment 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 2008, the Company's undiluted net asset value per share decreased by 6.6% compared to a fall of 6.1% in the Datastream World Pharmaceutical and Biotechnology Index (total return, sterling adjusted). The Company's share price fell by 4.4% in the same period. The Review of Investments includes a review of the principal developments during the year, together with information on investment activity within the Company's investment portfolio. Results and Dividends The Directors have declared an interim dividend for the year of 3.0p per share (2007: interim dividend of 3.0p) payable on 25 July 2008. Key Performance Indicators (`KPI') 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 As indicated, the management of the investment 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 KPI's within the terms of their respective agreements by utilising the capabilities of the experienced professionals within each firm. Principal Risks 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 the Annual General Meeting in 2009 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 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 6.0% discount of share price to the diluted net asset value per share. Market Price Risk Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Board meets as a team on a regular quarterly basis during the year and on an ad hoc basis if necessary. At each meeting they consider the asset allocation of the investment 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. 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 return. 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 in 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 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 at the Company's Audit Committee and are available to attend meetings in person if required. Industry Risk 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. In addition to portfolio risks the Company is also susceptible to currency fluctuations due to non-sterling denominated investments being held; however the Board's policy is not to currency hedge, thereby enabling the Investment Manager to focus on investment and allowing the investors to make their own currency hedging arrangements as 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 US 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. Further information on financial instruments and risk, as required by FRS 29, can be found in note 18 to the financial statements beginning on page 40. Share Capital At the Annual General Meeting held on 9 July 2007, the Company was authorised to allot up to 5,157,878 new shares into the market. Since this date, up until 16 June 2008, a total of 14,687 shares were allotted on 6 August 2007 as a result of certain holders of the Company's warrants exercising their subscription rights on 31 July 2007. At the Annual General Meeting held on 9 July 2007, authority was granted for the repurchase of 7,731,659 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 6,351,307 shares, 896,000 of which are currently held in treasury, at a cost of Â£30,852,000 (including expenses). Since the year end and to 16 June 2008, a further 1,387,750 shares, costing Â£ 6,470,000 (including expenses), have been repurchased to be held in treasury. In aggregate to 16 June 2008 the shares bought back equate to a total of 14.7% 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 23 July 2008, the date of the Annual General Meeting, will be cancelled. Prospects The economic outlook remains uncertain and stock market conditions will continue to be volatile and difficult in the short term. The Board continues to closely monitor developments in the healthcare sector and to explore new investment opportunities within the sector. The stock market performance of the sector as a whole has trailed that of the general market over the last several years. Over that time, earnings per share of major biotechnology companies have advanced rapidly, while those of major pharmaceutical companies have grown more slowly. At the same time, scientific advance at discovery biotechnology companies has been noteable, resulting in several major successes in the investment portfolio. However, there is risk in this sector, and occasional failures have detracted from returns, but the Board is confident that the pace of scientific advance will contribute to multiple opportunities for future profit. Merger and Acquisition activity should continue, and expected enhancements at the US Food and Drug Administration should result in a more positive stance towards new drug approvals. The Board believes that the investment portfolio is well positioned to take advantage of not only a brighter outlook for the sector in the medium term, but also a recovery in stock markets generally. The Board remains optimistic for the fortunes of the sector and for the Company. 