Annual Financial Report

RNS Number : 5082R

Acorn Income Fund Ld

30 April 2009

 



Acorn Income Fund Limited

ANNOUNCEMENT OF ANNUAL RESULTS

The Directors announce the statement of results for the year ended 31 December 2008 as follows:

INVESTMENT OBJECTIVES AND POLICY

The objectives of Acorn Income Fund Limited (the 'Company') are to provide shareholders with a high income and also the opportunity for capital growth.

The Company's portfolio is invested in equities and high income and fixed interest securities in order to achieve its investment objectives. It is the aim of the Company to provide both income and capital growth predominantly through investment of approximately 70% of the portfolio in smaller capitalised United Kingdom companies admitted to the Official List of the United Kingdom Listing Authority and traded on the London Stock Exchange or traded on AIM. The Company also aims to further enhance income for shareholders by investing approximately 30% of its assets in high yielding securities which will be predominantly fixed interest securities (including corporate bonds, preference and permanent interest bearing shares, convertible and reverse convertible bonds and debentures) but may include up to 15% of the portfolio (measured at the time of acquisition) in high yielding investment company shares.

CHAIRMAN'S STATEMENT

Dear Shareholder,

It has been an extraordinary year and one in which the economic and market outcome has been worse than all but the most pessimistic would have anticipated twelve months ago. At the year end the FTSE 100 Index was down 36.02% from its peak on 31 December 1999 and 34.12% from its more recent high on 12 October 2007. During the course of the year, the banking sectors in the UK and most other western economies required government support to prevent major financial institutions from failing, and the Bank of England, in a desperate effort to revive credit markets, cut interest rates to the lowest level since the Bank was established in 1695. During the year, the FTSE All-Share Index (total return) fell 29.93%. Small companies, perceived as more vulnerable to recession, fared even worse with the FTSE Small Cap Index falling 48.32% and the Hoare Govett Smaller Companies (ex inv trusts) total return Index down 40.83%.

Much of the damage was done during the fourth quarter when the failure of Lehman Brothers triggered a global reappraisal of creditworthiness and caused panic selling in some markets.

With all mainstream asset classes under sustained pressure, asset allocation has been extremely challenging. At the year end 59.54% of the Company's gross assets were allocated to the Smaller Companies portfolio and 40.46% to the Income portfolio. Across the whole fund there was a 8.14% cash weighting. 

Investment performance

The Company's total return on gross assets (adjusting for repayment of debt) showed a negative 32.55% over the year.  This was a severe decline but significantly ahead of the small company indices. The Company's geared structure, however, meant that net assets total return was a negative 47.71%. The Net Asset Value per share fell from 171.88p at the start of the year to 89.88p at the year end.

The Smaller Companies portfolio had been underweight in the sectors most exposed to the economic downturn and this helped to generate a modest out performance of the small cap indices. In the bond sector, only the strongest investment grade bonds were able to weather the storm. Investment grade paper in the financial sector fell severely as did sub investment grade high yield bonds. The Merrill Lynch Euro High Yield Index (total return) fell 34.22% over the period. The Company's Income portfolio has exposure to investment grade and high yield bonds as well as to reverse convertible bonds. The latter carry an exposure to equity markets and could have pulled down the performance of the Income portfolio, but much of this equity risk had been hedged out through put options on the FTSE100 Index. Nevertheless, the residual equity exposure and the severe weakness in the high yield bonds sector meant that the Income portfolio suffered a sharp decline in capital value over the period.  

Dividends

The revenue return per share for the year was 11.23p (8.52p) and dividends totalling 8.2 p (8.00p) were paid during the year. The medium-term outlook for earnings is difficult to predict with any certainty. Equity dividends will come under pressure as the recession deepens and the bond market may produce some unexpected defaults. Furthermore, the need to maintain a higher proportion of the Income portfolio in investment grade bonds for bank covenant purposes reduces scope for our Investment Advisers to target some of the higher yield bonds they might favour. Nevertheless, our earnings projections remain healthy for the moment.  

Gearing and Bank Facility

The Company started the year with £5.5 million drawn from the Company's loan facility with Bank of Scotland. As the Company's gross assets declined, the loan was reduced and at the year end, £4.4m was drawn down. The principal banking covenant requires a minimum value of qualifying assets of twice the value of the loan. Qualifying assets are equities with a market capitalisation over £75m and investment grade bonds. The margin over this covenant meant that our Investment Advisers, until recently, had not been restricted by the distinction between qualifying and non-qualifying assets. However, declining gross assets and the increase in the number of equities and bonds falling into the non-qualifying categories has meant that the portfolio has had to be managed with an eye to the proportion of non-qualifying assets that are held. As part of a modest restructuring to reduce exposure to non qualifying assets, most of the investment company holdings (which are non-qualifying) have been sold. 

Outlook

Markets have deteriorated further following the year end and towards the end of February some equity indices were setting new ten-year lows. There has been a significant recovery since then, driven by cheaper credit and a gradual return of confidence, although sentiment remains fragile. The immediate economic outlook is poor and there are still uncertainties regarding the full extent of potential losses within the banking sector. In the short term it is likely that UK unemployment rates will rise and gross domestic product continue to decline. However, a lot of bad news is now priced in to current equity and bond prices. The Investment Adviser for the Smaller Companies portfolio is encouraged by the potential for businesses with overseas earnings; by the prospect of corporate activity triggered by the need for companies to consolidate; and by the presence of significant, fundamental under-valuations in the small cap sector. In the bond markets, although risks have increased, the Investment Adviser believes that there are some outstanding investment opportunities, particularly (although selectively) in the high yield sector. 

