TIDMIIM
iimia Investment Trust PLC
Annual Financial Report for the Year End 30 April 2010
The full Annual Report and Accounts can be accessed via the Company's website
at www.iimiainvestmenttrust.co.uk or by contacting the Company Secretary on
telephone 01392 412122.
Investment Objective and Policy
iimia Investment Trust PLC ("the Company") is an investment trust which was
launched on 6 April 2004.
The Company does not have a fixed life but a continuation vote is held at every
third Annual General Meeting thereafter. The next continuation vote is due to
be proposed at the 2012 AGM.
Capital Structure
The Company's share capital consists of Ordinary shares of 1p each, with one
vote per share.
The number of shares in issue as at 30 April 2010 was 25,279,985, none of which
were held in Treasury. The number of shares in issue at the date of this report
is 25,279,985.
Investment Objective
The objective of the Company is to outperform 3 month LIBOR plus 2% over the
longer term, principally through exploiting inefficiencies in the pricing of
closed-end funds. This objective is intended to reflect the Company's aim of
providing a better return to shareholders over the longer term than they would
get by merely placing money on deposit.
The benchmark in the investment objective is a target only and should not be
treated as a guarantee of performance of the Company or its portfolio.
Investment Policy
The Company invests in closed-end investment funds traded on the London Stock
Exchange's Main Markets, in unlisted closed-end funds (including, but not
limited to, funds traded on AIM) and in open-ended investment funds. The funds
in which the Company invests may include all types of investment trusts,
companies and funds established onshore or offshore. The Company has the
flexibility to invest in any class of security issued by investment funds
including, without limitation, equity, debt, warrants or other convertible
securities. In addition, the Company may invest in other securities, such as
non-investment fund debt, if deemed to be appropriate to produce the desired
returns to shareholders.
The Company is unrestricted in the number of funds it holds. However, at the
time of acquisition, no investment will have an aggregated value totalling more
than 15% of the gross assets of the Company. Furthermore, the Company will not
invest more than 10%, in aggregate, of the value of its gross assets at the
time of acquisition in other listed closed-end investment funds, although this
restriction does not apply to investments in any such funds which themselves
have stated investment policies to invest no more than 15% of their gross
assets in other listed closed-end investment funds. In addition, the Company
will not invest more than 25%, in aggregate, of the value of its gross assets
at the time of acquisition in open-ended funds.
There are no prescriptive limits on allocation of assets in terms of asset
class or geography, save that, in order to maintain classification within the
AIC Global Growth sector, no more than 80% of the Company's gross assets can be
held in any one geographical region.
There are no limits imposed on the size of hedging contracts. However, their
aggregated value will not exceed 20% of the portfolio's gross assets at the
time they are entered into.
The Board permits short term borrowings of up to 20% of the Company's net asset
value (measured at the time new borrowings are incurred).
The Company's investment objective may lead, on occasions, to a significant
amount of cash or near cash being held.
Risk Management
The Company's risk management process aims to mitigate undesirable risk.
However, it is important to note that the systems in place act only to
highlight areas of risk and cannot eliminate the risk of failure to achieve the
Company's objectives. The management of risk cannot provide assurance against
misstatement or material loss.
The principle risks identified are as follows:
Asset Allocation
The Company is a `multi-asset' fund of funds and seeks to diversify the
portfolio through investment in a wide range of asset classes, industrial
sectors, currencies and geographical regions. The Company will not invest in
physical commodities.
Asset allocation is monitored on a look-through basis for all underlying funds.
Resulting analysis is considered as part of the stock selection process.
Correlation and Number of Funds Held
The Manager recognises that funds of funds are naturally more diverse than a
fund of individual equities; thus, they suffer from the danger that
over-diversification will lead to an investment trust, contrary to its
objectives, tracking a world equity market.
Correlation between the Company, its sector and appropriate world equity
indices is monitored and analysed as part of the stock selection process.
Hedging
The Manager may employ hedging techniques to isolate the risks associated with
specific investments or markets. For example; the Manager may wish to invest in
an overseas fund which it believes will outperform its benchmark index and that
the fund's discount will narrow, but that the currency and market risk exposure
are undesirable. In this instance the Manager may seek to isolate these risks
through the use of futures, options or contracts for difference. The Company
will not enter into derivative contracts for speculative purposes.
Gearing
Gearing of the portfolio aims to enhance returns through investment of borrowed
funds.
Underlying funds may also be geared; this is taken into account during the
stock selection process.
Gearing of both the Company's portfolio and the underlying funds is monitored.
Discount Risk
The Company aims to maximise on the opportunities that exist due to
inefficiencies in the pricing of closed-end funds. Purchasing stocks that are
trading at a discount can result in significant gains on the upside, but can
also result in increased losses during downside periods. The actual discount,
discount volatility and discount management policy of underlying holdings is
monitored and analysed alongside market trend indicators. Results are
considered as part of the stock selection process.
Investment in open-ended funds reduces the overall discount risk of the
portfolio. This also allows exposure to sectors in which growth is expected but
discount risk is high, or sectors in which closed-end funds are
underrepresented.
Manager Risk
The Company seeks to minimise manager risk through regular meetings with the
management teams of underlying holdings. Thorough research is undertaken on the
investment strategy and ethic and personal approach of all managers involved
with funds prior to their inclusion within the Company's portfolio.
Liquidity
Market and asset specific liquidity can pose significant risk to the Company,
particularly in difficult market conditions. Volume and price based trade
measures are monitored for underlying assets and every effort is made to ensure
that a proportion of the Company's assets are invested in readily realisable
funds.
Graphical Evidence, Market Sentiment Indicators and Technical Charts
The Manager has access to a wide range of research, both external and internal.
Consideration of trend indicators, technical charts and graphical evidence aids
the Manager in the application of their knowledge and experience in selecting
stocks and assessing the overall risk of specific and collective investments.
Summary of Results
30 April 2010 30 April 2009 % change
Net assets GBP34.52m GBP24.21m
Net asset value per Ordinary share 136.54p 95.78p 42.56%
3 month LIBOR plus 2% 3.45% 7.84%
Share price 118.75p 84.25p 40.95%
Discount to net asset value (13.03)% (12.04)%
Year ended Year ended
30 April 2010 to 30 April
2009
Total return per Ordinary share 40.77p (47.22)p
CHAIRMAN'S STATEMENT
The Company commenced trading on 6 April 2004, and it is my pleasure to put
before you the sixth annual report for your Company covering the year from 1
May 2009 to 30 April 2010.
Investment Performance
The period under review proved to be a profitable one, which was a welcome
relief following the turbulence of the previous year. Your Company's net asset
value rose from 95.8p at the start of the year to 136.5p as at 30 April 2010.
This represents a gain of 42.6%. Over the same period the MSCI World Index rose
in Sterling terms by 33.1% on a total return basis. This is an encouraging
result for the first year since the newly strengthened management team has been
in place.
Board Changes
Nick Hodgson, who had been a Board member since the inauguration of the
Company, retired on 9 December 2009 as a result of the pressures of his
principal employment: we wish him well for the future and are grateful for his
very valuable contribution over the period he was with us. We are very pleased
that Hugh van Cutsem joined the Board on 31 March 2010. Mr van Cutsem is a
principal of Kepler Partners LLP, an organisation which acts as an independent
marketing agent for investment companies and has a significant involvement
within the closed end sector.
Continuation Vote
Shareholders will recall that the continuation resolution was passed at last
year's Annual General Meeting. There will be another opportunity for
shareholders to vote on the continuation of the Company at the Annual General
Meeting to be held in 2012.
New Company Name
The management contract was novated during the year from iimia plc to Miton
Asset Management Limited at a time when both organisations formed part of Midas
Capital PLC. Subsequently iimia plc has been sold to Jardine Lloyd Thompson
Group plc and, as a result, your Company no longer has any formal connection
with iimia plc. It is therefore appropriate that we adopt a new name. We
believe that there is merit in using the branding of our investment management
company and so propose to rename the Company Miton Worldwide Growth Investment
Trust plc. A resolution to achieve this is therefore included in the notice of
the Annual General Meeting.
Shareholder Activity
It is pleasing to note that there has been far more activity in our shares than
has been the case previously, there were no buybacks during the year under
review and, according to Bloomberg, the value of trades so far in 2010 exceeds
GBP9 million. We believe this reflects a greater interest in sub contracting
exposure to the closed end sector from wealth managers and private client
stockbrokers. There are a limited number of vehicles available to achieve this;
therefore we believe there is scope in due course to increase the size of your
Company. However, we recognise that this cannot be achieved until the open
market value of the Company's shares trades in line with net asset value on a
regular and consistent basis. An unintended consequence of our previous
mechanical buy back policy was that it routinely cleared the market of stock.