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. For the period 1 April 2007 to 30 June 2007 the management fee payable was 1.0% per annum of the Company's net asset value and was shared 0.35% to Close Investments Limited, the previous manager, and 0.65% to the Investment Manager. In addition Close Investments Limited received a Secretarial Fee equal to Â£ 150,000 per annum. With effect from 1 July 2007, the new Manager, Frostrow Capital LLP, receives a periodic fee equal to 0.30% per annum of the Company's market capitalisation up to Â£150m 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 to such extent and from such dates as the Board may determine; * 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 Agreement: Investment Management Services are provided by the Investment Manager. The Investment Management is authorised and regulated by the US 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 investment 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 investment 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 out-performance 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 out-performance of the investment portfolio over the Benchmark as at the quarter end date; and ii. the cumulative out-performance of the investment 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, and no performance fee is accrued for as at 31 March 2008. 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 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 2008, the Company did not have any trade creditors (2007: 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 are as follows: Ian Ivory (Chairman) Josephine Dixon Paul Gaunt Professor Duncan Geddes Dr David Holbrook (appointed 8 November 2007) Samuel D Isaly James Noble (retired 9 July 2007) Martin Smith (appointed 8 November 2007) Anthony Townsend 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 1 April 31 March 1 April 2008 2007* 2008 2007* Ian Ivory 61,200 59,861 43,975 43,975 Josephine Dixonâ€ 3,400 3,400 88,180 88,180 Paul Gaunt - - - - Professor Duncan 38,250 20,000 4,000 4,000 Geddes Dr David Holbrook - - - - Samuel D Isaly 235,673 235,673 407,134 407,134 Martin Smith - - - - Anthony Townsend 12,987 12,987 1,415 1,415 *or date of appointment if later â€ Since the year end, Jo Dixon transferred 3,400 shares and 62,500 warrants to subscribe for shares to a non-connected person. As at 16 June 2008, Ms Dixon had beneficial interest in 25,680 warrants to subscribe for shares. As at 16 June 2008, there had been no further changes in the above details. None of the Directors were granted or exercised rights over shares during the year. None of the Directors has any contract (including service contracts) with the Company, each Director is appointed by simple letter of appointment that sets out the basic terms of appointment. Directors may resign or be removed from office in writing. 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 totalling 20.0% 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 2008. It is intended that this policy will continue for the year ending 31 March 2009 and subsequent years. Directors' Responsibilities 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. 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 maintained by the Manager 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 loss for the year ended 31 March 2008, and that the Chairman's Statement, Review of Investments and the Report of the Directors include a fair review of the information by 4.1 .8R to 4.2.1 1R of the FSAs Disclosure and Transparency Rules. Substantial Shareholdings As at 20 May 2008 the Company was aware of the following interests in the shares of the Company, which exceeded 3.0% of the issued share capital of that class: Shareholder Registered holder Number of % of shares issued share capital Asset Value Investors Various Nominees 3,735,525 8.21 Rensburg Sheppards Ferlim Nominees/Hero 3,171,400 6.97 Investment Management Nominees Newton Investment Various Nominees 2,866,491 6.30 Management Legal & General Various Nominees 2,564,366 5.64 Investment Management East Riding of Yorkshire Nortrust Nominees 2,147,250 4.72 Council Alliance Trust Savings Alliance Trust Savings 2,106,810 4.63 Nominees Tilney Investment Various Nominees 1,465,545 3.22 Management 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. Corporate Governance A formal statement on Corporate Governance is set out in the Corporate Governance Report. Beneficial Owners of Shares - Information Rights Please note that 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 The Companies Act 2006 (the "2006 Act") received Royal Assent in November 2006. The 2006 Act represents a major reform of UK companies' legislation and is being brought into force on a staged basis. In order to reflect certain of the provisions of the 2006 Act which have or will come into force, it is proposed that a number of alterations be made to the Articles of Association. Details of the proposed changes are set out in a separate circular to shareholders. Shareholders should be mindful that as the 2006 Act is being implemented over a period of time, with the final stage taking effect in October 2009. Annual General Meeting The formal Notice of Annual General Meeting is set out in a separate circular to shareholders dated 18 June 2008. Resolutions relating to the following items of special business will be proposed at the forthcoming Annual General Meeting: a. Adoption of new articles of association Resolution 10 seeks shareholder approval that new articles of association be adopted in substitution for, and to the exclusion of, the existing articles of association. b. Authority to allot shares Resolution 11 gives the Directors authority to allot new shares, otherwise than by a pro rata issue to existing shareholders, up to an aggregate nominal amount of Â£1,120,060 such amount being equivalent to 10.0% of the present