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31 March 2009

The Value Catalyst Fund Limited

Unaudited Interim Report

For the Period from 1st July, 2008 to 31st December, 2008

Investment Manager's Report

For the six months ended the 31st December, 2008 The Value Catalyst Fund (the 'Fund' or 'VCF') returned (62.75%). By comparison, the S&P 500 was down 29.43% and the FTSE 100 ($ terms) was down 42.27%. From inception to the 31st December, 2008 VCF was down 0.16%, with the FTSE 100 ($ terms) down 32.30% and the S$P 500 down 37.9%.

The last six months has seen some of the most turbulent markets in recent history, with the very integrity of the financial system pushed to the limit. The banks have failed and that has had massive consequences for markets, counterparties and liquidity. A period where the loss of trust not just in any assets but in which bank to even leave deposits in, is only just working itself out and how to function in a new world. A world where state policies will not only run the banking system and define available capital, but play with numbers on such an incredible scale, that no one, not even the policy makers themselves, know how the response will play out. The period of complete chaos in the banking system is being followed by an all too obvious and dramatic slow-down in the real economy. Economic numbers are shocking and visibility of earnings very poor. Good quality or predictable income is a valuable asset indeed at the moment and there is a big difference in companies with income reliant on debt rollovers or rent renewals and those without, even if the underlying businesses are much the same.

VCF is an activist investor with concentrated positions and leverage and that has been a difficult area to be in over the last year. While VCF has been leveraged, most of the major positions in the portfolio have low leverage. We continue to own three first class companies as our largest assets and while valuations of such assets has fallen over the period, none of these companies are in financial distress. Celtic is a property company based in Warsaw with an enviable balance sheet and a growing asset management business. Its land bank and property is worth less today but it's a sound company well placed to take advantage of opportunities. It paid a €14m dividend last year and will likely pay dividends as assets are realized going forward. Implenia, our Swiss friend, has put in another set of great results and has a good order book for the next couple of years and TDG our most recent acquisition has shown better than hoped for cost reductions. It has been a difficult period but we like our portfolio and see good value there. We will reduce leverage through a combination of realizations from corporate restructurings from closed-end fund transactions and some sales of equity positions where a transaction is completed. We are moving towards a position in general where we will reduce leverage but still concentrate on value situations, predominantly in closed-end funds. It's the closed-end funds where we see the most value at the moment and it's also an area where there has been a rash of activity too. Many funds have crashed to such huge discounts that corporate activity was bound to be an ever more rational, or perhaps only way to realize a position of any significant size, say more than 10%. Many funds have either addressed this directly or received EGM notices as a result of pressure from a wider range of investors. We have also had an active period in funds with a range of different corporate actions, the major ones are covered below. We would expect this to continue over the next year.

The portfolio of VCF is split almost evenly between closed-end fund positions and non closed-end fund positions - although since the 31st December, 2008 exposure to closed-end funds has increased to take advantage of the widening discounts in the sector.

What follows is a review of VCF's largest portfolio positions, beginning with the Fund's closed-end fund holdings.

Closed-end funds

Update: Alternative Investment Trust ('AIT'), formerly Everest Babcock and Brown Investment Trust ('EBI')

 

EBI was an Australian listed investment trust that had exposure to a portfolio of absolute return funds and select direct investments. With an objective to generate risk-adjusted absolute returns over the medium-to-long term, over the course of 2007 and 2008, EBI traded at a significant discount to NTA.

Following calls from Laxey Partners Limited ('Laxey') and other concerned unitholders for EBI's then management to address this discount, the EBI Responsible Entity (equivalent of a board) responded with a limited buy-back of units and a declaration last May that it intended to introduce more lasting discount containment measures.

These measures had limited success and after unitholders rejected EBI's suggestion that it should de-list and then manage a run-off vehicle of the assets, Laxey via an EGM called for Everest to be removed as Responsible Entity and replaced with Permanent Investment Management Ltd ('PIML'). In turn, PIML has given Laxey an advisory mandate to help liquidate what is now known as AIT.

The portfolio itself is very interesting, with considerable demand existing already on the secondary market. The structure of AIT is such that the majority of assets are held via a SWAP, the terms of which require that the leverage facility on the SWAP is repaid ahead of any unitholder distributions.

Meanwhile the fund continues to trade at a near 70% discount and while we are not certain of being able to repay 100% of the NTA in liquidation proceeds, we believe strongly that the discount massively overstates any risks remaining in the portfolio.

