Annual Financial Report

RNS Number : 6927H

Aurora Investment Trust PLC

01 June 2011

Annual Financial Report Announcement

Aurora Investment Trust plc

Year ended 28 February 2011

CHAIRMAN'S STATEMENT

Another Year of Stock Market Recovery: the market rises 13½%:

The recovery in the world's stock markets which began just after our 2009 year end - in March of that year - continued for the course of our latest year. And yet it was a year of some turbulence, though mostly in the world's currency markets, as first of all the Euro crisis hit in the early part of the summer of 2010 and thereafter the US Dollar (usually the safe haven currency in troubled times) just drifted lower and lower. Stock markets generally performed well with the exception of China, which is tackling its inflation problem with a variety of controls, including higher interest rates. That cannot be said to be the case in either the America or the UK, both in denial that there is even a problem.

Indeed it is arguable that the overriding reason stock markets are strong but the US Dollar and the Euro are weak stems from the loose monetary policies generally and in particular from the US Federal Reserve Board's monetary "quantitative easing". Nothing reflects better the growing distrust for most of the world's fiat currencies than the soaring price of gold. As can be seen from the table below, it rose in value against all currencies, including by circa 27% against the US Dollar, and has risen yet further since.

Change over the Year

		Index (LC)	Change in LC v. £1	Index (£)

Australia	All Ords	+5.9%	+6.5%	+12.7%
Brazil	BOVESPA	+1.3%	+1.9%	+3.2%
Canada	S & P/TSX Comp	+21.6%	+1.4%	+23.3%
China	Shanghai Comp	-4.8%	-2.6%	-7.3%
France	CAC	+10.8%	-5.3%	+4.9%
Germany	DAX	+29.0%	+5.3%	+22.2%
Japan	Nikkei 225	+4.9%	+1.7%	+6.7%
UK	FTSE A-S	+13.5%	+0.0%	+13.5%
USA	S & P Comp	+20.5%	-6.2%	+13.0%

GOLD	(in US$)	+27.3%	-6.2%	+19.4%

LC = Local Currency

There are two reasons for looking at the course of global stock markets over our year. In the first place our shareholders have a choice of where to invest their portfolios so that the prospect for different global stock market returns is relevant to all investors. We might do well in UK terms but if the UK is not doing well internationally then investors' wealth will migrate to other stock markets. As can be seen from the table the UK stock market performed well in comparison to many other major stock markets.

The second reason for keeping an eye on other stock markets is that their prospects (influenced as they are by their own domestic economic circumstances) provide a guide as to which UK listed shares we should choose for our portfolio. Indeed our Policy iterates our "emphasis on investments in companies with exposure to economies growing at a faster rate than the UK".

The Year's Results:	Net Asset Value:	269.24p (+40.6%)
	Benchmark (FTSE A-S):	3,106.8 (+13.5%)

After the difficulties in the stock market in 2007 and 2008, it is particularly pleasing to be able to report a second excellent year, following last year's 71% increase in the net asset value per share. This year the net asset value has risen by a further 40.6%, ending our year at 269.24p per ordinary share. Any return of such magnitude in any year is more than acceptable but particularly so when the stock market itself didn't produce anything like as good a return. As measured by the FTSE All-share Index (our benchmark), it rose by 13.5% - so that an excellent absolute and relative return was earned. I will comment on the underlying reasons for these excellent returns but first of all I would like to pay a particular tribute to James Barstow, our investment manager and a fellow director. On behalf of all of us shareholders, I would like to congratulate James on the outstanding returns earned in the last two years and thank him most warmly for his efforts and for our success.

With the economic growth of emerging market economies, including and most particularly China, continuing apace, the demand for natural resources continues to grow and grow - and with them their market prices. The table below illustrates the remarkable increase in the prices of just three commodities that has occurred over the last two years - the three commodities that Aurora's portfolio is most exposed to:

Commodity		Feb-09	Feb-10	Feb-11	Increase
					2009-11

Oil	$ per barrel	$41.8	$74.7	$97.7	134.0%
Copper	$ per ton	$3,328.4	$6,876.7	$9,880.9	196.9%
Iron Ore	$ per ton	$75.6	$127.6	$187.2	147.6%
Source:	Index Mundi

The concentration in the portfolio is illustrated in the table below, showing that over half of it is invested in natural resources of one sort or another. The net asset value has benefitted enormously from our exposure to these sectors (to the tune of 49p per share last year). We have to be mindful of course that commodity prices are very volatile and are hugely influenced by confidence and expectations; they can and do go down as well as up.

	Investment	% NAV	2010 Gain	2010 Gain p. sh
	£		£
Raw Materials	10,115,025	29.0	+2,101,631	+16.2p
Energy	9,854,041	28.3	+4,234,490	+32.7p
Building & Construction	2,953,370	8.5	+2,698,151	+20.8p
Total	22,922,436	65.8	+9,034,272	+69.7p

The specific holdings in the portfolio that have helped to produce the returns for the year are set out in the table below. West China Cement, one of China's largest cement producers, was the biggest contributor, the gain from our investment being achieved despite top slicing the holding throughout the year: 35% of the holding was sold at various stages. It clearly is benefitting from the huge amount being spent on infrastructure development in the country.

GCM Resources, which is awaiting the go-ahead to develop its enormous coal reserve in Bangladesh, performed particularly well but it remains quite an early stage investment given that there is a lot of Bangladesh politics involved in any development decision. Petro Matad is an oil exploration company based in Mongolia and has recently acquired some exciting exploration licences in the country. Its proximity to the oil hungry Chinese market is one of the attractions of the investment. Asian Citrus operates orange groves in China; it has new groves coming on stream and is benefitting from the growth of domestic consumption within China. And finally of the top five contributors, Antofagasta is a Chilean copper mining group and is clearly enjoying the soaring copper price.

Top 5 Contributors	Profit	p sh	%
West China Cement	+£2,698,151	+20.8p	+110.5%
GCM Resources	+£2,086,436	+16.1p	+91.9%
Petro Matad	+£1,113,924	+8.6p	+96.5%
Asian Citrus	+£943,835	+7.3p	+44.4%
Antofagasta Holding	+£715,375	+5.5p	+57.0%
TOTAL:	+£7,557,720	+58.3p

The losses incurred during the year were few and none were hugely significant. The biggest loss came from our holding in Prosperity Minerals - losing £0.5 million or 4p per share. We remain hopeful, however, that we will make good profits from it in time - particularly as the shares look very cheap.

The recurring theme throughout the portfolio is that of China, its fast growing economy and the companies that are benefiting - or will benefit - from it. Despite the fact that the Chinese stock market was a poor performer during our year, the China-centric holdings in the portfolio did well and were the driving force behind these good returns.

Longer term Returns:	Three Years	NAV: +32.6%	FTSE A-S I: +3.1%
	Five Years	NAV: +9.9%	FTSE A-S I: +5.1%
	Since Launch	NAV: +175.4%	FTSE A-S I: +44.1%

The nature of equity investment is that of a long-term undertaking although quite how long "long-term" is rather depends on one's point of view. For a hedge fund it is probably anything over one month! For many other funds, however, three years is often regarded as long-term. In reality of course it is nothing of the sort - for the time horizon of most investors or funds is many times three years and it is the return actually made over that time horizon that matters. We tend to regard five years as the time benchmark for assessing our own performance.

In all three of the time spans listed above the net asset value has produced positive returns (the most important achievement) and done better than the UK stock market. The three years and the "since launch" time spans have produced reasonable returns, amounting to 9.9% and 7.5% per annum respectively but the five year return of 1.9% per annum is not terrific. Having said that, it is positive, it is better than the market and, given the success that the portfolio is enjoying, we believe it is acceptable.

Shareholders' Return:	Share Price	246p	(+54.2%)
	Dividend	3.5p	(v. 3.45p)
	Discount	8.6%	(v. 16.7%)

The Board of Directors has declared a slightly increased dividend of 3.5p per share. The Consolidated Statement of Comprehensive Income (what a dreadful mouthful!) - which contains the old fashion P&L account - shows a loss for the year because of the inclusion of Aurora's trading subsidiary's loss. Excluding that loss the Company has enough reserves to pay the dividend.

The share price benefitted both from the good net asset value return and also the closing of the discount down from 16.7% to 8.6%. The discount itself is determined by the balance of buyers and sellers and clearly during periods of good performance - both absolute and relative - there should be more buyers than sellers and thence a falling discount. We fully understand that the most important thing we can do to keep the discount at an acceptably low level is to continue to produce good returns.

Attribution of Shareholders Return
Due to NAV change	+77.7p	+40.6%
Due to change in Discount	+8.8p
Share Price change	+86.5p	+54.2%
Dividend	+3.5p
Total Return	+90.0p	+56.4%

Annual General Meeting: 12 noon, 18 July 2011 at 145-157 St John Street, EC1

The Annual General Meeting (AGM) will be held at 12 noon on Monday, 18 July at the offices of Cavendish Administration at 145-157 St John Street (nearest tube station: Farringdon). I do urge as many shareholders as possible to attend. It is the occasion when the Board of Directors meet with shareholders and account for the years activities. It gives you a chance to air your views and concerns and for us a chance to discuss them with you.

Your Directors do understand that it is not possible for all shareholders to attend the AGM. We are, however, keen to hear the views of as many shareholders as possible; I would ask those who are not able to attend but would like to communicate with the Board to contact me - or indeed others of the Directors - and we will arrange either a meeting or a telephone call. In the annual report you will see a list of the major shareholders at both the year end and also at the date of this annual report. Since the year-end the clients of Midas Investment Management have sold their holding; it was bought by a number of new shareholders and also by the Company itself. It bought in 1,400,000 shares (circa 11% of the issued capital) at 253p per share, adding circa 4p per share to our net asset value.

