TIDMAFHC 
 
ABERFORTH GEARED CAPITAL & INCOME TRUST plc 
 
Audited Final Results for the year to 31 December 2010 
 
The following is an extract from the Company's Annual Report and Accounts for 
the year to 31 December 2010. The Annual Report is expected to be posted to 
shareholders on 31 January 2011. Members of the public may obtain copies from 
Aberforth Partners LLP, 14 Melville Street, Edinburgh EH3 7NS or from its 
website at www.aberforth.co.uk. The Annual Report and Accounts will shortly be 
available for inspection at the FSA's document viewing facility at 25 The North 
Colonnade, Canary Wharf, London E14 5HS. 
 
FEATURES 
 
Total Returns 
 
Total Assets                                   + 31.3% 
Net Asset Value of Capital Shares 1            + 65.2% 
Second Interim Dividend per Income Share          7.5p (+11.9%) 
Total Dividend per Income Share                  14.0p (+11.1%) 
 
1  Capital Shares asset performance assumes Income Shares have a capital 
entitlement of 100p each and the interest rate swap has a nil valuation. 
 
The investment objective of Aberforth Geared Capital & Income Trust plc is to 
provide Income Shareholders with a high level of income payable half yearly 
with the potential for income growth and to provide Capital Shareholders with 
geared capital growth. 
 
All data throughout this Annual Report is to, or as at, 31 December 2010 as 
applicable, unless otherwise stated. 
 
 
 
CHAIRMAN'S STATEMENT TO SHAREHOLDERS 
 
Introduction 
 
Aberforth Geared Capital & Income Trust (AGCiT) recorded a total return on 
total assets of 31.3% during 2010.  Over the same period the index that 
represents AGCiT's opportunity base, the RBS Hoare Govett Smaller Companies 
Index (excluding Investment Companies), recorded a total return of 28.5%.  The 
FTSE All-Share Index, representative of the entire UK market, showed a total 
return of 14.5%.  It has, therefore, been another year in which AGCiT's chosen 
asset class has produced a return superior to that of the broader UK stock 
market. 
 
Throughout the year the level of borrowing employed by your Company has been 
consistently toward the upper end of the available facilities and this has made 
a positive contribution to performance in a period of such high absolute 
returns.  The net asset value of a Capital Share (assuming 100p prior charge 
for the Income Shares and a nil swap valuation) has risen from 320.48p on 31 
December 2009 to 529.42p on 31 December 2010, an increase of 65.2%. 
 
Dividends 
 
The Directors have approved a second interim dividend of 7.50p per Income 
Share.  This represents an increase of 11.9% over the 6.70p equivalent dividend 
in respect of 2009. When taken together with the first interim dividend of 
6.50p, the total dividend for the year is 14.00p, an increase over the 12.60p 
dividend paid in respect of 2009 of 11.1%. Earnings per Income Share for 2010 
were 12.78p.  The dividend payment therefore is in accord with the Board's 
decision, discussed in the interim statement in July 2010, to distribute the 
retained revenue reserve with the second interim dividends paid in respect of 
2010 and 2011.  Following the payment of the second interim dividend, the 
retained revenue reserve will be GBP867,000, equivalent to 3.54p per Income 
Share.  The dividend performance of the portfolio has been robust in 2010 with 
total income rising by 10.4%. Dividend growth from the underlying investments 
exceeded expectations during the year and this gives some considerable 
confidence for 2011. 
 
The second interim dividend will be paid on 25 February 2011 to Income 
Shareholders on the register at the close of business on 4 February 2011.  The 
ex-dividend date will be 2 February 2011. 
 
Policy for 2011 
 
AGCiT is a split level investment trust and the Directors are required either 
to propose a resolution to wind-up the company on the Planned Winding-Up Date 
(31 December 2011) or to put forward other proposals in relation to a 
reconstruction ahead of that date. Other key dates in 2011 are 30 September 
when the interest rate swap expires and 31 December when the bank facilities 
expire. 
 
At this stage, your Board is open minded as to the appropriate course of 
action.  A number of the factors that may influence the ultimate outcome could 
change significantly between now and the fourth quarter of 2011.  For example, 
the structure and viability of any potential roll-over vehicle may be influenced 
,amongst other things, by the lending conditions pertaining at the time and 
these may be very different from those available now. 
 
In order to arrive at more informed conclusions your Board welcomes input from 
all Shareholders and in this respect I have attached at the end of this 
statement an email address through which I can be contacted by any Shareholder 
wishing to express a view to me directly. 
 
In addition, your Board will actively consult with the larger Shareholders of 
the Company in order to understand better their preferences. As the outcome of 
these consultations and eventual Shareholders' decision remain uncertain, full 
disclosures relating to the uncertainty and the implications for the 
preparation of the 2010 financial statements are set out in the Directors' 
Report and Note 1 to the financial statements. 
 
It is the current expectation that any proposals that may be put forward will 
include the possibility of a full cash exit for both Income and Capital 
Shareholders as well as a tax efficient roll-over for Capital Shareholders. 
 
In respect of short term investment strategy, the Directors are able to be more 
explicit. 
 
As can be deduced from the Managers' Report, the valuation characteristics of 
the portfolio are considered to be most attractive at present.  The smaller 
company sector has recovered well from the recession of 2008/2009 and profits 
growth and cash generation are robust.  An analysis of AGCiT's portfolio 
shows that it has an historic dividend yield of 3.3% and a dividend cover of 2.5 
times. The cover is towards the higher level seen in the nine years of AGCiT's 
life. 
 
Consequently, your Board and the Managers are resolved to maintain the 
borrowings towards the upper level of available facilities for as long as 
practicable, and certainly over the course of the first half of the year.  This 
view would, of course, change were there to be a significant re-rating of the 
portfolio in the short term. 
 
Conclusion 
 
As we commence the last year of AGCIT's planned life it is reassuring to do so 
in the knowledge that your Company has a high quality portfolio trading at a 
valuation that is attractive on an absolute and relative basis.  The dividend 
growth from portfolio companies has been robust and there are encouraging 
indications that this is a sustainable trend. 
 
Finally, I repeat my invitation to Shareholders to contact me via the email 
address below. 
 
 
Alastair C Dempster 
Chairman 
27 January 2011 
alastair.dempster@aberforth.co.uk 
 
 
 
 
MANAGERS' REPORT 
 
Introduction 
 
Small UK quoted companies performed well in 2010, with the RBS Hoare Govett 
Smaller Companies Index (excluding Investment Companies) (RBS HGSC (XIC) or the 
index) securing a total return of 28.5%.  A good close to the year took the 
index above its previous peak in total return terms, which was set on 1 June 
2007.  Large companies, as measured by the FTSE All-Share, achieved a 14.5% 
total return.  AGCiT's Total Asset Total Return was 31.3%, higher than the 
return of both large companies and also of the RBS HGSC (XIC). 
 
The strong gains enjoyed by equity markets over the past two years have been 
driven by three factors. 
 
* Early 2009 witnessed a powerful "relief rally".  The valuations of a 
significant number of UK businesses reflected the risk of bankruptcy.  However, 
a series of rights issues served to recapitalise these companies and, by 
extending the investment horizon, to breathe life into their valuations. 
 