This frustrated potential new investors who quickly lost interest in owning a
highly illiquid stock. It is no coincidence that the improved liquidity in the
Company's shares has coincided with a year that we have not been active in the
market. We do believe, however, that buy backs remain a valuable tool in
balancing supply and demand in the market for the Company's shares, but, having
regard to the Company's current size, they need to be used with discretion.
Accordingly, going forward, we will consider the best use of our capital and
buy backs will not be driven by a specific discount level.
Outlook
Looking forward, the core challenge facing global markets remains the weak
financial state of the banking system. Our Managers discuss the implication of
this situation within their report. However, as has been the case for some
time, a fine balance remains between exploiting inefficiencies to be found
within the closed end investment companies sector and judging whether the
potential rewards outweigh the risks prevalent in the current macro
environment.
The Retail Distribution Review as undertaken by the Financial Services Agency
threatens to force financial advisers to redraw their business models. One
consequence will be to shift the buying emphasis to advisers who are more
receptive to the attractions of closed end investment companies. We will
explore opportunities available to your Company arising from this development.
Annual General Meeting
The Annual General Meeting will be held this year on 30 September 2010 at the
Association of Investment Companies, 9th Floor, 24 Chiswell Street, London EC1Y
4YY, a new venue for us. Your Directors look forward to welcoming shareholders
there.
Anthony Townsend
Chairman
29 July 2010
Manager's Report
The period under review was characterised by recovery. During the previous year
the clearing mechanism for closed end funds ceased to function efficiently. A
number of trusts saw their open market prices lose touch with the fundamental
value of their underlying portfolios. This was triggered by forced selling by
highly leveraged proprietary trading desks and hedge funds who had suddenly
suffered the withdrawal of their borrowing facilities. In an extreme example,
one of our portfolio companies saw its market price fall to a fraction of the
value of its unencumbered bank deposits. Our mandate to seek pricing
inefficiencies generally leads us to have a significant exposure to smaller and
medium sized closed-end funds. These found themselves at the epicentre of this
market dislocation.
The crucial decision through the depths of this crisis was to hold one's nerve
and not sell. Our portfolio has benefitted from a normalisation in market
conditions. Our net asset value has risen quite sharply from a November 2008
low of 81p to end the current year at 136.5p, making up much of the ground lost
during the slump. Despite the existence of a better functioning market, the
average discount of our holdings has stayed high and is currently in the low
twenties. This is much wider than we have seen at any time during our
experience of running funds of closed-ends.
Global authorities have committed whatever resources were needed to prevent the
collapse of the financial system. This necessitated the transfer of vast
liabilities from enfeebled banks to state balance sheets, presenting investors
with a new suite of challenges.
This upheaval has obscured a rapid transformation of the closed-end sector. It
has benefitted from a general move away from closet tracking where risk was
assessed by reference to volatility compared to, and deviation from, a given
benchmark. Investors now recognise from bitter experience that these benchmarks
can be dangerous places and now embrace a wider range of asset classes; these
are as disparate as Forestry, Private Equity and Fixed interest. Such a
departure from investing in larger, more liquid equities brings the challenges
of a restricted ability to trade. The closed-end structure provides managers
with some control over the inflows and outflows of capital into and out of
their portfolios. This avoids a fatal mismatch between daily liquidity being
offered to investors and the inability of the fund's manager to trade at will,
which can lead to the suspension of the fund or the portfolio being cleansed of
any asset worth owning, as the manager can only sell what is attractive to
another investor. This explains the expansion of our sector which is now
estimated to represent more than GBP100 billion of assets compared to GBP40 billion
at the time of the launch of iimia Investment Trust in 2004. There were 220
funds which started life between 2006 and 2008 alone. Furthermore, the highest
profile launch so far this year was an investment trust, Anthony Bolton's
Fidelity China Special Situations', which raised GBP460 million.
This evolution has provided the ingredients for one of our core themes. The
aftermath of a new issue bubble has in the past been a particularly profitable
period for this type of mandate, as many of these new companies have not
benefitted from aftercare provided by either their managers or their brokers
and have been left to fend for themselves. The initial placing lists were often
focussed on the same relatively small number of institutions and hedge funds,
many of which were vaporised during the credit crunch. These trusts have
struggled to develop a new following and the persistent overhang of unwanted
shares has ensured that their stocks languish on substantial discounts. In many
cases their only crime has been to launch at the top of the market. Their
portfolios are competently managed and the asset classes attractive in the
longer term. In each individual case these substantial discounts are
unsustainable. Whilst shareholders are likely to be supportive for now, should
these situations persist, then shareholders will force reconstruction or
closure. We refer to this theme as "rubble from the bubble". New names within
this theme include: Aurora Russia, Cambium Global Timberland, Greenwich Loan,
North American Banks, PSource Structured Debt, Real Estate Investors and
Tetragon, whilst Alpha Tiger has been repurchased.
Another key theme is "yield starvation". This is driven by our view that we are
in an environment where modest deflation or static pricing is likely; currently
this is far from a consensus view. The fundamental cause of the problems that
the financial system now faces stems from regulators allowing the banking
system to become heroically leveraged. At the peak, many developed world banks
became heavily geared, typically by more than 35 times. Royal Bank of
Scotland's balance sheet was larger than the United Kingdom's gross domestic
product, and Barclays alone had a balance sheet that exceeded GBP2,000 billion in
size. Once this level of borrowing has been established, a loss of one or two
percent of a bank's gross assets can easily prove terminal. Therefore, any
minor "bump in the road", such as the losses sustained from subprime mortgage
lending, was potentially sufficient to trigger a chain of events that could
easily bring down important individual banks and imperil the sustainability of
the global banking system. Until the banks are recapitalised the world remains
fraught with danger. The process of deleveraging bank balance sheets will take
an extended length of time and effectively money will evaporate from the
system. A bank which is 35 times leveraged will have to extract GBP35 billion
from its customers for every one billion pounds that is retired from its net
balance sheet. This capital is no longer available to be used to purchase goods
and services or support asset values. This phenomenon provides the rationale
behind our deflationary stance. In order to exploit it we hold two medium dated
gilts and Thames River's Global Bond fund. Within this scenario we expect that
investors will quickly come to terms with the fact that we are in a period of
structurally, rather than cyclically, low interest rates. Companies which are
not especially vulnerable to the economic cycle such as Glaxo and Tesco,
despite the anticipated low growth environment, will still generate high single
digit earnings growth as well as a meaningful dividend yield. Their equities
should enjoy a capital uplift as investors bid up the price in order to benefit
from generous returns available, compared to those available from cash on
deposit. In addition to the existing holding in Midas Income and Growth, a
position in Perpetual Income & Growth was added. Subsequently modest
investments were made in Keystone and Temple Bar; these are likely to be
increased in the event of further general weakness.
A long term theme continues to be holding a number of trusts which were created
as vehicles for the manager's own wealth. These include: Establishment Trust,
SR Europe, Jupiter Second Split, Artemis Alpha and Aurora. Additionally,
subsequent to the collapse in 2008, we have acquired stakes in a number of
trusts where the management team's have opportunistically exploited the
upheaval and acquired substantial stakes in their own funds. Purchases of China
Real Estate Opportunities, EPE Special Opportunities, North American Banks and
Real Estate Investors all fall within this category.
We have built an exposure to Japan via the acquisition of stakes in Atlantis
Japan, JP Morgan Japanese and JP Morgan Japanese Smaller Companies. The Tokyo
market significantly underperformed global indices last autumn. Foreign
investors are the marginal players who, in the short term, decide the direction
of local equities; they became alarmed after Japanese government bonds declined
amid concerns about the health of state finances. A further factor was the lack
of quantitative easing policies which were enacted elsewhere, notably in the UK
and the US. These boosted money supply and supported a number of asset classes.
This derating left many stocks trading below book value; a level which would
suggest that investors believed that managements would destroy value for the
foreseeable future. This left plenty of potential disappointment discounted in
open market valuations. Our Japanese portfolio has a bias towards medium and
smaller sized companies. This is a subsector that was driven higher by momentum
investors some years ago to dangerously overbought levels. This imbalance has
taken a number of years to unwind. The associated underperformance which has
continued since 2005 has sapped sentiment towards this area leading to
undervaluation and triggering wide discounts. In recent months the Yen has been
very strong and this has contributed to our performance. However, with much of
the Japanese economy directly or indirectly reliant on exports, a continued
appreciation of the currency will undermine competitiveness. Therefore, the
introduction of policies designed to increase money supply, target inflation
and remove upward pressure on the Yen is likely. Whilst this would create a
positive environment for equities, potential returns to sterling based
investors would be muted after currency translation. In order to soften this
blow we have hedged a portion of our Yen exposure via an exchange traded fund.