John Boothman

Chairman.

INVESTMENT ADVISORS' REPORT

Smaller Companies Portfolio

The Smaller Companies portfolio slightly outperformed the market during the year, falling by 38% compared to a fall of 39.57% by the Hoare Govett Smaller Companies Index. This is the second largest fall on record for the Index. The year was dominated by the collapse of the banking system and subsequent bail-outs by the UK Government. 

Strong performances came from relatively defensive stocks with Spirax Sarco leading the way, rising by 3.1% over the year. Other notable performers during the year include Primary Health Properties which fell by 8.8%, Devro which fell by 13.6%, Halma which fell by 9.1% and De La Rue which fell by 8.0%.

BPI, the plastic packaging company, was added to the portfolio during the period. BPI is likely to benefit significantly from the fall in the value of sterling, lower raw material prices and falling energy prices. Holdings in RPC, Stobart Group, Acal, Macfarlane, Pendragon and Lupus Capital were all increased during the year. Outright sales were made of De La Rue and Electrocomponents both of whom have been long term holdings and ACP Capital. A number of stocks have been partially sold during the year including Abbey Protection, Spirax Sarco, IMI and Halma.

Corporate activity continued during the year with Avnet of America taking over Abacus Group. The bid was at a premium in excess of 100% which highlights the undervalued nature of small stocks to trade buyers where they wish to gain market share.

We continue to focus on stocks with significant overseas earnings where they will benefit from growth in developing markets. Despite significant share price falls, we believe it is too early to move into financials, housebuilders and pub companies as most are heavily indebted and will need to be refinanced. Corporate activity is likely to pick up during the year as consolidation takes place and investors recognise significant undervaluation. As such, we continue to believe the portfolio will perform well relative to other small company funds. 

John McClure

Unicorn Asset Management Limited 

Income Portfolio

The performance of high yield bonds over the year was dismal with the Merrill Lynch Euro High Yield Index falling 34.22%. Credit spreads have widened to historic levels resulting in losses across the credit spectrum. Equity markets have also severely weakened with the FTSE 100 Index falling 31.33% over the year. The FTSE Actuaries Government Securities All-Stocks Index returned +7.38% due to a flight to quality and assisted by rapidly declining inflation and substantial interest rate cuts. UK Rates were cut from 5.5% to 2% over the year and this path is unlikely to change direction shortly.

Over the past year, concerns over the deterioration of the financial markets have been realised. The rate of inflation rose into October, primarily due to higher energy and food prices until the weight of the economic slowdown took hold. As economic growth abated, the Bank of England's Monetary Policy Committee (MPC) finally began to cut interest rates with a 50 basis point cut during October.  The threat of a global recession intensified and the major central banks, excluding Japan, reacted with a coordinated rate cut of 50 basis points in October. The MPC cut rates by a further 150 basis points in November and then another 100 basis points in December to 2% in an attempt to steer away from the impending recession and deflation, regrettably all too late.

The iTraxx Europe Crossover Generic 5yr Index, a barometer for the credit spreads of high yield bonds, widened from 340 basis points to 1027 basis points in the past year. Investment grade bonds also suffered shocking losses as depicted by the BarCap Sterling Bond Non Gilts All Maturities Average Yield Spread Index, widening by almost 259 basis points to 382 basis points.  Losses in investment grade bonds were at least tempered by the forte of government bonds. 

There have been few hideaways in the bond universe over the past year. Pleasingly the majority of holdings in the Income portfolio performed comparatively well. However, in order to generate higher income levels when credit spreads were tight, the portfolio was diversified away from traditional credit and a few of these positions fell sharply, namely CQS Rig Fund, European Equity Tranche and T2 Income Fund. Reverse Convertible Bond (RCB) holdings fell in value as equity markets experienced one of the worst calendar years in history. Thankfully the RCB exposures were partly hedged by purchases of FTSE 100 PUT options; this hedge has subsequently been reduced. In addition, the failure of Lehman Brothers resulted in sharp losses despite our senior bond exposure. The continuing struggle of financial institutions is general knowledge and we retain a proportion of assets exposed to large financials in the anticipation of their survival. Despite specific losses, the portfolio continued to outperform high yield bond indices.

We expect credit conditions to remain frozen for at least the next few quarters despite government interventions and quantitative easing. However, we are confident that corporate and financial bond markets now price in this dismal economic outcome and a level of defaults that is unlikely to materialise. Those companies that become increasingly likely to survive the next couple of years will experience a decline in their cost of finance and greater availability. As their credit spreads tighten, their debt will provide attractive returns for bond holders. Sovereign yields may begin to rise as risk aversion diminishes and inflationary pressures recoil following the anticipated increase in money supply. For this reason we have minimal government bond exposure although liquidity of the portfolio remains high given its relatively small size.

The fall in your Company's assets during the year left assets in close proximity to the bank covenants and therefore ineligible holdings, such as high yield bonds, were reduced towards the end of the year. This may restrict gains if companies with high yield debt prove resilient to the economic recession. However, the investment grade holdings now yield the same as high yield bonds did a year ago offering an attractive profile. There might be a few defaults and the non-payment of coupons in the investment grade universe but these will be limited and investment grade credit spreads should tighten offering some potential capital recovery.

Paul Smith

Premier Fund Managers Limited 

COMPANY DETAILS

History

The Company was incorporated on 5 January 1999 and commenced its activities on 11 February 1999. 29,600,002 Ordinary shares were issued.