Update: Celtic Property Development SA ('Celtic') 

Formerly EEDF, a closed-end fund re-organised by Laxey, Celtic is one of eastern Europe's leading property developers and managers. Despite difficult trading conditions experienced by all property companies over the last six months in particular, Celtic has continued to show resilience. In September 2008, the completion of the Luminar Building in the Mokotow district of Warsaw allowed the finalisation of a pre-sale agreement to a German fund, with the building fully let to one tenant. In October 2008, the retail property in Łodz was sold with the proceeds allowing Celtic to reduce the levels of debt on the group balance sheet. In December 2008, the Mokotow Plaza Building Phase I was completed and by the end of year was already 60% leased. The pre-sales of the residential properties in early 2009 are also going well with the planned finishing of the first phase due in June 2009 and the second phase in September 2009.

With limited bank financing available and significant uncertainty as to the demand for office space in the short-to-medium term, Celtic has postponed the development of other office development projects, whilst continuing to seek additional income from alternative sources. This is highlighted by the award to Celtic, in March 2009, of a property management contract in the UK. Further developments of this strategy are being pursued. Celtic is continuing to cooperate with, and to provide assistance to, the Warsaw city authorities to progress the planning changes hoped for in respect to the large 56ha Ursus site in Warsaw. It is anticipated that the Usrus site will be a driver of value for the group in the coming years with the potential for over 600,000 sqm of letable/saleable space being zoned for the area.

The clearing of a significant amount of the outstanding debt due by the company in 2008 and the 'retrenching' and diversification activities of the company make it well placed for 2009.

Eaglet Investment Trust Plc ('Eaglet'), now called the Directors Dealing Investment Trust Plc

Eaglet has a new name, changed investment policy, new investment manager and a tender off for up to 49% of its shares in issue.

This is in response to calls from shareholders - of which Laxey was one - that Eaglet address the discount at which its shares were trading to NAV and allow those shareholders that wanted it, an exit via a tender offer. After what has seemed one of the longest re-organisations in memory Eaglet has finally posted tender documents and just over half the NAV will be paid out immediately.

Hirco Plc

Laxey Partners has been a shareholder in Hirco since March 2007 and currently holds just over 10% of the issued share capital. Hirco is an AIM listed provider of finance to Indian real estate developers. As at the 31st March, 2009 Hirco was trading at a 92% discount to the last published 30th September, 2008 NAV. 

To address this discount, Laxey had asked the board of Hirco to consider various discount containment measures. On the 18th December, 2008 Hirco announced proposals whereby it would effectively buy-out its largest shareholder's - the Hiranandani family of India - subordinated profit share arrangements in respect of Hirco's underlying property projects and purchase from the Hiranandani family a loss making development company whose sole client was Hirco. In return, Hiranandani would see its family shares of Hirco increasing to a 50.6% stake via the ultimate dilution of the Hirco NAV.

The Hiranandani family and Hirco were horribly conflicted even before these proposals were conceived. Hirco has purchased land in the past from its largest shareholder (Hiranandani) as well as being the only client of Hiranandani's loss making development company. 

When it became apparent that such proposals could never be supported by Hirco's shareholders, they were withdrawn. Of concern to Laxey however, is the role and independence of Hirco's non-executive directors. That they allowed such a scheme to see the light of day calls into question their ability to perform the very function of independent non-executive directors.

To this end, Laxey has called - via an EGM - for the removal of three non-executives, Niranjan Hiranandani, David Burton and Nigel McGowan, and for Hirco to consider the appointment of a director who is independent of the Hiranandani family to act as chairman. Laxey has written two letters on this situation and would be happy to post them to interested parties, and the EGM will be held on the 6th May, 2009 This one might have a way to run yet and we are sure more interesting facts will be uncovered.

Marfin Investment Group ('MIG')

MIG is a Greek holding company, formed to take strategic stakes in largely European assets and either put them in to play for other strategic buyers to takeover or take them over themselves. 

MIG is large and liquid and as a consequence is used by forced sellers or investors looking for liquidity. Trading at a valuation just above its cash and no debts, MIG continues to take advantage of numerous consolidation opportunities that exist in European territories infrastructure and has a portfolio of listed and private assets. It has recently announced a deal to purchase part of Olympic Airways and will continue to take strategic stakes but also pay good dividends and buy-back stock.