* Despite this rally, corporate profits continued to decline through most of 2009 
as revenues came under recessionary pressure.  However, management teams 
reacted promptly with deep restructuring programmes.  Thus, when revenues 
troughed late in 2009 and began to grow again in 2010, margins recovered 
sharply, allowing a surprising number of businesses to exceed their previous 
peak profit levels in 2010 - a remarkable feat when viewed in the context of 
the global financial crisis. 
 
* Concurrently, monetary policy has remained extremely accommodative and indeed 
has proceeded to embrace the unconventional measures termed as "quantitative 
easing".  As central banks have made direct purchases of government debt, bond 
yields have moved downwards: in the UK, for example, ten year gilt yields 
declined from 4.0% to 3.4% over the course of 2010.  With government bond 
yields forming the risk free basis of the discount rates used to value 
equities, equity valuations may be considered to have benefited. 
 
Investment Background 
 
However, the year under review was punctuated by bouts of concern about the 
sustainability of recovery, notably in May and June, when the RBS HGSC (XIC) 
declined by 10%.  Some of the challenges confronting equity markets are 
described in the following paragraphs. 
 
* Western economies have depended on emerging markets in general and China in 
particular as sources of demand growth through recession and the initial stages 
of recovery.  However, this reliance on economic imbalances can play both 
ways.  Inflationary pressures in the emerging world are manifest in renewed 
commodity price rises.  Of course, higher commodity prices apply too to Western 
economies, which would also be affected should policymakers in the emerging 
world move to quell the threat of inflation.  Moving forward, China's 
commitment to its mercantilist growth agenda will be pivotal. 
 
* In contrast to the inflationary issues in emerging markets, the focus in the 
developed world has been on the robustness of recovery and the risk of the 
notorious double-dip.  In the US, the recovery has seen GDP return close to its 
peak level at the end of 2007.  Nevertheless, there is concern about pressures 
on the US consumer sector, which has driven recoveries from earlier 
recessions.  News on housing and employment has been mixed and has generated 
considerable short term stockmarket noise.  However, the extension of the Bush 
administration's tax cuts provides some relief and, cliché though it is, 
writing off the US consumer is dangerous. 
 
* Europe has been the frequent focus of worries, with first Greece and then 
Ireland raising questions about the viability of the single currency.  The 
markets were still digesting the implications of the Irish bail-out as the year 
drew to a close, but it is difficult to believe that sovereign debt concerns in 
the euro zone will be confined to 2010 or to Greece and Ireland.  It is not all 
bad news, however: the export led economies of Northern Europe - notably 
Germany - are three times the size of the troubled "PIGS" and are benefiting 
from the euro's 7% decline against the dollar in 2010. 
 
* In common with many Western economies, with the notable exception to date of 
the US, the UK has embraced fiscal austerity.  Indeed, the coalition 
government's plans for public sector retrenchment are among the most drastic 
yet announced.  This has polarised opinion among economists, including members 
of the Bank of England's Monetary Policy Committee, between those who see a 
looming inflationary threat in persistently high CPI data and those who 
identify lingering deflationary forces undermining the recovery.  It is too 
early to judge the merits of the coalition's experiment.  However, the key to 
its success lies in the ability of the corporate sector to take up the strain 
as the public sector deficit narrows.  In this, the consumer sector may be seen 
as the wild card: its proclivity to save will be influenced by its perceptions 
of the success of present economic policy. 
 
Fortunately, the UK's corporate sector is in remarkably good shape, a 
characteristic shared with other Western economies.  British non financial 
companies have in aggregate generated cash, since the first quarter of 2002. 
Thus, businesses on the whole were well prepared for the downturn.  And balance 
sheets have been further strengthened by cost cutting actions and the 
subsequent pick-up in profitability.  However, companies have not yet proved 
willing to translate their financial wellbeing into the meaningful pick-up in 
investment that will ease the economy's reliance on the public sector and 
sustain overall economic growth.  Private sector investment has recovered from 
its recessionary nadir but remains well below its levels in the years leading 
up to the credit crunch.  So management teams now find themselves with an 
intriguing question - what to do with their robust balance sheets.  From the 
point of view of an equity investor, this is not an unpleasant conundrum. 
 
Investment Performance 
 
AGCiT's 31.3% Total Return on Total Assets in 2010 was marginally higher than 
the 28.5% achieved by the RBS HGSC (XIC). The following paragraphs provide some 
background to 2010's performance and also draw out themes in relation to longer 
term returns.  The concluding section of the report, Investment Outlook, then 
seeks to outline the current portfolio positioning and strategy for 2011. 
 
* Your Managers have consistently adhered to a value investment style over the 
life of AGCiT  The last five years have been extremely adverse for the value 
style, with markets favouring instead growth and momentum investors.  This has 
been less headline-grabbing than was the case during the TMT boom around the 
turn of the century, but research conducted by the London Business School 
suggests that the current bear market for value stocks has been as deep and 
more prolonged as that experienced in 1999 and early 2000.  This research shows 
that value stocks within the RBS HGSC (XIC) under-performed the benchmark as a 
whole by 10.8 percentage points in 2010 and by 34.0 percentage points over the 
last five years.  Though not insurmountable through good stock selection, this 
has represented a major headwind to the value investor. 
 
* A related impact is that of size.  It may seem strange for a small cap manager 
to alight on this influence, but the RBS HGSC (XIC), which represents the 
bottom 10% of the total market capitalisation of the UK stockmarket, now takes 
in a significant portion of the FTSE 250.  Indeed, with the largest company in 
the benchmark boasting a market capitalisation of GBP1.3bn, mid cap companies 
account for over 72% of the total value of the RBS HGSC (XIC).  In contrast, 
AGCiT's portfolio has moved steadily more under-weight the FTSE 250 component 
of the benchmark over the past five years to the extent that its exposure stood 
at 45% at the end of 2010.  This has proved ill-timed: the FTSE 250 has 
outstripped the FTSE SmallCap by 58% over the past five years, including 
out-performance of 12% in 2010. 
 
There are several factors that may have contributed to the substantially better 
returns from the "larger small" companies.  A precise quantification is 
difficult but your Managers maintain that they have not had to compromise in 
terms of fundamentals, such as growth and profitability, when investing in the 
"smaller small" companies.  The more significant influence has been on a 
technical level.  Mid caps have benefited from rising trading volumes and 
stockmarket liquidity over the past decade, as hedge funds and long-only 
managers sought to diversify risk within portfolios dominated by larger 
companies.  In this process, "smaller small" companies were left behind, 
exaggerating the customary discount that reflects their lower liquidity.  It is 
this widening discount, which amounted to 20% on a forward PE basis at the end 
of the year, that your Managers have been seeking to exploit in reallocating 
capital from "larger small" companies to "smaller small" companies. 
 
* The following table is an attribution analysis, setting out the various 
contributions to AGCiT's relative performance through 2010. 
 