During the course of the year the Board of Directors undertook a review of the Company's strategy, following consultation with a number of shareholders. An announcement of its conclusions was made in October. In summary it determined that:

· in future, starting at this forthcoming AGM, a continuation vote will be put to shareholders every three years (it used to be five). The next continuation vote was due to be put to shareholders at the AGM in 2012. Resolutions to effect this form part of the agenda for this year's AGM. The Board of Directors recommend that shareholders vote in favour of a continuation of the Company in business.

· There should be a tender for 10% of the shares of the Company at a discount of 9% if, during the period of six months prior to the calling of the AGM (the date at which the annual report is signed off), the discount to the net asset value per share at which the Company's shares trade has exceeded 10% based on the daily average discount. As at the date of signing these accounts the average discount for the last six months, as verified by Morningstar, was 9.8% and as a consequence there will not be a tender offer this year.

The new arrangements provide shareholders, as a group, the opportunity to liquidate the Company if it is their collective wish but to offer any individual shareholder the possibility of selling his/her shareholding.

I have served on the Board and indeed as Chairman for the past nine or so years. Given that, following the sale of the holding of the clients of Midas Asset Management, there are a number of new shareholders of the Company and given that I will be 70 next year, I have decided it is time for me to hang up my boots and retire. As a consequence, the independent directors - Richard Robinson and Richard Martin - have set in motion the process of finding a new director and chairman, as laid down in the Corporate Governance Statement. I will step down once that process has been concluded and the appointment made.

Because we cannot be certain how long that will take. I will not resign and put myself up for re-election as the other directors do annually but, as stated above, wait until the appointment is made and then resign. Richard Robinson has decided that for personal reasons he is not able to stand for re-election. Richard Martin and James Barstow, however, will be seeking re-election as directors of the Company.

Outlook:

It is perfectly possible to paint two quite contrasting outlooks for stocks and shares in the UK. One, the bearish one, would focus on the fact that nothing very fundamental has been done by the government to address the basic problem of a very low level of savings within the UK economy (be it the government living way beyond its means and the high level of individual indebtedness and tax bias against personal saving). The dependency culture of our politics and of our citizenry has not changed. Continuing to run large budget deficits and funding them with the printing press can only lead to trouble down the line and a lot more trouble than we have been in to date. It risks much higher levels of inflation than are reported at the moment (if you happen to believe the UK statistics) and thence a rather painful end game of tighter money and higher interest rates. That would not be good for stocks and shares.

On the other hand the UK stock market is made up of the stocks and shares of a lot of well run companies (they certainly run their affairs much more responsibly than does government), whose profitability has improved markedly over the last two years, whose balance sheets generally are pretty strong and which are generating enough cash to increase their dividends to their shareholders. Well over half of their sales and profits are earned outside the country and there are plenty of areas of the world (most notably the emerging market economies, including those of China, India and Brazil) where the economies are financially sound and the prospects for companies most exciting. Corporate success tends to lead to stock market success over time.

China is the particularly compelling theme. It is not of course without risk; its economy's very high rate of growth does have certain side effects, notably the inflation it is dealing with. It is a long-term - even a generational - story and exposure to companies benefitting from its growth has proved and should continue to prove rewarding. There will be ups and downs along the way. As I have always written, our prospects lie importantly in our own hands - to take advantage of the opportunities that the stock market has to offer. I am sure we will continue to do so.

Alex Hammond-Chambers

Chairman

1 June 2011

MANAGER'S REVIEW AND OUTLOOK

Reflecting back on my career as an investment manager, which commenced on the most appropriate day of the year, namely 1 April, it is impossible to conclude that the period has been dull. During the thirty year time span there have been several booms and busts, financial deregulation, the collapse of communism in Eastern Europe, a banking crisis, the ERM debacle, as well as five conflicts involving the UK's armed forces, the horrors of 9/11 and several natural disasters, amongst other events to keep me on my toes.

Fortunately, I am happy to report to shareholders that the company's year just ended was a relatively calm and uneventful one. The main features being intermittent scares over Eurozone sovereign debt problems, a soft patch in the US economy in early summer, and B.P's oil spill disaster in the Gulf of Mexico.

My macro economic approach to investment of creating a portfolio with a major emphasis on companies with a high degree of exposure to economies likely to grow at a superior rate to that of the UK (not too difficult to find at the moment!) proved successful.

The outcome, dare I say it myself, was a sparkling performance relative to the peer group, on account of there being considerably many more winners than losers. I certainly did not, however, achieve quite the degree of accuracy attained by the late renowned psychic German octopus, named Paul, which correctly predicted the outcome of every World cup match in which the German team participated.

Almost everything has changed since the start of the new reporting period- mayhem has broken out! Not since the stock-market crash of 1987 have I lost so much sleep in a single week as I did in early March on account of the remarkable concatenation of events which occurred in such a short space of time. I refer to the massive earthquake and tsunami followed by nuclear melt-down in Japan, the onset of war against Colonel Gaddafi, not forgetting impending civil wars in Yemen and Bahrain on the borders of Saudi Arabia, the world's largest oil producing nation. More recently, unrest has also spread to Syria.

Unlike the experience of the collapse of communism in Eastern Europe, two decades previously, there is nothing resembling velvet in this revolution in the Arab world. The death toll is mounting rapidly and the incidence of torture is commonplace. It is therefore not difficult to conclude that it would be foolish to under-estimate the implications; they are certain to have far-reaching political and probably inflationary consequences.

The Portfolio

Undoubtedly the most important event during the year, as far as concerned the portfolio, was the listing of West China Cement on the Hong Kong exchange and the cancellation of its AIM quote. This relisting had an immediate and dramatic effect on the share price, once local investors were provided with the opportunity to own shares in this wonderful growth company.

Despite the absence of a UK quote, a holding in these shares, (which will definitely not be increased), will remain in the portfolio, albeit perhaps being top-sliced from time to time. I consider the prospects for further share price appreciation and dividends to be excellent over the next several years.

The company is set to benefit from the almost assured feature of rising inflation in the prosperous Eastern provinces of China. The more wages rise in the East the more determined the Chinese government will become to alleviate the bottlenecks. State financed investment into infrastructure projects in the hinterland will continue apace in order to keep the local population in situ, as well as facilitate industrial production, particularly for export, with competitive labour costs. There are no signs yet of any housing bubble taking place in Xian where the company's headquarters are located.

Last year the company managed not only to grow its profits by no less than 90%, but also increased its production capacity from 8.5m to 12.5m tonnes per year and paid a maiden dividend; what a marvellous achievement. Furthermore, the current stated target is for capacity to rise still further to no less than 35m tonnes within three years.

Shareholders should take heart on hearing that the southern part of Shaanxi province, where the company operates, is both devoid of rivers and generally of an upland nature, thus making road transport prohibitively expensive. The recently imposed ban by the state on the issue of further permits to build new capacity will also help the company to maintain its current level of near 40% margins.

Asian Citrus also enjoyed another successful year. The profits expanded by 90% on account of a rise in production as more trees came into production- a trend set to continue for the next decade. Increased sales to supermarkets at higher than normal margins, as well as a 9% rise in overall prices, were also major contributory factors to this magnificent outcome. A notable feature of the year was the successful agreed takeover last autumn, on an earnings enhancing basis, of the largest fruit-juice manufacturer of ten tropical fruits in China fully capable of earning 30% margins. This latest addition will help to ensure that this remains an exciting investment for several years to come.

Prosperity Minerals is a new name in the portfolio hitherto unknown by most shareholders, I suspect, and therefore worthy of brief mention. In summary, it is a company managed and to a great extent (65%) owned by a most successful Chinese businessman who has been keen to transfer assets out of his private companies into this foreign (Jersey registered) company at a relatively low transfer price. The bulk of the cement interests transferred four years ago have recently been sold at approximately four times that price without any liability to taxation.

The company is now left with a 33% interest in one listed cement company worth the entire market capitalisation of the group (£180m), a near similar amount of cash, no liabilities of any sort, and, in addition, a further £150m or more of net assets in iron ore trading businesses and Chinese property, much of which is rent producing. It is certainly a 'deep value' investment where patience should be handsomely rewarded.

At a time when the majority of large pharmaceutical companies have declining pipelines of new potential drug developments BTG stands out from the crowd. Currently the company is engaged in phase three trials for treatments for multiple sclerosis, diabetes, prostrate cancer, toxicity and varicose veins - all with sales potential exceeding one billion dollars per year (i.e. blockbusters'). More-over the new treatment for septicaemia, at present undergoing phase two trials, appears to have even greater potential.

During the year, BTG has fully integrated its acquisition of Protherics and engaged a sales force to market the group's hospital products in the USA to capture their high margins for itself. More recently, it has made an agreed take-over of Biocompatibles, a company noted for its liver cancer treatments. The lack of available finance prevented this company from fully exploiting the Far East markets where the potential is greatest but BTG's strong balance sheet will now facilitate this and hopefully garner huge rewards.

The small investment in Petro Matad, the oil exploration partner of the government of Mongolia has produced spectacular returns following its success in finding large oil reserves. The original cost has been extracted more than twice already.

GCM has become the portfolio's largest holding, having doubled in value during the year. Although, along with many others, I am disappointed that the Bangladeshi government has not yet awarded the company a licence to commence mining operations, I feel that this exciting moment is not far off. My patience, so necessary when fishing, will then be well rewarded upon such an outcome.

My confidence is based on the knowledge that Bangladesh, a rapidly expanding and relatively low cost economy, has no oil reserves and will, within a few years, run out of natural gas. Furthermore, the government, in order to lessen the current c.40% power deficit, has recently agreed to build two coal fired power stations at Khulna and Chittagong to where it would be uneconomic to import foreign coal and particularly so in view of the fact that GCM's Phulbari coal deposit is already connected by the existing railway network.