issued share capital and representing 4,480,241 shares of 25p each. Such issues would only be made at prices greater than the fully diluted net asset value per share (`NAV') thereby increasing the assets underlying each share and spread administrative expenses, other than those charged as a percentage of assets, over a greater number of shares. c. Disapplication of pre-emption rights Resolution 12 seeks shareholder approval for the disapplication of pre-emption rights in respect of a) the allotment of shares or the sale by the Company of shares held by it in treasury (`treasury shares'), pursuant to a rights issue or a sale equivalent to a rights issue, and b) the allotment (other than as part of a rights issue) of shares or the sale of treasury shares for cash up to an aggregate nominal value of Â£1,120,060. No such allotment will be made at less than the prevailing NAV per share (as determined in the absolute discretion of the Directors). However, shares held in treasury may be resold by the Company at a discount to such diluted NAV provided that such shares are resold by the Company at a lower discount to the fully diluted NAV than the discount at which they were repurchased by the Company, subject to a maximum discount of 5.0% in absolute terms. d. Authority to repurchase shares Resolution 13 seeks shareholder approval for the Company to have the power to repurchase its own shares. The Board believes that the ability of the Company to purchase its own shares in the market will potentially benefit all shareholders of the Company. The repurchase of shares at a discount to the underlying NAV would enhance the NAV of the remaining shares. At the Annual General Meeting the Company will seek shareholder approval to repurchase up to 6,715,881 shares, representing approximately 14.99% of the Company's issued share capital (the maximum permitted under the Listing Rules) at a price that is not less than 25p a share (the nominal value of each share) and not more than the higher of (a) 105% of the average of the middle market quotations for the five business days preceding the day of purchase; and (b) the higher of the price of the last independent trade in shares and the highest then current independent bid for shares on the London Stock Exchange. The decision as to whether to repurchase any shares will be at the absolute discretion of the Board. Shares repurchased under this authority may either be held by the Company in treasury for resale up to a maximum of 10.0% of the issued shares or cancelled. The authorities being sought under resolutions 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 the 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 16 June 2008 Corporate Governance Compliance The Board has considered the principles and recommendations of the AIC Code of Corporate Governance ("AIC Code") by reference to the AIC Corporate Governace 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 2008 and up to the date of this report, except with regard to the composition of certain of its committees 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 Ian Ivory, currently consists of eight 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. 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. Sam Isaly is Managing Partner of OrbiMed 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 Messrs Ivory and Townsend have all 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. Anthony Townsend was previously considered not to be independent by the Board due to directorship of The Biotech Growth Trust PLC, another investment company to whom OrbiMed Capital provide investment management services. Following his retirement from the Board of The Biotech Growth Trust PLC he is now considered to be independent by the Board. 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. In light of the above Messrs Gaunt, Isaly, Ivory, Townsend and Professor Geddes will be retiring from the Board at the forthcoming Annual General Meeting. All of these, with the exception of Mr Ivory, will be offering themselves for re-election. Dr David Holbrook and Martin Smith, who both joined the Board on 8 November 2007, shall both stand for their first election by shareholders at the Annual General Meeting. The Board has considered the position of Messrs Gaunt, Isaly, Smith, Townsend and Professor Geddes and Dr Holbrook, as part of the evaluation process, and believes that it would be in the Company's best interests to propose them for election and 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 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, he/she is provided with all relevant information regarding the Company and his/her 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 has reviewed 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 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 2008, 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. Up until 5 March 2008 the committees were comprised of the independent Directors although the non-independent Directors were invited to attend meetings when appropriate by the Chairman. Following a review by the Board, it was agreed on 5 March 2008 that, due to its size, the membership of the Remuneration and Nominations Committees should comprise the whole Board under the chairmanship of Ian Ivory (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 2008 are shown with the Directors' Biographies