Investment Objectives

The Company's stated investment objectives at the launch were to: meet its banking obligations and satisfy its obligations to loan stockholders; satisfy the final capital entitlement of the Zero Dividend Preference Shareholders; and provide Ordinary Shareholders with an expected annualised dividend yield of 8.8 per cent. per annum based on the issue price of 100 pence and an increasing net asset value. The Company has currently suspended dividend payments but it is the intention of the Board to re-establish dividend payments as soon as possible although it is anticipated that the rate of dividend will be at a considerably lower than originally envisaged. In the current circumstances the Board does not envisage paying dividends for the foreseeable future although the restoration of a dividend remains a priority for the Board. The capital growth objectives remain unchanged. The portfolio is now principally invested in the UK and Irish property markets and in the European high yield securities issued by investment companies and trusts.

Duration

The Company has a planned life to 31 May 2011. However prior to that date the Directors intend to put proposals to shareholders to effect a scheme of reconstruction which will give both Ordinary and Zero Dividend Preference shareholders the option of a full cash exit on or before the planned date without the need for the Company to dispose of the entire Property Portfolio or crystallise any potential capital gains tax liability that may exist within the Group at that time or the option to extend their investment beyond the planned winding-up date.

Capital Structure

The Company has a capital structure comprising Ordinary and Zero Dividend Preference shares and units of 7.5% Convertible Unsecured Loan Stock 2011 ("CULS"). The Group also has structural gearing in the form of bank borrowings, which totalled £227.3 million at 31 December 2002.

Risk

The market price of the Company's shares will vary to reflect supply and demand in the market which will, at least in part, be influenced by the net asset value of the Company. Investment in the Company will be subject to the general and specific risks connected with investment in real estate and high yielding securities. Additionally as a large proportion of the Company's assets, liabilities and income are denominated in Euros, returns to the Ordinary shareholders will be influenced by the exchange rate movement between the Euro and Sterling. Such movements would also affect market prices of the CULS.

The use of gearing is likely to increase volatility in the Company's net asset value in that a relatively small movement in the value of the Company's investments will result in a greater relative movement (upwards or downwards) in net asset value.

Management Arrangements

On 2 May 2003 the Board appointed INVESCO International Limited as Manager to the Company. INVESCO International is a Jersey-incorporated subsidiary of AMVESCAP PLC. INVESCO Asset Management Limited, INVESCO Real Estate Limited and Treasury Holdings Limited have been appointed investment advisors in respect of the Income Portfolio, the UK Property Portfolio and the Irish Property Portfolio.

Taxation of Dividends

There is a statutory requirement for the Company to deduct income tax from dividends paid to Jersey residents and to account for such income deducted to the Comptroller of Income Tax and, on request, to make a return of the names, addresses and shareholdings of Jersey residents shareholders. Non Jersey resident investors will be paid without deduction of Jersey income tax. UK resident individual shareholders will be liable to income tax on the amount of the dividends received. Unless exempted, an Irish resident or ordinary resident shareholder will be liable to Irish tax on the amount of any dividend received.

Taxation of Interest Payments

Jersey resident CULS holders will be liable to Jersey income tax on the amount of any interest received on their CULS. Individual UK resident, or ordinary resident, CULS holders will be charged UK income tax on any interest received on their CULS. Unless exempted, Irish resident, or ordinary resident, CULS holders will be liable to Irish tax on the amount of any interest received.

PEP and ISA Status

Ordinary and Zero Dividend Preference shares and units of CULS are eligible for inclusion in a general PEP if acquired in the market using funds contained within the PEP. The Ordinary and Zero Dividend Preference shares and units of CULS are qualifying investments for the stocks and shares component of an ISA.

Introduction

This has been an extremely difficult year for your Company resulting in a disappointing performance due to the evaporation of value from our portfolio of split capital investment funds and, to a lesser extent, a fall in the value of our high yield bond portfolio.

As at the year end the net asset value of an Ordinary share was 36.3p and the shares stood at a discount of 33.9% (24p mid market price).