Following a visit to inspect the restoration work carried out at RWE's large brown field site near Cologne, the parliamentary standing committee for the coal industry has recommended in December that open cast coal mining is the appropriate way forward in Bangladesh. The matter is now in the hands of the civil servants who are doing their due diligence.

The Awami League won the last Election with a landslide victory, having made the solving of the power shortage its third most important manifesto pledge. The next election now looms less than 20 months away, so time is not in its favour. Meanwhile, following the floods in Queensland and the near halting of the global nuclear programme, in the light of the Fukushima disaster, the prospects for the price of coal look ever more enticing. Once the licence to mine has been obtained the company will almost certainly become a target for takeover activity.

Having made good profits from Randgold, I decided to realise the holding in view of the high political risk of the countries in which the company operates and also the extremely optimistic rating accorded to it by the stock-market on account of it being a constituent of the FTSE100 index. Part of the proceeds was later reinvested in Medusa with beneficial effect. This latter company operates in the Christian part of the Philippines where it mines very high grade veins with the result that it can produce gold for US$190 per ounce and so be one of the lowest cost producers of gold in the world.

A commodity super cycle is defined as an extended period when commodity prices rise in real terms because the dominant nation(s) of the world is /are industrialising at a more rapid rate than that with which the expansion of the mining and other producing industries can currently cope. The Western world has witnessed several such periods, namely in respect of the UK and Germany (1760-1820), the USA (1880-1930), and during war and post war reconstruction in Europe and Japan (1940-1960). It is my strong belief that the fourth such super cycle commenced in about the year 2000, on account of the rapid industrialisation amongst the heavily populated BRIC and other countries.

More importantly, I feel confident that history will eventually prove that this current cycle is the most powerful of all. Never before in the history of mankind has 60% of the population of the globe been rapidly industrialising simultaneously and spending on infrastructure programmes at a much faster rate than the natural resources producers can increase supply.

I feel vindicated in my conviction; the last year has certainly witnessed most commodities, both hard and soft, achieve record prices. Although the resource stocks in the portfolio, with the sole exception of BP, on account of its problem in the Gulf of Mexico, have far outperformed the index, I still consider them in general, and Rio Tinto in particular, to be severely undervalued and on derisory ratings in view of their likely future prospects. Accordingly, I remain excited about this sector of the portfolio.

The only change made to the portfolio's exposure to the banking sector was the sale at a substantial profit of the holding in Barclays; my confidence in its future had waned considerably. The main British banks have yet to shrink their balance sheets to any meaningful extent, but when they do so are likely to incur huge losses. Furthermore, they all have large exposures to eurozone sovereign debt which is set to haunt them for a considerable period. In this light, Standard Chartered Bank, whose share price performance far outshone that of its peer group on account of its ability to avoid such problems, remains the portfolio's main exposure to the sector.

Arriva has been a resounding success for the portfolio since its purchase in 2000. This stock was well suited to the theme that most of the government's transport initiatives were designed to encourage more people to travel by public transport rather than in their private motor car.

Much to my disappointment this year it received an unwanted takeover approach from Deutsche Bundesbahn, to which it succumbed at too lowly a price in my opinion. Once again I accompany many others in complaining that the large institutions are too short-term oriented. To date I have not been able to find a suitable replacement for it in the transport sector.

Outlook

Writing as one often criticised for his excess optimism, I foresee an extended period of rising taxation, rising commodity prices, massive public expenditure cuts and an ongoing contraction of the banking system, not to mention higher contributions to the still unaudited European budget. Moreover interest rates in Europe have already started to rise, even though the adoption of the Taylor Rule amongst the southern states would suggest that a rate of minus 4.5% would be a more appropriate local rate.

The undoubted consequence is an era of slow growth for the UK economy and for many of its European trading partners with the notable exception of Germany. Eurosceptics are waiting with baited breath for the first nation to suffer 'austerity fatigue' and decide to suffer the consequences of a default or debt restructuring which could lead to abandoning the euro - an event which can be predicted with ever increasing certainty in view of the high prevailing levels of bond yields as the relevant debt is accorded near junk status. Greece, Portugal and Ireland spring immediately to mind as candidates.

It takes only a moment's thought therefore to reach the conclusion that the outlook for UK consumer shares is at best not good for many and dire for most others. They, along with users of commodities are therefore best avoided, as I have studiously and doggedly done. The natural consequence of adopting such discipline to avoid risk is a highly concentrated portfolio. So be it - the rewards are there to be grasped, but with occasional volatility.

Elsewhere, succinctly expressed, it is not only the geological but also the political tectonic plates which have started to move with dramatic effect. As the British Foreign Secretary has sagely predicted, we are currently witnessing only the start of a new long drawn out revolution in the Arab world. Long-established dictatorships will perhaps struggle to survive against the growing demands from restless young social network-using populations for democratic rights and improved standards of living. There are certain to be serious implications for the price of oil, gold and food as well as the level of international trade.

Recent statistics published in the US demonstrate that economic recovery is finally appearing there; even unemployment is starting to turn round. Nevertheless government debt continues to mount incessantly with few initiatives being taken to prevent it.

A much brighter picture, however, can be obtained from the Far East and other emerging countries, to which the portfolio is effectively heavily oriented. China, at the time of writing, has just announced a growth rate of 9.75% for the first quarter of the year despite its many attempts to clamp down on growth. Such a figure brings an inner feeling of satisfaction to me, in the belief that the portfolio is well positioned in that region and I see no reason to make major alterations for the time being.

The portfolio overall has fared well in a difficult environment. Sadly few of the problems are going to disappear in the near future, but this does not lower my enthusiasm for the ability to continue to make money from my 'conviction' themes. It does, however, make me all the more determined to concentrate my efforts on stocks which I consider I know well and understand where the risks of investment are lower. To use an apposite analogy, I like to pick the 'low hanging plums' within easy range which I can carefully examine prior to placing in the basket, rather than attempting to climb a ladder to the top of the tree to reach others, at the risk of falling and breaking my limbs, if not those of the fruit tree also, only to find that the wasps have arrived first!

In my opinion, the coming fruit harvest is showing signs of being a most productive one. Economic recovery will continue to strengthen and even though Western consumers may be drowning in debt, corporations, by contrast, are swimming in liquidity- a portent of increasing levels of M & A activity. I also feel extremely confident that the Renmimbi, to which the portfolio is heavily exposed, will be materially revalued.

In summary, despite everything, I remain hopeful that I will be able to report in twelve months time that the portfolio has enjoyed another good year.

Meanwhile, I wish to thank long-standing shareholders for their continuing loyalty, whilst at the same time welcoming several new shareholders on the register for having expressed their faith in me by adding their support at a difficult time.

M.J.BARSTOW

1 June 2011

DIRECTORS' REPORT

The Directors present their report and financial statements for the year ended 28 February 2011. This report deals with the results of Aurora Investment Trust plc and its subsidiary ("the Group").

BUSINESS REVIEW

INVESTMENT POLICY

The Company's objectives are pursued through investments in securities, the majority of which are listed on the London Stock Exchange, predominantly comprising equities but allowing exposure to fixed interest and equity related securities. In general the portfolio is weighted towards the larger rather than smaller capitalised stocks. A distinctive feature is an emphasis on investments in companies with exposure to economies growing at a faster rate than the UK.

In pursuing this policy, the Manager takes into account the following considerations:

Distribution of the portfolio relative to the benchmark

An element of risk is inherent in investment undertaken on a selective basis. The Company seeks to mitigate the degree of risk by investing in securities in substantial organisations, normally listed and traded on the London Stock Exchange, and by spreading its investments across a range of such securities.

The benchmark is the FTSE All-Share Index, which is an index of over 700 of the largest capitalised stocks quoted on the London market. This Index is not only representative of the UK economy but also includes a significant degree of international exposure, because the London Stock Exchange has become the stock market of choice for many of the emerging world's largest companies and, furthermore, many of the largest stocks are multinational companies with the majority of their revenues derived outside the UK. Therefore the Manager can achieve the aim of exposure to fast-growing economies while investing selectively in stocks quoted on the London market. However, the Manager makes no attempt to replicate the benchmark and the weightings of the portfolio to particular sectors may differ significantly from those of the benchmark.

A performance fee is payable to the Manager only if the benchmark is beaten and a NAV is achieved that is greater than the NAV at the time when the previous performance fee was paid. This incentivises the Manager to seek to achieve a superior distribution in the portfolio to that of the benchmark.

Risk diversification

At 28 February 2011 the Company's investments were spread across 39 holdings and across 7 main sectors.

The Board does not believe that it should normally or continuously impose prescriptive limits on the Manager regarding the geographic breakdown or distribution by sector of the portfolio. However, these matters are a subject of repeated discussion between the Board and the Manager and from time to time particular informal limits are agreed between them.

The Company can and sometimes does hold large positions in certain stocks. However, the Company, as an investment trust, is prohibited from creating a holding at the time of investment that represents more than 15% of the portfolio in any company. Furthermore, it does not hold more than 15% of the portfolio in other investment trusts.

Gearing Policy

The Company is usually geared to a moderate degree. Borrowings are limited by the articles to a maximum of 30% of NAV and by the Company's bank covenant to 25% of NAV. The Board has adopted a policy whereby under normal circumstances borrowings are to be kept to within approximately 20% of the Company's NAV, but with the flexibility to rise for limited periods. This flexibility is considered desirable to avoid the possibility of forced sales in adverse market conditions.

The Board keeps the level of gearing and the extent, if any, of borrowing in foreign currencies under close review.

Hedging

The Company does not use derivatives to hedge market or currency exposure.