Another theme which was introduced during our financial year was
Pharmaceuticals, via stakes in Finsbury Worldwide Pharmaceutical and the
Biotechnology Trust. The sector had been weak for an extended period due to
uncertainty over how the industry would be affected by President Obama's
healthcare reforms. It is difficult for potential investors to value any
company when it is not possible to quantify the extent of likely bad news and
therefore stocks in this situation cannot be bought on anything other than a
speculative basis. This will usually cause a stock to drift to a very low level
relative to historical fundamentals. Once the anticipated event has arrived, it
is then possible to analyse the damage done and take a view as to the fair
value of the shares going forward, even when the news is in line with fears
there is normally a rally. We also took a view that the President would not be
able to push through the full extent of the desired reforms and on that basis
believed that the sector was extremely cheap. In the event all President
Obama's reforms seemed to achieve was a redistribution of how healthcare was
funded rather than tackling the very high costs within the US's medical system,
therefore margins will remain high. Looking further into the future, there is
scope for growth as disposable incomes rise in emerging countries, once these
are above subsistence levels spending on medicine rises dramatically.
There are a number of holdings which do not neatly fall within one or more of
our broad themes; SVM Global, Private Equity Investor, F&C UK Select and
BlackRock Absolute can all be described as special situations. The SVM fund
invests in a similar range of closed-end funds as ourselves. However it is
currently highly focussed on less well known counters. The share prices of
these have been slow to join in the recovery. Nevertheless we believe that SVM
have made an early rather than wrong call. The trust itself trades on a wide
discount compounded with similar discounts within its own portfolio. This
situation leaves plenty of scope for us to enjoy the very powerful combination
of rising net asset values and narrowing discounts on two levels. Private
Equity Investor owns stakes in a number of limited partnerships investing in
North American technology, typically of the 2000 vintage. A major activist
shareholder believes that an offer for the entire portfolio can be attracted at
above the current net asset value. It remains to be seen whether this is
achievable. However it is hard to ignore the fact that the open market price
stands at less than half the level of the latest directors' valuation. F&C UK
Select has been held for many years. Once its fixed life had expired, the board
offered the managers a two year stay of execution. Sadly, despite a healthy
return in 2009, a poor 2008 has condemned the fund to be unitised. We acquired
much of our holding at levels substantially below net asset value. All of our
profit from this investment has been generated from narrowing of the discount
rather than performance of the vehicle. Blackrock Absolute Return became
extremely cheap when the entire funds of hedge fund sector was blighted by the
combination of heavy selling in their shares and owning portfolios which only
had access to periodic liquidity. Therefore, they were unable to raise cash in
order to finance buy backs and stabilise share prices across the sector. We
were able to acquire a stake in the fund at a substantial discount representing
a level which offered a very attractive risk adjusted return.
Inevitably a couple of our views matured during the period, notably emerging
market exposure and resource shortages. In both cases these sectors became
fashionable and promising prospects were fully discounted in valuations.
Discounts narrowed sharply leaving the portfolio exposed to the material risk
that this trend would reverse. Therefore, Advance Developing, Aberdeen New Dawn
and the Taiwanese ETF all departed the portfolio. After the end of our
financial year, the final tranche of City Natural Resources was also sold. The
anomaly in crude prices caused by the lack of storage facilities unwound;
therefore we sold the ETF which sought to track movements in the price of oil.
Other departures included F&C Private Equity which quickly reached its target
price and Japanese Accelerated which came to the end of its natural life.
Outlook
As mentioned earlier in this report, the fundamental problem facing global
markets is the fragility of many of the major banks. Equities look attractive
relative to fundamentals, however "all bets are off" in the event of an
unexpected development which causes losses for the banks. Given their poor
financial health, we could find ourselves at any time enduring a rerun of the
events of 2008. The stress on the European currency union which has emerged
during recent weeks may prove to be another "bump in the road"; again a number
of banks with wafer thin balance sheets are in danger. Until we have some
clarity on how much exposure lies with these banks, the dash for cash will
remain a fact of life. Bringing bank finances back to health is a long term
project and until they are again well capitalised, dramas such as the one
playing out currently will be a recurring theme. We have a substantial cash
position and will be able to use bouts of weakness to exploit interesting
opportunities. In all probability this will increase the barbell nature of the
portfolio with the dominant themes becoming "rubble from the bubble" and "yield
starvation". The situations acquired recently are longer term in nature. The
sheer number of interesting opportunities currently available dictates that
there is no need to embrace significant specific risk. The combination of these
factors has led to a longer list of names within the portfolio and a lower
level of turnover than has been typical in the past.
Nick Greenwood & Martin Gray
Miton Asset Management Limited
29 July 2010
Portfolio Valuation
as at 30 April 2010
Type of Fair value Fair value
share/entity 30 April 30 April % of
held 2010 2009
GBP'000 GBP'000 Portfolio
Establishment Trust (The) Ordinary 1,739 952 5.03
Thames River Global Bond Open-ended fund 1,568 1,140 4.54
Sterling
SR Europe Investment Trust Ordinary 1,528 1,123 4.42
Aurora Investment Trust Ordinary 1,352 630 3.91
JPMorgan Fleming Japanese Ordinary 1,221 - 3.53
Castle Asia Alternative Participating 1,150 789 3.33
China Real Estate Ordinary 1,150 220 3.33
Opportunities Trust*
Jupiter Second Split Trust Ordinary 1,148 - 3.32
SVM Global Fund Ordinary 1,080 - 3.13
Strategic Equity Capital Ordinary 1,070 557 3.10
Trust
Finsbury Worldwide Ordinary 1,052 - 3.04
Pharmaceutical
Artemis Alpha Trust Ordinary 1,026 712 2.97
Macau Property Opportunities Ordinary 962 620 2.78
Fund*
Blackrock Absolute Return Ordinary 940 249 2.72
Strategies
Treasury 4.5% 07/03/19 Gilt 922 1,082 2.67
Atlantis Japan Growth Ordinary 918 - 2.66
Naya Bharat Property* Ordinary 892 499 2.58
New City Energy Ordinary 888 412 2.57
Treasury 4.75% 07/03/20 Gilt 854 2,194 2.47
Biotech Growth Trust (The) Ordinary 841 823 2.43
F&C UK Select Trust Ordinary 831 840 2.41
City Natural Resources High Ordinary 777 1,053 2.25
Yield Trust
Perpetual Income & Growth Ordinary 754 - 2.18
ETFS Short JPY Long USD Exchange Traded 678 - 1.96
Fund
Edinburgh Worldwide Ordinary 676 1,027 1.96
JPMorgan Fleming Japanese Ordinary 664 15 1.92
Smaller
Private Equity Investor Ordinary 625 489 1.81
Geiger Counter Limited Ordinary 585 517 1.69
Utilico Limited Ordinary 578 - 1.67
Midas Income & Growth Trust Ordinary 530 391 1.53
ETFS Short Copper Exchange Traded 414 - 1.20
Fund
Global Special Opportunities Income 394 255 1.14
Trust
Jupiter Euro Opportunities Ordinary 374 437 1.08
Impax Environmental Markets Open-ended fund 373 549 1.08
Fund (IRE)
Henderson Financial Ordinary 371 - 1.07
Opportunities
Cambium Global Timberland* Ordinary 367 - 1.06
CF Eclectica Agricultural Open-ended fund 348 275 1.01
Tetragon Financial Ordinary 337 - 0.98
Aurora Russia* Ordinary 312 - 0.90
New Star Investment Trust Ordinary 264 44 0.76
Utilico Emerging Markets* Subscription 259 - 0.75
Alpha Tiger Property Trust* Ordinary 254 - 0.74
Greenwich Loan Income Fund Ordinary 245 - 0.71
North American Banks Fund Ordinary 213 - 0.62
Equity Partnership Capital 174 214 0.50
Investment Trust
Psource Structured Debt Ordinary 156 - 0.45
Chelverton Growth Trust Ordinary 155 49 0.45
Sofia Property Fund* Ordinary 152 139 0.44
EPE Special Opportunities Ordinary 151 71 0.44
Trust*
Real Estate Investors* Ordinary 138 - 0.40
Finsbury Worldwide Subscription 42 - 0.12
Pharmaceutical
SR Europe Investment Trust Subscription 41 10 0.12
Impax Environmental Markets Warrants 23 11 0.07
PLC
Aberdeen New Dawn Ordinary - 738 0.00
Advance Developing Markets Ordinary - 305 0.00
DB X-Trackers Money Markets Open-ended fund - 296 0.00
ETF
ETFS Commodity Securities Exchange Traded - 616 0.00
Crude Oil Fund
F&C Private Equity Ordinary - 378 0.00
Ishares MSCI Taiwan Open-ended fund - 276 0.00
Japanese Accelerated Participating - 860 0.00
Performance Fund
Jupiter Second Split Growth Capital - 1,075 0.00
Trust
Polar Capital Technology Ordinary - 302 0.00
Trust
Prospect Epicure J-REIT Ordinary - 48 0.00
Value Fund
Total 34,556 23,282 100.00
* AIM listed
Portfolio Geographical Exposure
as at 30 April 2010
%
UK 24.5
Continental Europe 9.8
North America 18.6
Japan 11.0
Other Asia/ Pacific 21.6
Other 5.8
Cash/ Gilts 8.7
Total 100.0
Source: Miton Asset Management Limited
Portfolio by asset
as at 30 April 2010
%
Ordinary 79.1
Income 1.1
Open-ended funds 6.6
Participating preference 3.3
Capital 0.5
Gilts 5.1
Subscription 1.0
Warrants 0.1
Other 3.2
Total 100.0
Source: Capita Financial Group
Extracts from the Report of the Directors
The Directors present their report and financial statements for the year ended
30 April 2010. The Company was incorporated under the name of iimia Investment
Trust plc on 20 January 2004 and commenced investment on 6 April 2004. The
Articles of Association provide for the shareholders to consider the
continuation of the Company as an investment trust at the fifth Annual General
Meeting, which was held on 12 September 2009, and every three years thereafter.