Market sentiment also affected the price of the Zero Dividend Preference share and the Convertible Unsecured Loan Stock both of which stood at a wide discount to their accrued net asset value entitlements at the year end.

Despite the decline in values of the Income Portfolio, the Company managed to work within the terms of its banking facilities. However, to put the Group's financing on a more secure footing, the Company implemented a realisation programme of certain assets within this portfolio to enable it to repay most of its Income Portfolio loan facility. Euros 173 million of this facility was repaid over the year.

At the end of the year, the Company's assets were primarily properties based in Ireland and the UK. The UK property portfolio comprised properties with an aggregate value of £128.6 million and the Irish property portfolio comprised properties with a total value of Euros 454.6 million. The Company's high yield bond portfolio and split capital fund portfolios were valued at £18.5 million and £7 million respectively (see further below).

Dividends

The Company generated a revenue return on ordinary activities after tax of £24.39 million (2001 - £19.53 million) with a transfer to reserves of £18.12 million (2001 - £6.99 million). I regret to report that due to the performance of the Income Portfolio and the overall losses sustained, the Company was only able to pay one quarterly dividend of 2.2p (2001 - two at 2.2p) for the year ended 31 December 2001 and that no further dividend has therefore been declared. The restoration of a dividend on the Ordinary share remains a priority for the Board.

Property Portfolio

I am pleased to report that your Company's property portfolio has remained stable and is secured by a substantial rental income flow. This income flow is expected to increase as positive rent reviews are agreed. 40% by value of the Group's portfolio had rent reviews, particularly those in Ireland, during 2002 and 2003 and despite weaker occupier markets, we remain positive about the prospect of increases in the rents passing at a number of these reviews.

The Company sold seven properties during the year realizing a modest profit. SIx further properties have been sold since the year end also realizing a profit for the Company.

UK and Offshore Property

The UK property market has seen strong support during 2992 from a variety of investors., underpinned by low interest rates and uncertainty in other investment mediums. A noticeable feature has been the strong interest from private purchasers, particularly in the sub £1.5 million lot size, together with consortia and overseas investors for larger lots who have actively sought investments with long-term income. This has resulted in a general reduction in yield for this type of product over the year.

The market is still supported by the institutional investor but stock has been in short supply. Yields have been relatively steady overall but they have been marginally affected by regional and sector differences. Purchasers of larger lot sizes have tended to become more selective in their acquisitions over recent months. However, the bond-type investments, where yields are supported by the reduction in the costs of borrowing have seen a continuing willing number of purchasers. This is likely to continue while the current interest rate climate is maintained and while banks are prepared to lend at high loan to value ratios.

The overall performance for 2002 based on the IPD Monthly Index shows a total return of 10.5% over the year to December 2002. Capital values have seen a rise of 2.6% over the year. The lead-performing sector was retail, followed by industrials and lastly offices, partly due to decline in tenant demand for offices and the subsequent reduction in rental values. The UK portfolio within the Group has performed well against the indices. Ten UK properties were realised above book value in the period covering the start of the last financial year to date. The Board decided against making any new purchases in the UK during the year.

The offshore portfolio has produced a steady return and the market remains reasonably positive in both Guernsey and Isle of Man.

A number of rent reviews and lease renewals were agreed during the year with a positive outcome. In addition a number of projects are in hand to actively work on the portfolio to release further value for shareholders.

The Company repaid £40 million of its Sterling property loan facility on 23 December 2002. Subsequent to the year end the Company refinanced its £109 million property loan facility with a new £94.5 million facility, all of which has been drawn down.

Ireland

The slowdown in growth in the Global Economy reflected on the Irish Property values with overall capital values down on average by 3% - equivalent to the increase from 6% to 9% in stamp duty on commercial property imposed in the November budget.

The office sector was the weakest performer as rental values decline due to weakening tenant demand. Retail and residential property on the other hand continue to perform well on all fronts.

Investment demand was strong for all well let property as historically low Euro interest rates encouraged investors into the market. The average equivalent income yield on Irish property is now over 6% while 5 year fixed rate money can be obtained for just 2.27% plus margin, leading to attractive arbitrage opportunities.