OBJECTIVES AND KEY PERFORMANCE INDICATORS (KPIs)

The Company's principal investment objective is to achieve capital growth. The Company's success in attaining its objectives is measured by reference to KPIs as follows:

a) The Company seeks to achieve a positive total return over the long-term. To measure its success, the Board compares shareholders' returns from owning the shares (share price appreciation and dividends) over one and five years and since launch to the return on an appropriate gilt-edged security (without reinvestment of dividends or interest). The Board considers long-term performance to be of greater importance than short-term and that the five-year comparison is the Company's Primary KPI.

b) The Company's Benchmark is the FTSE All-Share Index, against which the Net Asset Value (NAV) return (capital only) is compared. After achieving the goal of making absolute returns for shareholders, the next aim is to provide a better return from the portfolio than from the market as measured by the Benchmark.

c) The Company also seeks to outperform other companies that it considers to be its Peer Group. The Company's one and five year NAV returns are therefore compared with those of the AIC UK Growth Sector Size Weighted Average.

d) The Company seeks to ensure that the operating expenses of running the Company as a proportion of NAV (the Total Expense Ratio) are reasonable.

The Board has also sought to achieve a dividend rising in line with inflation, although this is not defined as a KPI.

PERFORMANCE

Since its launch the management of the Company's investments has been contracted to Mars Asset Management Limited, which is regulated by the FSA. The principal participant in the management of the Company's investments is James Barstow (managing director). Mr Barstow reports in detail upon the Company's activities in his Report.

The Company's performance relative to the KPIs described above was as follows:

(a) Performance of share price vs. gilt edged security

	Year ended 28 February 2011	Five years ended 28 February 2011	Since launch (1997)

Share price and dividends	+56.4%	+22.3%	+185.4 %
Treasury 9% stock 2011 and interest	+0.9%	+20.8%	+101.4%

The Company has outperformed the 9% gilt over all three comparative periods.

(b) Performance of NAV vs. Benchmark

	Year ended 28 February 2011	Five years ended 28 February 2011	Since launch (1997)

Net Asset Value per share	+40.6%	+9.9%	+175.4 %*
Benchmark	+13.5%	+5.1%	+44.1%

All NAV figures are for capital-only performance

*by reference to a starting value of 97.78p (net of launch expenses).

The Company has achieved this objective over all three comparative periods.

	Year ended 28 February 2011	Five years ended 28 February 2011

Net Asset Value per share	+40.6%	+9.9%
AIC UK Growth Sector Weighted Average	+24.5%	+28.1%

The Company has achieved this objective over one year, but not over five years.

(d) Total Expense Ratio

	Year ended 28 February 2011	Year ended 28 February 2010

Total Expense Ratio	1.58%	1.81%

The ratio is calculated excluding finance costs but including operating expenses charged to capital and applied to the average NAV of the year.

Increase in dividend

The Company has generally succeeded in achieving a steady increase in the level of dividend paid. The directors are recommending a dividend of 3.5p per share for the year ended 28 February 2011.

REVENUE RESULT AND DIVIDEND

The Group's revenue loss after tax for the period amounted to £126,269 (2010: profit £563,345). The Company made a revenue profit after tax of £304,164 (2010:£483,851).

At the Annual General Meeting on 18 July 2011 a resolution will be proposed to approve a final dividend of 3.5p (2010: 3.45p) per ordinary share, absorbing £404,329 (2010: £466,852). The final dividend will be paid on 25 July 2011 to shareholders on the register at 1 July 2011; the ordinary shares will go ex-dividend on 29 June 2011. In accordance with International Financial Reporting Standards this dividend is not reflected in the financial statements for the year ended 28 February 2011.

RISK ANALYSIS

The Board considers that the principal risks faced by the shareholders of the Company fall into two categories:

External Risks

Poor performance in the UK and/or world economies; poor corporate profits and dividends.

Poor stock market performance caused by market-specific factors, such as rising interest rates, the unwinding of "bubbles" or disinvestment by institutions, superimposed on general economic factors, or caused by shocks, wars, disease etc. The Board does not consider, however, that short-term volatility represents a risk for the long-term shareholder that the Company seeks to avoid, since it regards long-term performance to be of primary importance.

Internal Risks

Poor asset management, which may include poor stock selection, excessive concentration of the portfolio, mistakes regarding currency movements, speculation in shares of companies without sound or established businesses and speculation in derivatives.

Poor control of borrowing, including borrowing at excessive rates of interest relative to likely returns and borrowing excessive amounts leading to the breach of covenants and possible enforced sales of assets at disadvantageous prices.

Poor governance, compliance or administration, including particularly the risk of loss of investment trust status.

All these and other risks can result in shareholders not making acceptable returns from their investment in the Company.

RISK CONTROLS

External risks

Information on the mitigation of risk by diversification and by control of gearing and hedging is given in the Investment Policy section above.

Further details concerning currency risks, liquidity risks and interest rate risks are given in note 19.

Internal risks

The control of risks related to governance, compliance and administration is dealt with in the report on Corporate Governance.

FIVE YEAR SUMMARY

The following data are all expressed as pence per share. NAV figures are all calculated at bid prices. They are shown both as previously published and as adjusted by adding back the final dividend for each year.

Year	NAV	Dividend in respect of year	Special dividend	Share price (mid market)

2006	244.98	2.95	-	215.5
2007	246.88	3.10	-	222.5
2008	203.04	3.15	-	181.0
2009	111.86	3.25	1.75	81.0
2010	191.52	3.45	-	159.5
2011	269.24	3.50	-	246.0

OUTLOOK

The outlook for the Group is discussed in the Chairman's Statement and the Manager's Review and Outlook.

OTHER INFORMATION

LEGAL AND TAXATION STATUS

In the opinion of the Directors, the Company has conducted its affairs so as to be able to seek approved investment trust status from HM Revenue and Customs under Section 1159 of the Corporation Tax Act 2010 for the year ended 28 February 2011. The Company will continue to seek approval each year. Approval of investment trust status has been received for all years to 28 February 2010. Under Section 833 of the Companies Act 2006 the Company is an investment company and operates as such.

The Company's wholly-owned subsidiary AIT Trading Limited ("AIT") undertakes purchases of investments for re-sale in the shorter term, with the objective of achieving a trading profit. At 28 February 2011 AIT held investments to a value of £2,420,474 (2010: £Nil).

SHARE CAPITAL

The Company has one class of capital, Ordinary Shares. There are no special restrictions or obligations. Shareholders have equal rights with regard to distributions of all kinds in proportion to their shareholdings. Final dividends are payable subject to approval by the AGM; interim dividends can be paid by the Directors, but it is not the Board's policy to do so. Purchases of the Company's own shares may be carried out if the relevant sanction is given by shareholders. Resolutions at general meetings may be carried by show of hands, when each shareholder present in person or by proxy has one vote, or by poll, when each shareholder present in person or by proxy has one vote for every share.

At 28 February 2011 there were 14,391,389 shares in issue, of which 1,439,139 were held in Treasury. Therefore the number of shares with voting rights was 12,952,250. Since 28 February, the Company has purchased a further 1,400,000 of its own shares; the number of shares held in Treasury has increased to 2,839,139 and the number of voting shares in issue is 11,552,250.

CONTINUATION VOTES

The Company announced on 1 October 2010 the results of a strategic review carried out by the Directors. The Board concluded that the Company should move to a schedule of more frequent continuation votes, starting in 2011. Therefore an ordinary resolution that the company should continue as an investment trust would be put to shareholders at the Annual General meeting (AGM) in 2011.

It was also proposed that, if the above resolution is passed, similar resolutions would be put forward at the AGMs in 2014 and every three years thereafter. In order to clarify and regularise the position beyond 2012, the Directors seek approval for a special resolution amending article 154 of the articles of association so as to provide for an ongoing schedule of three-yearly continuation votes. The new procedure, which the Directors believe is simpler and more transparent, would replace the existing provision that provides for five-yearly winding up votes but also the ability to cancel such votes by a resolution in the year prior to each vote.

It was confirmed within the announcement on 1 October 2010, as a logical ancillary to the new schedule of continuation votes, that an ordinary resolution would be put forward at the AGM in 2011 releasing the Board from the obligation to hold the winding up vote that would otherwise be scheduled for 2012. Such a procedure is provided for in the current wording of article 154 and is not dependent upon the passing of the special resolution described above.

PURCHASE OF OWN SHARES

A resolution is to be proposed at the AGM to renew the Company's powers to purchase its own shares.

Authority was granted on 28 July 2010 to purchase up to 1,941,542 shares. As described above, no purchases were made during the year ended 28 February 2011. Since 28 February 2011 a further 1,400,000 shares have been purchased.

The Directors recommend that these powers continue to be held in reserve in case of need. The renewed authority sought by the Company is to purchase up to 14.99% of the voting shares that are currently in issue (and will be in issue at the time of this year's AGM) which is 1,731,682 shares.

HOLDING SHARES IN TREASURY

The Board monitors on an ongoing basis whether shares should be repurchased and, if so whether they should be held in Treasury. Shares held in Treasury will only be re-sold at a discount lower than that at which purchased, thus resulting in a net increase in NAV per share over the combined transaction.

ISSUE OF OWN SHARES FOR CASH

The Directors recommend that their powers to allot shares for cash, granted at the last Annual General Meeting, be renewed, providing them with flexibility to allot to applicants on demand a limited number of Ordinary Shares (representing approximately 5% of the current issued share capital of the Company) for cash on a non pre-emptive basis.

The relevant resolution at the Annual General Meeting will, if passed, give the Directors the general power to allot securities up to an aggregate nominal amount of £179,892 representing 5% of the issued share capital of the Company at the date of this document.