The special resolution proposed at the Company's Annual General Meeting in 2006, that the Company ceased as an investment company, was not carried by the necessary 75% majority of votes cast. Nevertheless, to provide an exit opportunity for the shareholders the Company made a Tender Offer to repurchase up to all of its Ordinary shares at net asset value, calculated after taking account of all costs. Applications under the Tender Offer were received for 20,660,212 Ordinary shares, leaving 8,939,790 Ordinary shares in issue after the Extraordinary General Meeting on 5 January 2007. 

At the 5 January 2007 Extraordinary General Meeting, it was resolved that the issued share capital of the Company be reduced from £7,400,000.50 to £296,000.02, effected by the cancellation of 24p per issued Ordinary share, thus reducing the nominal amount of such shares from 25p to 1p per Ordinary share. It was also resolved that £17,000,000 standing to the credit of the Company's share premium account be cancelled. The £7,104,000.48, resulting from the cancellation of share capital, and the £17,000,000, resulting from the cancellation of the share premium account, were credited to a distributable reserve.

As part of the Tender Offer the Manager changed from Collins Stewart Fund Management Limited to Premier Asset Management (Guernsey) Limited.

Investment Objectives

The Company's investment objectives are to provide Shareholders with a high income and also the opportunity for capital growth.

Investment Policy

The Company's investment policy is to allocate approximately 70% of the Company's assets to the Smaller Companies portfolio with the balance to the Income portfolio. (Prior to the Tender Offer, this was approximately 75% to the Smaller Companies portfolio with the balance allocated to the Income portfolio.)  

The Smaller Companies portfolio is principally invested in UK equities with a market capitalisation of under £1 billion. Unicorn as the Investment Adviser of the Smaller Companies portfolio, focuses on companies with experienced and well motivated management products or services supplying growth markets, sound operational and management controls, good cash generation and a progressive dividend. 

Premier Fund Managers Limited manages the Income portfolio and aim to maximise income with the objective of capital protection. The Income portfolio includes sterling denominated fixed interest securities including corporate bonds, preference and permanent interest bearing shares, convertibles, reverse convertibles, debentures and other similar securities. The Income portfolio may also contain higher yielding shares of other investment companies, including property investment companies, however these will not exceed 15% of the overall portfolio (at the time of acquisition). 

Bank Loan

On 13 February 2007, a new £6 million revolving credit loan facility was arranged with the Bank of Scotland. The interest payable on this facility is 1% over LIBOR with a non-utilisation charge of 0.5% on any undrawn part of the facility.

The capital covenant on the facility requires a ratio of specified investment to debt of 2:1. Specified investments includes UK listed securities with a market capitalisation of over £50 million, investment grade bonds and reverse convertible bonds meeting certain criteria relating to the issuer and the reference equity.

Management Fees

The management fee is 0.7% per annum of total assets together with a performance fee of 15% over a total return of 10% per annum.  No performance fee was payable in 2008. The total expenses ratio of the Company is capped at 1.5% of total assets, excluding performance fees and non-routine administration and professional fees and with adjustments made to allow for repayment of debt or the buy back of shares. The application of these calculations for 2008 indicates that a refund of £43,175 is due from the Manager. This refund is not reflected in the financial statements as it is considered immaterial to the net assets of the Company.

MANAGEMENT REPORT

For the year ended 31 December 2009

A description of important events which have occurred during the financial period, their impact on the performance of the Company as shown in the financial statements and a description of the principal risks and uncertainties facing the Company is given in the Chairman's Statement, Manager's Report, the schedule of Risk Factors and the notes to the financial statements and is incorporated here by reference.

There were no material related party transactions which took place in the financial period.

Responsibility Statement

The Board of Directors jointly and severally confirm that, to the best of their knowledge:

(a)  the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)  This Management Report includes or incorporates by reference a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

H F Green                J M McKean

Director                    Director

30 April 2009

INCOME STATEMENT

For the year ended 31 December 2008

		Year ended 31 Dec 2008						Year ended 31 Dec 2007
	Note	Revenue GBP		Capital GBP		Total GBP		Total GBP
Net losses on financial assets designated as at fair value through profit or loss	8	-		(6,930,545)		(6,930,545)		(1,990,000)
Losses on foreign currency contracts	3	-		(303,763)		(303,763)		(29,387)
Investment income	2	1,322,352		-		1,322,352		1,136,204
Total income and gains		1,322,352		(7,234,308)		(5,911,956)		(883,183)
Expenses	4	(234,910)		(116,147)		(351,058)		(373,448)
Return on ordinary activities before finance costs and taxation		1,087,442		(7,350,455)		(6,263,014)		(1,256,631)
Interest payable and similar charges		(83,435)		(250,304)		(333,739)		(282,400)
Return on ordinary activities before taxation		1,004,007		(7,600,759)		(6,596,752)		(1,539,031)
Taxation on ordinary activities		-		-		-		-
Return on ordinary activities for the year attributable to shareholders		1,004,007		(7,600,759)		(6,596,752)		(1,539,031)
		Pence		Pence		Pence		Pence
Return per Ordinary share	7	11.23		(85.02)		(73.79)		8.52
Dividend per Ordinary share	6	8.20		0.00		8.20		8.00

The Total column of this statement is the Income Statement of the Company. The supplementary revenue return and capital return columns have been prepared in accordance with the Statement of Recommended Practice ('SORP') issued by the Association of Investment Companies ('AIC').

In arriving at the results for the financial year, all amounts above relate to continuing operations.

No operations were acquired or discontinued in the year.