The outlook for the market over the next 12 - 18 months is very much dependant on prospects for the Global and Domestic economies. Most economic commentators forecast an increase in growth in the Irish economy during 2003/2004 to around 3-4% growth in GDP. This is over twice the growth projected for the E. U. and will underpin Irish property over this period.

The Company's Irish Portfolio performed well relative to the market reflecting the fact that, apart from development properties, it is virtually fully let with strong income growth continuing to benefit us through ongoing rent reviews.

Bonds

The European high yield bond markets experienced another weak and volatile period in 2002 and, even with the benefit of a significant rally in the last quarter, capital values fell more than 20%. A substantial number of defaults occurred in the market particularly in the telecommunications and cable sectors.

Activity in the bond portfolio was largely confined to the raising of funds to repay the Income Portfolio loan. Prices attained were reasonably satisfactory in the face of a poor high yield market. Bonds in the banking sector justified their heavy weighting within the portfolio.

Split Capital Fund Portfolio

The split capital sector suffered another very difficult year, as evidenced by the depressed prices of your Company's securities, and the significantly reduced value of the Income Portfolio. A number of split capital funds in which you Company owned shares were forced into liquidation and several other funds suspended their dividends. The price of most split capital fund securities, particularly ordinary shares, declined over the period as a result of the impact in the falls in world equity and high yield bond markets and the negative market sentiment towards these funds. The Company is seeking to liquidate the remaining part of this portfolio over time.

The Company's published net asset value, which is released through the regulatory news service, accounts for these holdings at their bid value. However, for comparative purposes, the year end accounts value these holdings at their middle market price. In the current market the realisation value of these holdings remains very uncertain.

Share Buy Backs

You will recall that power to buy Ordinary shares and Zero Dividend Preference shares was taken at an extraordinary general meeting on 15 November 2002. The notice of that meeting also contained a further resolution seeking authority to reduce the Company's share premium account. This resolution was put forward in reliance on advice received as to the position under Jersey law suggesting that the Company needed to take this step in order to enable it to fund in full share buy-backs. This Jersey legal advice was, however, incorrect. Notwithstanding the failure to pass the resolution authorising a reduction in the share premium account, the Company is legally entitled to utilise its share buy-back powers and intends to seek further powers.

The Company's policy of purchasing shares for cancellation continued. 67.156 million Ordinary shares and 15.184 million Zero Dividend Preference shares were purchased and then cancelled over the year. The Board will continue to seek to buyback further shares and Convertible Loan Stock for cancellation.

Share buy-backs provide critical demand for your Company and an excellent way of delivering shareholder value. We encourage all shareholders to vote in favour of the buy-back resolutions at the forthcoming General Meeting.

Management Arrangements

As announced on 22 October 2002, the Board commissioned a review of the management of the Income Portfolio, on which the Company has incurred losses in excess of £165 million. The review, by the law firm Slaughter and May, has raised a significant number of issues which discussions with Aberdeen Asset Managers and Aberdeen Asset Managers (Jersey) ('Aberdeen') have failed to resolve. The Company has accordingly written to Aberdeen confirming, formally, the termination of their appointments and making clear that the Company holds them responsible for a substantial proportion of the losses and will be taking appropriate steps to seek their recovery.

The Board does not intend to pay Aberdeen any further management fees including those accrued to date.

The Board has appointed INVESCO International as manager to the Company. INVESCO International is a Jersey-incorporated subsidiary of AMVESCAP PLC. The terms of INVESCO's appointment provide for a base fee of 0.6% per annum of the Groups' consolidated gross assets (subject to a minimum of £1.4 million plus 0.5% of Irish property assets until 31 December 2004). In addition INVESCO will be entitled to a performance fee if the total adjusted net asset value of the Company increases by more than 7.5% per annum (with the first performance fee calculation period commencing on 1 March 2003 and ending on 31 December 2003). INVESCO's appointment can be terminated by the Company on six months notice expiring not earlier than 31 December 2004.

