Chairman's Statement

The investment policy of the Company continues to aim to exploit growth opportunities in small quoted companies in the field of multi-media; this includes media, IT, computing and communications in the belief that this area of the economy will perform relatively well. This strategy is justified by the growth in net assets in 1998 exceeding the return of other smaller companies investment trusts according to various tables- and is the more pleasing because it is the third time that this has been achieved in four years. It now also means that the asset growth continues to exceed other small company investment trusts since its inception in February 1994 in spite of the dilutive effects of the warrants in issue, and the absence of financial gearing.  In 1998 this success has been achieved despite the fact that, as in 1997, small companies have significantly under-performed large capitalisation stocks, particularly in the Trust's two most important markets, the UK and US.  The Trust has outperformed the two most relevant indices by 26.8% (HGSCI) and 7.7% (Russell 2000 small cap Technology Index) and has even exceeded the FTSE-100.  The fully diluted assets per share fell in the second half by 5.6%, having risen 25.5% in the first half.  However, it is pleasing to note that the first half outperformance, relative to the HGSCI, of 12.0% was exceeded in the second half, because that index declined by 19.2% which is 13.6% more than the Trust's decline.   The Trust has therefore significantly outperformed in both a rising and a falling market.

The Trust acquired 1,477,620 of its own warrants for an aggregate consideration of about £0.9m in 1997, and continued this policy in 1998 with the purchase of a further 6,090,737 warrants for £4.62m.  The Company will continue to buy in warrants as and when they become available at an appropriate discount in order to enhance shareholder value.

The Trust started the year with a record discount of 19.4% (fully-diluted), and ended at a similar level of 19.2%. It is disappointing that during the year the volatility of the discount compounded the volatility of the assets to such a great extent. I have noticed that some shrewd investors have taken advantage of this anomoly.

The earnings performance in 1998 has been tempered by the reduction in recoverable advance corporation tax, which had an impact of £208,000.   Earnings for 1997 included recoverable advance corporation tax of £213,000 (1996: £126,000).

The investment manager was tempted to gear the portfolio in October.  The Board meeting at the end of October duly approved borrowing up to £15m.  However, by the time the facility was available, markets had significantly rebounded.  Since the year end a 5-year term loan in Yen of £3m has been put in place and the investment manager has the capacity to borrow further if a similar market correction occurs.

The internet, business intelligence, mobile telephony and pay TV continue to be major demand drivers in the targeted field. There is no reason why companies will not continue to emerge with high growth prospects as they have over the last five years, since the Trust was launched.  These stocks have enabled premium returns.

The information on this page is taken from the Report & Accounts 1998