HERALD INVESTMENT TRUST plc ANNUAL REPORT ...

DIRECTORS’ REPORT continued
A historical record of these measures is shown on pages 2, 3 and 21.
In addition to the above, the Board considers peer group comparative performance.
Results and Dividend
The net asset value (NAV) of the Company at 31 December 2010 was 593.85p per Ordinary share (2009 –
420.58p). This represented an increase of 41.2% during the year, compared to an increase in the comparative
index of 33.1%. The discount narrowed from 19.7% to 18.7%.
The Directors do not recommend a dividend (2009 – 0.30p) per Ordinary share for the year ended 31
December 2010.
Review of the Year and Future Trends
A review of the year and the investment outlook is contained in the Chairman’s Statement and the Investment
Manager’s Report on pages 5 to 11.
Principal Risks and Uncertainties
The Company’s assets consist mainly of listed securities and its principal risks are therefore market related and
include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit
risk. An explanation of those risks and how they are managed is contained in note 21 to the accounts on pages
47 to 53.
Other risks faced by the Company include the following:
Regulatory Risk – failure to comply with applicable legal and regulatory requirements could lead to suspension
of the Company’s Stock Exchange Listing, financial penalties or a qualified audit report. Breach of Section 1159
of the Corporation Tax Act 2010 (formerly Section 842 ICTA 1988) could lead to the Company being subject to
tax on capital gains. The Manager’s Compliance Officer and Baillie Gifford’s Heads of Business Risk & Internal
Audit and Regulatory Risk provide regular reports to the Audit Committee on their monitoring programmes.
The Manager monitors investment movements and the Secretary monitors the level of forecast income and
expenditure to ensure the provisions of Section 1159 are not breached.
Operational/Financial Risk – failure of the Secretary’s accounting systems or those of other third party
service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation
of assets. The Audit Committee reviews the Secretary’s Report on Internal Controls and the reports by other
key third party providers are reviewed by the Secretary on behalf of the Audit Committee.
Discount Volatility – the discount at which the Company’s shares trade can widen. The Board monitors the
level of discount and the Company has authority to buy back its own shares.
Gearing Risk – the Company may borrow money for investment purposes (sometimes known as ‘gearing’).
If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are
not renewed, the Company may have to sell investments to repay borrowings.
All borrowings require the prior approval of the Board and gearing levels are discussed by the Board and
Managers at every meeting. The majority of the Company’s investments are in quoted securities.
Employees
The Company has no employees.
Social and Community Issues
As an investment trust, the Company has no direct social or community responsibilities. However, the Company
believes that it is in the shareholders’ interests to consider environmental, social and governance factors when
selecting and retaining investments. Details of the Company’s policy on socially responsible investment are
set out on page 27.
HERALD INVESTMENT TRUST plc 23