Business Review
Principal Activity and Status
The principal activity of the Company is to carry on business as an investment
trust. The Company has been granted provisional approval from HM Revenue &
Customs as an investment trust under Section 842 of the Income and Corporation
Taxes Act 1988 for the year ended 30 April 2009. The Directors are of the
opinion that the Company has conducted its affairs for the year ended 30 April
2010 so as to be able to continue to obtain approval as an investment trust
under section 1158 of the Corporation Tax Act 2010, which has replaced Section
842. In accordance with the provisions of Sections 832 and 833 of the Companies
Act 2006, the Company is an investment company. The Directors do not envisage
any change in this activity in the future.
The Company's status as an investment trust allows it to obtain an exemption
from paying taxes on the profits made from the sale of its investments.
Investment trusts offer a number of advantages for investors, including access
to investment opportunities that might not be open to private investors and to
professional stock selection skills at low cost.
The objective of the Company is to outperform 3 month LIBOR plus 2% over the
longer term, principally through exploiting inefficiencies in the pricing of
closed-end funds. This objective is intended to reflect the Company's aim of
providing a better return to shareholders over the longer term than they would
get by merely placing money on deposit.
The benchmark in the investment objective is a target only and should not be
treated as a guarantee of performance of the Company or its portfolio.
Performance
The Chairman's Statement and the Manager's Report above give details of the
Company's activities, performance and position during the year under review.
The key performance indicators ("KPIs") used to measure the progress of the
Company during the year under review are as follows:
* Net asset value ("NAV").
* The movement of the NAV compared to the notional returns available for cash,
the Company benchmark 3 month LIBOR + 2%.
* The movement in the Company's share price.
* Discount of the share price in relation to the NAV.
Information relating to the KPI's can be found in the full Annual Report and
Accounts via the Company's website at www.iimiainvestmenttrust.co.uk or by
contacting the Company Secretary on telephone 01392 412122.
Investment Policy
In accordance with listing rule 15.2.7 the Company has published an investment
policy, as set out above, which contains information on the policies which the
Company follows relating to asset allocation, risk diversification and gearing,
and includes maximum exposures, where relevant.
Details of all investments are shown above.
Principal Risks
The Board considers the following as the principal risks facing the Company.
Mitigation of these risks is sought and achieved in a number of ways.
Information regarding the risk assessment and control procedures is given
above.
Market Risk
The Company is exposed to market risk due to fluctuations in the market prices
of its investments.
The Company may hold a substantial proportion of the portfolio in cash or cash
equivalent investments from time to time. Whilst during positive stockmarket
movements the portfolio may forego notional gains, during negative market
movements this may provide protection.
The Investment Manager actively monitors economic and Company performance and
reports to the Board on a frequent and informal basis. The Board formally meets
with the Investment Manager on a quarterly basis when the portfolio
transactions and performance are reviewed. The Management Engagement Committee
meets at least once a year to review the performance of the Investment Manager.
The Company is dependent on the services of the Investment Manager's investment
team for the implementation of its investment policy.
Discount Volatility
As with many investment trust companies, discounts can fluctuate significantly.
The Board has, and intends to continue to operate, an active discount
management policy through the use of share buybacks. The Company purchased nil
Ordinary 1p shares for cancellation during the year (2009: 1,871,000).
The operation of the discount management policy is detailed below under the
headings Share Issues, Treasury Shares and Purchase of Own Shares.
The Board encourages the Investment Manager to market the Company, so as to
increase the demand for its shares, which in turn is intended to help reduce
the discount.
Regulatory Risks
A breach of Companies Act requirements or the Listing Rules may result in the
Company being liable to fines or suspension from the London Stock Exchange. The
Board has a service level agreement with the Company Secretary, which includes
the regular review of compliance with such requirements and rules. The
compliance and regulatory risks are reviewed by the Audit Committee at each
meeting.
Compliance with Section 1158 of the Corporation Tax Act 2010
If the Company did not comply with the provisions of Section 1158, it would
lose its investment trust status. In order to minimise this risk, the
Directors, the Investment Manager and the Company Secretary monitor the
Company's compliance with the key criteria of Section 1158 on a monthly basis.
On a quarterly basis, compliance with these provisions is discussed in detail
between the Board and the Investment Manager and, furthermore, the Investment
Manager provides the Board with a quarterly assurance that, to the best of its
knowledge, the provisions of Section 1158 relating to investments have been
adhered to at all times during the period.
Gearing
As at 30 April 2010 the Company had drawn down GBP3,000,000 against a revolving
credit facility of GBP3,750,000, and is subject to certain covenants.
A breach of the loan covenants may lead to funding being reduced or withdrawn.
The Board monitors compliance with the loan covenants at each Board meeting and
regularly reviews the loan, and the need for it, with the Investment Manager.
The industry loan provider ratings are actively monitored. Further details are
set out in note 11 to the accounts.
Further information regarding details of these risks is included in note 17 to
the accounts.
Life of the Company
The Company's Articles of Association contain a requirement for shareholders to
vote on the continuation of the Company at the fifth Annual General Meeting and
each third Annual General Meeting thereafter. Under this provision, if that
resolution is not passed the Directors will, within four months thereafter,
convene a General Meeting at which proposals shall be put to shareholders for
the reorganisation, unitisation or liquidation of the Company. The first
continuation vote was passed when put to shareholders at the Annual General
Meeting which was held on 21 September 2009. The next continuation vote is due
to be proposed at the 2012 AGM.
Social, Environmental, Community and Employee Issues
The Company does not have any employees and the Board consists entirely of
non-executive Directors. As the Company is an investment trust, which invests
in other investment funds, it has no direct impact on the community or the
environment, and as such has no policies in this area.
Current and Future Developments
The marketing and promotion of the Company will continue to involve the Board,
the Company's Broker and the Investment Manager. Please refer to the Chairman's
Statement and the Manager's Report above for further information on the likely
future development of the Company.
Share Issues
At 1 May 2009 the Company had 25,279,985 Ordinary shares in issue, none of
which were held in Treasury. At 30 April 2010 and as at the date of this report
the number of shares in issue was 25,279,985.
The Directors have the authority to issue shares up to an aggregate nominal
amount equal to one-third of the issued share capital of the Company. This
authority expires at the Annual General Meeting to be held in 2010.
The Directors will only issue new shares if they believe it would be in the
best interests of the Company's shareholders and would not result in a dilution
of the net asset value per share. Any such issues will be made at a price not
less than the prevailing net asset value per share of the Company.
Treasury Shares
The Company indicated in its prospectus, published on 9 March 2004, that it
intended to make market purchases of its own shares for Treasury where it was
cost effective and positive for the management of the Company's capital base to
do so. During the year no shares were purchased for, or held, in Treasury.