Directors

During the year Mr. Christopher Fishwick resigned as a Director of this Company and of Treasury Holdings Limited. Ms. Juliet Cogswell also resigned as a Director before the year end. Mr. Paul Reed has resigned as a Director since the year end. All three of these Directors were connected to Aberdeen.

Prospects

Looking forward, I believe that your Company's Property Portfolio will produce growth and attractive returns. This together with your Board's commitment to continue to buy back Convertible Loan Stock, Zero Dividend Preference shares and Ordinary shares for cancellation will provide the platform for the Board to deliver shareholder value.

RYF Horney
Chairman

10 June 2003

The Directors present their report on the affairs of the Company, together with the audited financial statements for the year ended 31 December 2002.

Principal activities and business review

The business of the Company is that of a closed-ended investment company investing in the UK and Irish property markets and in the European high yield securities market, including high yield securities issued by investment companies and trusts. A review of the Company's activities is given in the Chairman's Statement above.

Share buy backs

During the year the Company purchased the following shares in the market for cancellation:

The Company has subsequently purchased further shares in the market for cancellation - as disclosed in note 26(b) to the Financial Statements.

As referred to in the Chairman's Statement, the Company intends to seek shareholder approval to renew its authority to make market purchases of up to 14.99% of its issued Ordinary shares and all the remaining Zero Dividend Preference shares.

The Company will only make such purchases at prices below the then prevailing Net Asset Value per Ordinary share or Zero Dividend Preference share so as to enhance the Net Asset Value of the remaining Ordinary shares. To this extent, share purchases will only be carried out to the extent that the Ordinary share Test and the Cover Test (as defined in the Articles) are satisfied.

Rule 9 and Rule 37 of the UK City Code on Take-overs and Mergers

Under Rule 9 of the Code, any person or persons acting in concert who acquire shares which, with shares already held, carry 30 per cent or more of the voting rights of a public company or any person or persons acting in concert who individually or collectively hold not less than 30 per cent but not more than 50 per cent of the voting rights of a public company and who acquire additional shares carrying voting rights of that company with the result of increasing their percentage holding of such shares, are normally required by the Panel to make a general offer to all equity shareholders of that company. Under Rule 37 of the Code, an obligation to make a general offer will arise where any directors or persons acting or deemed to be acting in concert with them trigger Rule 9 by increasing their percentage holding of voting rights as a consequence of the relevant company redeeming or purchasing its own voting shares. In the Company's circumstance, Rule 9 and Rule 37 are applicable to the Ordinary shares only.

Concert Party

The Panel deemed in October 2002 that a concert party (the "Treasury Concert Party") existed, comprising Treasury Holdings ("Treasury"), Richard Barrett and John Ronan (directors of both the Company and Treasury and owners of the entire share capital of Treasury). Patrick Teahon (as a director of both the Company and Treasury), Christopher Fishwick (as a director as at that time of Treasury, a former director of the Company and shareholder of the Company) and members of their immediate families and related trusts. Based on representations made to it, the Panel has agreed that Christopher Fishwick is no longer a member of the Treasury Concert Party.

The Treasury Concert Party currently holds 35.64 per cent of the Ordinary share capital. If the Company's existing Ordinary share buy back authority were used in full and Loan Stock converted in full this would result in the Treasury Concert Party holding a maximum of 40.93 per cent of the Company's Ordinary share capital.

Panel Waivers

The Panel agreed to waive the requirement for the members of the Treasury Concert Party to make a general offer to all shareholders in the event of the percentage of voting rights held by the Treasury Concert Party increasing as a result of the exercise of the Company's existing Ordinary share buy back authority. This waiver was approved on a poll of independent shareholders on 15 November 2002.

The Panel agreed in 2001 to waive the requirement for the members of the Treasury Concert Party to make a general offer in circumstances where its percentage holding of Ordinary shares increased as a result of the exercise of conversion rights attaching to any of its Loan Stock. This waiver continues to apply.

Any acquisition of Ordinary shares by other means by a member of the Treasury Concert Party will be subject to the normal provision of Rule 9 of the Code.