For the year ended 31 December 2010                                Basis points 
 
Stock selection                                                          (237) 
Sector selection                                                          544 
                                                                         ---- 
Attributable to the portfolio of investments, based on mid prices         307 
Movement in mid to bid price spread                                        17 
Cash/gearing                                                            4,077 
Interest Cost                                                            (439) 
Management fee                                                           (170) 
Other expenses                                                           (121) 
                                                                        ----- 
Total attribution based on bid prices                                   3,671 
                                                                        ----- 
 
Note: 100 basis points = 1%.  Total Attribution is the difference between the 
total return of the Capital Share Net Asset Value (assuming 100p entitlement 
per Income Share and a nil swap valuation) and the RBS HGSC (XIC) (i.e. Capital 
Share NAV = 65.20%; RBS HGSC (XIC) = 28.49%; difference is 36.71% being 3,671 
basis points). 
 
Overall, sector selection made a strong positive contribution to relative 
performance.  One of the stockmarket's strongest themes over recent years, and 
one that has intensified during the recovery phase, has been the 
out-performance of businesses with high exposure to emerging markets, which 
continued to grow while the developed markets languished.  This trend has 
benefited the commodity sectors and capital goods companies.   The portfolio 
was under-weight in commodity sectors: the companies available within the 
benchmark often have valuations that are highly dependent on the resilience of 
underlying commodity prices and, at an early stage of development, tend to 
consume cash and in general do not have the income characteristics suitable for 
the portfolio. Compensating for this positioning was the portfolio's large 
over-weighting in capital goods, which benefit from similar demand drivers but 
which also boast more attractive cash and income dynamics.  In particular the 
overweight positions in Electronic and Electrical Equipment and Industrial 
Engineering were beneficial to performance in 2010. The portfolio also 
benefited from underweight positions in Household Goods (Housebuilders) and 
Real Estate Investment & Services (Property). In both these sectors the 
managers were not attracted by the combination of the macro demand factors 
driving the sectors and the stockmarket valuations attached to the constituent 
companies. In addition the companies in these sectors are currently, in 
general, unable to pay dividends to shareholders owing in part to their trading 
performance and also to the fact that they are, in the majority asset, rather 
than income, return businesses. 
 
Stock selection made a negative contribution.  This impact should be assessed 
within the context of the comment on investment style made above.  Within each 
sector, your Managers' value investment philosophy tends to drive capital into 
stocks sitting on lower valuations.  This does not mean that the quality of the 
underlying business or its growth prospects are ignored.  It does mean that in 
the trade-off of value and growth, your Managers will, as they always have, 
emphasise the former.  However, the stockmarket, as already described, has 
preferred those businesses with higher growth profiles in the current 
environment of economic uncertainty: i.e. genuine growth has attracted a 
scarcity premium.  This dynamic has exaggerated the "value stretch" within the 
benchmark: the relatively narrow band of companies perceived to have reliable 
growth prospects has seen its premium to the apparently dreary majority expand. 
 
The strong absolute returns from AGCiT's portfolio meant that its gearing 
significantly enhanced NAV performance for Capital Shareholders over 2010. 
 
* While many of the companies in which AGCiT invests might be described as out of 
fashion for the present mood of the stockmarket, their underlying performance 
has been robust, consistent with the benefits of economic recovery and rapid 
cost cutting previously described.  A demonstration of this fundamental 
progress is the portfolio's dividend experience in 2010.  The following table 
classifies AGCiT's seventy investee companies at the year end by their most 
recent dividend action: 
 
Band              Nil   IPOs   Down   Flat   +0-10%   +10-20%   + >20% 
 
No. of holdings    2     1      1      23      19       13        11 
 
The "Nil" category includes the two companies that did not pay a dividend in 
2010.    These companies may be considered cyclical nil payers that will come 
back to the dividend register once their profits recover. Reinstatement of 
dividends is relevant to the wider small company universe and can have a 
meaningful effect on aggregate reported dividend growth. Only one company cut 
its dividend, which would be considered an excellent outcome even in steadier 
economic conditions.  The other positive aspect of the analysis is the number 
of companies in the three right hand columns: forty three companies chose to 
increase their dividends, some by a significant amount. 
 
Going into recession, your Managers emphasised the tactic of being "paid to 
wait" for the eventual upturn: a sustainable dividend yield can provide some 
compensation in periods of difficult trading.  In the event, 2009 turned out to 
be the worst for dividends in the RBS HGSC (XIC)'s history.  AGCiT's portfolio 
fared less badly, but there were nevertheless some disappointing dividend 
decisions.  The turnaround encapsulated in the preceding analysis is therefore 
welcome and is indicative of the rapid cost reductions implemented by 
management teams last year.  The dividend recovery has come earlier than your 
Managers had expected at the start of 2010 and is clearly supportive of AGCiT's 
income account which showed growth in total income of 10.4% in 2010. 
 
* As described previously, the corporate sector in the UK is in a relatively 
healthy position, with strong cash flows and balance sheets.  These are 
characteristics that are shared by the small company universe and by AGCiT's 
portfolio, and that no doubt assisted company boards in deciding to increase 
dividends.  Entering 2011, almost 43% of the portfolio was invested in 
companies with net cash on their balance sheets at the end of 2010.  This 
positioning hindered relative returns in 2009 as many highly geared businesses 
enjoyed a powerful bounce in their share prices.  However, in 2010 the impact 
of balance sheet structure was less pronounced and, indeed, the share prices of 
several of the indebted businesses that performed so strongly in 2009 slipped 
back.  Moving forward, your Managers are retaining the portfolio's bias to 
strong balance sheets.  This is less for defensive reasons and more as a result 
of the stockmarket's current reluctance to look beyond the extremely low 
returns from cash.  Crucially, cash affords businesses a degree of competitive 
advantage over rivals still focused on balance sheet repair and also gives 
flexibility to make acquisitions or return capital to shareholders.  It is not 
your Managers' preference to see substantial balances of net cash reside on 
balance sheets indefinitely: pressure will mount to deploy cash in a profitable 
fashion for shareholders. 
 
* M&A activity within the RBS HGSC (XIC) in 2010 picked up from the depressed 
levels of 2009, but, with 16 deals completed, was still some way short of the 
50 per annum average over the preceding five years.  However, the average deal 
size rose markedly and, entering 2011, a number of deals were awaiting 
completion.  Echoing previous cycles, the predators have frequently been large 
American companies, which typically trade on higher valuations than their 
smaller UK peers and, at the current time, benefit from the weakness of 
sterling.  The conditions for a further recovery in M&A and de-equitisation in 
general are in place.  As already noted, companies are under pressure to 
utilise their strong balance sheets.  Moreover, the gap between the cost of 
debt and the cost of equity is wide: at the end of 2010, the BBB sterling 5-7 
year corporate bond yield stood at 5%, whereas the portfolio's prospective 
ratio of pre tax and interest profit to enterprise value was 13%.  Valuations 
within the small company universe are attractive, particularly down the scale 
of market capitalisations.  This has led to often exaggerated bid premiums to 
prevailing stockmarket valuations but it has also invited some opportunistic 
approaches.  So, while the scope for more M&A ought to be of relative advantage 
to AGCiT as it has been in the past, your Managers are mindful of balancing the 
short term fillip to relative performance against the intrinsic value of the 
underlying businesses. 
 