A further resolution will, if passed, empower the Directors to make allotments of shares for cash other than according to the statutory pre-emption rights which require all shares issued for cash to be offered first to all existing shareholders.

THE BOARD AND RE-ELECTION OF DIRECTORS

The Directors of the Company and of AIT at any time during the year are stated below.

Alex Hammond-Chambers (Chairman)

James Barstow FCA

Richard Robinson

Richard Martin (appointed 8 September 2010)

All directors are non-executive, in as much as Mr Barstow is an employee of Mars Asset Management Limited and not of the Company.

Directors are required by the Company's Articles to retire by rotation at the Annual General Meeting so that each director is subject to re-election at a maximum interval of three years. Mr Barstow, being a representative of the Manager, is subject to annual re-election. Mr Martin, having been appointed by the Board since the last AGM, will retire and offer himself for re-election.

The Board has determined as a matter of policy that all directors should normally submit to annual re-election. This year, however, as described in the Chairman's Statement, Mr Hammond-Chambers and Mr Robinson will not stand for re-election. Accordingly, resolutions will be put to re-appoint Mr Barstow and Mr Martin. A process is under way to recruit one or more new directors.

The report on Corporate Governance will contain a description of the Board's composition, of its method of operation, of its work during the year and that of its Committees and of how its performance has been evaluated. The Board recommends that Mr Barstow and Mr Martin should be re-elected.

Under the Articles, the Directors are indemnified by the Company against losses and liabilities incurred in the performance of their duties. The Articles permit insurance cover against directors' and officers' liabilities to be arranged by the Company and such a policy is maintained.

DIRECTORS' SHAREHOLDINGS

The Directors' shareholdings in the Company, all of which were beneficially owned, were:

	At 28 February 2011	At 28 February 2010
	And at the date of this report
	Ordinary shares	Ordinary shares

A Hammond-Chambers	15,000	15,000
MJ Barstow	839,000	839,000
R Robinson	0	0
R Martin	6,100	N/A

During the year, no rights to subscribe for shares in or debentures of the Company or its subsidiary have been granted to, or exercised by, any director or a member of his immediate family. No shares in AIT were held by any director.

MANAGEMENT CONTRACT

The manager is appointed under a contract subject to twelve months' notice, and is remunerated at a rate of 0.75% per year of the Group's Total Assets, payable monthly in arrears. The manager is also entitled to an annual performance-related fee equal to 10% of any outperformance by the Group's NAV over the FTSE All-Share Actuaries' Index. If the Group's NAV underperforms the Index, the amount of that underperformance will be carried forward and no further performance-related fee will be payable until the NAV has both recovered the underperformance carried forward and exceeded the performance on a cumulative basis (and such performance fee would then be calculated only on the amount of the cumulative outperformance). Any performance fee in excess of 0.75% of NAV must be invested by the Manager, net of tax, in the Company's ordinary shares, which must then be held by the Manager for at least five years.

For the purposes of fee calculation, NAV is the value of the Group's shareholders' funds and Total Assets are the Group's shareholders' funds plus borrowings, less the current-year revenue balance. No performance fee was earned in respect of the year ended 28 February 2011 (2010: £Nil).

MANAGEMENT ENGAGEMENT

The Remuneration Committee and the Board have reviewed the position of the Manager. The process of evaluation will be described in the report on Corporate Governance. Having taken into account the performance of and the prospects for the Company, the Committee and the Board have concluded that the continuation of the existing management contract is in the interests of shareholders.

COMPANY SECRETARY AND ADMINISTRATOR

Cavendish Administration Limited ("Cavendish") was the secretary of the Company for the entire year under review, and remains so. Cavendish is also responsible for all administrative matters. Cavendish is appointed under a contract subject to 180 days' notice and receives a fee of 0.125% per year of Total Assets.

BANKING AND BORROWINGS

At 28 February 2011 the gross external borrowings of the Company and of the Group were £5,876,080 (2010: £4,957,780). There were no borrowings in foreign currency (2010: £Nil).

During the year ended 28 February, the Company closed its accounts with Lloyds TSB Bank and entered into new banking arrangements with Coutts & Co. The Company holds cash balances with Coutts & Co and the total net debt of the Group to Coutts & Co was £5,826,147 (2010: £4,888,072 net debt to Lloyds TSB Bank).

During the year the Company advanced funds to AIT to finance AIT's purchases of investments. At 28 February 2011 AIT owed £3,570,625 (2010:£725,625) to the Company.

MARKET INFORMATION

The Company's share capital is listed on the London Stock Exchange. The market price is shown daily in the Financial Times and The Daily Telegraph. The NAV per share is calculated twice monthly and released twice monthly to the London Stock Exchange and monthly to the Association of Investment Companies. The Company subscribes to the website www.trustnet.com, which compares the Company's performance to that of its peer group.

CUSTODY

The Northern Trust Company was custodian to the Group throughout the year.

PAYMENT OF SUPPLIERS

It is the Company's payment policy to obtain the best possible terms for all business and therefore there is no consistent policy as to the terms used. The Company contracts with its suppliers the terms on which business will take place and abides by such terms. By far the most significant supplier of services to the Company is the investment manager, as described above. The investment manager is reimbursed according to Group Total Assets at the close of each month and is due to be paid within the month following; the Company has maintained payments according to this schedule throughout the year.

There were no invoiced, unpaid trade creditors outstanding at 28 February 2011 (2010: £Nil); amounts shown as creditors in the Balance Sheet comprised accrued expenses and other uninvoiced short-term liabilities. Brokers' commissions are paid in accordance with Stock Exchange terms and are included in Sales for Future Settlement and Purchases for Future Settlement.

SIGNIFICANT SHAREHOLDINGS

The directors have been notified of, or have identified, at the date of this report the following shareholdings comprising 3% or more of the issued share capital of the Company:

	At 28 February 2011		At the date of this report
	Ordinary shares	%	Ordinary shares	%

Clients of Midas Investment Management	3,850,678	29.7	N/A	-
Clients of Jupiter Asset Management	1,151,883	9.8	1,151,883	10.0
Galaxy Asset Management	-	-	1,000,000	8.7
Clients of Brewin Dolphin	926,501	7.7	921,605	8.0
Miton Asset Management	850,000	6.6	900,000	7.8
MJ Barstow	839,000	6.5	839,000	7.3
Clients of Pershing Keen	601,689	4.8	838,390	7.3
Mr J Booth	-	-	800,000	6.9
Clients of JP Morgan	545,000	4.2	488,500	4.2
South Yorkshire Pension Fund	449,653	3.4	449,653	3.9
CG Asset Management	442,000	3.4	N/A	-

SETTLEMENT OF ORDINARY SHARE TRANSACTIONS

Ordinary shares in the Company are settled by the CREST share settlement system.

DONATIONS

The Company did not make any donations during the year under review.

GOING CONCERN

After making inquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio, its cash position, borrowings, income, and expense flows. The directors also believe they have reasonable grounds to expect that the continuation vote will be passed at the forthcoming AGM. For this reason, they have adopted the going-concern basis in preparing the accounts.

AUDITORS

In accordance with Section 489 of the Companies Act 2006, a resolution proposing that Grant Thornton UK LLP be re-appointed as auditors of the Company will be put to the Annual General Meeting.

SOCIAL, ETHICAL AND ENVIRONMENTAL MATTERS

Being an investment company, with no staff, premises, manufacturing or other operations of its own, the Company does not have any direct influence on social, ethical and environmental matters. However, the Manager bears in mind such matters when choosing investments and aims to avoid investment into companies that are found to perform badly in those areas.

1 June 2011

STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE ANNUAL REPORT

The directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law in the United Kingdom requires the directors to prepare financial statements for each financial year. Under that law the directors have to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs). Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. In preparing these financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates which are reasonable and prudent;

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

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

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. 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 directors are responsible for the maintenance and integrity of the corporate and financial information included on the website used by the Company.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Disclosure of information to auditor

The Directors who held office at the date of approval of this directors' report confirm that, in so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Statement under the Disclosure and Transparency Rules 4.1.12

The Directors confirm that to the best of their knowledge and belief ;

(a) This annual report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces; and

(b) 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 of the Company.

1 June 2011

CONSOLIDATED STATEMENT OF

COMPREHENSIVE INCOME

FOR THE YEAR ENDED 28 FEBRUARY 2011

Year ended 28 February 2011

Year ended 28 February 2010

		Revenue	Capital	Total	Revenue	Capital	Total
Note		£'000	£'000	£'000	£'000	£'000	£'000

	Gains on investments designated at fair value through profit or loss	-	10,865	10,865	-	10,539	10,539

	Realised gains of trading subsidiary at fair value through profit or loss	92	-	92	76	-	76
	Unrealised losses of trading subsidiary at fair value through profit or loss	(595)	-	(595)	-	-	-

2	Investment income	826	-	826	815	-	815
	Total income	323	10,865	11,188	891	10,539	11,430
3	Investment management fees	(136)	(136)	(272)	(94)	(94)	(188)
3	Other expenses	(229)	-	(229)	(199)	-	(199)
	Profit/(loss) before finance costs and tax	(42)	10,729	10,687	598	10,445	11,043
6	Finance costs	(90)	(90)	(180)	(43)	(43)	(86)
	Profit/(loss) before tax	(132)	10,639	10,507	555	10,402	10,957
7	Tax	6	-	6	9	-	9
	Profit/(loss) and total comprehensive income for the year	(126)	10,639	10,513	564	10,402	10,966

9	Earnings per share	(0.97p)	82.14p	81.17p	4.35p	80.31p	84.66p

The revenue and capital columns, including the revenue and capital earnings per share data, are supplementary information prepared under guidance published by the AIC. As permitted by S408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income. The amount of the Company's profit for the financial year was £10,512,968 (2010: £10,965,467)

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All revenue is attributable to the equity holders of the parent company. There are no minority interests.