Status

The Company is a collective investment fund, as defined in the Collective Investment Funds (Jersey) Law 1988, and has been granted exempt status under Article 123A of the Income Tax (Jersey) Law 1961.

Ordinary and Zero Dividend Preference shares and units of CULS are eligible for inclusion in a general PEP if acquired in the market using funds contained within the PEP. The Ordinary and Zero Dividend Preference shares and units of CULS are qualifying investments for the stocks and shares component of an ISA

Directors

The current Directors of the Company, all of whom served throughout the year, are shown with brief biographical details on Pages 7 and 8.

In accordance with the Articles of Association, Garth Milne, David Moon and Philip Jenkinson will retire by rotation and, being eligible, offer themselves for re-election.

Mr Harte resigned as Director of the Company on 11 January 2002. Mr Fishwick resigned as Director of the Company on 22 October 2002. Ms Cogswell resigned as a Director of the Company on 9 December 2002. After the year end Mr Reed resigned as a Director of the Company on 12 March 2003.

The Directors who have held office at the year end and their beneficial interests in the Ordinary 1p shares, Zero Dividend Preference 1p shares and 7.5% Convertible Unsecured Loan Stock ("CULS") at 31 December 2002 are shown below.

No Director has a service contract with the Company.

Mr Barrett, Mr Ronan and Mr Teahon are directors of Treasury Holdings Limited ("Treasury"). Treasury has an agreement to provide investment advisory services in respect of the Irish Property Portfolio and to provide property management services in respect of the Irish properties to Castle Market Holdings limited. The terms of these agreements enforced during the year are disclosed in note 3 to the Financial Statements.

Substantial Interests

The Board has been advised that in addition to the Director's interests shown above, the following shareholders owned 3% or more of the issued Ordinary share capital of the Company as at the date of this Report.

Corporate Governance

The Board has put in place a framework for corporate governance which it believes is suitable for an investment company and which enables the Company to comply with the Principles of Good Governance and Code of Best Practice ("the Combined Code"), prepared by the Committee on Corporate Governance, published in 1998 and the guidance on internal controls published in September 1999. The Board considers that the Company has complied with the provisions contained within the Combined Code throughout this accounting period insofar as they are relevant to the Company's business. The following paragraphs describe how the principles of the Code have been applied by the Company.

The Board

The Board currently consists of nine non-executive Directors, the majority of whom are independent of the Company's Investment Advisers. Mr Horney is the non-executive Chairman of the Company and Mr Milne is the senior independent non-executive Director. From their biographies on pages 7 and 8, it will be seen that the Board has a breadth of experience relevant to the Company. The Articles of Association provide that Directors retire by rotation every three years. In accordance with Article 85(b) of the Company's Articles of Association, Garth Milne, David Moon and Philip Jenkinson submit themselves for re-election at the Annual General Meeting.

The Board meets at least four times a year and between those formal meetings there is regular contact with the Manager and Investment Advisers. The Directors also have access to the Company Secretary and,, where necessary in the furtherance of their dutiesm to independent professional advice at the expense of the Company.

The Directors recognise their responsibilities stated on page 26. However, the Board has delegated the following areas of responsibility.

Management and Administration

During the year under review the management and administration of the Income Portfolio and Property Portfolio (excluding Ireland) was delegated to Aberdeen Asset Managers Jersey Limited but is currently delegated to INVESCO International Limited under advice from INVESCO Asset Management Limited and INVESCO Real Estate Limited. The management of the Irish component of the Property Portfolio has been delegated to Treasury Holdings Limited ("Treasury"). Treasury is also responsible for the management of the assets of Havenview Investments Limited.

Rent collection is in the main carried out by managing agents together with some administration of the properties currently under the guidance of INVESCO Real Estate Limited and Treasury.

Under the terms of an Accounting Services Agreement, both the former and current Managers have delegated their accounting functions to an independent firm of accountants, SMS Abacus & Co.

The Board has delegated the exercise of voting rights attached to the Company's income portfolio investments to the Manager.

All other matters are reserved for approval of the Board.