Purchase of Own Shares
At the Annual General Meeting held on 21 September 2009 the Directors were
granted the authority to purchase up to 3,789,469 Ordinary shares, being 14.99%
of the Company's Ordinary share capital. During the year no Ordinary shares
were purchased. Since the year end there have been no shares purchased for
cancellation.
All share buybacks are made for the purpose of controlling the discount.
Reserves
Please refer to the Notes to the Financial Statements below.
Dividend
The Directors do not recommend the payment of a dividend in respect of the year
ended 30 April 2010.
Net Asset Value
The net asset value at 30 April 2010 was 136.54p per share (30 April 2009:
95.78p per share).
Annual General Meeting
The Notice of the Annual General Meeting is set in the Annual Report and
Accounts. In addition to the Ordinary business of the Meeting the following
resolutions will be proposed as Special business.
An Ordinary resolution to renew the Directors' authority to allot shares up to
an amount equal to one third of the Company's issued share capital will be
proposed as resolution 8.
A Special resolution to authorise the Directors to allot new shares or issue
shares from Treasury, up to an aggregate nominal amount of GBP25,280 which is
equivalent to 10% of the Company's issued share capital, and to disapply
pre-emption rights in respect of such shares will be proposed as resolution 9.
Resolution 10, which is a Special resolution, will renew the Company's
authority to purchase shares, either for cancellation or placing into Treasury.
Resolution 11, as set out in the notice of meeting, if passed will adopt new
Articles of Association. As reported last year the Board are proposing further
amendments to the Articles to reflect the final implementation of the 2006
Companies Act. A summary of the material changes brought about by the proposed
adoption of the New Articles is set out in the Annual Report and Accounts.
Other changes, which are of a minor, technical or clarifying nature have not
been noted in the Appendix. The proposed new Articles of Association are
available for inspection at the offices of Capita Company Secretarial Services
Ltd, 42-47 Minories, London, EC3N 1DX and at the AGM for 15 minutes before the
meeting and during the meeting.
Resolution 12, as set out in the notice of the Chairman's statement above, the
Company is proposing to change its name to Miton Worldwide Growth Investment
Trust plc.
Resolution 13, proposes that the Company be authorised to hold general meetings
on 14 clear days notice.
A copy of the proposed New Articles will be available for inspection from the
date of this document until the conclusion of the Annual General Meeting during
normal business hours on any weekday at the registered office of the Company
and at the office of the Investment Manager. The proposed New Articles will
also be available for inspection at any time until the conclusion of the Annual
General Meeting on the Company's website www.iimiainvestmenttrust.co.uk.
Management Agreements
The Company's investments are managed by Miton Asset Management Limited under
an agreement dated 9 March 2004, that agreement having been novated by the
Company's original Investment Manager, iimia plc, to Miton Asset Management
Limited with effect from 31 July 2009.
The investment management fee is calculated at an annual rate of 0.5% of the
adjusted market capitalisation of the Company valued at the close of business
on the last business day of each month. The investment management fee accrues
daily and is payable in arrears in respect of each calendar month.
The Investment Manager is also entitled to receive a performance fee if the
share price has increased and the net asset value per share (adjusted to ignore
any accrual for unpaid performance fees) exceeds the greater of the following
hurdles:
(i) The adjusted net asset value per share on the last day of the calculation
period in respect of which a performance fee was last paid (after any deduction
of any performance fee per share paid to the Investment Manager in respect of
that period) increased by 3 month LIBOR plus 2%.
(ii) The adjusted net asset value per share on the last day of the previous
calculation period (after any deduction of any performance fee per share paid
to the Investment Manager in respect of that period) increased by 3 month LIBOR
plus 2%.
In such circumstances the performance fee per share will amount to 15% of any
such excess, but will not exceed 2% of the Company's assets as at the last day
of the relevant period.
No performance fee was payable for the year ended 30 April 2010 or for the year
ended 30 April 2009.
The Investment Management Agreement may be terminated by six months' written
notice subject to the provisions for earlier termination as provided therein.
There are no specific provisions contained within the Investment Management
Agreement relating to compensation payable in the event of termination of the
agreement other than the entitlement to fees which would have been payable
within any notice period. Further details about the Investment Management
Agreement are given in note 3.
Company secretarial and administrative services are provided by Capita Sinclair
Henderson Limited, under an agreement dated 9 March 2004. The fees for these
services are based on a minimum of GBP50,000 per annum, increasing annually in
line with the UK Retail "all items" Index. The fees are paid in equal monthly
instalments in arrears. This agreement may be terminated by six months' written
notice subject to provisions for earlier termination as provided therein.
Continuing Appointment of the Investment Manager
The Board keeps the performance of the Investment Manager under review. It is
the opinion of the Directors that the continuing appointment of Miton Asset
Management Limited is in the interests of shareholders as a whole. The reasons
for this view are that Nick Greenwood, the Company's lead fund manager since
launch, is now employed by Miton Asset Management Limited and is supported by
Martin Gray, the investment performance of the Company is satisfactory relative
to that of the markets in which the Company invests and because the
remuneration of the Investment Manager is reasonable both in absolute terms and
compared to that of the managers of comparable investment companies. The
Directors continue to believe that by paying the investment management fee
calculated on a market capitalisation basis, rather than a percentage of assets
basis, together with a performance fee based on absolute returns, the interests
of the Investment Manager are more closely aligned with those of shareholders.
Going Concern
At the 2009 Annual General Meeting of the Company an ordinary resolution was
passed for the continuation of the Company.
The Company's business activities, together with the factors likely to affect
its future development, performance and position are described in the
Chairman's Statement and in the Investment Manager's Report above. The
financial position of the Company, its cash flows, liquidity position and
borrowing facilities are described in the Report of the Directors. In addition
note 17 to the Financial Statements includes the Company's objectives, policies
and processes for managing its capital; its financial risk management
objectives; details of its financial instruments and hedging activities; and
its exposure to credit risk and liquidity risk. The Company has adequate
financial resources and no significant investment commitments and as a
consequence, the Directors believe that the Company is well placed to manage
its business risks successfully despite the economic outlook.
After making appropriate enquiries, the Directors have a reasonable expectation
that the Company has adequate available financial resources to continue in
operational existence for the foreseeable future and accordingly have concluded
that it is appropriate to continue to adopt the going concern basis in
preparing the financial statements.
On behalf of the Board of Directors
Anthony Townsend
Chairman
29 July 2010
Statement of Directors' Responsibilities
Company law requires the Directors to prepare financial statements for each
financial period which give a true and fair view of the state of affairs of the
Company as at the end of the financial period and of the profit and loss for
that period. In preparing those financial statements, the Directors are
required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
and
* prepare the financial statements on a going concern basis unless it is
inappropriate to assume that the
Company will continue in business.
The Directors have confirmed that the financial statements, which have been
prepared in accordance with UK Generally Accepted Accounting Practice, comply
with the above requirements.
The Directors are responsible for ensuring that the Report of the Directors and
other information included in the Annual Report is prepared in accordance with
company law in the United Kingdom. They are responsible for ensuring that the
Annual Report includes information required by the Listing Rules of the
Financial Services Authority.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy, at any time, the financial position of the
Company and to enable them to ensure that the financial statements comply with
the Companies Acts 2006. They are also responsible for the Company's system of
internal financial control, for safeguarding the assets of the Company and
hence taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for preparing the financial statements in
accordance with applicable law and regulations. The Directors confirm that to
the best of their knowledge the financial statements, within the Annual Report,
have been prepared in accordance with applicable accounting standards, give a
true and fair view of the assets, liabilities, financial position and the
profit for the year ended 30 April 2010, and that the Chairman's Statement,
Investment Manager's Report and Report of the Directors include a fair review
of the development and performance of the business and the position of the
Company, together with a description of the principal risks and uncertainties
that it faces.
On behalf of the Board
Anthony Townsend
Chairman
29 July 2010
Report of the Independent Auditors
to the members of iimia Investment Trust PLC
The Company's financial statements for the year ended 30 April 2010 have been
audited by Grant Thornton UK LLP. The text of the Auditor's report can be found
in the Company's Annual Report and Accounts which is available from the Company
Secretary and on the Company's website www.iimiainvestmenttrust.co.uk.