on pages 4 and 5. The table below details the number of Board and Committee meetings attended by each Director. During the year there were 5 Board meetings and a separate meeting devoted to strategy, 2 Audit Committee meetings, 3 meetings of the Nominations Committee and 1 meeting of the Remuneration Committee. Meeting Attendance The number of meetings held during the year of the Board and its Committees, and each Directors attendance level is shown below: Type and number of Board Strategy Audit Nominations Remuneration meetings held in Committee Committee Committee 2007/8 (5) (1) (2) (3) (1) Ian Ivory 5 1 2 3 1 Josephine Dixon 5 1 2 3 1 Paul Gaunt 5 1 N/A 1 1 Professor Duncan 5 1 2 3 1 Geddes Dr David Holbrook* 1 1 - 1 1 Samuel D Isaly 5 1 N/A 1 1 James Noble** 2 - - - - Martin Smith* 1 1 - 1 1 Anthony Townsend 4 1 N/A 1 1 *Appointed to the Board on 8 November 2007 **Retired from the Board on 9 July 2007 All of the Directors (with the exception of Dr David Holbrook and Martin Smith) attended the Annual General Meeting held on 9 July 2007. 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. 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£3,550 were paid to Ernst & Young LLP for their review of the Company's options strategy. The Board 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 then 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. 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 which is set out below. 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 Directors' statement of responsibilities in respect of the financial statements is set out on pages 18 and 19. The report of the auditors is set out on pages 27 and 28. The Board has delegated contractually to external agencies, including the manager and the Investment Manager, the management of the investment 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 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 Shareholder Analysis as at 31 March 2008 2008 2008 2008 2007 2007 2007 2007 number of number of number of number of % of shares % of warrants# % of shares % of warrants# issued issued issued issued warrants share warrants share # capital # capital Nominee Companies 40,431,441 87.5 8,601,006 79.9 45,714,140 87.0 7,194,000 66.8 * Other Institutions, Investment Funds and 2,071,821 4.5 368,488 3.4 3,600,501 6.9 2,791,007 25.9 Companies Private 1,449,588 3.1 641,249 6.0 1,970,400 3.7 640,470 5.9 Individuals Banks and Bank 2,237,311 4.9 1,147,937 10.7 1,241,740 2.4 147,890 1.4 Nominees Total shares/ 46,190,161 100.0 10,758,680 100.00 52,526,781 100.0 10,773,367+ 100.0 warrants in issue * * *includes Alliance Trust Savings Scheme, 2,109,096 4.6 137,154 1.3 2,349,477 4.5 240,204 2.2 and ISA clients. These holdings were transferred to Alliance Trust Savings Limited with effect from 18 March 2008. # Warrants to subscribe for shares, created on 17 December 2004 + 14,687 Warrants were exercised on 31 July 2007 Income Statement for the year ended 31 March 2008 Notes 2008 2008 2008 2007 2007 2007 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Losses on investments 9 - (16,666) (16,666) - (37,708) (37,708) held at fair value through profit or loss Exchange gains on - 1,332 1,332 - 3,903 3,903 currency balances Income from 2 3,404 - 3,404 3,891 - 3,891 investments held at fair value through profit or loss Investment 3 (122) (2,323) (2,445) (147) (2,787) (2,934) management, management and performance fees Other expenses 4 (708) - (708) (973) - (973) Net return/(loss) 2,574 (17,657) (15,083) 2,771 (36,592) (33,821) before finance charges and taxation Finance charges 5 (51) (976) (1,027) (100) (1,893) (1,993) Net return/(loss) on 2,523 (18,633) (16,110) 2,671 (38,485) (35,814) ordinary activities before taxation Taxation on net 6 (782) 372 (410) (819) 389 (430) return/(loss) on ordinary activities Net return/(loss) on 1,741 (18,261) (16,520) 1,852 (38,096) (36,244) ordinary activities after taxation Return/(loss) per 7 3.5p (37.1 p) (33.6p) 3.3p (66.9p) (63.6p) share - basic Return/(loss) per 7 3.5p (37.1 p) (33.6p) 3.2p (66.9p) (63.7p) share - diluted The total column of this statement is the profit and loss account of the Company. The revenue and capital return 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 Reconciliation of Movements in Shareholders' Funds For the year ended 31 March 2008 Called-up Share Warrant Capital Capital Revenue Total share premium reserve reserve redemption reserve Â£'000 capital account Â£'000 Â£'000 reserve 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 - - - (18,261) - 1,741 (16,520) on 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 For the year ended 31 March 2007 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 2006 14,356 116,613 7,458 193,699 375 2,257 334,758 Net (loss)/return - - - (38,096) - 1,852 (36,244) from ordinary activities after taxation Dividend paid in - - - - - (979) ( 979) respect of year ended 31 March 2006 Proceeds from 8 143 - - - - 151 exercise of warrants Transfer from - 22 (22) - - - - warrant reserve following exercise of warrants Shares purchased - - - (24,879) - - (24,879) including expenses (and held in treasury) Issue of own shares 37 787 - - - - 824 At 31 March 2007 14,401 117,565 7,436 130,724 375 3,130 273,631 Balance Sheet as at 31 March 2008 Notes 2008 2007 Â£'000 Â£'000 Fixed assets Investments held at fair value 9 220,587 289,919 through profit or loss Derivative - OTC swap 