Chairman's Statement

Herald's remit is to exploit opportunities for investment in smaller quoted companies in multimedia, including media, IT, computing and communications in the belief that this area of the economy would perform relatively well. It is pleasing to report that, having outperformed the Hoare Govett Smaller Companies Index (the most relevant one) in its first financial period by 13.9%, Herald has outperformed the same index by a further 31.0% in the year ended 31 December 1995.These results vindicate the investment strategy. In an economy delivering relatively low overall growth, the prospects for returns from more mature areas appear to be limited and are unlikely to benefit from further reductions in dividend yield and cover. These have been, perhaps, the two most important drivers to the market over the last fifteen years. There remains, therefore, a sound argument for continuing to believe that the Herald investment universe will continue to offer the potential for superior returns.

1995 saw a reversal of the derating seen in most of the Herald portfolio in 1994, which led to a satisfactory rise in net assets of 47.2%. This growth exceeds the average rate of growth in the portfolio's earnings per share, which is nearer 25%, but the overall return since the launch of the fund in February 1994 of 39.6% does not, on average, reflect any material rerating.

The management company, which was renamed Herald Investment Management Limited on 24 November 1995, has been awarded first prize in the smaller companies investment trust category for Herald's performance by Investment Adviser; and received a similar second prize from Micropal for its one year performance, with the latter's assessment based on risk adjusted methods.

The US, the country where so many trends originate, presents some interesting investment opportunities. The manager further believes that investing an element of the portfolio in the US market will provide benefits from analytical cross referencing which can benefit performance in the UK and Continental Europe. The board has therefore decided to propose amending the geographic remit of the portfolio, so that the UK element may fall as low as 50% from a previous level of 75%, and the overseas element should include the rest of the world and not just the rest of Europe. The industry scope of the portfolio will remain the same, and Herald will continue to focus on smaller companies generally with market capitalisations below US$500m. The Board also proposes a 'C' share issue to effect this change with a limit of £30m of new funds.

Although investors should not expect to achieve an improvement in assets as high as 47.2% on a recurring basis, I continue to look to the future with confidence.

The information on this page is taken from the Report & Accounts 1995