The Board recommends a final dividend of 3.5p per share (see note 8) out of the Company's profit and revenue reserves

CONSOLIDATED BALANCE SHEET

AT 28 FEBRUARY 2011

		2011	2010
Notes		£'000	£'000
	NON-CURRENT ASSETS
10	Investments designated at fair value through profit or loss	37,675	29,659

	CURRENT ASSETS
	Investments held for trading	2,420	-
	Other receivables	68	86
	Cash and cash equivalents	1,431	101
		3,919	187

	TOTAL ASSETS	41,594	29,846

	CURRENT LIABILITIES:
	Purchases for future settlement	741	-
	Other payables	105	82
	Bank overdraft	5,876	4,958
		6,722	5,040


	TOTAL ASSETS LESS CURRENT LIABILITIES	34,872	24,806

	EQUITY
12	Called up share capital	3,598	3,598
	Capital redemption reserve	179	179
	Share premium account	10,997	10,997
14	Gains on disposal	14,487	11,290
14	Investment holding gains/(losses)	6,097	(1,345)
	Revenue reserve	(486)	87

	TOTAL EQUITY	34,872	24,806

15	Net assets per ordinary share	269.24p	191.52p

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 28 FEBRUARY 2011

2011	Notes
		Share capital	Capital redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
		£,000	£'000	£,000	£,000	£,000	£,000	£,000

Opening equity		3,598	179	10,997	11,290	(1,345)	87	24,806

Total comprehensive income/(loss) for the year		-	-	-	3,197	7,442	(126)	10,513

Dividends paid	8	-	-	-			(447)	(447)

Closing equity		3,598	179	10,997	14,487	6,097	(486)	34,872

2010	Notes
		Share capital	Capital redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
		£,000	£'000	£,000	£,000	£,000	£,000

Opening equity		3,598	179	10,997	11,382	(11,839)	171	14,488

Total comprehensive income/(loss) for the year		-	-	-	(92)	10,494	564	10,966

Dividends paid	8	-			-	-	(648)	(648)

Closing equity		3,598	179	10,997	11,290	(1,345)	87	24,806

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 28 FEBRUARY 2011

Notes		2011	2010
		£'000	£'000

	NET CASH FLOW FROM OPERATING ACTIVITIES
	Cash inflow from investment income and interest	845	824
	Cash (outflow)/inflow from held for trading current asset investments	(2,923)	164
	Cash outflow from management expenses	(504)	(355)

	Payments to acquire non-current asset investments	(6,946)	(13,272)
	Receipts on disposal of non-current asset investments	10,536	8,274

	Tax recovered	6	9

16	NET CASH FLOW FROM OPERATING ACTIVITIES	1,014	(4,356)



	CASH FLOWS FROM FINANCING ACTIVITIES
	Dividends paid	(447)	(648)
	Increase in bank borrowings	918	4,283
	Interest paid	(155)	(86)
	NET CASH FLOW FROM FINANCING ACTIVITIES	316	3,549


	INCREASE/(DECREASE) IN CASH	1,330	(807)



	Cash and cash equivalents at beginning of year	101	908

	Increase/(decrease) in cash	1,330	(807)

	Cash and cash equivalents at end of year	1,431	101

COMPANY BALANCE SHEET

AT 28 FEBRUARY 2011

		2011	2010
Notes		£'000	£'000
	NON-CURRENT ASSETS
10	Investments designated at fair value through profit or loss	37,675	29,659
11	Investment in subsidiary	2,423	9
		40,098	29,668

	CURRENT ASSETS
	Other receivables	68	86
	Cash and cash equivalents	1,428	92
		1,496	178

	TOTAL ASSETS	41,594	29,846

	CURRENT LIABILITIES:
	Purchases for future settlement	741	-
	Other payables	105	82
	Other payables	5,876	4,958
		6,722	5,040


	TOTAL ASSETS LESS CURRENT LIABILITIES	34,872	24,806


	EQUITY
12	Called up share capital	3,598	3,598
	Capital redemption reserve	179	179
	Share premium account	10,997	10,997
14	Gains on disposal	14,487	11,290
14	Investment holding (losses)/gains	4,950	(2,062)
	Revenue reserve	661	804

	TOTAL EQUITY	34,872	24,806

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 28 FEBRUARY 2011

2011
	Note	Share capital	Capital redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
		£,000	£'000	£,000	£,000	£,000	£,000	£,000

Opening equity		3,598	179	10,997	11,290	(2,062)	804	24,806

Total comprehensive income/(loss) for the year		-	-	-	3,197	7,012	304	10,513

Dividends paid	8	-	-	-	-	-	(447)	(447)

Closing equity		3,598	179	10,997	14,487	4,950	661	34,872

2010
	Note	Share capital	Capital redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
		£,000	£'000	£,000	£,000	£,000	£,000	£,000

Opening equity		3,598	179	10,997	11,382	(12,635)	967	14,488

Total comprehensive income/(loss) for the year		-	-	-	(92)	10,573	485	10,966

Dividends paid	8	-	-	-	-	-	(648)	(648)

Closing equity		3,598	179	10,997	11,290	(2,062)	804	24,806

COMPANY CASH FLOW STATEMENT

FOR THE YEAR ENDED 28 FEBRUARY 2011

	2011	2010
	£'000	£'000

NET CASH INFLOW FROM OPERATING ACTIVITIES
Cash inflow from investment income and interest	772	820
Cash outflow from management expenses	(504)	(355)

Payments to acquire non-current asset investments	(6,946)	(13,272)
Receipts on disposal of non-current asset investments	10,536	8,274

Tax recovered	6	9

NET CASH INFLOW FROM OPERATING ACTIVITIES	3,864	(4,524)


CASH FLOWS FROM INVESTING ACTIVITIES
(Increase)/decrease in investment in subsidiary	(2,844)	212

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid	(447)	(648)
Increase in bank borrowings	918	4,283
Interest paid	(155)	(86)
NET CASH FLOW FROM FINANCING ACTIVITIES	316	3,549


INCREASE/(DECREASE) IN CASH	1,336	(763)



Cash and cash equivalents at beginning of year	92	855

Increase/(decrease) in cash	1,336	(763)
Currency translation difference		-

Cash and cash equivalents at end of year	1,428	92

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

Basis of Accounting

The financial statements of the Company and the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the IASB and International Accounting Standards and Standing Interpretations Committee interpretations approved by the IASC that remain in effect, and to the extent that they have been adopted by the European Union.

Under IFRS, the AIC Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in January 2009 has no formal status, but the Group has taken the guidance of the SORP into account to the extent that is appropriate and compatible with IFRS.

The accounting policies are unchanged from those used in the last annual financial statements except where otherwise stated. The particular accounting policies adopted are described below:

(a) Accounting Convention

The accounts are prepared under the historical cost basis, except for the measurement of fair value of investments.

(b) Basis of Consolidation

The Group accounts consolidate the accounts of the Company and of its subsidiary AIT Trading Limited ("AIT"), both drawn up to 28 or 29 February each year. As permitted by S408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income. The amount of the Company's profit for the financial year, before consolidation adjustments, is £10,512,968 (2010: £10,885,975).

As the Company's business is investing in financial assets with a view to profiting from their total return in the form of increases in fair value, investments are designated as fair value through profit or loss on initial recognition in accordance with IAS 39. At this time, fair value is the consideration given, excluding material transaction or other dealing costs associated with the investment.

After initial recognition such investments are valued at fair value. For quoted investments this is established by reference to bid, or last, market prices depending on the convention of the exchange on which the investment is quoted. Gains or losses are recognised in the capital column of the Statement of Comprehensive Income. All purchases and sales of investments are accounted for on a trade date basis.

The investment of the Company in AIT is stated at cost less impairment. AIT's own investments are managed and performance evaluated on a fair value basis and accordingly are designated by AIT as "at fair value through profit or loss". The AIT investments in quoted securities are valued at all times in accordance with current market values that represent fair value; at the time of acquisition they are valued on the basis of trade date accounting. Securities of companies whose prices are quoted on the London Stock Exchange are valued by reference to the Official List of the London Stock Exchange at their bid market prices at the close of the period.

(d) Income from Investments

Investment income from ordinary shares is accounted for on the basis of ex-dividend dates. Income from fixed interest shares and securities is accounted for on an accruals basis using the effective interest method. Special Dividends are assessed on their individual merits and are credited to the capital column of the Statement of Comprehensive Income if the substance of the payment is a return of capital; with this exception all investment income is taken to the revenue column of the Statement of Comprehensive Income. Income from gilts and bank interest receivable is accounted for on an accruals basis using the effective yield.

(e) Capital Reserves

The Company is precluded by its Articles from making any distribution of capital profits by way of dividend. Profits and losses on disposals of investments are taken to the gains on disposal reserve. Revaluation movements are taken to the investment holding losses reserve via the capital column of the Statement of Comprehensive Income.

(f) Investment Management Fees, Finance Costs and Other Costs

Finance costs and monthly management fees are allocated between capital and revenue according to the Board's expected long-term split of returns between capital gains and income; one-half of these costs are charged to gains on disposal via the capital column of the Statement of Comprehensive Income. Performance-related fees are charged to gains on disposal via the capital column of the Statement of Comprehensive Income. Other costs are normally charged to revenue, unless there is a compelling reason to charge to capital. Tax relief in respect of costs allocated to capital is credited to capital via the capital column of the Statement of Comprehensive Income on the marginal basis.

(g) Taxation

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets.

Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply at their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity.