12 10,244 - 230,831 289,919 Current assets Debtors 10 4,399 1,319 Cash at bank 7,050 376 11,449 1,695 Current liabilities Creditors: amounts falling due 11 (17,035) (17,131) within one year Derivative - financial instruments 9 & 12 (462) (852) (17,497) (17,983) Net current liabilities (6,048) (16,288) Total net assets 224,783 273,631 Capital and reserves Called-up share capital 13 11,772 14,401 Share premium account 117,639 117,565 Warrant reserve 7,426 7,436 Capital reserve 81,611 130,724 Capital redemption reserve 3,008 375 Revenue reserve 3,327 3,130 Total equity shareholders' funds 224,783 273,631 Net asset value per share - basic 14 486.6p 520.9p Net asset value per share - 14 482.4p 511 .2p diluted Cash Flow Statement for the year ended 31 March 2008 Notes 2008 2007 Â£'000 Â£'000 Net cash outflow from operating 15 (332) (645) activities Servicing of finance Interest paid (1,023) (2,007) Taxation Taxation recovered 124 140 Financial investments Purchases of investments and (219,443) (102,329) derivatives Sales of investments and 269,680 152,855 derivatives Net cash inflow from financial 50,237 50,526 investment Equity dividends paid (1,544) (979) Net cash inflow before financing 47,462 47,035 Financing Issue of shares 68 975 Purchase of shares (30,618) (24,179) Decrease in short term loans (10,308) (29,907) Net cash outflow from financing (40,858) (53,111) Increase/(decrease) in cash for 16 6,604 (6,076) the year The accompanying notes are an integral part of this statement. 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 applicable accounting standards and with the Statement of Recommended Practice `Financial Statements of Investment Trust Companies' dated December 2005 (the `SORP'). The Company has adopted FRS 29: "Financial Instruments: Disclosures" for the first time in these financial statements. The disclosures required by this standard are given in note 18. (b) Valuation of Investments 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. 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; ii. 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 investment portfolio. As a result 5.0% of the investment management and management fees are charged to the revenue column of the income statement and 95.0% 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 investment portfolio. As a result 5.0% of the finance costs are charged to revenue and 95.0% 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. (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 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. (g) 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. (h) 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 investment portfolio, facilitate management of the investment 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 unrealised gains and 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. (i) 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 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. 2. Income from Investments Held at Fair Value Through Profit or Loss 2008 2007 Â£'000 Â£'000 Income from investments UK listed dividend 3 - Overseas dividends 3,029 3,123 Fixed interest income 144 498 3,176 3,621 Other income Interest receivable 228 270 Total income from investments held at fair value 3,404 3,891 through profit or loss Total income comprises: Dividends 3,032 3,123 Interest 372 768 3,404 3,891 3. Investment Management, Management and Performance Fees 2008 2008 2008 2007 2000 2007 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Investment Management and 122 2,323 2,445 145 2,756 2,901 management periodic fee Irrecoverable VAT thereon - - - 2 31 33 122 2,323 2,445 147 2,787 2,934 At the year end no performance fees were accrued or payable (2007: nil), in accordance with the performance fee arrangements described on page 17. Details of Investment Management and Management fee arrangements are set out in the Report of the Directors on pages 16 and 17. 4. Other Expenses 2008 2007 Revenue Revenue Â£'000 Â£'000 Secretarial services fee 37 150 Directors' remuneration 153 145 Auditors' remuneration for the audit of the Company's financial 22 21 statements Auditors' remuneration for other services 4 13 Marketing 14 195 PEP, ISA and savings scheme expenses 83 56 Registrar 33 56 Custody 42 54 Other 320 283 708 973 Where applicable the above expenses exclude VAT. 5. Finance Charges 2008 2008 2008 2007 2007 2007 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Finance charges 51 976 1,027 100 1,893 1,993 6. Taxation on Ordinary Activities (a) Analysis of charge in year: 2008 2008 2008 2007 2007 2007 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 UK corporation tax at - - - 30% Tax relief to capital 372 (372) - 389 (389) - Overseas taxation 410 - 410 430 - 430 782 (372) 410 819 (389) 430 (b) Factors affecting current tax charge for the year The tax charged for the year is higher than the standard rate of corporation tax in the UK for a large company 30% (2007: 30%). The difference is explained below. 