Investment Outlook 
 
From a top down perspective, it is not difficult to identify a series of 
challenges to the current recovery in developed economies.  The process of 
deleveraging underway is inherently deflationary.  Policy makers thus confront 
a tricky balancing act as demand from the public sector is reduced and the 
willingness of the private sector to take up the slack is still unclear. 
Complicating matters is the experiment with the unconventional tool of 
quantitative easing, whose effectiveness is compromised by a transmission 
mechanism, the banking system, whose focus remains on balance sheet repair. 
Furthermore, unlike previous recoveries, there is the emerging markets 
dimension: China in particular has played a crucial role in fostering recovery 
to date and will remain a key influence on demand in Western economies. 
 
Intriguingly, in the face of these challenges, 2010 drew to a close with a 
series of more positive economic data releases in the US.  These coincided with 
renewed strength in industrial commodity prices and with a marked change in 
sentiment within major government bond markets.  For illustration, ten year 
treasury yields in the US, which had declined steadily through most of the 
year, rose from 2.4% to 3.3% through the fourth quarter.  The majority of this 
increase was driven by higher real yields, rather than by expectations of 
increased inflation, which can be interpreted as an indication of stronger real 
economic growth.  While such a development perhaps says more about where bond 
yields themselves had got to, the implications for equities are more positive: 
the increase in the risk free rate is offset by the prospect of a more robust 
outlook for growth. 
 
However, it is helpful to bear in mind that AGCiT invests in businesses rather 
than economies.  The corporate sectors in many developed markets are in robust 
health, both in absolute terms and relative to the other parts of the economy. 
This is certainly the case in the UK and, most relevantly, in the small company 
universe.  The range of companies available to AGCiT during this upturn is very 
different from those that populated the benchmark in the recovery from the 
recession in the early 1990s.  The intervening "hollowing-out" of UK industry 
has left a collection of survivors with international-facing businesses: 
roughly half of the revenues generated by portfolio companies in 2010 came from 
outside the UK. 
 
The corporate sector is in a fascinating position at the current time.  In 
simple terms, it has two choices.  The first, no doubt favoured by policy 
makers, is to take the strain from the public sector, using its balance sheets 
and cash flows to invest for future growth.  The second is to sit tight, 
enjoying the current period of margin expansion, allowing balance sheets to 
strengthen further and participating, one way or the other, in renewed 
de-equitisation.  While the merits of these can be debated, perhaps the most 
important point is that companies do have a choice: either scenario could be 
supportive of good returns for equity investors. 
 
Of course, the probability of good returns is enhanced by attractive starting 
valuations.  AGCiT's portfolio would seem well positioned, as the table below 
suggests. 
 
                                        31 December 2010     31 December 2009 
 
Characteristics                       AGCiT RBS HGSC (XIC) AGCiT RBS HGSC (XIC) 
 
Number of companies                    70        430        61        448 
Weighted average market               GBP458m     GBP696m      GBP347m     GBP619m 
capitalisation 
Price earnings ratio (historic)       11.8x     13.7x      8.4x      11.2x 
Dividend yield (historic)             3.3%       2.4%      4.2%       2.7% 
Dividend cover (historic)             2.5x       3.0x      2.9x       3.3x 
 
AGCiT's portfolio ended the year on a historic dividend yield of 3.3%.  The 
decline from last year's 4.2% was driven by a rise in the portfolio's value 
over the twelve months and by trading activity.  Working in the opposite 
direction was the positive dividend experience described previously. This ought 
to be supportive of portfolio dividend growth in 2011. 
 
The historic PE ratio was 14% below that of the RBS HGSC (XIC) at the end of 
the year.  In absolute terms, AGCiT's PE of 11.8x compares with an average of 
12.1x and, given that profits are still recovering, might be considered low at 
this stage of the cycle.  However, with the presently low levels of return from 
cash, PE ratios struggle to capture the crucial cash dynamic previously 
described in this report.  The EV/EBITA (i.e. enterprise value to profit before 
interest, tax and amortisation), which is your Managers' key valuation metric 
in the investment process, adds some colour. 
 
              Actual Forecast Forecast 
EV/EBITA      2009    2010     2011 
 
AGCiT         9.5x    8.8x     7.5x 
 
The table above sets out the EV/EBITA progression for the year end portfolio. 
There are two factors driving the decline in the ratio: first, profits are 
expected to grow; and, second, the enterprise value is anticipated to decline 
as retained cash flows reduce debt or increase cash.  These low valuations, 
underpinned as they are by strong cash generation at present levels of 
profitability, might offer some downside protection in the event of a 
deterioration in trading conditions, or if, indeed, growth forecasts simply 
prove too ambitious. 
 
However, low absolute and relative valuations have not necessarily served AGCiT 
well over recent years.  The key question is what can translate these 
attractive valuations into improved relative investment performance going 
forward.  Though timing is near impossible to call, your Managers identify 
three factors worthy of consideration. 
 
* As described in the Investment Performance section of this report, the 
influences of style and size have acted as headwinds to AGCiT's relative 
performance over the last five years.  This is unusual in a longer term 
context, as the following analysis, based on data from the London Business 
School, demonstrates: 
 
Total return pa   5 years  10 years  20 years  Since 1955 
 
RBS HGSC *         +7.5%     +7.8%    +11.1%     +15.5% 
 
Value component    +1.8%    +11.1%    +13.3%     +19.4% 
 
Small component    +5.0%     +8.6%    +11.3%     +17.4% 
 
* Extended RBS HGSC (XIC) from 1980 & HGSC for prior dates 
 
In terms of both depth and duration, the present bear market for value 
stocks and small stocks within the benchmark is without precedent over the last 
55 years.  Your Managers - biased as they are by their value investment 
philosophy - contend that over the medium term the odds are that the present 
style and size headwinds will swing to become tailwinds. 
 
* Through the recession, profits growth naturally became more difficult to find. 
The valuations of companies capable of consistent growth therefore attained a 
scarcity premium.  This premium has been sustained through the early stages of 
recovery as markets have continued to fret about the fragility of the upturn 
and the threat of a double-dip.  If, however, the recovery holds, the "need" to 
pay up for growth might reasonably be considered to diminish.  This might be 
accompanied by a lengthening of the market's investment horizon, easing the 
present extreme aversion to perceived illiquidity and focusing attention on 
neglected "smaller small" companies.  In these circumstances, cheaper and 
smaller stocks might enjoy a re-rating. 
 
* Through the mid 1990s, the stockmarket's focus was on large companies that were 
getting larger through mega mergers.  Small companies as a consequence 
languished.  The trigger that set off a twelve year period of out-performance 
by the RBS HGSC (XIC) was M&A: with stockmarket investors reluctant to venture 
into the small company world, other corporates and private equity houses 
stepped up to exploit the valuation opportunities.  And, as noted previously, 
the conditions for a renewed phase of M&A would appear to be in place. 
 
Ultimately, the precise catalyst for a change in the stockmarket's appetite is 
difficult to identify in advance.  For your Managers, as value investors, the 
key point is that the portfolio is demonstrably cheap in relation both to its 
own history and to the benchmark.  This value advantage has been achieved by 
investing in a collection of sound and profitable businesses that have been 
overlooked owing to their size or inability to generate serial upgrades to 
their earnings estimates.  Thus, in your Managers' judgement, there has been 
little compromise in terms of the quality required in securing the portfolio's 
valuation characteristics.  The investment principles by which the portfolio 
has been constructed are essentially the same as those that have driven AGCiT's 
successful long term record. 
 
