HERALD INVESTMENT TRUST plc ANNUAL REPORT ...

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NOTES TO THE FINANCIAL STATEMENTS continued 21. Financial instruments (continued) (iii) Foreign Currency Risk (continued) Exposure to currency risk through asset allocation by currency of listing is indicated below: At 31 December 2010 Other debtors Cash and and Net Investments deposits Loans creditors * exposure £’000 £’000 £’000 £’000 £’000 US dollar 120,967 – – 3 120,970 Taiwan dollar 14,435 2,245 – – 16,680 Korean won 9,952 33 – – 9,985 Euro 8,994 – – (14) 8,980 Other overseas currencies 10,568 – – – 10,568 Exposure to currency risk on translation of valuations of securities listed in overseas currencies 164,916 2,278 – (11) 167,183 Sterling 330,485 37,219 (50,000) (10,325) 307,379 *Includes net non-monetary assets of £49,000. At 31 December 2009 495,401 39,497 (50,000) (10,336) 474,562 Other debtors Cash and and Net Investments deposits Loans creditors * exposure £’000 £’000 £’000 £’000 £’000 US dollar 94,068 – – 47 94,115 Taiwan dollar 12,583 1,010 – – 13,593 Korean won 12,451 31 – 36 12,518 Euro 8,420 – – 7 8,427 Other overseas currencies 8,215 – – – 8,215 Exposure to currency risk on translation of valuations of securities listed in overseas currencies 135,737 1,041 – 90 136,868 Sterling 244,720 17,510 (50,000) (8,202) 204,028 380,457 18,551 (50,000) (8,112) 340,896 *Includes net non-monetary assets of £28,000. Foreign currency risk sensitivity At 31 December 2010, had sterling strengthened by 10% (2009: 10%) in relation to all currencies, with all other variables held constant, total net assets and net return on ordinary activities after taxation would have decreased by the amounts shown on page 51 based solely on translation of securities quoted in currencies overseas. A 10% (2009: 10%) weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. However companies whose cost base diverges in currency terms from its sales will in the longer term have a significantly greater effect on valuation than simple translation. In the short term investee companies generally cover their currency exposure to varying degrees. There is insufficient publicly disclosed information to quantify this, but in the long term this effect is expected to dwarf simple translation of foreign listings in terms of both risk and reward, because many investee companies trade globally. Furthermore the country of listing is not necessarily an indication of the geography of some or even any operational activities for investee companies. The Manager does not use financial instruments to protect against currency movements. From time to time financial leverage has been made using debt in overseas currencies. 50
NOTES TO THE FINANCIAL STATEMENTS continued 21. Financial instruments (continued) (iii) Foreign Currency Risk (continued) 2010 2009 £’000 £’000 US dollar 12,097 9,411 Taiwan dollar 1,668 1,359 Korean won 998 1,252 Euro 898 843 Other overseas currencies 1,057 822 16,718 13,687 B. Credit Risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment which it has entered into with the Company. The Manager monitors counterparty risk on an ongoing basis. The Company has investments in convertible loan stocks that have an element of equity. These securities are viewed as having a risk profile similar to the equity holdings. This is because the convertibles held are in nascent technology companies that may be loss making and may have weak balance sheets. For this reason these stocks are categorised as equity holdings. The fixed interest securities held are UK Government securities and UK corporate bonds. Credit Risk Exposure The exposure to credit risk at 31 December was: 2010 2009 £’000 £’000 Fixed interest investments 20,151 26,027 Cash and short term deposits 39,497 18,551 Debtors and prepayments 1,316 1,593 60,964 46,171 The maximum exposure in fixed interest investments was £27,331,000 (2009 – £28,417,000) and the minimum £20,041,000 (2009 – £15,948,000). The maximum exposure in cash was £45,239,000 (2009 – £32,900,000) and the minimum £ 13,213,000 (2009 – £13,008,000). None of the Company’s financial assets are past due or impaired. C. Liquidity Risk The Company’s policy with regard to liquidity is to provide a degree of flexibility so that the portfolio can be repositioned when appropriate and that most of the assets can be realised without an excessive discount to the market price. The Company’s unlisted investments are not readily realisable, but these only amount to 0.7% of the Company’s total assets at 31 December 2010 (2009: 0.9%). In practice, liquidity in investee companies is imperfect, particularly those with a market value of less than £100 million. To reduce this liquidity risk it is the policy to diversify the holdings and generally to restrict the holding in any one company to less than 10% of the share capital of that company. Furthermore the guideline is for no single investment to account for more than 5% of the assets of the Company. The market valuation of each underlying security gives an indication of value, but the price at which an investment can be made or realised can diverge materially from the bid or offer price depending on market conditions generally and particularly to each investment. 32% (£160 million) (2009: 36% (£135 million)) of the portfolio is invested in stocks with a market capitalisation below £100 million, where liquidity is expected to be more limited. If these stocks had on average a realisable value 20% below the bid price the value of the total fund would be adversely affected by 6.4% (2009: 7.1%). HERALD INVESTMENT TRUST plc 51
Page 1 and 2: HERALD INVESTMENT TRUST plc ANNUAL
Page 3 and 4: COMPANY SUMMARY COMPANY DATA AT 31
Page 5 and 6: LONG TERM PERFORMANCE SUMMARY The f
Page 7 and 8: CHAIRMAN’S STATEMENT The macroeco
Page 9 and 10: INVESTMENT MANAGER’S REPORT At th
Page 11 and 12: INVESTMENT MANAGER’S REPORT conti
Page 13 and 14: INVESTMENT MANAGER’S REPORT conti
Page 15 and 16: TOP TWENTY EQUITY HOLDINGS continue
Page 17 and 18: CLASSIFICATION OF INVESTMENTS Class
Page 19 and 20: DETAILED LIST OF INVESTMENTS contin
Page 21 and 22: DETAILED LIST OF INVESTMENTS contin
Page 23 and 24: TEN YEAR RECORD At 31 December Tota
Page 25 and 26: DIRECTORS’ REPORT continued A his
Page 27 and 28: DIRECTORS’ REPORT continued Meeti
Page 29 and 30: DIRECTORS’ REPORT continued Audit
Page 31 and 32: DIRECTORS’ REPORT continued Major
Page 33 and 34: DIRECTORS’ REMUNERATION REPORT Th
Page 35 and 36: STATEMENT OF DIRECTORS’ RESPONSIB
Page 37 and 38: INDEPENDENT AUDITOR’S REPORT cont
Page 39 and 40: BALANCE SHEET AT 31 DECEMBER 2010 2
Page 41 and 42: CASH FLOW STATEMENT FOR THE YEAR EN
Page 43 and 44: NOTES TO THE FINANCIAL STATEMENTS c
Page 51: NOTES TO THE FINANCIAL STATEMENTS c
Page 57 and 58: NOTICE OF ANNUAL GENERAL MEETING co

HERALD INVESTMENT TRUST plc ANNUAL REPORT ...

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