2008 2007 Â£'000 Â£'000 Revenue account profit on ordinary activities before tax 2,523 2,671 Corporation tax at 30% 757 801 Overseas withholding tax not recoverable 410 430 Non taxable UK dividend 1 - Expenses charged to capital available to be utilised (618) (1,404) Excess expenses unused 205 975 Timing differences on overseas dividends 2 - Disallowed expenses 25 17 782 819 (c) The Company has not recognised a deferred tax asset of Â£11,094,000 (2007: Â£ 10,482,000) 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. (Loss)/Return per Share 2008 2007 Â£'000 Â£'000 The (loss)/return per share is based in the following figures: Revenue return 1,741 1,852 Capital loss (18,261) (38,096) Total loss (16,250) (36,244) Weighted average number of shares in issue 49,231,108 56,962,481 for the year - basic Revenue return per share 3.5p 3.3p Capital loss per share (37.1 p) (66.9p) Total loss per share - basic (33.6p) (63.6p) Weighted average number of shares in issue 49,675,682 57,619,379 for the year - diluted Revenue return per share 3.5p* 3.2p Capital loss per share (37.1 p)* (66.9p)* Total loss per share - diluted (33.6p)* (63.7p) *dilution not applicable 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 2008 were as follows: 2008 2007 Â£'000 Â£'000 Interim dividend in respect of the year 1,544 - ended 31 March 2007 Interim dividend in respect of the year - 979 ended 31 March 2006 1,544 979 In respect of the year ended 31 March 2008, an interim dividend of 3.0p per share (2007: 3.0p per share) has been declared. The aggregate cost of this dividend based on the number of shares in issue at 16 June 2008 is estimated to be Â£1,344,000. In accordance with FRS 21 this dividend will be reflected in the interim accounts as at 30 September 2008. 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: 2008 2007 Â£'000 Â£'000 Revenue available for distribution by way of 1,741 1,852 dividend for the year Dividends for the year ended 31 March (1,344)* (1,547)â€ 397 305 *based on shares in issue as at 16 June 2008 (44,802,411) â€ Â£1,544,000 was paid to shareholders on 18 July 2007. The difference is due to additional shares being bought back for cancellation in the period from the signing of the 2007 Annual Report on 11 June 2007 and the ex dividend date of 13 June 2007. 9. Investments Listed Unlisted Options Derivatives Total investments investments Â£'000 OTC swap Â£'000 Â£'000 Â£'000 Cost at 1 April 256,188 - (850) - 255,338 2007 Unrealised 32,946 785 (2) - 33,729 appreciation/ (depreciation) at 1 April 2007 Valuation at 1 289,134 785 (852) - 289,067 April 2007 Movements in the year: Purchases at cost 192,544 - 5,600 32,652 230,796 Sales - proceeds (244,483) (17) (7,313) (21,015) (272,828) - realised gains/ 14,822 17 2,323 (178) 16,984 (losses) on sales Net movement in (32,650) 435 (220) (1,215) (33,650) unrealised appreciation Valuation at 31 219,367 1,220 (462) 10,244 230,369 March 2008 Cost at 31 March 219,071 - (240) 11,459 230,290 2008 Unrealised 296 1,220 (222) (1,215) 79 appreciation/ (depreciation) at 31 March 2008 Valuation at 31 219,367 1,220 (462) 10,244 230,369 March 2008 Gains/(losses) on investment 2008 2007 Â£'000 Â£'000 Realised gains based on historical cost 16,984 15,456 Less: amounts recognised as unrealised in (24,281) (40,267) previous years Realised losses based on carrying value at (7,297) (24,811) previous balance sheet date Net movement in unrealised depreciation in the (9,369) (12,897) year Losses on investments (16,666) (37,708) Purchase transaction costs for the year to 31 March 2008 were Â£349,000 (year ended 31 March 2007: Â£291,000). These comprise mainly stamp duty and commission. Sales transaction costs for the year to 31 March 2008 were 2008 2007 Â£395,000 (year ended 31 March 2007: Â£419,000). Â£'000 Â£'000 10. Debtors Amounts due from brokers 3,899 751 Withholding taxation recoverable 273 246 VAT recoverable 36 125 Prepayments and accrued income 191 197 4,399 1,319 11. Creditors 2008 2007 Amounts falling due within one year Â£'000 Â£'000 Amounts due to brokers - 8 Amounts due to brokers - OTC equity swap 11,361 - Amounts due to brokers - purchase of own shares 919 694 Stamp duty due on purchase of own shares 15 6 Bank loans and overdrafts 4,075 15,650 Other creditors and accruals 665 773 17,035 17,131 12. Derivative Financial Instruments 2008 2007 Â£'000 Â£'000 Fair value of call and put options (462) (852) Fair value of OTC equity swap 10,244 - 9,782 (852) 13. Share Capital 2008 2007 Â£'000 Â£'000 Authorised: 178,000,000 shares of 25p 44,500 44,500 Allotted, called-up and fully paid: 47,086,161(2007: 57,604,881) shares of 25p 11,772 14,401 At 31 March 2008, the Company held 896,000 shares in treasury (2007: 5,078,100). During the year ended 31 March 2008, a total of 6,351,307 shares (2007: 5,078,100) were purchased at a total cost of Â£30,852,000 (2007: Â£24,879,000). Of these, 896,000 were held in treasury at 31 March 2008 (2007: 5,078,100). The Company also allotted on 6 August 2007 a total of 14,687 shares for total consideration of Â£68,000 as a result of certain holders of the Company's warrants exercising their subscription rights. At the year end there were 10,758,680 warrants in issue (2007: 10,773,367). 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 464.00p per share on 31 July 2008 and 31 July 2009. 14. Net Asset Value per Share 2008 2007 Net asset value per share - basic 486.6p 520.9p Net asset value per share - diluted 482.4p 511 .2p The net asset value per share is based on the assets attributable to equity shareholders of Â£224,783,000 (2007: Â£273,631,000) and on the number of shares in issue at the year end of 46,190,161 (excluding shares held in treasury) (2007: 52,526,781). The diluted net asset value per share assumes all outstanding warrants are exercised at 464p resulting in assets attributable to equity shareholders of Â£274,703,000 (2007: 323,619,000) and on the resultant number of shares of 56,948,841 (2007: 63,300,148). As at 31 March 2008, the Company held 896,000 shares in treasury. 