Board Committees

The Board as a whole fulfills the function of a Nomination Committee, with Mr Horney as Chairman. The Nomination Committee meets when necessary to select and propose suitable candidates for appointment.

Separate Audit and Management Committees have been established and their members are as stated on pages 7 and 8. The Audit Committee, with Mr Horney as Chairman, examines the effectiveness of the Company's internal audit and compliance departments and the external auditors. The Management Engagement Committee, with Mr Horney as Chairman, meets annually and keeps under review the terms of the Management and Investment Advisory Agreements, However in view of the recent change in investment advisers these matters have been considered by the Board on several occasions.

Given the size and composition of the Board, the Directors have not deemed it necessary to appoint a separate Remuneration Committee. The Board as a whole undertakes consideration of the Director's remuneration.

Remuneration Policy

The Company is an investment holding company employing third party management of its securities and property portfolios, as such the Board members are all non-executive directors. The Company is, therefore exempt from disclosures under the Code principles.

The Company's remuneration policy id designed to reflect the importance of retaining independent directors of the calibre necessary to oversee the management of the Company's affairs. The Directors' remuneration is detailed in note 4 to the financial statements, comprising fees for their services undertaken during the year.

Internal Controls

The Directors are responsible for the Company's system on internal controls and for reviewing their effectiveness.

Following publication of 'Internal Control: Guidance for Directors' on the Combined Code (the Turnbull guidance), the Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group. This process has been in place for the period under review and up to the date of approval of this Annual Report and Accounts, and is reviewed by the Board and accords with this guidance. The significant risks faced by the Group and the internal; controls in place to manage and mitigate such risks are considered by the Board under the following headings:

• financial
• operational
• compliance; and
• risk management

The Board has reviewed the effectiveness of the system of internal financial and non-financial controls. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Group and the policies by which these risks are managed.

The key components designed to provide effective internal control are outlined below:

• The Company Secretary is appointed as Risk Officer. A risk register has been established to identify the key risks applicable to the Group's business. The register documents the control procedures in place and highlights areas where further action is required. During the year the Board has monitored and evaluated the risk register.

• The Manager prepares forecasts and management accounts, which allow the Board to assess the Group's activities and review its performance.

• The Board and Investment Advisers have agreed clearly defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board. The Investment Advisers' evaluation procedure and financial analysis of the companies and properties concerned include detailed appraisal and due diligence.

• The Board receives reports annually from the Company's custodian on the custodian's internal controls.

• As a matter of course, the compliance department of the Manager continually reviews its operations.

• Written agreements are in place which specifically define the roles and responsibilities of the Manager, the Investment Advisers and other third party service providers.

• The Board has considered the need for the Company's own internal audit function and has decided that this is not necessary as the Company relies on the internal control systems in place at the Manager.

At its March 2003 Board Meeting, the Board carried out an annual assessment of its internal controls for the year to 31 December 2002 by considering documentation from the incumbent Manager, Aberdeen Asset Managers Jersey Limited, including their internal audit and compliance functions and taking account of events since 31 December 2002.

Following the appointment of INVESCO International Limited as Manager the Board will be reformulating the Company's control procedures in the light of the systems and controls operated by the Manager and the Investment Property advisers.

The internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss.

Financial Statements

The Directors' responsibilities regarding the financial statements and safeguarding of assets are set out on Page 26. The Directors acknowledge that their responsibility to present a balanced and understandable assessment extends to interim and other price sensitive public reports and reports to regulators as well as to information required to be presented by statutory requirements.

Going Concern

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operation for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Financial Statements.

Relations with Shareholders

The Board maintains a regular dialogue with intuitional shareholders. In addition, Board members and representatives of the Investment Advisers are available to answer shareholders' questions at the Annual General Meeting of the Company.

Creditor Payment Policy

The Company's policy is to pay Stock Exchange creditors on dates of settlement and all other creditors are normally paid within 30 days or in accordance with contracted terms.

Auditors

The Company's auditors, KPMG , have indicated their willingness to remain in office. The Directors will place a resolution before the Annual General Meeting to reappoint KPMG for the ensuing year, and to authorise the Directors to determine their remuneration.