BALANCE SHEET

as at 31 December 2008

				Notes		31 Dec 2008		31 Dec 2007
						GBP		GBP
NON-CURRENT ASSETS
Financial assets designated as at fair value through profit or loss				8		11,277,410		20,311,037
CURRENT ASSETS
Receivables				9		812,949		220,957
Cash and cash equivalents						653,898		477,211
						1,466,847		698,168
TOTAL ASSETS						12,744,257		21,009,205
CURRENT LIABILITIES
Derivative financial liabilities				15		237,350		32,203
Payables - due within one year				10		71,053		111,333
NON-CURRENT LIABILITIES
Payables - due after one year				11		4,400,000		5,500,000
TOTAL LIABILITIES						4,708,403		5,643,536
NET ASSETS						8,035,854		15,365,669
EQUITY
Share capital				12		89,398		89,398
Share premium						79,173		79,173
Capital redemption reserve						-		206,602
Revenue reserve						1,282,796		805,250
Special reserve						10,000,000		10,000,000
Capital reserve						(3,415,513)		4,185,246
TOTAL EQUITY						8,035,854		15,365,669
						Pence		Pence
Net asset value per Ordinary Share						89.88		171.88

The financial statements were approved by the Board of Directors on 30 April 2009 and signed on its behalf by:

H F Green                    J M McKean

Director                        Director

STATEMENT OF CASHFLOWS

For the year ended 31 December 2008

				Notes		Year ended 31 Dec 2008		Year ended 31 Dec 2007
						GBP		GBP
Operating activities
Return on ordinary activities before taxation						(6,596,752)		(1,539,031)
Add: Net losses on financial assets designated as at fair value through profit or loss				8		6,930,545		1,990,000
Less: Investment income				2		(1,322,352)		(1,136,204)
Add: Interest expense						333,739		282,400
Add: Increase in derivative financial liabilities				15		205,147		32,000
Less: Decrease in payables and appropriations				10		(40,280)		(266,550)
Less: Increase in receivables excluding accrued investment income and investing activities				9		114,999		(62,000)
Net cash outflow from operating activities before investment income						(604,952)		(699,385)
Investment income received						1,297,132		1,136,204
Net cash inflow from operating activities after taxation						692,180		436,819
Investing activities
Purchase of financial assets				8		(7,408,639)		(21,335,037)
Sale of financial assets						9,059,948		20,977,000
Net cash inflow / (outflow) from investing activities						1,651,309		(358,037)
Financing activities
Equity dividends paid				6		(733,063)		(715,183)
Redemption of redeemable participating preference shares						-		(41,650,987)
(Repayment) / drawdown of bank loan				11		(1,100,000)		5,500,000
Bank loan interest paid						(333,739)		(282,400)
Net cash outflow from financing activities						(2,166,802)		(37,148,570)
Increase / (Decrease) in cash and cash equivalents						176,687		(37,069,788)
Cash and cash equivalents at beginning of year						477,211		37,546,999
Cash and cash equivalents at end of year						653,898		477,211

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2008

		Share Capital		Share Premium		Capital Redemption Reserve		Revenue Reserve		Special Reserve		Capital Reserve		Total
		GBP		GBP		GBP		GBP		GBP		GBP		GBP
Balances as at 1 January 2008		89,398		79,173		206,602		805,250		10,000,000		4,185,246		15,365,669
Return on ordinary activities for the year attributable to shareholders		-		-		-		1,004,007		-		(7,600,759)		(6,596,752)
Dividends		-		-		-		(733,063)		-		-		(733,063)
Transfer between reserves		-		-		(206,602)		206,602		-		-		-
Balance as at 31 December 2008		89,398		79,173		-		1,282,796		10,000,000		(3,415,513)		8,035,854

Following implementation of The Companies (Guernsey) Law, 2008, the Company is no longer required to maintain a Capital Redemption Reserve. Accordingly the balance brought forward on this account has been transferred to the Revenue Reserve.

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2007

		Share Capital		Share Premium		Capital Redemption Reserve		Revenue Reserve		Special Reserve		Capital Reserve		Total
		GBP		GBP		GBP		GBP		GBP		GBP		GBP
Balances as at 1 January 2007		7,400,001		17,079,173		-		681,855		10,000,000		24,109,812		59,270,841
Transfer to distributable reserve		(7,104,000)		(17,000,000)		-		-		-		24,104,000		-
Tender offer		(206,603)		-		206,602		-		-		(41,650,987)		(41,650,988)
Return on ordinary activities for the year attributable to shareholders		-		-		-		838,578		-		(2,377,579)		(1,539,001)
Dividends		-		-		-		(715,183)		-		-		(715,183)
Balance as at 31 December 2007		89,398		79,173		206,602		805,250		10,000,000		4,185,246		15,365,669

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2008    

1    ACCOUNTING POLICIES

(a)    Basis of preparation

The financial statements are prepared in accordance with the Companies (Guernsey) Law, 2008, International Financial Reporting Standards ('IFRS') issued by the International Accounting Standards Board ('IASB') and with the AIC's SORP (as revised in December 2005) where this is consistent with the requirements of IFRS.  All accounting policies adopted for the period are consistent with International Financial Reporting Standards issued by the IASB and as adopted by the European Union.  The financial statements have been prepared on an historical cost basis except for the measurement at fair value of certain financial instruments.

For the year ended 31 December 2007 the financial statements were prepared under UK Accounting Standards.   For the year ended 31 December 2008, the Company adopted International Financial Reporting Standards for the first time.  The accounting policies set out below have been applied in preparing the financial statements for the year ended 31 December 2008, the comparative information presented for the year ended 31 December 2007 and the opening balance sheet at 1 January 2008 (the Company's date of transition).  The Directors confirm that the application of IFRS has had no material impact on the Company's results as previously reported under UK Accounting Standards.