15. Reconciliation of Operating Return to Net Cash Outflow from Operating Activities 2008 2007 Â£'000 Â£'000 Loss before finance costs and taxation (15,083) (33,821) Capital loss before finance costs and 17,657 36,592 taxation Revenue return before finance costs and 2,574 2,771 taxation Expenses charged to capital (2,323) (2,787) Decrease in accrued income 6 24 Decrease/(increase) in other debtors 91 (84) (Decrease)/increase in creditors and (112) - accruals Net taxation suffered on investment income (568) (569) Net cash outflow from operating activities (332) (645) 16. Reconciliation of Net Cash Flow Movement to Movement in Net Debt/Funds 2008 2007 Â£'000 Â£'000 Decrease/(increase) in net debt resulting from 6,604 (6,076) cashflows Exchange movements 1,337 3,903 Decrease in short term loans 10,308 29,907 Movement in net debt in the year 18,249 27,734 Net debt at start of year (15,274) (43,008) Net funds/(debt) at end of year 2,975 (15,274) Represented by: At 1 April Cash Exchange At 31 2007 flows movements March 2008 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank 376 6,604 70 7,050 Bank overdraft (801) 801 - - Bank loans (14,849) 9,507 1,267 (4,075) Net (debt)/funds (15,274) 16,912 1,337 2,975 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. Sam Isaly is a Director of the Company, as well as a Partner of the Company's Investment Manager, OrbiMed Capital LLC. During the year ended 31 March 2008, OrbiMed Capital LLC received Â£1,692,000 in respect of which Â£365,900 was outstanding at the year end. 18. Risk Management Policies and Procedures 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 objectives, the Company is exposed to a variety of risks that could result in either a reduction in the Company's net assets or a reduction in the profits available. The Company's financial instruments comprise securities and other investments, derivative instruments, cash balances, loans, debtors and creditors that arise directly from its operations. The main risks to which the Company is exposed from its financial instruments are: (i) market risk (including currency risk, interest rate risk and other price risk (i.e. changes in market prices other than those arising from interest rate or currency risks)); (ii) liquidity risk; and (iii) credit risk. These risks and the Directors' approach to the management of them are set out in the Report of Directors. The Investment Manager, in close co-operation with the Board of Directors, co-ordinates the Company's risk management. The objectives, policies and processes for managing the risks, and the methods used to manage the risks, which are set out below, have not changed from the previous accounting period. 1. Market price risk: The Company's investment 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 a existing position, or provides an effective entry price at which to initiate an new position. The Investment Manager uses the following methodology in evaluating and examining the investment portfolio for investment opportunities: * Valuation * Timing catalysts * Desired entry price or exit price * Implied verses historical implied volatility 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. (a) 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. 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 the investment 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. Foreign currency exposure An analysis of the foreign currency exposure of the Company's equity investments at 31 March 2008 is given below. USD YEN CHF Â£'000 Â£'000 Â£'000 Investments at fair value through profit or loss 31 March 2008 163,220 20,451 23,149 31 March 2007 219,265 36,196 30,817 The above amounts are not representative of the exposure to the risk during the year as levels of monetary foreign currency exposure change significantly throughout the year. During the year, the maximum and minimum net monetary assets/liabilities for each currency were as follows: USD YEN CHF 31 March 2008 Â£'000 Â£'000 Â£'000 Maximum 221,688 48,509 31,866 Minimum 144,833 20,451 22,930 USD YEN CHF 31 March 2007 Â£'000 Â£'000 Â£'000 Maximum 262,226 41,995 45,809 Minimum 200,490 28,022 24,064 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 5.0% increase and decrease in sterling against US dollars (2007: 10.0% increase and decrease), a 15.0% increase and decrease in sterling against Japanese yen (2007: 15.0% increase and decrease), and a 20.0% increase and decrease in sterling against Swiss francs (2007: 5.0% 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 the following effect: 2008 2007 USD YEN CHF USD YEN CHF Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Impact on revenue return 62 120 143 227 102 33 Impact on capital return 9,042 3,160 5,686 24,034 6,327 1,607 Total return after tax 9,104 3,280 5,829 24,261 6,429 1,640 /effect on shareholders funds If sterling had strengthened against the currencies below this would have the following effect: 2008 2007 USD YEN CHF USD YEN CHF Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Impact on revenue return (56) (89) (95) (179) (81) (29) Impact on capital return (8,255) (2,646) (3,790) (19,662) (4,676) (1,453) Total return after tax (8,311) (2,735) (3,885) (19,841) (4,757) (1,482) /effect on shareholders funds In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the levels of exposure change frequently. (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 multi-currency loan facility. In the year to 31 March 2008, the Company held no fixed interest securities. 