INCOME STATEMENT
for the year ended 30 April 2010
Year ended 30 April 2010 Year ended 30 April 2009
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains/(losses) on 8 - 10,328 10,328 - (12,449) (12,449)
investments at fair
value through profit
and loss
Income 2 497 - 497 595 - 595
Investment management 3 (133) - (133) 83 - 83*
fee
Exchange (losses)/ - (10) (10) - 18 18
gains on capital
items
Other expenses 4 (255) - (255) (224) - (224)
Return on ordinary 109 10,318 10,427 454 (12,431) (11,977)
activities before
finance costs and
taxation
Finance costs 5 (121) - (121) (211) - (211)
Return on ordinary (12) 10,318 10,306 243 (12,431) (12,188)
activities before
taxation
Taxation 6 - - - - - -
Return on ordinary (12) 10,318 10,306 243 (12,431) (12,188)
activities after
taxation
pence pence pence pence pence pence
Return per Ordinary 7 (0.04) 40.81 40.77 0.94 (48.16) (47.22)
share:
The total column of this statement is the Profit and Loss account of the
Company. The supplementary revenue return and capital return columns have been
prepared in accordance with the AIC's SORP.
All revenue and capital items in the above statement derive from continuing
operations. There are no recognised gains or losses other than those passing
through the Income Statement and as a consequence no Statement of Total
Recognised Gains and Losses has been presented.*Net of VAT refund.
The notes form part of these financial statements.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS FUNDS
for the year ended 30 April 2010
Share Capital Share Special Capital Revenue Total
capital redemption Premium reserve reserve reserve
reserve account
Balance as at 271 41 16,727 12,181 9,649 (295) 38,574
30 April 2008
Movement in the
year
Return for the - - - - (12,431) 243 (12,188)
year
Ordinary shares (19) 19 - (2,173) - - (2,173)
purchased and
cancelled
Balance as at 252 60 16,727 10,008 (2,782) (52) 24,213
30 April 2009
Movement in the
year
Return for the - - - - 10,318 (12) 10,306
year
Balance as at 30 252 60 16,727 10,008 7,536 (64) 34,519
April 2010
The notes form part of these financial statements.
BALANCE SHEET
for the year ended 30 April 2010
30 April 2010 30 April 2009
Note GBP'000 GBP'000
Non-current assets:
Investments designated at fair 8 34,556 23,282
value through profit or loss
Current assets
Debtors and prepayments 10 49 224
Cash at bank 3,305 4,898
3,354 5,122
Creditors - amounts falling 11
due within one year
Bank loan (3,000) (3,750)
Other creditors (391) (441)
(3,391) (4,191)
Net current (liabilities)/ (37) 931
assets
Net assets 34,519 24,213
Share capital and reserves:
Share capital 12 252 252
Capital redemption reserve 60 60
Share premium account 16,727 16,727
Special reserve 10,008 10,008
Capital reserve 7,536 (2,782)
Revenue reserve (64) (52)
Equity Shareholders' funds 34,519 24,213
pence pence
Net asset value per Ordinary 15 136.54 95.78
share
These financial statements were approved by the Board of Directors on 29 July
2010, and signed on its behalf by:
Anthony Townsend
Chairman
The notes form part of these financial statements.
CASH FLOW STATEMENT
for the year ended 30 April 2010
30 April 30 April
2010 2009
Note GBP'000 GBP'000
Net cash inflow from operating activities 13 207 440
Servicing of finance
Interest paid (122) (211)
Net cash outflow from servicing of finance (122) (211)
Capital expenditure and financial
investment
Purchases of investments (13,197) (21,719)
Sales of investments 12,388 26,062
Proceeds on derivative contracts (109) 270
Net cash (outflow)/inflow from capital (918) 4,613
expenditure and financial investments
Net cash (outflow)/inflow before financing (833) 4,842
Financing
Ordinary shares purchased and cancelled - (2,173)
Revolving credit facility payment (750) -
Net cash outflow from financing (750) (2,173)
(Decrease)/increase in cash (1,583) 2,669
Reconciliation of net cash flow to
movements in net funds
(Decrease)/increase in cash as above (1,583) 2,669
Repayment of credit facility 750 -
Exchange movements (10) 18
Movement in net funds in the year (843) 2,687
Net funds/(debt) at 1 May 1,148 (1,539)
Net funds at 30 April 14 305 1,148
The notes form part of these financial statements.
Notes to the Financial Statements
for the year ended 30 April 2010
1 Accounting policies
Accounting convention
The financial statements are prepared under the historical cost convention,
except for the valuation of investments at fair value and in accordance with
the Companies Act 2006, UK applicable accounting standards and the Statement of
Recommended Practice regarding the Financial Statements of Investments Trust
Companies and Venture Capital Trusts ("SORP") issued in January 2009. All the
Company's activities are continuing.
Income recognition
Dividends receivable on quoted equity and non-equity shares are included in the
financial statements when the investments concerned are quoted `ex-dividend'.
Dividends receivable on equity and non-equity shares where no ex-dividend date
is quoted are brought into account when the Company's right to receive payment
is established. The fixed return on a debt security is recognised on a time
apportionment basis so as to reflect the effective interest rate on the debt
security. All other income is included on an accruals basis.
Expenses and finance costs
All expenses are accounted for on an accruals basis. Expenses are charged
through the revenue column of the Income Statement except as follows:
* transaction costs which are incidental to the acquisition or disposal of an
investment are included within gains/(losses) on investments and disclosed in
note 8; and
* investment performance fees are charged to the capital column of the Income
Statement as the Directors expect that in the long term virtually all of the
Company's returns will come from capital.
Foreign currency transactions
The currency of the Primary Economic Environment in which the Company operates
(the functional currency) is pounds Sterling (`Sterling') which is also the
presentational currency.
Transactions denominated in foreign currencies are translated into Sterling at
the rates of exchange ruling at the date of the transaction.
Investments are converted to Sterling at the rates of exchange ruling at the
Balance Sheet date. Exchange gains and losses relating to investments are taken
to the capital column of the Income Statement as part of gains/(losses) on
investment. Exchange gains and losses on non-capital assets or liabilities are
taken to the revenue column of the Income Statement in the period in which they
arise.
Investments - held at fair value through profit or loss
As the entity's business is investing in financial assets with a view to
profiting from their total return in the form of interest, dividends or
increases in fair value, investments are designated as fair value through
profit or loss on initial recognition The entity manages and evaluates the
performance of these investments on a fair value basis in accordance with its
investment strategy, and information about the portfolio is provided internally
on this basis to the Board. For quoted investments, this is deemed to be bid
market prices or closing prices of SETS (London Stock Exchange's electronic
trading service) stocks sourced from the London Stock Exchange.
Investments are recognised and derecognised on the trade date where a purchase
or sale is under a contract whose terms require delivery within the time frame
established by the market concerned, and are initially measured at fair value.
Gains and losses arising from changes in fair value are included in net profit
or loss for the period as a capital item in the Income Statement.
Financial assets and liabilities held for trading
Derivatives which are classified as financial assets or liabilities held for
trading are valued at fair value at the close of business at the year end and
included in fixed assets or current assets/liabilities depending on their
maturity date.
Taxation
The charge for taxation is based on the net revenue for the year. Tax deferred
or accelerated is accounted for in respect of all material timing differences
to the extent that it is probable that a liability or asset will crystallise.
Timing differences arise from the inclusion of items of income and expenditure
in tax computations in periods different from those in which they are included
in the financial statements. Provision is made at the rate which is expected to
be applied when the liability or asset is expected to crystallise.
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue on the same basis as the particular item
to which it relates, using the Company's marginal basis for the accounting
period.
Capital reserves
Gains or losses on disposal of investments and changes in fair values of
investments are charged to the capital column of the Income Statement and taken
to the capital reserve.
Certain expenses net of any related taxation effects are charged to this
reserve in accordance with the expenses policy.
The Capital reserve includes investment holding gains of GBP4,210,000 (2009:
losses of GBP7,218,000).
Distributable reserves
Under the Company's Articles and Section 1158 rules of the Corporation Tax Act
2010, the Company is prohibited from distributing capital reserves through
dividends. As such the only reserve distributable by way of dividend is the
revenue reserve.
2 Income
30 April 30 April
2010 2009
GBP'000 GBP'000
Income from investments:
UK dividends 346 342
Unfranked dividend income 38 77
UK fixed interest 110 71
494 490
Other income:
Bank interest receivable - 84
Other interest - 21
Other income 3 -
497 595
3 Investment management fee
30 April 2010 30 April 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Annual fee 133 - 133 126 - 126
VAT reclaimed on - - - (209) - (209)
investment management
fees
133 - 133 (83) - (83)
The basic investment management fee is calculated at the annual rate of 0.5% of
the adjusted market capitalisation of the Company on the last business day of
each calendar month. The basic management fee accrues daily and is payable in
arrears in respect of each calendar month. For the purpose of calculating the
basic fee, the `adjusted market capitalisation' of the Company is defined as
the average daily mid market price for an Ordinary share adding back any
dividends per share yet to have gone ex-div in the relevant month, multiplied
by the number of Ordinary shares in issue, excluding those held by the Company
in Treasury, on the last business day of the relevant month. The balance due to
Miton at the year end was GBP12,000 (2009: GBP8,000).