The directors are of the opinion that the following Standards or Interpretations which have been issued by the International Accounting Standards Board but not yet adopted by the Company may have an effect on future financial statements:

IFRS 8 Operating Segments effective for annual periods beginning on or after 1 January 2009.

IAS 1 (revised) Presentation of financial statements effective for annual periods beginning on or after 1 January 2009.

IAS 39 and IFRS 7 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures - Reclassification of Financial Assets (Amendments) and Reclassification of Financial Assets: Effective Date and Transition for annual periods beginning on or after 1 July 2008.

Some of these Standards and Interpretations are expected to require additional disclosure in future financial statements.

(b)    Taxation

The Company has been granted exemption under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 from Guernsey Income Tax, and has elected to remain exempt following changes in the Guernsey tax regime. The Company pays an annual fee of £600.

(c)    Capital reserve

The following are accounted for in this reserve:

• gains and losses on the realisation of investments;

• expenses charged to this account in accordance with the policy below:

• increases and decreases in the valuation of the investments held at the year end; and

• unrealised exchange differences of a capital nature.

(d)    Expenses

All expenses are accounted for on an accruals basis. Expenses are charged to the capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated.

75% of the Company's management fee and financing costs are charged to the capital reserve in line with the Board's expected long-term split of returns between income and capital gains from the investment portfolio.

100% of any performance fee is charged to the capital account.

All other expenses are charged through the revenue account.

(e)    Investment income

Interest income and distributions receivable are accounted for on an accruals basis. Interest income relates only to interest on bank balances. Bond income is accounted for on the effective interest rate ('EIR') basis.

(f)    Foreign currency translation

The currency of the primary economic environment in which the Company operates (the functional currency) is Great British Pounds (GBP) which is also the presentational currency.

Transactions denominated in foreign currencies are translated into GBP at the rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities, other than investments, denominated in foreign currencies at the balance sheet date are translated to the functional currency at the foreign exchange ruling at that date. Foreign exchange differences arising on translation are recognised in the Income Statement. Foreign exchange differences relating to investments are taken to the capital reserve. Realised and unrealised foreign exchange differences on non-capital assets or liabilities are taken to the Income Statement in the period in which they arise.

(g)    Cash and cash equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits and short term, highly liquid investments readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash, deposits at bank and money market deposits.

(h)    Investments

All investments have been designated as financial assets at 'fair value through profit or loss'. Investments are initially recognised on the date of purchase at cost, being fair value of the consideration given. Subsequently, investments are measured at fair value, with unrealised gains and losses on investments and impairment of investments recognised in the Income Statement. Investments are derecognised on the date of sale. Gains and losses on the sale of investments will be taken to the Income Statement in the period in which they arise. For investments actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices as at the close of business on the Balance Sheet date.

(i)    Derivatives

Derivatives consist of forward exchange contracts which are stated at market value, with the resulting net realised and unrealised gains and losses being reflected in the Income Statement.

(j)    Trade date accounting

All 'regular way' purchases and sales of financial assets are recognised on the 'trade date', i.e. the date that the entity commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of the asset within the timeframe generally established by regulation or convention in the market place.

(k)    Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.

2    INVESTMENT INCOME

				Year ended 31 Dec 2008		Year ended 31 Dec 2007
				GBP		GBP
Bank interest				18,775		27,762
Dividend income				844,171		775,061
Bond income				438,525		333,381
Sundry income				20,881		-
				1,322,352		1,136,204

3    FOREIGN CURRENCY CONTRACTS

				Year ended 31 Dec 2008		Year ended  31 Dec 2007
				GBP		GBP
Unrealised loss on forward foreign currency contracts				(221,727)		(32,387)
Realised (loss) / gain on forward foreign currency contracts				(82,036)		3,000
				(303,763)		(29,387)

4    EXPENSES

		Year ended 31 Dec 2008
		Revenue		Capital		Total
		GBP		GBP		GBP
Manager's fee		30,705		92,114		122,819
Administrator's fee		53,985		-		53,985
Registrar's fee		2,681		-		2,681
Directors' fees		49,999		-		49,999
Custody fees		3,978		-		3,978
Audit fees		36,298		-		36,298
Directors' and Officers' insurance		10,297		-		10,297
Annual fees		13,544		-		13,544
Bank charges		9,915		-		9,915
Commission paid		-		24,033		24,033
Sundry costs		(4,503)		-		(4,502)
Legal and professional fees		2,242		-		2,242
Loss on foreign exchange		25,769		-		25,769
		234,910		116,147		351,058

		Year ended 31 Dec 2007
		Revenue		Capital		Total
		GBP		GBP		GBP
Manager's fee		38,146		114,439		152,585
Administrator's fee		52,213		-		52,213
Registrar's fee		-		-		-
Directors' fees		50,000		-		50,000
Custody fees		4,966		-		4,966
Audit fees		16,103		-		16,103
Directors' and Officers' insurance		-		-		-
Annual fees		-		-		-
Bank charges		-		-		-
Commission paid		-		35,461		35,461
Sundry costs		62,120		-		62,120
Loss on foreign exchange		-		-		-
		223,548		149,900		373,448

5    DIRECTORS' REMUNERATION

Under the terms of appointment, each Director is paid a fee of £15,000 per annum by the Company, except for the Chairman, who receives £20,000 per annum.