Wrapped around this investment philosophy has been the capital structure of 
AGCiT. The trust has been consistently geared over its life and this has both 
benefited and hindered NAV returns to capital shareholders depending on the 
period examined.   The most recent experience has been positive given the 
significant returns from the opportunity base in 2009 and 2010. The immediate 
intention in this final year of AGCiT's planned life is to maintain the gearing 
given the attractive valuation characteristics described above. 
 
Aberforth Partners LLP 
Managers 
27 January 2011 
 
 
 
 
DIRECTORS' RESPONSIBILITY STATEMENT 
 
DECLARATION 
 
Each of the Directors confirm to the best of their knowledge that: 
 
(i) the financial statements, which have been prepared in accordance with 
applicable accounting standards, give a true and fair view of the assets, 
liabilities, financial position and profit or loss of the Company; and 
 
(ii) the 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 it faces. A summary of the principal 
risks are set out below. 
 
On behalf of the Board 
Alastair C Dempster 
Chairman 
27 January 2011 
 
 
PRINCIPAL RISKS AND RISK MANAGEMENT 
 
The Company's financial instruments comprise its investment portfolio, cash 
balances, borrowing facility, interest rate swap, Income Shares, debtors and 
creditors that arise directly from its operations such as sales and purchases 
awaiting settlement and accrued income. The Directors have established an 
ongoing process for identifying, evaluating and managing the key risks faced by 
the Company. This process was in operation during the year and continues in 
place up to the date of this report. As the Company's investments consist of 
small UK quoted companies, the principal risks facing the Company are market 
related and an explanation of these risks and how they are managed is set out 
below. 
 
The main risks that the Company faces from its financial instruments are: 
 
(i) interest rate risk, being the risk that the interest receivable/payable and 
the market value of investment holdings may fluctuate because of changes in 
market interest rates; 
 
(ii) liquidity risk is the risk that the Company will encounter difficulty 
raising funds to meet its cash commitments as they fall due. Liquidity risk may 
result from either the inability to sell financial instruments quickly at their 
fair values or from the inability to generate cash inflows as required; 
 
(iii) credit risk is the risk that a counterparty to a financial instrument 
will fail to discharge an obligation or commitment that it has entered into 
with the Company; and 
 
(iv) market price risk, being the risk that the market value of investment 
holdings will fluctuate as a result of changes in market prices caused by 
factors other than interest rate or currency rate movement. 
 
The Company's financial instruments are all denominated in sterling and 
therefore the Company is not directly exposed to any significant currency risk. 
However, it is recognised that most investee companies, whilst listed in the 
UK, will be exposed to global economic conditions and currency fluctuations. 
 
(i) Interest rate risk 
The Company has a bank debt facility amounting to GBP34.3m with the Bank of 
Scotland which it utilises on a regular and consistent basis. Interest rate 
fluctuations on GBP30m of borrowings are managed through an interest rate swap 
agreement with Bank of Scotland which produces an effective total fixed 
interest rate of 6.47%. Borrowings in excess of GBP30m are not covered by an 
interest rate swap agreement and are exposed to fluctuations in UK market 
interest rates. If LIBOR and bank base rate had increased by 1% the impact on 
profit or loss and therefore Shareholders' equity would have been negative 
GBP1,200 (2009: negative GBP29,500). If LIBOR and bank base rate had decreased by 
0.5% the impact on profit or loss and therefore Shareholders' equity would have 
been positive GBP600 (2009: positive GBP14,750). The Company has no exposure to 
movements in LIBOR in respect of the GBP30 million referred to above, as it has 
been matched with a swap transaction. The calculations are based on the drawn 
down loan facility as at the respective Balance Sheet dates which may not be 
representative of the actual drawn down loan facility during the year. When the 
Company decides to hold cash balances, all balances are held on variable rate 
bank accounts yielding rates of interest linked to bank base rate, which as at 
31 December 2010 was 0.5% (2009: 0.5%). The Company's policy is to hold cash in 
variable rate bank accounts and not usually to invest in fixed rate securities. 
The Company's investment portfolio is not directly exposed to interest rate 
risk. 
 
(ii) Liquidity risk 
The Company's assets comprise mainly readily realisable equity securities 
which, if necessary, can be sold to meet any funding requirements though short 
term funding flexibility can typically be achieved through the use of the bank 
debt facility. The Company's current liabilities all have a remaining 
contractual maturity of less than three months with the exception of the Bank 
of Scotland facility. 
 
(iii) Credit risk 
The Company invests in UK equities traded on the London Stock Exchange and 
investment transactions are carried out with a large number of FSA regulated 
brokers with trades typically undertaken on a delivery versus payment basis. 
Cash at bank is held with reputable banks with acceptable external credit 
ratings. The investment portfolio assets of the Company are held by The 
Northern Trust Company, the Company's custodian, in a segregated account. In 
the event of the bankruptcy or insolvency of Northern Trust the Company's 
rights with respect to the securities held by the custodian may be delayed or 
limited. The Board monitors the Company's risk by reviewing Northern Trust's 
internal control report. 
 
(iv) Market price risk 
The Company's investment portfolio is exposed to market price fluctuations 
which are monitored by the investment managers in pursuance of the investment 
objective. Further information on the investment portfolio is set out in the 
Managers' Report. No derivative or hedging instruments are utilised to 
specifically manage market price risk. If the investment portfolio valuation 
fell by 20% at 31 December 2010 the impact on profit or loss and therefore 
Shareholders' equity would have been negative GBP22.5m (2009: negative GBP18.7m). 
If the investment portfolio valuation rose by 20% at 31 December 2010 the 
impact on profit or loss and therefore Shareholders' equity would have been 
positive GBP22.5m (2009: positive GBP18.7m). The calculations are based on the 
portfolio valuation as at the respective Balance Sheet dates and are not 
representative of the year as a whole. The fair value of the financial 
instruments held as at 31 December 2010 approximately equates to the carrying 
value. The fair value of the Income Shares is based on the quoted market price 
of 112.50p whilst the carrying value reflects the projected final capital 
entitlement of 100p per Income Share. The fair value of the interest swap is 
based on the 0.75 year (2009: 1.75 year) bid swap rate supplied by the Bank of 
Scotland. The investment portfolio consists of listed investments valued at 
their bid prices, which represents their fair value. The Company is a split 
capital investment trust. In the Directors' opinion the Income Shares and 
Capital Shares are in aggregate the true equity of the Company although the 
Income Shares must be disclosed as a "financial liability" due to the existence 
of a contractual obligation on the Company to repay to Income Shareholders upon 
liquidation, a pre-determined amount. 
 
Additional risks faced by the Company, together with the approach taken by the 
Board towards them, have been summarised as follows: 
 
(i) Investment objective - is to provide Income Shareholders with a high level 
of income payable half yearly with the potential for income growth and to 
provide Capital Shareholders with geared capital growth. The performance of the 
investment portfolio may in short periods not achieve this objective. However, 
the Board's aim is to achieve the investment objective whilst managing risk by 
ensuring the investment portfolio is managed appropriately. 
 