(h) Foreign currency

The currency of the primary economic environment in which the Group companies operate (the functional currency) is pounds sterling ("Sterling"), which is also the presentational currency of the Group. Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date. At each balance sheet date, monetary items and non-monetary assets and liabilities, which are fair valued and which are denominated in foreign currencies, are retranslated at the closing rates of exchange. Such exchange differences are included in the Statement of Comprehensive Income and allocated to capital if of a capital nature or to revenue if of a revenue nature. Exchange differences allocated to capital are taken to gains on disposal or investment holding losses, as appropriate.

(i) Cash and cash equivalents

Cash and Cash Equivalents in the Cash Flow Statement comprise cash held at bank and do not include loans, long term debt or bank overdrafts that are akin to long term debt.

(j) Dividends payable to equity shareholders

Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity when they are paid, or have been approved by shareholders in the case of a final dividend.

2.	INCOME	2011	2010
	Income from investments:	£'000	£'000
	Franked dividends from listed or quoted investments	598	561
	Unfranked income from overseas dividends	82	62
	Income from listed fixed interest securities	146	192
		826	815
	Other income:
	Bank interest receivable	-	-

		826	815

3.	INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES		2011			2010
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fees - monthly - performance	136 -	136 -	272 -	94 -	94 -	188 -
		136	136	272	94	94	188
	Administration fees	53	-	53	36	-	36
	Custodian's fees	10	-	10	14	-	14
	Registrar's fees	10	-	10	8	-	8
	Directors' fees	64	-	64	72	-	72
	Consultancy payment to broker	27	-	27	-	-	-
	Auditors' fees - audit of the Company and of the consolidated financial statements - audit of the subsidiary	22 3	- -	22 3	18 2	- -	18 2
	Tax advice	6	-	6	4	-	4
	Miscellaneous expenses	34	-	34	45	-	45
	Total other expenses	229	-	229	199	-	199

4. DIRECTORS' FEES

The fees paid or accrued were £63,871 (2010: £71,656). There were no other emoluments. The figures shown for directors' fees in note 3 above include employers' National Insurance charges or VAT, as appropriate. Full details of the fees of each director will be given in the Directors' Remuneration Report.

5. TRANSACTION CHARGES

	2011	2010
	£'000	£'000

Transaction costs on purchases of investments	51	91
Transaction costs on sales of investments	26	23
Total transaction costs included in gains or losses on investments at fair value through profit or loss	77	114

6.	INTEREST PAYABLE AND SIMILAR CHARGES		2011			2010
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Interest payable	52	52	104	36	36	72
	Facility and arrangement fees and other charges	38	38	76	7	7	14
		90	90	180	43	43	86

7.	TAXATION		2011			2010
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Corporation tax	-	-	-	-	-	-
	Overseas tax	(6)	-	(6)	(9)	-	(9)
	Tax charge in respect of the current year	(6)	-	(6)	(9)	-	(9)

Current taxation

The current taxation charge for the year is different from the standard rate of corporation tax in the UK (28%). The differences are explained below:

	2011	2010
	£'000	£'000
Total profit before tax	10,507	10,957

Theoretical tax at UK corporation tax rate of 28% (2010: 28%)	2,942	3,068
Effects of:
Capital profits that are not taxable	(2,979)	(2,913)
UK dividends which are not taxable	(167)	(157)
Increase/(decrease) in excess tax losses	267	40
Expenses charged to capital account for which a deduction is claimed	(63)	(38)
Overseas tax recovered	(6)	(9)
Actual current tax	(6)	(9)

The Company is an investment trust and therefore is not charged to tax on capital gains.

Factors that may affect future tax charges

The Company has tax losses of £6,277,610 (2010: £5,099,437) in respect of management expenses and of £1,242,278 (2010: £1,836,239) in respect of loan interest. Its subsidiary has trading losses carried forward of £1,413,625 (2010: £905,642). These amounts are available to offset future taxable revenue. A deferred tax asset has not been recognised in respect of those expenses and will be recoverable only to the extent that the Company has sufficient future taxable revenue.

8. ORDINARY DIVIDENDS

	2011	2010
	£'000	£'000
Dividends reflected in the financial statements:
Final dividend paid for the year 2010 at 3.45p (2009: 3.25p)	447	648

Dividends not reflected in the financial statements:
Proposed final dividend for the year 2011 at 3.5p (2010: 3.45p)	404	447

9. EARNINGS PER SHARE

Earnings per share are based on the profit of £10,512,968 (2010:£10,965,467) attributable to the weighted average of 12,952,250 (2010: 12,952,250) ordinary shares of 25p in issue during the year, excluding shares held in Treasury.

Supplementary information is provided as follows: revenue earnings per share are based on the revenue loss of £126,269 (2010: profit £563,345); capital earnings per share are based on the net capital profit of £10,639,237 (2010:£10,402,122), attributable to 12,952,250 (2010: 12,952,250) ordinary shares of 25p.

10.	INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS	2011	2010
		£'000	£'000
	UK listed or quoted securities	37,675	29,659
	Total non-current investments	37,675	29,659
	Movements during the year:
	Opening balance of investments, at cost	31,004	26,081
	Additions, at cost	7,687	13,149

	Disposals - proceeds received or receivable	(10,536)	(8,270)
	- less realised profits	3,423	44
	- at cost	(7,113)	(8,226)

	Cost of investments at 28 February	31,578	31,004

	Revaluation of investments to market value:
	Opening balance	(1,345)	(11,839)

	Transfer to gains on disposal - realised gains recognised as unrealised in the previous year	1,665	1,061
	Increase / (decrease) in unrealised appreciation credited to investment holding reserve	5,777	9,433
	Balance at 28 February	6,097	(1,345)

	Market value of non-current investments at 28 February	37,675	29,659

The Company holds notifiable interests in the following companies, the percentage shown being the relevant proportion of the share capital held: Bright Futures Group 10.61%, GCM Resources 3.87%.

11. SUBSIDIARY

The Company has an investment in AIT Trading Limited, a wholly owned subsidiary registered in England and Wales, which comprised two ordinary shares of £1 each. AIT undertakes purchases of investments for re-sale in the shorter term, with the objective of achieving a trading profit. The loss before tax of AIT for the year was £430,434 (2010: profit £79,494). The net deficit of AIT at the Balance Sheet date was £1,147,130 (2010: net deficit £716,696). No dividend was paid from AIT to the Company (2010: £nil).

During the year the Company advanced interest-free short-term loans to AIT to finance its trading operations. At 28 February 2011 the amount outstanding was £3,570,625 (2010: £725,625).

	2010	Movement	2011
	£'000	£'000	£'000

Loan to AIT	725	2,845	3,570
Provision for impairment	(716)	(431)	(1,147)
Net investment	9	2,414	2,423

12.	SHARE CAPITAL
	At 28 February:		2011	2010
	Authorised
	Ordinary shares of 25p	Number	40,000,000	40,000,000
		£'000	10,000	10,000
	Allotted, issued and fully paid
	Ordinary shares of 25p	Number	14,391,389	14,391,389
		£'000	3,598	3,598

The Company made no purchases of shares during the year (2010: Nil) and cancelled no shares (2010: Nil). At 28 February 2011, the Company had 14,391,389 shares in issue, of which 1,439,139 are held in Treasury; the number of voting shares in issue is 12,952,250.

Since 28 February, the Company has purchased 1,400,000 of its own shares. At the date of this report, the Company has 14,391,389 shares in issue, of which 2,839,139 are held in Treasury; the number of voting shares in issue is 11,552,250.

13. TOTAL EQUITY

Total Equity includes, in addition to Share Capital, the following reserves:

Capital Redemption Reserve. When any shares are redeemed or cancelled, a transfer of realised profit must be made to this reserve in order to maintain the level of capital that is not distributable.

Share Premium Account. When shares are issued at a premium to their nominal value, the "capital profit" arising on their allotment must be held in a Share Premium Account, which is not distributable in the ordinary course and may be utilised only in certain limited circumstances.

Capital profits arising from the Company's investment transactions are held as Capital Reserves, subdivided between Gains on Disposal for profits arising upon sales of investments and Investment Holding gains/losses for portfolio revaluations. The movements on this account are analysed in note 14 below.

The Company's Revenue Reserves are the net profits that have arisen from the Company's revenue income in the form of dividends and interest, less operating expenses and dividends paid out to the Company's shareholders.

14.	CAPITAL RESERVES	2011	2010
	Gains on disposal	£'000	£'000

	Opening balance	11,290	11,382

	Gains on disposal recognised in current year	1,762	1,105
	Gains/(losses) on disposal previously recognised as investment holdings gains/(losses)	1,665	(1,061)
	Net gains on realisation of investments	3,427	44

	Expenses of capital management: management fees	(136)	(94)
	: finance costs	(90)	(43)
	Net expenses	(226)	(137)

	Exchange differences	(4)	1

	Total transfer to gains on disposal	3,197	(92)

	Balance of gains on disposal account at 28 February	14,487	11,290

Investment holding gains/(losses)	£'000	£'000

Opening balance	(1,345)	(11,839)

Transfer to gains on disposal - gains	1,665	1,061

Revaluation of investments - listed	5,777	9,433

Total transfer to investment holding profits/(losses)	7,442	10,494

Balance of investment holding profits/(losses) account at 28 February	6,097	(1,345)

Total capital reserve at 28 February	20,584	9,945

The capital reserves of the Company are identical to those of the Group, except that a provision is made when necessary against the Company's investment holding account for any amount loaned to AIT Trading Limited that is not covered by the subsidiary's net assets. At 28 February 2011 such a provision was made of £1,147,132 (2010: £716,696).

15. NET ASSETS PER ORDINARY SHARE

The figure for net assets per ordinary share is based on £34,872,224 (2010: £24,806,111) divided by 12,952,250 (2010: 12,952,250) voting ordinary shares in issue at 28 February 2011, excluding shares held in Treasury.