6    DIVIDENDS IN RESPECT OF EQUITY SHARES

				Year ended 31 Dec 2008
				GBP		Pence per share
First interim payment				178,796		2.0
Second interim payment				178,796		2.0
Third interim payment				187,736		2.1
Fourth interim payment				187,735		2.1
				733,063		8.2

				Year ended 31 Dec 2007
				GBP		Pence per share
First interim payment				178,796		2.0
Second interim payment				178,796		2.0
Third interim payment				178,796		2.0
Fourth interim payment				178,795		2.0
				715,183		8.0

7    EARNINGS PER SHARE

Ordinary shares

The total return per Ordinary share is based on the total return on ordinary activities for the year attributable to Ordinary shareholders of - £6,596,752 (2007: - £1,539,031) and on 8,939,790 (2007: 9,845,443) shares, being the weighted average number of shares in issue during the year. There are no dilutive instruments and therefore basic and diluted gain per share are identical.

The revenue return per Ordinary share is based on the revenue return on ordinary activities for the year attributable to Ordinary shareholders of £1,004,007 (2007: £839,395) and on 8,939,790 (2007: 9,845,443) shares, being the weighted average number of shares in issue during the year. There are no dilutive instruments and therefore basic and diluted gain per share are identical.

The capital return per Ordinary share is based on the capital return on ordinary activities for the year attributable to Ordinary shareholders of - £7,600,759 (2007:    - £2,378,426) and on 8,939,790 (2007: 9,845,443) shares, being the weighted average number of shares in issue during the year. There are no dilutive instruments and therefore basic and diluted gain per share are identical.

8    INVESTMENTS

				31 Dec 2008		31 Dec 2007
				GBP		GBP
FINANCIAL ASSETS DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR LOSS
Opening portfolio cost				18,019,037		15,297,000
Unrealised appreciation on valuation brought forward				2,292,000		6,646,000
Opening valuation				20,311,037		21,943,000
Movements in the period
Purchases at cost				7,408,639		21,335,037
Sales
- proceeds				(9,511,721)		(20,977,000)
- realised (losses) / gains on sales				(1,685,920)		2,364,000
Unrealised depreciation on valuation for the period				(5,244,625)		(4,354,000)
Fair value of investments at 31 December 2008				11,277,410		20,311,037
Closing book cost				14,230,035		18,019,037
Closing unrealised appreciation				(2,952,625)		2,292,000
				11,277,410		20,311,037
Realised (losses) / gains on sales				(1,685,920)		2,364,000
Decrease in unrealised appreciation				(5,244,625)		(4,354,000)
Net losses on financial assets designated as at fair value through profit or loss				(6,930,545)		(1,990,000)

As at 31 December 2008, the closing fair value of investments comprises £7,051,998 (2007: £14,516,000) of equity shares and £4,225,412 (2007: £5,795,000) of fixed income securities.

9    RECEIVABLES

				31 Dec 2008		31 Dec 2007
				GBP		GBP
Prepayments				1,910		-
Accrued income				244,627		219,407
Investment transactions not settled				451,773		-
Sundry receivables				114,639		1,550
				812,949		220,957

10    PAYABLES

(amounts falling due within one year)				31 Dec 2008		31 Dec 2007
				GBP		GBP
Accrued expenses				71,053		111,333

11    PAYABLES

(amounts falling due after one year)				31 Dec 2008		31 Dec 2007
				GBP		GBP
Long term bank loan				4,400,000		5,500,000

Under a loan agreement dated 13 February 2007 between the Company and the Bank of Scotland a £6,000,000 Revolving Credit Facility was arranged for a period of 5 years. The interest rate payable on this facility is 1% over Libor with a non-utilisation charge of 0.5% on any undrawn part of the facility.

The capital covenant on the facility requites a ratio of specified investment to debt of 2:1. Specified investments include UK listed securities with a market capitalisation of over £75 million, investment grade bonds and reverse convertible bonds meeting certain criteria relating to the issuer and the reference equity, gifts or US treasury stock and cash. During the year, the Company has compiled with all loan covenants.

12    SHARE CAPITAL

Authorised					GBP
Ordinary shares of 1p each					10,000,000
Issued					SHARES
Number of shares in issue at 31 December 2008 and 31 December 2007					8,939,790
					GBP
Issued capital as at 31 December 2008					89,398
The issue of shares took place as follows:					Number of shares
Ordinary shares		11 February 1999			29,600,002
Tender offer		17 January 2007			(20,660,212)
					8,939,790

13    RELATED PARTIES

Premier Asset Management (Guernsey) Limited is the Company's Manager and operates under the terms of the management agreement in force which gives it complete control over the Company's investment portfolio. For further details regarding the terms of the management agreement see the section in the Report of the Directors on page 18.  £122,818 (2007: £152,585) of costs were incurred by the Company with this related party in the year, of which £22,353 (2007: £38,910) was due to this related party as at 31 December 2008.

Directors' remuneration is disclosed in Note 5.

14    FINANCIAL INSTRUMENTS

The Company's main financial instruments comprise:

(a)    Cash and cash equivalents that arise directly from the Company's operations; 

(b)    Investments in listed entities; and

(c)    Long term bank loan.

15    FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The following table details the categories of financial assets and liabilities held by the Company at the reporting date:

		31 Dec 2008		31 Dec 2007
		GBP		GBP
Assets Financial assets at fair value through profit or loss
Designates at fair value through profit or loss on initial recognition
Investments		11,277,410		20,311,037
Total financial assets at fair value through profit or loss		11,277,410		20,311,037
Loans and receivables		1,466,847		698,168
Total assets		12,744,257		21,009,205
Liabilities
Financial assets at fair value through profit or loss
Held for trading
Derivative financial liabilities		237,350		32,203
Total financial liabilities at fair value through profit or loss		237,350		32,203
Financial liabilities measured at amortised cost		4,471,053		5,611,333
Total liabilities excluding net assets attributable to holders of Ordinary shares		4,708,403		5,643,536

Loans and receivables presented above represents cash and cash equivalents, balances due from brokers and other receivables as detailed in the balance sheet.