(ii) Investment policy - a risk facing the Company is inappropriate sector and 
stock selection leading to a failure in achieving the investment objective. The 
Managers have a clearly defined investment philosophy and manage a diversified 
portfolio, investing only in shares of companies that are considered capable of 
meeting the Company's objective. Furthermore, performance against the index of 
the Investment Universe and the peer group is regularly monitored by the Board. 
The Company may also be affected by events or developments in the economic 
environment generally, for example, inflation or deflation, recession and 
movements in interest rates. 
 
(iii) Share price volatility - the Capital Shares can trade at a discount or 
premium to their underlying net asset value. The highly geared nature of the 
Company makes the share price of the Capital Shares more volatile than other 
less highly geared Investment Trusts. The Directors have decided a share buy-in 
policy is not appropriate for the Company after taking into account factors 
such as the planned wind-up date of the Company and the anticipated natural 
dissipation of the Capital Share discount prior to the planned wind-up date. 
 
(iv) Regulatory risk - breach of regulatory rules could lead to suspension of 
the Company's share price listing, financial penalties or a qualified audit 
report. Breach of Section 1158 of the Corporation Tax Act 2010 could lead to 
the Company being subject to capital gains tax. The Board receives quarterly 
compliance reports from the Secretaries to monitor compliance with regulations. 
 
(v) Operational/Financial risk - failure of the Managers' accounting systems or 
those of other third party service providers could lead to an inability to 
provide accurate reporting and monitoring, or potentially lead to the 
misappropriation of assets. The Board reviews regular reports on the internal 
controls of the Managers and other key third party providers. 
 
(vi) Gearing risk - the Board believes that the Company has a relatively 
high-risk profile in the context of the investment trust industry. This belief 
arises from the Company employing a significant level of gearing to increase 
its yield and to provide the potential for a growing level of dividend income 
and the potential for geared capital appreciation. The Board intends that the 
Company remain geared throughout its life. 
 
Some mitigating factors in the Company's risk profile include the facts that 
the Company: 
 
* has a relatively simple capital structure; 
* invests only in a diversified portfolio of small UK quoted companies; and 
* outsources all of its main operational activities to recognised, 
well-established firms. 
 
Investment in small companies is generally perceived to carry more risk than 
investment in large companies. While this is reasonable when comparing 
individual companies, it is much less so when comparing the volatility of 
returns from diversified portfolios of small and large companies. The Board 
believes that the Company's portfolio is diversified. In addition, since 
returns from small and large companies are not perfectly correlated, there is 
an opportunity for investors to reduce overall risk by holding portfolios of 
both small and large companies together. In summary, the Board regularly 
considers risks associated with the Company, the measures in place to monitor 
them and the possibility of any other risks that may arise. 
 
 
INVESTMENT PORTFOLIO 
 
Thirty Largest Investments as at 31 December 2010 
 
No. Company                                GBP'000        Total Business Activity 
 
1   Spirax-Sarco Engineering               5,204          4.6 Engineering 
2   RPC Group                              4,030          3.6 Plastic packaging 
3   JD Sports Fashion                      3,953          3.5 Retailing - sports 
                                                              goods & clothing 
4   Bodycote                               2,902          2.6 Engineering - heat 
                                                              treatment 
5   e2v technologies                       2,878          2.6 Electronic 
                                                              components & 
                                                              subsystems 
6   Beazley                                2,825          2.5 Lloyds insurer 
7   Holidaybreak                           2,658          2.3 Education & 
                                                              holiday services 
8   RPS Group                              2,486          2.2 Energy & 
                                                              environmental 
                                                              consulting 
9   Dunelm Group                           2,439          2.2 Homewares retailer 
10  UMECO                                  2,341          2.1 Supply chain 
                                                              management & 
                                                              advanced composite 
                                                              materials 
                                         ------          ---- 
    Top Ten Investments                   31,716         28.2 
 
11  Phoenix IT Group                       2,312          2.1 IT services & 
                                                              disaster recovery 
12  Morgan Crucible Co                     2,234          2.0 Engineer - ceramic 
                                                              & carbon materials 
13  Tullett Prebon                         2,197          1.9 Inter dealer 
                                                              broker 
14  Greggs                                 2,180          1.9 Retailing - baked 
                                                              products & 
                                                              sandwiches 
15  Huntsworth                             2,111          1.9 Public relations 
16  Dialight                               2,093          1.9 LED based lighting 
                                                              solutions 
17  Low & Bonar                            2,089          1.9 Manufacture of 
                                                              industrial 
                                                              textiles 
18  Domino Printing Sciences               2,082          1.8 Industrial 
                                                              printers & inks 
19  Galliford Try                          2,059          1.8 Housebuilding & 
                                                              construction 
                                                              services 
20  Brown (N.) Group                       2,009          1.8 Catalogue retailer 
                                          ------         ---- 
    Top Twenty Investments                53,082         47.2 
 
21  Wilmington Group                       1,999          1.8 Information & 
                                                              training for 
                                                              professional 
                                                              business market 
22  Keller Group                           1,964          1.7 Ground engineering 
                                                              services 
23  Micro Focus International              1,960          1.7 Software - 
                                                              development & 
                                                              testing 
24  Collins Stewart                        1,928          1.7 Stockbroker & 
                                                              private client 
                                                              fund manager 
25  KCOM Group                             1,881          1.7 Telecommunications 
                                                              services 
26  Smiths News                            1,827          1.6 Newspaper 
                                                              distribution 
27  Castings                               1,754          1.6 Engineering - 
                                                              automotive 
                                                              castings 
28  BBA Aviation                           1,751          1.6 Aviation - 
                                                              fuelling & 
                                                              maintenance 
29  Microgen                               1,634          1.4 Workflow & 
                                                              financial services 
                                                              software 
30  Halfords Group                         1,611          1.4 Retailing - car & 
                                                              cycling 
                                                              accessories 
                                          -----          ---- 
    Top Thirty Investments                71,391         63.4 
 
    Other Investments                     41,307         36.6 
                                          ------        ----- 
    Total Investments                    112,698        100.0 
                                         -------        ----- 
 
 
The Income Statement, Balance Sheet, Reconciliation of Movements in 
Shareholders' Funds,  and Summary Cash Flow Statement are set out below: - 
 
INCOME STATEMENT 
(Audited) 
 
For the year ended 31 December 2010 
                                                   2010                    2009 
                                          Revenue Capital   Total Revenue Capital   Total 
                                            GBP'000   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000 
 
Realised gains/(losses) on sales                -   8,028   8,028       - (6,862) (6,862) 
Increase in fair value                          -  16,220  16,220       -  30,700  30,700 
                                          ------- ------- ------- ------- ------- ------- 
Gains on investments                            -  24,248  24,248       -  23,838  23,838 
Dividend income                             4,192       -   4,192   3,761     150   3,911 
Interest income                                 1       -       1      31       -      31 
Other income                                    8       -       8      13       -      13 
Investment management fee                   (231)   (538)   (769)   (177)   (412)   (589) 
Other expenses                              (244)   (382)   (626)   (233)   (285)   (518) 
                                          ------- ------- ------- ------- ------- ------- 
Net return before finance costs and 
taxation                                    3,726  23,328  27,054   3,395  23,291  26,686 
 
Finance costs: interest                     (595)   (416) (1,011)   (602) (1,286) (1,888) 
                                          ------- ------- ------- ------- ------- ------- 
                                            3,131  22,912  26,043   2,793  22,005  24,798 
 