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 Â£45m committed facility of which Â£4.1 m was drawn down at 31 March 2008. 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. Within 2008 Total Within 2007 Total one More one year More year than than one one year year Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Exposure to floating interest rates: Cash at bank 7,050 - 7,050 376 - 376 Creditors: amounts falling due within one year - borrowings on the loan (4,075) - (4,075) (15,650) - (15,650) facility and bank overdraft Total exposure to interest 2,975 - 2,975 (15,274) - (15,274) rates Average interest receivable and finance costs are at the following rates: * Interest receivable on cash balances is at 4.5% * Interest payable on borrowings under the loan facility provided by Allied Irish Banks p.l.c. was at a rate of 5.4% The exposure during the year fluctuated as borrowings were drawn down and repaid as follows: 2008 2007 Within one Within one year year Â£'000 Â£'000 Maximum interest rate exposure to floating rates 36,608 48,605 Minimum interest rate exposure to floating rates 2,237 12,363 (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 10.0% higher or lower while all other variables remained constant, the revenue return would have increased/decreased by Â£5,000 (2007: Â£10,000), and on the capital return would have increased/ decreased by Â£22,893,000 (2007: Â£28,628,000). The calculations are based on the investment portfolio valuations as at the respective balance sheet dates and assume that the investment 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 Â£45m multicurrency committed facility with Allied Irish Banks p.l.c. The Board gives guidance to the Investment Manager as to the maximum amount of the Company's resources that should be invested in any one company. Liquidity exposure Contractual maturities of the financial liabilities as at 31 March 2008, based on the earliest date on which payment can be required are as follows: 2008 31 March 2008 3 months Not more More Total or less than one than Â£'000 Â£'000 year one year Â£'000 Â£'000 Current liabilities: Borrowings under the multi-currency loan 4,075 - - 4,075 facility and bank overdraft Amounts due to brokers and accruals 1,599 11,361 - 12,960 5,674 11,361 - 17,035 2007 31 March 2007 3 months Not more More Total or less than one than Â£'000 Â£'000 year one year Â£'000 Â£'000 Current liabilities: Borrowings under the multi-currency loan 15,650 - - 15,650 facility and bank overdraft Amounts due to brokers and accruals 1,481 - - 1,481 Amounts due to brokers and accruals 17,131 - - 17,131 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. 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 and * by setting limits to the maximum exposure to any one counterparty at any time. 2008 2007 Balance Maximum Balance Maximum Sheet exposure Sheet exposure Â£'000 Â£'000 Â£'000 Â£'000 Current assets: Other receivables (amounts due from 4,399 14,356 1,319 6,924 brokers, dividends and interest receivable) Cash at bank and on deposit 7,050 18,572 376 22,674 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 multi-currency 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 balance of equity capital and debt. The policy is that debt as shown below should be the lower of Â£70m and no more than 20% of the Company's net assets. The Company's capital at 31 March comprises: 2008 2007 Â£'000 Â£'000 Debt: - Bank overdrafts - 801 Bank loan 4,075 14,849 4,075 15,650 Equity: - Equity share capital 11,772 14,401 - Retained earnings and other reserves 213,011 259,230 Total capital 224,783 273,631 Debt as a percentage of total capital 1.8% 5.7% 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 review includes: * the planned level of gearing, which takes into account the Investment Manager's view on 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. * 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 subject to several externally imposed capital requirements: * the bank borrowings under the loan facility are not to exceed 20.0% of ordinary share capital plus reserves; * 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. 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 tribuneral. The Board is currently in the process of quantifying any potential repayment that might be due. However, the amount the Company may receive, the period to which it will refer, and the time scale for receipt are all uncertain and hence the Company has made no provision in these financial statements for any such payment. Frostrow Capital LLP Company Secretary

Companies

Worldwide Healthcare Trust (WWH)

Friday, 10th May 2024

COMPANIES COVERED:

RMV MTC SFOR

Rightmove slumps as high mortgage costs continue to drag on sentiment, Mothercare falls amidst slowing sales but S4 Capital jumps higher despite market woes as promises of a better second half lend support.

Full Archive

UK 100

Latest directors dealings

13 hours ago Mattioli Woods
14 hours ago Morgan Advanced Materials
14 hours ago Capita
14 hours ago Judges Scientific
14 hours ago Me Group International

All directors dealings today