Financial liabilities measured at amortised cost presented above represents accrued expenses and loans payable as detailed in the balance sheet.

The main risks arising from the Company's financial instruments are market price risk, liquidity risk, interest rate risk and foreign exchange risk. The Board regularly review and agrees policies for managing each of these risks and these are summarised below:

(a)    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 investment manager 

actively monitors market prices and reports to the Board as to the appropriateness of the prices used for valuation purposes. The investment manager also attempts to minimise market price risk by undertaking a detailed analysis of the risk/reward relationship of each investee company prior to any investment being made.

Details of the Company's Investment Objective and Policy are given inside the front cover of this Report. 

Price sensitivity

The following details the Company's sensitivity to a 25% increase and decrease on the market prices, with 25% being the sensitivity rate used when reporting price risk internally to key management personnel and representing management's assessment of the possible change in market prices. This percentage also reflects the relative volatility of the market over the past six months.

At 31 December 2008, if market prices had been 25% higher with all the other variables held constant, the net loss attributable to shareholders for the year would have been £2,819,353 (2007: £5,077,759) lower, due to the increase in the fair value of financial assets at fair value through profit or loss. This would represent an increase in Net Assets of 35.08% (2007: 33.05%).

If market prices had been 25% lower with all the other variables held constant, the net loss attributable to shareholders for the year would have been £2,819,353 (2007: £5,077,759) greater, due to the decrease in the fair value of financial assets at fair value through profit or loss. This would represent an decrease in Net Assets of 35.08% (2007: 33.05%).

(b)    Credit Risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company. The Directors receive financial information on a regular basis which is used to identify and monitor risk.  It is Company policy not to invest more than 20% of the gross assets of the Company in the securities of any one company or group at the time the investment is made.

The Company has no significant concentration of credit risk, with exposure spread over a large number of counterparties. At 31 December 2008 the Company's largest exposure to a single investment was £631,875 (2007: £904,000), 4.96% (2007: 4.30%) of total assets.

Investors should be aware that the prospective returns to Shareholders mirror the returns under the Quoted Securities held or entered into by the Company and that any default by an issuer of any such Quoted Security held by the Company would have a consequential adverse effect on the ability of the Company to pay some or all of the entitlement to Shareholders. Such a default might, for example, arise on the insolvency of an issuer of a Quoted Security.

   (c)    Liquidity Risk 

The Company's financial assets exposed to credit risk are as follows:

		31 Dec 2008		31 Dec 2007
		GBP		GBP
Investments		11,277,410		20,311,037
Cash and cash equivalents		653,898		477,211
Balances due from brokers		451,773		-
Interest, dividends and other receivables		361,176		220,957
		12,744,257		21,009,205

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. The Company's main financial commitment is its ongoing operating expenses.

The Investment Manager ensures that the Company has sufficient liquid resources available to fulfil its operational plans and to meet its financial obligations as they fall due.

The table below details the residual contractual maturities of financial liabilities:

As at 31 December 2008:                                

		1-3 months		Over 1 year
		GBP		GBP
Financial liabilities including derivatives
Accrued expenses		71,053		-
Derivative financial instruments		237,350		-
Loans payable		-		4,400,000
		308,403		4,400,000

As at 31 December 2007:                                

		1-3 months		Over 1 year
		GBP		GBP
Financial liabilities including derivatives
Accrued expenses		111,333		-
Derivative financial instruments		32,203		-
Loans payable		-		5,500,000
		143,536		5,500,000

(d)    Interest Rate Risk

The following table details the Company's exposure to interest rate risks. It includes the Company's assets and liabilities at fair values, categorised by the earlier of contractual re-pricing or maturity date measured by the carrying value of the assets and liabilities:

As at 31 December 2008:

	Less than 1 Month GBP	1 to 3 months GBP	3 months to 1 year GBP	Over 1 year GBP	Fixed interest GBP	Non-interest Bearing GBP	Total GBP
Assets
Designated at fair value through profit or loss on initial recognition:
Investments	-	73,680	65,300	4,086,432	-	7,051,998	11,277,410
Loans and receivables:
Balances due from brokers	-	-	-	-	-	451,773	451,773
Cash and cash equivalents	653,898	-	-	-	-	-	653,898
Interest, dividends and other receivables	-	-	-	-	-	361,176	361,176
Total Assets	653.898	73,680	65,300	4,086,432	-	7,864,947	12,744,257

Liabilities
Held for trading:
Derivative financial instruments	-	-	-	-	-	237,350	237,350
Financial liabilities measured at amortised cost
Accrued expenses	-	-	-	-	-	71,053	71,053
Loans payable	4,400,000	-	-	-	-	-	4,400,000
Total Liabilities	4,400,000	-	-	-	-	308,403	4,708,403
Total interest sensitivity gap	3,746,102	73,680	65,300	4,086,432

As at 31 December 2007:

	Less than 1 Month GBP	Over 1 year GBP	Fixed interest GBP	Non-interest Bearing GBP	Total GBP
Assets
Designated at fair value through profit or loss on initial recognition:
Investments	-	-	5,795,000	14,516,037	20,311,037
Loans and receivables:
Balances due from brokers	-	-	-	-	-
Cash and cash equivalents	477,211	-	-	-	477,211
Interest, dividends and other receivables	-	-	-	220,957	220,957
Total Assets	477,211	-	5,795,000	14,736,994	21,009,205