Finance costs on Income Shares            (3,234)       - (3,234) (3,087)       - (3,087) 
                                          ------- ------- ------- ------- ------- ------- 
Return on ordinary activities before tax    (103)  22,912  22,809   (294)  22,005  21,711 
 
Tax on ordinary activities                      -       -       -       -       -       - 
                                          ------- ------- ------- ------- ------- ------- 
Return attributable to shareholders         (103)  22,912  22,809   (294)  22,005  21,711 
                                            =====   =====   =====   =====   =====   ===== 
Returns per share 
Income Share                               12.78p       -  12.78p  11.40p       -  11.40p 
                                          ------- ------- ------- ------- ------- ------- 
Capital Share                                   - 218.21p 218.21p       - 209.57p 209.57p 
                                          ------- ------- ------- ------- ------- ------- 
 
NOTES 
1.     The total column of this statement is the profit and loss account of the 
Company.  The supplementary revenue and capital columns are both prepared under 
guidance published by the Association of Investment Companies. All revenue and 
capital items in the above statement derive from continuing operations.  No 
operations were acquired or discontinued in the period. A Statement of Total 
Recognised Gains and Losses is not required as all gains and losses of the 
Company have been reflected in the above statement. 
 
2.     The calculations of revenue return per Income Share are based on net 
revenue on ordinary activities before distributions of GBP3.131 million (2009: GBP 
2.793 million) and on 24.5 million Income Shares (2009: 24.5 million).  The 
calculations of capital return per Capital Share are based on net capital 
profits of GBP22.912 million (2009: profits of GBP22.005 million) and on 10.5 
million Capital Shares (2009: 10.5 million). 
 
 
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 
(Audited) 
 
For the year ended 31 December 2010 
 
                             Capital 
                   Share  redemption    Special    Capital    Revenue 
                 capital     reserve    reserve    reserve    reserve      Total 
                   GBP 000       GBP 000      GBP 000      GBP 000      GBP 000      GBP 000 
Shareholders' 
funds as at 
31 December          105          50      9,674     21,830      2,808     34,467 
2009 
 
Return 
attributable 
to                     -           -          -     22,912      (103)     22,809 
shareholders 
               ----------  ---------- ---------- ---------- ---------- ---------- 
Shareholders' 
funds as at 
31 December          105          50      9,674     44,742      2,705     57,276 
2010 
                   ======      ======     ======     ======     ======     ====== 
 
For the year ended 31 December 2009 
 
                             Capital 
                   Share  redemption    Special    Capital    Revenue 
                 capital     reserve    reserve    reserve    reserve      Total 
                   GBP 000       GBP 000      GBP 000      GBP 000      GBP 000      GBP 000 
Shareholders' 
funds as at 
31 December          105          50      9,674      (175)      3,102     12,756 
2008 
 
Return 
attributable 
to                     -           -          -     22,005      (294)     21,711 
shareholders 
              ----------  ---------- ---------- ---------- ---------- ---------- 
Shareholders' 
funds as at 
31 December          105          50      9,674     21,830      2,808     34,467 
2009 
                  ======      ======     ======     ======     ======     ====== 
 
 
 
BALANCE SHEET 
(Audited) 
 
As at 31 December 2010 
                                                     31       31 
                                               December December 
                                                   2010     2009 
                                                  GBP'000    GBP'000 
Fixed Assets: Investments 
 
Investments at fair value through profit or 
loss                                            112,698   93,514 
                                                -------  ------- 
Current assets 
Debtors                                             310      421 
Cash at bank                                          5        1 
                                                -------  ------- 
                                                    315      422 
                                                -------  ------- 
Creditors (amounts falling due within one 
year)                                          (55,737)     (46) 
                                                -------  ------- 
Net current (liabilities)/assets               (55,422)      376 
                                                -------  ------- 
 
Total assets less current liabilities            57,276   93,890 
 
Creditors (amounts falling due after more than 
one year)                                             -  (59,423) 
                                                -------  ------- 
TOTAL NET ASSETS                                 57,276   34,467 
                                                 ======   ====== 
 
Capital and reserves: Equity interests 
Called up share capital: 
Capital shares                                      105      105 
 
Reserves: 
Capital redemption reserve                           50       50 
Special reserve                                   9,674    9,674 
Capital reserve                                  44,742   21,830 
Revenue reserve                                   2,705    2,808 
                                                -------  ------- 
TOTAL EQUITY                                     57,276   34,467 
                                                 ======   ====== 
 
Net Asset Values: 
  - per Income Share (Income Shares are 
classified as financial liabilities)            109.71p  104.75p 
 
  - per Capital Share                           522.82p  317.17p 
 
NOTE 
The Company had 24.5 million Income Shares and 10.5 million Capital Shares in 
issue as at 31 December 2010 and 31 December 2009. 
 
 
 
SUMMARY CASH FLOW STATEMENT 
(Audited) 
 
For the year ended 31 December 2010 
                                                          2010     2009 
                                                         GBP'000    GBP'000 
CASH FLOW STATEMENT 
 
Net cash inflow from operating activities                3,202    3,233 
                                                       -------  ------- 
Returns on investment and servicing of finance 
Dividends paid                                         (3,234)  (3,087) 
Interest and similar finance costs paid                (1,977)  (2,006) 
                                                       -------  ------- 
Net cash outflow from returns 
on investment and servicing of finance                 (5,211)  (5,093) 
                                                       -------  ------- 
Capital expenditure and financial investment 
Payments to acquire investments                       (28,423) (24,392) 
Receipts from sales of investments                      33,211   25,239 
                                                       -------  ------- 
Net cash inflow from capital 
expenditure and financial investments                    4,788      847 
                                                       -------  ------- 
Net cash inflow/(outflow) before financing activities    2,779  (1,013) 
                                                       -------  ------- 
Financing activities 
Loans (repaid)/drawn down                              (2,775)    1,150 
                                                     -------  ------- 
Net cash (outflow)/inflow from financing activities    (2,775)    1,150 
                                                       -------  ------- 
Change in cash during the period                             4      137 
                                                        ======   ====== 
 
Reconciliation of change in cash 
to movement in net debt 
 
Change in cash during the period                             4      137 
Loans repaid/(drawn down)                                2,775  (1,150) 
Change in fair valuation of interest rate swap             974      120 
Amortisation of issue costs during the period              (9)     (10) 
                                                       -------  ------- 
Change in net debt                                       3,744    (903) 
Opening net debt                                      (59,422) (58,519) 
                                                       -------  ------- 
Closing net debt                                      (55,678) (59,422) 
                                                        ======   ====== 
 
NOTES TO THE FINANCIAL STATEMENTS 
 
1.   ACCOUNTING POLICIES - BASIS OF ACCOUNTING 
 
The accounts have been prepared in accordance with UK generally accepted 
accounting practice (UK GAAP) and the AICs Statement of Recommended 
Practice "Financial Statements of Investment Trust Companies and Venture 
Capital Trusts" issued in January 2009.The total column of the Income 
Statement is the profit and loss account of the Company. All revenue and 
capital items in the Income Statement are derived from continuing operations. 
No operations were acquired or discontinued in the period. The same accounting 
policies used for the year to 31 December 2009 have been applied for the year 
to 31 December 2010. 
 