Non Closed-end funds

Update: Charles Voegele

Charles Voegele is a major independent European fashion retailer with 851 branches in Switzerland, Germany, Austria, Belgium, the Netherlands, Slovenia, Hungary, Poland and the Czech Republic.

Fashion retailer Charles Voegele managed to increase sales to CHF1.4bn (after adjusting for currency movements) in 2008 despite difficult operating conditions. Profitability fell significantly, mainly because of low sales in the most important months, which were negatively influenced by a series of external factors that had a decisive influence on the whole clothing trade. The first of these was the unseasonable weather that prompted low sales and an even bigger impact on profits. The second was the general decline in consumer sentiment in the second half of 2008. Consequently, EBITDA declined to CHF116m (from CHF156m), cash flow from operating activities amounted to CHF103m (from CHF111m), and, after deducting investments of CHF79m (CHF74m), free cash flow came to CHF24m (CHF37m). Net debt was reduced over the year under review to CHF152m (from CHF156m). The equity ratio was unchanged at a high 56% (from 57%).

A dividend in the form of a capital distribution (tax-free) of CHF0.50 will be paid out.

André Maeder, an internationally experienced branding and fashion professional with a first-class track-record took over as CEO in February 2009. He used to be a member of the management board of Hugo Boss Ltd in Germany prior to that he was deputy chairman of S.Oliver in Germany and Chief Operating Officer of Harrods in London.

Laxey, together with two other shareholders, told Voegele Board that it will not support the re-election of the Chairman and the Vice-Chairman. It is this shareholder group's strong belief that in order for the new CEO to become effective in the much needed repositioning of the group, a more dynamic and smaller board is required.

Update: Implenia AG

Implenia, Switzerland's leading construction services group of which we are the largest shareholder, was formed following the merger of two leading Swiss construction companies in March 2006. It provides general contracting, industrial and commercial construction services as well as real estate development. Implenia has a high quality balance sheet and a valuable land bank and as a result of the company's attractive positioning in Switzerland as the undisputed market leader and its expertise in infrastructure development, Implenia is of strategic interest to leading European and global contractors.

Implenia recently reported results for 2008 that were in line with our expectations. Turnover was practically the same as in the previous year at CHF2.3bn, while operating results rose by 60% to CHF 61m. The Group's overall results increased to CHF42m (from CHF26m) to which all the divisions contributed. Further, 2008 was the first year not to be affected by merger-related exceptional costs. Implenia reinforced its balance sheet by raising its equity ratio to 31.2% (equity capital of CHF425m) and by improving its net cash position to CHF37m (from a previous year net debt of CHF117m) thanks to an improved free cash flow of CHF169m. Due to an 18% rise in orders (total of CHF3bn) and its even stronger position as market leader, Implenia is confident about the 2009 financial year despite the difficult economic environment. 

Management has, however, prepared appropriate action plans for various possible scenarios. In the current business climate, the company's managers are making permanent cost optimisation and maintaining high levels of liquidity a priority. The high proportion of orders from the public sector (c. 60%) also provides stability, and the Swiss government's planned economic stimulus programme should help the market. About 80% of the turnover budgeted for 2009 is already secured by the order book. Lastly, a dividend in the form of a capital distribution (tax-free) of CHF0.50 will be paid out.

Laxey and Implenia

Implenia alleges that Laxey broke Swiss disclosure rules in how we acquired and declared our initial shareholdings in the company. The Swiss Banking Commission ruled in favour of Implenia's assertion. We consider the Swiss Banking Commission's ruling to be flawed and are currently appealing to the Swiss Federal Supreme Court. When Implenia accused Laxey of breaking disclosure rules, it also refused to register the voting rights of our holding beyond a 4.9% stake. This entirely unjustifiable action, in our opinion, is with the Swiss Commercial Court and a ruling on Implenia's actions is expected mid 2009.

In the interim, as the company's largest shareholder, Laxey is in dialogue with Implenia in order to find a reasonable solution for all involved parties. In parallel, Laxey is in discussions with potential strategic partners that have expressed an interest in our stake.

LIT Plc and TDG Plc

LIT Plc is an investment holding company listed on AIM, majority owned by funds managed by Laxey. 