Liabilities
Held for trading:
Derivative financial instruments	-	-	-	32,203	32,203
Financial liabilities measured at amortised cost
Accrued expenses	-	-	-	111,333	111,333
Loans payable	5,500,000	-	-	-	5,500,000
Total Liabilities	5,500,000	-	-	143,536	5,643,536
Total interest sensitivity gap	5,022,789	-

Interest rate sensitivity

If interest rates had been 25 basis points higher and all other variables were held constant, the Company's net loss attributable to shareholders for the year ended 31 December 2008 would have increased by approximately £9,365 (2007: £12,557) or 0.07% (2007: 0.01%) of Total Assets due to an increase in the amount of interest receivable on the bank balances of £1,635 (2007: £1,193) offset by an increase in the amount of interest payable on the bank loan of £11,000 (2007: £13,750).

If interest rates had been 25 basis points lower and all other variables were held constant, the Company's net loss attributable to shareholders for the year ended 31 December 2008 would have decreased by approximately £9,365 (2007: £12,557) or 0.07% (2007: 0.01%) of Total Assets due to an decrease in the amount of interest receivable on the bank balances of £1,635 (2007: £1,193) offset by an decrease in the amount of interest payable on the bank loan of £11,000 (2007: £13,750).

(e)    Foreign Exchange Risk

Forward currency transactions are used to hedge the foreign currency exposure in bonds, other investments and cash balances held within the portfolio. The purpose of the hedge is to protect the Company's assets from a decline in value that might arise from the depreciation of a foreign currency against sterling.

At 31 December 2008, the Company's holdings in derivatives translated into GBP were as specified below:

Type of contract	Expiration	Underlying		Notional amount of contracts outstanding		Fair value assets / (liabilities)
						GBP
Forward	March 2009	Sold AUD		210,000		(9,561)
Forward	January 2009	Sold EUR		1,280,000		(224,119)
Forward	February 2009	Sold USD		370,000		(3,670)
						(237,350)

At 31 December 2007, the Company's holdings in derivatives translated into GBP were as specified below:

Type of contract	Expiration	Underlying		Notional amount of contracts outstanding		Fair value assets / (liabilities)
						GBP
Forward	March 2008	Sold AUD		470,000		(206,863)
Forward	January 2008	Sold EUR		519,000		(381,400)
Forward	March 2008	Purchase GBP		832,744		832,744
Forward	February 2008	Sold USD		550,000		(276,684)
						(32,203)

Exchange rate exposures are managed by minimising the amount of foreign currency held at any one time and entering into forward exchange contracts.

The following table sets out the Company's total exposure to foreign currency risk and the net exposure to foreign currencies of the monetary assets and liabilities:

	Monetary Assets GBP		Monetary Liabilities GBP		Forward FX Contracts GBP		Net Exposure GBP
Euro	1,268,051		-		(1,001,505)		266,546
US Dollar	276,460		-		(249,997)		26,463
Australian Dollar	99,025		(100,153)		(92,551)		(93,679)

Amounts in the above table are based on the carrying value of monetary assets and liabilities and the underlying principle amount of forward currency contracts.

(f)    Capital Management

The principal investment objectives of the Company are to provide shareholders with a high income and also the opportunity for income and capital growth by investing primarily in smaller capitalised United Kingdom companies admitted to the Official List of the United Kingdom Listing Authority and traded on the London Stock Exchange or traded on AIM.

The Company's portfolio is invested in equities and high income and fixed interest and other income-bearing securities in order to achieve its investment objectives. It is the aim of the Company to provide both income and capital growth predominantly through investment of approximately 70% of the portfolio in smaller capitalised United Kingdom companies. The Company also aims to further enhance income for shareholders by investing approximately 30% of its assets in high yielding securities which will be predominantly fixed income securities (including corporate bonds, preference and permanent interest bearing shares, convertible and reverse convertible bonds and debentures) but may include up to 15% of the portfolio (measured at time of acquisition) in high yielding investment company shares.

The Company employs gearing in the form of a bank loan. This gearing means that for any movement, up or down, in the Company's total assets there will, in most circumstances be a greater movement in the net asset value of the Ordinary shares. This in turn may be reflected in greater volatility in the share price of the Ordinary shares and adds to the risk associated with this investment. The Company is required to adhere to a number of covenants in respect of its gearing arrangements. Failure to meet these requirements could jeopardise the Company's future as these borrowings are secured by a prior charge on the Company's assets. The Board monitors the compliance with any covenants on a regular basis.

As the Company's Ordinary shares are traded on the London Stock Exchange, the Ordinary shares may trade at a discount to their Net Asset Value per Share on occasion. However, the Directors and the manager monitor the discount on a regular basis.

The Company monitors capital on the basis of the carrying amount of equity as presented on the face of the balance sheet. Capital for the reporting periods under reviews is summarised as follows:

						GBP
Distributable reserves						11,282,796
Share capital and share premium						168,571
Non distributable reserves						(3,415,513)
						8,035,854

Included in distributable reserves are the revenue reserve and a special reserve. The special reserve was created on the cancellation of part of the Company's share premium account. The Directors have resolved that the capital reserve is a non distributable reserve.

For further information contact:

Anson Fund Managers Limited

Secretary

Tel: [phone]

30 April 2009

END OF ANNOUNCEMENT

E&OE - in transmission

 

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