The Manager is also entitled to a performance fee of 15% of the growth of the
Company's net asset value per Ordinary share in excess of a hurdle of 3 month
LIBOR plus 2%, but only if the share price has also increased over the relevant
period. The amount of any performance fee in a performance period will not
exceed 2% of the Company's gross assets, but any excess performance fee over
this cap may be carried forward up to 3 years to the extent that in a
subsequent calculation period a performance fee is payable, but does not reach
the cap for that period.
The performance fee per share is calculated based on the time weighted average
number of shares in issue during the calculation period. Calculation periods
correspond to the Company's accounting periods. The performance fee accrues
monthly. There was no performance fee payable for the year (2009: GBPnil) and the
balance due to Miton at the year end was GBPnil (2009: GBPnil).
4 Other expenses
30 April 30 April
2010 2009
GBP'000 GBP'000
Secretarial services 61 61
Auditors' remuneration for:
Audit of the Company's Financial 17 17
Statements
Directors' remuneration* 53 52
Other expenses 124 94
225 224
* see Directors' Remuneration Report in the Full Annual Report and Accounts for
analysis
5 Finance costs
30 April 2010 30 April 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
On bank loans and 121 - 121 211 - 211
overdrafts
Finance costs relate to interest charged on the revolving loan facility,
details of which are disclosed in note 11.
6 Taxation
30 April 2010 30 April 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Corporation tax at - - - - - -
28%
The current taxation charge for the year is lower than the standard rate of
corporation tax in the UK. The differences are explained below.
30 April 2010 30 April 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Return on ordinary (12) 10,318 10,306 243 (12,431) (12,188)
activities before
taxation
Theoretical tax at UK (3) 2,889 2,886 68 (3,481) (3,413)
corporation tax rate
of 28% (2009: 28%)
Effects of:
- UK dividends that (97) - (97) (96) - (96)
are not taxable
- Overseas dividends (11) - (11) - - -
that are not taxable
- Non-taxable capital - (2,889) (2,889) - 3,481 3,481
(gains)/losses
- Expenses not 2 - 2 9 - 9
deductible for tax
- Unrelieved expenses 109 - 109 19 - 19
Actual current tax - - - - - -
charge
Factors that may affect future tax charges
The Company has excess management expenses of GBP2,757,000 (2009: GBP2,397,000)
that are available to offset future taxable revenue. No deferred tax asset has
been recognised in respect of these amounts as they will only be recoverable to
the extent that there is sufficient taxable revenue.
Deferred tax is not provided on capital gains and losses arising on the
revaluation or disposal of investments because the Trust meets (and intends to
continue for the foreseeable future to meet) the conditions for approval as an
Investment Trust company, under HMRC rules.
7 Return per share
30 April 20 30 April
10 2009
Net Weighted Per Net Weighted Per
return average num share return average share
ber of number of
Ordinary Ordinary
shares shares |
GBP'000 pence GBP'000 pence
Capital
Return per share 10,318 25,279,985 40.81p (12,431) 25,810,588 (48.16)p
Revenue
Return per share (12) 25,279,985 (0.04)p 243 25,810,588 0.94p
Total
Return per share 10,306 25,279,985 40.77p (12,188) 25,810,588 (47.22)p
8 Investments
30 April 2010 30 April 2009
GBP'000 GBP'000
Investment portfolio summary
Opening book cost 30,500 40,588
Opening investment holding losses (7,218) (296)
Total investments designated at fair value 23,282 40,292
GBP'000
Analysis of investment portfolio movements
Opening valuation 23,282 40,292
Movements in the period:
Purchases at cost 13,153 21,712
Sales - proceeds (12,355) (25,895)
- losses on sales (952) (5,905)
Increase/(decrease) in investment holding 11,428 (6,922)
gains
Closing valuation 34,556 23,282
Closing book cost 30,346 30,500
Closing investment holding gains/(losses) 4,210 (7,218)
34,556 23,282
A list of the portfolio holdings by their fair value is given in the portfolio
valuation contained in the Annual Report.
The investment portfolio includes 10 (2009: 6) AIM quoted holdings totalling GBP
4,637,000 (2009: GBP1,597,000), representing 13.4% of the portfolio. The
investment portfolio also includes 3 (2009: 4) OEIC holdings totalling GBP
2,289,000 (2009: GBP1,987,000) representing 6.6% of the portfolio.
Transaction costs incidental to the acquisitions of the investments totalled GBP
51,000 (2009: GBP87,000) and disposals of investments totalled GBP19,000, (2009: GBP
44,000) for the year.
30 April 2010 30 April 2009
GBP'000 GBP'000
Analysis of capital gains
Losses on sales of investments (952) (5,905)
Movement in investment holding gains 11,428 (6,922)
(Losses)/gains on derivative contracts (148) 378
10,328 (12,449)
Fair value hierarchy
In 2009 the Accounting Standards Board amended FRS29 and requires financial
companies 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. The table below sets out the Company's fair value
hierarchy measurements as at 30 April 2010:
Financial assets at fair value through profit or loss as at 30 Level 1
April 2010
GBP'000
Quoted equity investments 30,468
OEICs 2,289
Gilts 1,776
Warrants 23
Total 34,556
9 Significant interests
The Company had holdings of 3% or more of the voting rights attached to shares
that is material in the context of the accounts in the following companies'
securities:
30 April 2010
Name of investment Class of share Percentage held
Naya Bharat Property Ordinary 6.54
Chelverton Growth Trust Ordinary 5.74
Sofia Property Fund Ordinary 5.67
Aurora Investment Trust Ordinary 5.02
Thames River Global Bond Ordinary 5.00
Establishment Investment Trust (The) Ordinary 4.63
North American Banks Fund Ordinary 3.29
New City Energy Ordinary 3.04
10 Debtors: amounts falling due within one year
30 April 2010 30 April 2009
GBP'000 GBP'000
Amounts due from broker - 33
Dividends and interest receivable 33 67
Prepayments and other debtors 16 57
Derivatives held for trading - 67
49 224
11 Creditors: amounts falling due within one year
30 April 2010 30 April 2009
GBP'000 GBP'000
Bank loan 3,000 3,750
Amounts due to brokers 317 361
Interest payable 1 2
Other creditors 73 50
Derivatives held for trading - 28
3,391 4,191
The bank loan, which was a GBP3,750,000 revolving credit facility with Allied
Irish Bank, ("the Bank") bore interest at the rate of 3.0% over LIBOR on any
drawn down balance and 1.5% on any undrawn balance. The facility may be drawn
down in Sterling, US Dollars or Euros.
The bank loan facility contains covenants which require that net borrowings
will not at any time exceed 33% of the adjusted net asset value; which shall at
all times be equal to or greater than GBP12,000,000.
If the Company breaches either covenant, then it is required to notify the Bank
of any default and the steps being taken to remedy it.
At 30 April 2010 the Company had GBP3,000,000 drawn down under the facility which
was subsequently rolled over. The remaining GBP750,000 had not been drawn down in
the future for purposes of funding investments consistent with the Company's
investment policy.
12 Share capital
30 April 30 April
2010 2009
GBP'000 GBP'000
Allotted, called up and fully paid:
25,279,985 (2009: 25,279,985) Ordinary shares of 1p 252 252
each
No shares were brought back and cancelled in the year and no shares were held
in Treasury at the year end.
13 Reconciliation of net return before finance costs and taxation to net cash
inflow from operating activities
30 April 2010 30 April 2009
GBP'000 GBP'000
Net loss before finance costs and taxation (10,427) (11,977)
Adjustments for:
(Gains)/losses on investments (10,328) 12,449
Exchange losses/(gains) on capital items 10 (18)
Increase/(decrease) in creditors and accruals 23 (41)
Decrease in prepayments and accrued income 75 27
Net cash inflow from operating activities 207 440
14 Analysis of changes in net debt
At Cash Flows Foreign At
exchange
30 April movements 30 April 20
2009 10
GBP'000 GBP'000 GBP'000 GBP'000
Net debt is comprised as
follows:
Cash at bank 4,898 (1,583) (10) 3,305
Debt due within one year (3,750) 750 - (3,000)
1,148 (833) (10) 305
15 Net asset value per Ordinary share
The net asset value per Ordinary share and the net asset values attributable at
the year end were as follows:
Net asset value Net assets Net asset Net assets
value
per share attributable per share attributable
2010 2010 2009 2009
p GBP'000 p GBP'000
Ordinary shares
- Basic 136.54 34,519 95.78 24,213
Net asset value per Ordinary share is based on net assets at the year end and
25,279,985 (2009: 25,279,985) Ordinary shares, being the number of Ordinary
shares in issue at the year end.