In October 2009 LIT Plc merged with The Laxey Investment Trust a listed vehicle also managed by Laxey and simultaneously acquired TDG Plc, one of Europe's major supply chain management and logistics service providers with 7,300 employees and operations in the UK, Ireland, France, Spain, the Netherlands and Belgium. 

Since the acquisition of TDG, the company, under the guidance of Laxey, has substantially restructured the group streamlining the business and reducing the cost base making TDG best placed to weather the current economic storm. The business, benefiting from the need of corporates to save costs and thus to outsource to specialist providers, is proving resilient to the challenging economic environment. 

LIT Plc is now repositioning the TDG group to take advantage of market opportunities in particularly in the Supply Chain Management area where the company offers leading edge solutions to large customers. As part of the TDG acquisition LIT Plc inherited a property portfolio of some 6m sq ft of industrial warehouses on 18.5m sq ft of land. LIT Plc is now working with Celtic Property Development as advisor to maximize and realize value from these assets. 

PubliGroupe

PubliGroupe is a marketing and sales organisation dedicated to the sale of advertising space for the media in Switzerland and other countries. PubliGroupe's main business is in the press, directories and internet sectors. It is also expanding into television and cinema.

PubliGroupe's operating results (CHF40m) were positive overall for 2008 however, the advertising markets and media sales activities were hit hard by the financial and economic crisis. The amortisation of goodwill and impairments on (non-operating) financial assets helps explain the net loss of (CHF42m) posted by the company. 

PubliGroupe lived off its substance for too long a time. Its strong balance sheet allowed it's board to ignore fundamental changes in the market place. Laxey has had numerous discussions with the PubliGroupe board and its CEO in which we addressed future oriented strategies for the different businesses in their portfolio, and for the substantial non-operating assets. However, it would seem that its board does not see the need to adapt to the new market environment and is not receptive to strategic change. The Company's two largest shareholders - two foundations - have showed little willingness to take any measures in order to protect the value of their investment.

Laxey began to sell its position when the market deteriorated further and when it was announced that the current CEO will take over as Chairman. Two independent board members stepped down as they could not support the strategy or the woeful corporate governance. Unfortunately, PubliGroupe is a classic example of a 'value trap' - strong balance sheets can allow ignorance! With a market cap of CHF110m as at 13th March, 2009, PubliGroupe is valued at 0.26x book value.

Swissmetal

Swissmetal produces and sells worldwide high-quality special products made of copper and copper alloys which are mainly used in the electronics, telecommunications, air travel, petroleum, automobile, stationery and watch/clock industries and in the architectural sector.

Since 2006 Swissmetal has reduced full time employees from 900 to 620, concentrated sites, and reduced personal expenses by about 30%. Savings of 5-10% on operating expense have been achieved in the last three years. However, the impact of these savings has been offet by a sharp increase in electricity prices. 

Despite the current global economic crisis, the subsidiary Swissmetal Design Solutions AG continues to progress according to plan with the development of the Atmova system, the energy providing solution with high standards of aesthetics and design.

A representative of Laxey is on the Swissmetal Board. The Company mentioned on several occasions that it wants to actively participate in the consolidation of its industry and is continuously assessing opportunities in this regard.  

Income Statement (Unaudited)

For the period from 1st July, 2008 to 31st December, 2008

		2008 US$		2007 US$   (Note 1)
Dividends		5,322,529		5,986,622
Interest
- Cash balances		274,931		1,304,530
- Debt securities		113,923		142,955
- Derivatives		192,622		18,365
Net realised gains/(losses) on realisation of financial assets and liabilities at fair value through the profit and loss
- Equities and funds		(49,514,585)		30,679,909
- Debt securities		-		(2,649)
- Derivatives		11,560,289		(6,657,679)
- Forwards		60,976,351		(11,477,397)
Net unrealised gains/(losses) on financial assets and liabilities other than currency forwards at fair value through the profit and loss
- Equities and funds		(177,688,930)		(25,796,702)
- Debt securities		-		72,041
- Derivatives		(869,234)		2,716,947
Net unrealised losses on currency forwards at fair value through the profit and loss		(10,940,801)		(1,659,301)
Total investment expense		(160,572,905)		(4,672,359)
Expenses Dividends payable on short positions		351,180		409,236
Investment management fee		900,317		1,055,698
Administration fee		171,890		246,275
Audit fees		16,169		15,399
Directors' fees		63,310		59,505
Bad debt provision		401,163		-
Other expenses		1,136,447		799,949
Interest expense
- Cash balances		3,249,880		5,126,328
- Derivatives		100,372		1,850,513
Total expenses		6,390,728		9,562,903
Net loss
		(166,963,633)		(14,235,262)
Loss per ordinary share Basic and fully diluted		US$(1.24)		US$(0.11)