16.	RECONCILIATION OF PROFIT BEFORE FINANCE COSTS AND TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES	2011	2010
		£'000	£'000

	Profit	10,687	11,043

	Increase in non-current investments	(8,016)	(15,417)
	Increase in current investments	(2,420)	-
	Decrease in sales for future settlement	-	91
	Decrease in other receivables	18	9
	Increase/(decrease) in purchases for future settlement	741	(123)
	(Decrease)/increase in other payables	(2)	32

	Taxation recovered	6	9

	Net cash inflow from operating activities	1,014	(4,356)

17. RELATED PARTY TRANSACTIONS

Details of transactions with AIT Trading Limited are set out in note 11.

Details of the management, administration and secretarial contracts can be found in the Directors' Report. As disclosed in that Report, Mr Barstow is a director both of the Company and of the Manager. Fees payable to the Manager are detailed in note 3. Other payables include accruals of a monthly management fee of £25,281 (2010: £18,317) and an administration fee of £4,951 (2010: £3,587). No performance fee was accrued (2010: £Nil). All figures include VAT.

18. FINANCIAL ASSETS/LIABILITIES

Investments are carried in the balance sheet at fair value. For other financial assets and financial liabilities, the balance sheet value is considered to be a reasonable approximation of fair value.

Group

Financial assets

The Group's financial assets comprise equity investments, fixed interest securities, short-term receivables and cash balances. The currency and cash-flow profile of those financial assets was:

		2011			2010
	Interest bearing	Non- interest bearing	Total	Interest bearing	Non- interest bearing	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Non-current investments at fair value through profit or loss:
- £ sterling equities	-	36,580	36,580	-	28,153	28,153
- £ fixed interest	1,095		1,095	1,549	-	1,549
	1,095	36,580	37,675	1,549	28,153	29,702

Short term trade receivables				-	-	-
Cash at bank:
Floating rate - £ sterling	-	1,431	1,431	101	-	101

	-	1,431	1,431	1,650	-	29,803

Cash at bank includes £1,381,257 (2010: £31,271) held by the Group's custodian, The Northern Trust Company.

Financial liabilities

The Group finances its investment activities through the Company's ordinary share capital, reserves and borrowing. The Group's financial liabilities comprise its overdraft facility and other short-term trade payables. Foreign currency balances are stated in the accounts in sterling at the exchange rate as at the Balance Sheet date.

The Company has an overdraft facility of up to £6 million (or the equivalent in euros and/or US dollars) with Coutts & Co. (replacing the previous facility with Lloyds TSB Bank plc) upon which interest is charged at the bank's variable interest rate. The facility is secured upon the shares and securities of the Company. It is repayable upon demand, but normally is reviewed annually by the bank.

The currency and cash-flow profile of the Group's financial liabilities was:

	2011	2010
	£'000	£'000

Interest bearing: Bank overdraft:
Sterling	5,876	4,958
Euros	-	-
US dollars	-	-
	5,876	4,958
Non interest bearing:
Short term trade payables	-	-

	5,876	4,958

19. FINANCIAL INSTRUMENTS - RISK ANALYSIS

Company and Group

The general risk analysis undertaken by the Board and its overall policy approach to risk management are set out in the Business Review. Issues associated with portfolio distribution and concentration risk are discussed in the Chairman's Statement and the Investment Policy section of the Business Review. This note, which is incorporated in accordance with accounting standard IFRS7, examines in greater detail the identification, measurement and management of risks potentially affecting the value of financial instruments and how those risks potentially affect the performance and financial position of the Company.

The risks concerned are categorised as follows:

A) Potential Market Risks, which are principally (i) Currency Risk (ii) Interest Rate Risk and (iii) Other Price Risk.

B) Liquidity Risk

C) Credit Risk

Each is considered in turn below:

A (i) Currency Risk

All the securities are listed on the London Stock Exchange or quoted on AIM, with the exception of West China Cement, which was previously quoted on AIM but is now listed on the Hong Kong Exchange. Where the underlying currency or currency of quotation is not sterling this is noted. The element of currency risk on investments may be indirect and reflected in the effect of underlying currency movements upon the London market price, whether quoted in foreign currency or not.

Based on the portfolio as at 28 February 2011, there were no investment denominated in Euros and consequently there was no currency risk arising from the possibility of a fall in the value of sterling against the Euro, impacting upon the value of investments or income. West China Cement is now denominated in Hong Kong Dollars; a 10% rise in sterling against the Hong Kong Dollar would result, all other factors remaining unchanged, in a fall of £331,000 in the value of the portfolio.

The Company had no foreign currency borrowings at 28 February 2011 (2010: Nil). In view of the elimination of foreign currency borrowings, no sensitivity analysis is presented for this risk.

A (ii) Interest Rate Risk

The weighted average interest rate of the fixed rate financial assets is 9.36% (2010: 9.09%) and the weighted average period for which rates are fixed is indefinite (2010: indefinite). The list of the Company's holdings will include details of the split between equities and fixed interest securities.

With the exception of cash, no interest rate risks arise in respect of any current asset. All cash held as a current asset is sterling denominated, earning interest at the bank's or custodian's variable interest rates.

Interest is charged on the bank overdraft at the bank's variable interest rates as appropriate to the currency concerned in the case of each balance. At 28 February 2011, the Company's total borrowing was £5,876,080 (2010 £4,957,780): all of which was borrowed in sterling, upon which the interest rate at the year end was 2.75% (2010: 1.45%).

A 2% rise in LIBOR, applied to the sterling overdraft balance as at 28 February 2011, would decrease net revenue by £117,522 on an annual basis.

A (iii) Other Price Risk

The principal price risk for the Company is the price volatility of shares that are owned by the Company. As described in the manager's Review, the Company spreads its investments across different sectors and geographies, but has maintained relatively strong concentrations in particular sectors selected by the Manager.

B Liquidity Risk

Liquidity Risk is considered to be small, because the portfolio is invested in readily realisable securities. As a consequence, cash flow risks are also considered to be small. The Manager estimates that, under normal market conditions and without causing excessive disturbance to the prices of the securities concerned, c75% of the portfolio could be realised within seven days.

The Company's overdraft facility is repayable upon demand, although normally renewed annually. The Directors believe that the facility will be renewed in 2011. In view of the Company's ability to sell investments, as stated above, the Company is able to reduce or eliminate its borrowing, if necessary.

C Credit Risk

The Company invests in quoted equities and fixed interest securities. The Company's investments are held by The Northern Trust Company ("the Custodian"), which is a large international bank with a high reputation. The Company's normal policy is to remain fully invested at most times and not to hold very large quantities of cash. At 28 February 2011, Group cash at bank comprised £1,381,257 (2010: £31,271) held by the Custodian and £49,933 held by Coutts & Co (2010: £69,708 held by Lloyds TSB Bank plc), also part of a large international bank with a very high credit rating.

Credit Risk arising on transactions with brokers relates to transactions awaiting settlement. This risk is considered to be very low because transactions are almost always undertaken on a delivery versus payment basis with member firms of the London Stock Exchange.

D Capital management policies and procedures

The Group' s capital management objectives are:

- to ensure the Group's ability to continue as a going concern; and

- to provide an adequate return to shareholders

by pursuing investment policies commensurately with the level of risk.

The Group monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as presented on the face of the statement of financial position.

The Group sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders (within the statutory limits applying to investment trusts), return capital to shareholders, issue new shares, or sell assets to reduce debt.

Since an overdraft was taken out in 1997, the Group has consistently honoured its covenant obligations, among which the principal capital ratio is described under Gearing Policy above.

20. FAIR VALUE HIERARCHY

Under IFRS7 investment companies are required to disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair values.

Classification		Input

Level 1		Valued using quoted prices in active markets for identical assets
Level 2		Valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1
Level 3		Valued by reference to valuation techniques using inputs that are not based on observable market data

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.

The valuation techniques used by the Company are explained in the Accounting Policies Note 1(g). As at 28 February 2011, all investments held by the Company and all current investments held for trading by the Company's subsidiary are considered to fall within Level 1, with the exception of one holding of £15,250 - Bright Futures - which is now designated as being in Level 3.

	2011	2010

Level 1	40,080	29,659
Level 2	-	-
Level 3	15	-

21. Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group.

Management anticipates that all of the pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements.

IFRS 9 Financial Instruments (effective from 1 January 2013)

The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety by the end of 2010, with the replacement standard to be effective for annual periods beginning 1 January 2013. IFRS 9 is the first part of Phase 1 of this project. The main phases are:

Phase 1: Classification and Measurement

Phase 2: Impairment methodology

Phase 3: Hedge accounting

In addition, a separate project is dealing with derecognition. Management have yet to assess the impact that this amendment is likely to have on the financial statements of the Group. However, they do not expect to implement the amendments until all chapters of the IAS 39 replacement have been published and they can comprehensively assess the impact of all changes.

22. FINANCIAL INFORMATION

This announcement does not constitute the Company's statutory accounts. The financial information for 2011 is derived from the statutory accounts for 2011, which will be delivered to the registrar of companies following the Company's Annual General Meeting. The statutory accounts for 2010 have been delivered to the registrar of companies. The auditors have reported on the 2011 and 2010 accounts; their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Annual Report for the year ended 28 February 2011 was approved on 1 June 2011. It will be posted to shareholders and will be made available on the Manager's website at www.marsassetmanagement.co.uk

This announcement contains regulated information under the Disclosure Rules and Transparency Rules of the FSA.

23. ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 18 July 2011 at 12.00 noon at 145-157 St. John Street, London, EC1V 4RU.

1 June 2011

Secretary and registered office:

Cavendish Administration Limited

145-157 St John Street

London

EC1V 4RU

Tel: 020 7490 4355

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR FBMITMBJMBFB

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