16Capital commitments and contingent liabilities
As at 30 April 2010, there was a commitment to pay a fee for any sums not drawn
down on the bank loan. The fee of GBP3,000 (2009: GBPnil) is based on 1.5% of the
undrawn sum (2009: 0.55)% and is included within creditors.
17Analysis of financial assets and liabilities
The Company's financial instruments comprise securities and derivatives used
for hedging purposes, cash balances and debtors and creditors that arise from
its operations, for example, in respect of sales and purchases awaiting
settlement and debtors for accrued income.
The risk management policies and procedures outlined in this note have not
changed substantially from the previous accounting period.
The Company finances its operations through its issued capital, existing
reserves and a revolving credit facility.
The principal risks the Company faces in its portfolio management activities
are:
* credit risk;
* market price risks, i.e. movements in the value of investment holdings caused
by factors other than interest rate or currency movement;
* interest rate risk; and
* currency risk
The Manager monitors the financial risks affecting the Company on a daily
basis. The Directors receive financial information on a monthly basis which is
used to identify and monitor risk.
The Investment Manager's policies for managing these risks are summarised below
and have been applied throughout the year:
Policy
(i) Credit Risk
Credit risk is the risk of financial loss to the Company if the contractual
party to a financial instrument fails to meet its contractual obligations.
The risk is minimised by using only approved and reputable counterparties.
Investments may be adversely affected if the Company's custodian suffers
insolvency or other financial difficulties. The Board reviews the custodian's
annual controls report and the Manager's management of the relationship with
the custodian.
Investment transactions are carried out with a large number of brokers whose
creditworthiness is reviewed by the Investment Manager. Transactions are
ordinarily undertaken on a delivery versus payment basis whereby the Company's
custodian bank ensures that the counterparty to any transaction entered into by
the Company has delivered in its obligations before any transfer of cash or
securities away from the Company is completed.
Cash is only held at banks and in money market funds that have been identified
by the Board as reputable and of high credit quality.
None of the Company's financial assets are secured by collateral or other
credit enhancements.
The Company is also exposed to counterparty credit risk on trading derivative
products. Transactions involving derivatives are entered into only with
approved and reputable counterparties, the credit rating of which of which is
taken into account to minimise the risk to the Company of default. Derivatives
positions are marked to market and exposure to counterparties is monitored on a
daily basis by the Investment Manager; the Board of Directors reviews it on a
quarterly basis.
The maximum exposure to credit risk as at 30 April 2010 was GBP5,092,000 (2009: GBP
8,174,000). The calculation is based on the Company's credit risk exposure as
at 30 April 2010 and this may not be representative of the year.
(ii) Market Price Risk
Market price rise arises mainly from uncertainty about future prices of
financial instruments. The value of shares and the income from them may fall as
well as rise and shareholders may not get back the full amount invested. The
Manager continues to monitor the prices of financial instruments held by the
Company on a real time basis. Adherence to the Company's investment objectives
are shown above and mitigates the risk of excessive exposure to one issuer or
sector.
The Board manages the other price risks inherent in the investment portfolio by
ensuring full and timely access to relevant information from the Investment
Manager. The Board meets regularly and at each meeting reviews the investment
performance, the investment portfolio and the rationale for the current
investment positioning to ensure consistency with the Company's objectives and
investment policies. The portfolio does not seek to reproduce any index,
investments are selected based upon the merit of individual companies and
therefore the portfolio may well diverge from the short term fluctuations of
the benchmark.
The Company's exposure to other price risk is detailed in the portfolio
valuation above.
If the investment portfolio valuation fell by 5% from the amount detailed in
the financial statements as at 30 April 2010 it would have the effect, with all
other variables held constant, of reducing the net capital return before
taxation by GBP1,728,000 (2009: GBP1,164,000). An increase of 5% in the investment
portfolio valuation would have an equal and opposite effect on the net capital
return before taxation.
(iii) Interest Rate Risk
The Company finances its operations through existing reserves and a revolving
credit facility. The Company's financial assts and liabilities, excluding short
term debtors and creditors, may include investments in fixed interest
securities, such as UK treasury stock, whose fair value maybe affected by
movements in interest rates. Details of such holdings can be found in the
portfolio listing.
Changes in interest rates may cause fluctuations in the income and expenses of
the Company. The revolving credit facility with Allied Irish Bank is at
variable rates to be determined prior to any draw down. The amount of such
borrowings and the approved levels are monitored and reviewed regularly by the
Board.
At the year end the Company had a GBP3,750,000 revolving credit facility with
Allied Irish Bank, bearing interest at the rate of 3.0% over 3 month LIBOR on
any drawn down balance and 1.5% on any undrawn balance. At 30 April 2010 the
Company had GBP3,000,000 drawn down under the facility which subsequently rolled
over on 26 May 2010. At the maximum possible gearing of GBP3,750,000, the effect
of a movement of +/-1% in the interest rate would result in a decease/increase
to the Company's income statement of GBP38,000.
The Company's bank accounts earn interest at a variable rate which is subject
to fluctuations in interest rates. At the year end the Company's bank balance
was GBP3,305,000 (2009: GBP4,898,000). The interest received in the year amounted
to GBPnil (2009: GBP84,000).
Derivative contracts are not used to hedge against the exposure to interest
rate risk.
(iv) Liquidity Risk
Liquidity is the risk that the Company will encounter difficulty in meeting
obligation associated with financial liabilities. The Manager does not invest
in unlisted securities on behalf of the Company. However, the investments held
by the Company may include UK AIM quoted companies which can be less liquid
than listed companies. Short term flexibility is achieved through the use of
bank borrowings. Liquidity risk is mitigated by the fact that the Company has GBP
3.3 million cash at bank which can satisfy its creditors and that as a
closed-end fund assets do not need to be liquidated to meet redemptions, and
sufficient liquid investments are held to be able to meet any foreseeable
liabilities.
(v) Gearing
Gearing can have amplified effects on the net asset value of the Company. It
can be positive for a company's performance, although it can have negative
effects on performance in falling markets. It is the Company's policy to
determine the adequate level of gearing appropriate to its own risk profile. At
the year end the Company's gearing was 109% (2009: 115%).
(vi) Foreign currency risk
Although the Company's performance is measured in Sterling, a proportion of the
Company's assets may be either denominated in other currencies or are in
investments with currency exposure. The Company was not exposed to material
direct foreign currency risk during the year. At the year end the Company held
4 US Dollar denominated investments with the Sterling equivalent of GBP2,561,000
(2009: GBP1,115,000).
An analysis of the indirect geographical exposure is shown above.
The Investment Manager reviews the risks of adverse currency movements and
where necessary may use derivatives to mitigate the risk of adverse currency
movements.
(vii) Derivatives
The Investment Manager may use derivative instruments in order to `hedge' the
market risk, including foreign currency risk, inherent in the portfolio. The
Investment Manager reviews the risk associated with individual investments and
where they believe it appropriate may use derivatives to mitigate the risk of
adverse market or currency movements. The Investment Manager discusses the
hedging strategy with the Board at its quarterly meetings.
At the year end there were no derivative contracts open (2009:2). The Company
entered into 2 contracts in the year to provide a limited degree of protection
from a fall in the value of the FTSE 100 and FTSE 250 indices. These contracts
incurred net losses of GBP148,000.
Capital Management
The Company does not have any externally imposed capital requirements, other
than those relating to the revolving credit facility. The main covenants
relating to the loan facility are:
* Net borrowings will not at any time exceed 33% of the Adjusted Net Asset
Value; and
* Adjusted Net Asset value shall at all times be equal or greater than GBP
12,000,000.
The Board consider the capital of the Company to be issued share capital,
reserves and debt. The capital of the Company is managed in accordance with its
investment policy in pursuit of its investment objectives detailed above.
The Company's capital at 30 April comprised:
2010 2009
GBP'000 GBP'000
Debt:
Bank loan 3,000 3,750
Equity:
Equity share capital 252 252
Retained earnings and other reserves 34,267 23,961
34,519 24,213
Debt as a % of net assets 8.69 15.49
END
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