Balance Sheet (Unaudited) As at 31st December, 2008	31st December,   2008		30th June,   2008		31st December,   2007
Assets Investment funds - long	US$ 39,575,193		US$ 165,653,586		US$ 177,198,861
Investment funds - long swaps	834,030		118,180		4,638,566
Equities - long	188,915,184		271,097,693		204,048,716
Equities - long swaps	396,162		131,991		60,504
Equities - short swaps	-		-		85,007
Equities - warrants	2,435,189		2,760,161		378,193
Index swaps - short	340,660		666,225		1,134,323
Debt securities	-		-		264,460
Futures - short	199,872		3,326,317		361,676
Amounts receivable on currency forwards	4,748,188		1,203,688		2,837,531
Cash at bank and brokers	4,704,764		6,653,509		10,750,078
Cash held as margin at brokers	9,962,151		13,175,093		45,975,048
Amounts due from outstanding sale settlements	48,817		1,027,541		253,457
Other debtors and accrued income	2,528,649		3,335,926		2,300,424
Loans receivable	1,870,552		2,649,991		2,945,588
Total assets	256,559,411		471,799,901		453,232,432
Equity Share capital	1,619		1,420		1,420
Share premium	171,291,268		154,115,451		154,115,454
Retained earnings	(70,362,890)		113,776,759		124,012,974
Total shareholders' funds	100,929,997		267,893,630		278,129,848
Liabilities Investment funds - short	-		1,461,128		3,618,666
Investment funds - long swaps	1,552,468		3,573,180		8,893,026
Equities - long swaps	100,448		170,144		2,383,195
Equities - short	1,217,321		12,102,599		12,582,157
Equities - short swaps	-		-		2,231,732
Index swaps - short	131,266		-		523,511
Futures - short	111,977		80,562		1,190,045
Amounts payable on currency forwards	21,205,292		6,719,991		3,948,267
Overdrawn balances at brokers	130,363,105		160,004,564		137,886,034
Amounts due for outstanding purchase settlements	-		18,886,169		768,988
Other creditors and accrued expenses	947,537		907,934		1,076,963
Total liabilities	155,629,414		203,906,271		175,102,584
Total liabilities and equity	256,559,411		471,799,901		453,232,432
Net asset value per ordinary share	US$0.66		US$2.03		US$2.11

Statement of Changes in Net Assets (Unaudited)

For the period from 1st July, 2008 to 31st December, 2008

	2008 Total US$		2007 Total US$ (Note 1)
Balance at 1st July	267,893,630		293,973,378
Decrease in net assets arising from operations	(166,963,633)		(14,235,262)
Dividend	-		(14,144,005)
Issue of ordinary shares	-		12,535,737
Balance at 31st December	100,929,997		278,129,848

On 11th December, 2008, there was a capitalization in lieu of dividend of US$17,176,016. As a result of this capitalization, 19,928,085 additional ordinary shares were issued.

Cash Flow Statement (Unaudited) For the period from 1st July, 2008 to 31st December, 2008
	2008 US$	2007 US$ (Note 1)
Operating activities Net loss arising from operations	(166,963,633)	(14,235,262)
Adjustments: Net realised gains on investments	(23,022,055)	(12,542,184)
Net movement in unrealised depreciation on: - investments	178,558,164	23,007,714
Net movement in unrealised depreciation on: - currency forwards	10,940,801	1,659,301
Decrease/(increase) in debtors and accrued income	807,277	(764,346)
Decrease/(increase) in loans receivable	779,439	(221,804)
Increase/(decrease) in creditors and accrued expenses	39,603	(13,748,204)
Net cash inflow/(outflow) from operating activities	1,139,596	(16,844,785)
Investing activities Purchase of investments	(123,338,830)	(214,583,748)
Sale of investments	146,679,006	251,877,467
Decrease in cash held as margin	3,212,942	11,481,925
Net cash inflow from investing activities	26,553,118	48,775,644
Financing activities Dividend paid	-	(3,146,410)
Issue of shares	-	1,538,142
Net cash outflow from financing activities	-	(1,608,268)
Increase in cash and cash equivalents	27,692,714	30,322,591
Cash and cash equivalents at the beginning of the period	(153,351,055)	(157,458,547)
Cash and cash equivalents at the end of the period	(125,658,341)	(127,135,956)

Notes to the Financial Statements (Unaudited)

For the period from 1st July, 2008 to 31st December, 2008

1.  Accounting policy

The interim financial statements have been prepared in accordance with International Accounting Standard 34: Interim financial reporting. Accounting policies have been applied on a consistent basis with those adopted for the last full financial year.