The Company continues to adopt the going concern basis in the preparation of 
the financial statements. The Directors considered the implications of the 
proximity to the planned winding-up date of 31 December 2011 in determining 
the most appropriate basis of preparing the financial statements and concluded 
that as a number of realistic alternatives to a wind-up exist and the 
continuation of the Company remains a viable option, and also taking into 
account the future expected cash flows and resources of the Company, it is 
reasonable to continue to prepare the financial statements on a going concern 
basis. As set out in the Chairmans Statement it is the Directors intention 
to put proposals to shareholders later in 2011 for the continuation, 
reconstruction or winding-up of the Company. The validity of the going concern 
basis depends on the Directors proposing the continuation of the Company and such 
a continuation vote being passed by shareholders. This condition indicates the 
existence of a material uncertainty which may cast significant doubt on the 
ability of the Company to continue as a going concern. The Directors, having 
considered the investment outlook, the objectives of both classes of 
shareholder, potential sources of funding to refinance the Companys bank debt 
facility and the future cash flows of the Company, are satisfied that it is 
appropriate to prepare the financial statements on a going concern basis. If 
at some point in the future any proposals for the continuation of the Company 
were not approved by shareholders or the Directors concluded no realistic 
alternative to a wind-up existed then adjustments would be required to 
reclassify all assets as current, and a provision for further liabilities, 
including liquidation costs, would be made. In the Directors' opinion the 
impact of these adjustments on the financial statements is not expected to be 
significant. 
 
 
2.   FINANCE COSTS 
                                     2010                          2009 
                           Revenue   Capital     Total   Revenue   Capital     Total 
                             GBP'000     GBP'000     GBP'000     GBP'000     GBP'000     GBP'000 
 
Interest on base rate           11        25        36        20        48        68 
loans/overdraft 
Interest on LIBOR loans        584     1,365     1,949       582     1,358     1,940 
Change in fair valuation         -     (974)     (974)         -     (120)     (120) 
of interest rate swap 
                         --------- --------- --------- --------- --------- --------- 
Total interest costs           595       416     1,011       602     1,286     1,888 
                          ========  ========  ========  ========  ========  ======== 
 
 
                                     2010                          2009 
                           Revenue   Capital     Total   Revenue   Capital     Total 
                             GBP'000     GBP'000     GBP'000     GBP'000     GBP'000     GBP'000 
 
Second interim dividend      1,642         -     1,642     1,642         -     1,642 
for the year ended 31 
December 2009 of 6.7p 
(2009: 6.7p) 
 
First interim dividend       1,592         -     1,592     1,445         -     1,445 
for the year ended 31 
December 2010 of 6.5p 
(2009: 5.9p) 
                         --------- --------- --------- --------- --------- --------- 
Total distribution costs     3,234         -     3,234     3,087         -     3,087 
                          ========  ========  ========  ========  ========  ======== 
 
A second interim dividend for the year ended 31 December 2010 of 7.5p will be 
paid to Income Shareholders on 25 February 2011. 
 
 
3.   RETURNS PER SHARE 
 
                                  2010                            2009 
                        Revenue    Capital     Total    Revenue    Capital     Total 
                          GBP'000      GBP'000     GBP'000      GBP'000      GBP'000     GBP'000 
 
Return on ordinary        (103)     22,912    22,809      (294)     22,005    21,711 
activities 
 
Add back dividends        3,234          -     3,234      3,087          -     3,087 
on Income Shares 
                      ---------  --------- ---------  ---------  --------- --------- 
Earnings                  3,131     22,912    26,043      2,793     22,005    24,798 
attributable to 
shareholders 
                       ========   ========  ========   ========   ========  ======== 
 
Number of Income 
Shares               24,500,000          -           24,500,000          - 
 
Number of Capital 
Shares                        - 10,500,000                    - 10,500,000 
 
Returns per share        12.78p    218.21p               11.40p    209.57p 
 
 
4.   NET ASSET VALUE PER SHARE 
 
Total net assets have been calculated in accordance with the provisions of 
Financial Reporting Standard 4. Income Shares are classified as financial 
liabilities and are carried on the balance sheet at their fair value of 100p 
each which results in a total fair valuation of the Income Shares of GBP 
24,500,000. This valuation does not reflect the rights of the Income Shares 
under the Articles of Association on a return of assets. Set out below is a 
reconciliation of Capital and Income share net asset values in accordance with 
the Articles. 
 
                                  2010                            2009 
                        Capital     Income              Capital     Income 
                         Shares     Shares     Total     Shares     Shares     Total 
                          GBP'000      GBP'000     GBP'000      GBP'000      GBP'000     GBP'000 
 
Net assets per           57,276          -    57,276     34,467          -    34,467 
Balance Sheet 
 
Revenue reserve         (2,705)      2,705         -    (2,808)      2,808         - 
 
Capital entitlement 
of Income Shares as 
at 31 March 2011              -     24,500    24,500          -     24,500    24,500 
 
Capital entitlement 
not yet transferred 
to Income 
Shareholders                325      (325)         -      1,644    (1,644)         - 
                      ---------  --------- ---------  ---------  --------- --------- 
Net assets per           54,896     26,880    81,776     33,303     25,664    58,967 
Articles 
                       ========   ========  ========   ========   ========  ======== 
Number of Income 
Shares                        - 24,500,000                    - 24,500,000 
 
Number of Capital 
Shares               10,500,000          -           10,500,000          - 
 
NAV per share           522.82p    109.71p              317.17p    104.75p 
 
 
5. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 
 
                                   2010      2009 
                                  GBP'000     GBP'000 
 
Loan facility                       175         - 
LIBOR loan facility              30,000         - 
Less: unamortised issue costs       (9)         - 
Income shares                    24,500         - 
Interest rate swap                1,017         - 
Other creditors                      54        46 
                              --------- --------- 
Total                            55,737        46 
                               ========  ======== 
 
 
6. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 
 
                                   2010      2009 
                                  GBP'000     GBP'000 
 
Loan facility                         -     2,950 
LIBOR loan facility                   -    30,000 
Less: unamortised issue costs         -      (18) 
Income shares                         -    24,500 
Interest rate swap                    -     1,991 
                              --------- --------- 
Total                                 -    59,423 
                               ========  ======== 
 
 
7.   FURTHER INFORMATION 
 
The foregoing do not comprise Statutory Accounts (as defined in section 434(3) 
of the Companies Act 2006) of the Company. The statutory accounts for the year 
to 31 December 2009, which contained an unqualified Report of the Auditors , 
have been lodged with the Registrar of Companies and did not contain a 
statement required under section 498(2) or (3) of the Companies Act 2006. 
 
Certain statements in this announcement are forward looking statements. By 
their nature, forward looking statements involve a number of risks, 
uncertainties or assumptions that could cause actual results or events to 
differ materially from those expressed or implied by those statements. Forward 
looking statements regarding past trends or activities should not be taken as 
representation that such trends or activities will continue in the future. 
Accordingly, undue reliance should not be placed on forward looking statements. 
 
Contact:     John Evans or David Ross - Aberforth Partners LLP - 0131 220 0733 
 
Aberforth Partners LLP, Secretaries - 27 January 2011 
 
END 
 

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