Comparative figures

The comparative figures shown in the Income Statement, the Statement of Changes in Net Assets and the Cash Flow Statement relate to the corresponding interim period for the preceding financial year, 1st July, 2007 to 31st December, 2007. 

Estimates

The preparation of financial statements in conformity with International Financial Reporting Standards requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Management believes that the estimates utilised in preparing its financial statements are reasonable and prudent, however, actual results could differ from these estimates. The most significant estimates and judgements that are required to be made are in respect of the valuation of investments for which no reliable market price is available (see note 3).

2.  Cash held as margin at brokers

	31st December, 2008		30th June, 2008		31st December,   2007
	US$		US$		US$
Cash at bank and brokers	10,363,314		13,175,093		45,975,048
Less: Provision for doubtful debts	(401,163)		-		-
	9,962,151		13,175,093		45,975,048

The provision for bad debts represents a 100% provision against a holding in Kaupthing Singer & Friedlander.

3.  Investments

	31st December, 2008		30th June, 2008		31st December,   2007
	US$		US$		US$
Long positions:   Market value	230,502,843		436,018,287		375,313,079
Cost	358,604,740		389,942,928		314,923,874
Short positions:   Market value	(920,033)		(9,651,747)		(18,565,105)
Proceeds	(1,462,627)		(14,575,330)		(16,645,503)

All of the Company's investments are classified as held for trading and are stated at quoted market prices, where available.

Investments valued by the Directors for which no reliable quoted market prices are available are Celtic Property Development S.A., LIT plc and Balkan Reconstruction Investment Company plc.

The Company has a holding in Celtic Property Developments S.A. (Celtic) of US$44,814,158, or 44.40% and 17.47% of the Net Asset Value and Total Assets of the Company, respectively as at 31st December, 2008.  The Directors, with the advice of the Investment Advisor, consider that although Celtic has a stock market quotation, trading is not sufficient to enable the quoted price to be a reliable estimate of fair value. Therefore, the Directors, with the advice of the Investment Advisor, have estimated the fair value based on the proportionate share of the estimated net asset value of Celtic as at 31st December, 2008. This has resulted in a write down from €54 per share at 30th June, 2008 to €35 per share at 31st December, 2008.

The Company has a holding in LIT plc (LIT) of US$37,469,101, or 37.12% and 14.60% of the Net Asset Value and Total Assets of the Company, respectively as at 31st December, 2008.  The Directors, with the advice of the Investment Advisor, consider that although LIT has a stock market quotation, trading is not sufficient to enable the quoted price to be a reliable estimate of fair value. Therefore, the Directors, with the advice of the Investment Advisor, have reviewed the fair value based on comparable earnings multiples and the value of the property portfolio. On the basis of this review, the Directors have determined that there has been no significant change to the cost of acquisition and therefore have continued to carry the investment at cost.

The Company has a holding in Balkan Reconstruction Investment Financing S.C.A. (BRIF) of US$6,310,959, or 6.25% and 2.46% of the Net Asset Value and Total Assets of the Company, respectively as at 31st December, 2008.  BRIF is not quoted and the Directors, with the advice of the Investment Advisor, consider that the latest reported net asset value as at 30th June, 2008 is not a reliable estimate of fair value. Instead the price has been maintained at the previous reported net asset value as at 31st December, 2007, which the Directors consider approximates fair value.

These three investments comprise a combined total value of US$88,594,218 or 87.78% and 34.53% of the Net Asset Value and Total Assets of the Company, respectively as at 31st December, 2008. The net change in fair value for the period resulting from these three investments recorded in the income statement amounted to a loss of US$37,012,717.

The Company has an investment in Implenia AG valued at US$64,450,252 as at 31st December, 2008.  On 28th March, 2008, when Laxey Partners ended its takeover offer for Implenia, the funds managed by Laxey Partners Limited, the Investment Manager, had a combined shareholding of 38.1%.   The Board of Directors of Implenia AG still refuses to properly register the full voting rights of shares held by Laxey funds beyond a 4.9% stake.  Laxey's appeal to the Federal Administrative Court has been unsuccessful.  A further appeal is being pursued in the Federal Supreme Court. As previously, Laxey is advised by its Swiss lawyers that there are strong grounds for an appeal.  Further, based on the advice received, Laxey Partners Limited believes that there is no material likelihood of the funds suffering loss as a consequence of the ruling. The Directors, having reviewed the legal advice received by Laxey Partners Limited, concur with the views of Laxey Partners Limited expressed above.

 4.  Issued Share capital

	Period ended 31st  December, 2008 US$			Period ended 31st  December, 2007 US$
Ordinary shares of US$0.00001 each At 1st July	1,320			1,261
Issued during period	-			7
Issued on account of dividend reinvestment	-			52
Capitalization in lieu of dividend	199			-
At 31st December	1,519			1,320
Founder shares of US$1 each
At 31st December	100				100
Total issued share capital	1,619				1,420
Number of ordinary shares At 1st July	132,123,198				1,261,731
Issued during period	-				7,009
Issued on account of 100:1 Stock split	-				125,605,260
Issued on account of dividend reinvestment	-				5,249,198
Capitalization in lieu of dividend	19,928,085				-
	152,051,283				132,123,198
Number of founder shares At 31st December	100				100

5.  Share premium

		Period ended 31st December, 2008 US$		Period ended 31st December, 2007 US$
	At 1st July	154,115,451		141,579,776
	Relating to capitalization/share issues	17,175,817		12,535,675
	At 31st December	171,291,268		154,115,451

6.  Retained earnings

	Period ended 31st December, 2008 US$		Period ended 31st December, 2007 US$
At 1st July	113,776,759		152,392,241
Operating loss for the period	(166,963,633)		(14,235,262)
Dividend	-		(14,144,005)
Capitalization in lieu of dividend	(17,176,016)		-
At 31st December	(70,362,890)		124,012,974

7.  Dividend

2008 Capitalization in lieu of dividend (in respect of year ended 30th June, 2008) US$
Paid 30th November, 2008

Capitalization in lieu of dividend of US$0.13 per ordinary share

17,176,016

2007 Dividend (in respect of year ended 30th June, 2007)  
Paid 30th November, 2007

Dividend of US$0.11 ordinary share (post stock split)

14,144,005

8.  Other expenses                               

    

	Period ended   31st December, 2008   US$	Period ended 31st  December, 2007   US$
Legal and professional fees	557,446	716,599
Insurance	-	49,313
Miscellaneous expenses	579,001	34,037
	1,136,447	799,949

9.  Prime brokerage agreements

Under the terms of the prime brokerage agreement which the Company has entered into, the prime broker holds a first fixed charge over the Company's assets and cash held with the prime broker as security for the payment and performance by the Company of its obligations to the prime broker.

10.  Gearing

Gearing, or leverage, is the percentage of borrowing compared to the percentage of assets. For the Company this borrowing should not exceed 200% of the Net Asset Value.

11.  Guarantee

As part of the acquisition of TDG plc by LIT plc in October, 2008, the Company and LIT plc executed a four year guarantee of £12.2m, a seven year guarantee of £15m and an unlimited guarantee of £3.3m in favour of TDG Trustees Limited ('TDGTL') (pension trustee for TDG), pursuant to which, the Company and LIT plc agreed to guarantee to TDGTL the punctual performance by TDG of all its guaranteed obligations. The maximum liability is £30.5m.

12.  Reconciliation of net assets value

                                      

	Period ended   31st December, 2008	Period ended   31st December, 2007
Net Asset Value per 31st December published NAV	125,257,819	278,129,848
Difference arising from the write-down of the value of investment in Celtic Property Developments S.A. as disclosed in Note 3.	(24,327,822)	-
Net Asset Value per balance sheet	100,929,997	278,129,848

13.  Copies of interim statements

Copies of the interim statements will be sent to shareholders. Further copies will be available from HSBC Securities Services (Isle of Man) Limited, 12/13 Hill Street, Douglas, Isle of Man IM1 1EF.

ENDIR FGGFFGGFGLZZ