Annual Report

HFC EQUITY TRUST

Annual Report & Financial Statements 2008

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THE MANAGER

Name: HFC Investment Services Limited (HFCISL) Country of Incorporation: Ghana Registration Number: 50,533 Nature of Corporate Form: Limited liability, wholly-owned subsidiary of the HFC Bank (Ghana) Ltd. Registered Office: Ebankese No. 35 Sixth Avenue, North Ridge P. O. Box CT. 4603 Cantonments, Accra Principal Place of Business: HFC Bank (Ghana) Ltd., Ridge Branch 6 Sixth Avenue, West Ridge Ridge Ambassadorial Enclave, Ridge, Accra Date of Incorporation: 7TH JULY 1993 (Name changed from Home Finance Investment Fund Limited to HFC Investment Services Limited on 1ST OCTOBER 2001).

Capitalization (as at December 31 2008) Authorized: 1,000,000 (One million) Ordinary shares of no Par value Issued: 100,000 shares

Auditors: PriceWaterHouseCoopers Chartered Accountants UNA Home, Accra

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Table Of Contents

Notice of Annual General Meeting 4

Statement of Trustees Responsibilities 5

Trustees Report 6

Manager’s Report 7- 14

Auditor’s Report 16 - 17

Financial Statement 18 - 20

Notes to the Accounts 21 - 24

Admission Form 25

Proxy Form 26

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HFC EQUITY TRUST

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the First Annual General Meeting of Unitholders will be held at the Ebenezer Presbyterian Church Hall, Osu, Accra at 11.00am on 21st July, 2009 to transact the following businesses:

AGENDA

1. To receive the report of the Manager for the Year 2008.

2. To receive the Audited Statement of Income and Expenditure and Distribution Statement of HFC Equity Trust for the financial year ended December 31, 2008 together with the Trustees and Auditors reports thereon.

3. To authorize the Manager to fix the remuneration of the Auditors for Year 2009.

A Unitholder has the right to appoint a proxy to attend and vote on his/her behalf at the Meeting. Such a proxy need not be a Unitholder. A copy of the instrument appointing the proxy may be deposited at any time prior to the commencement of the Meeting at the principal place of business of the Manager.

HFC Investment Services Limited 6 Sixth Avenue, West Ridge Ridge Ambassadorial Enclave, Ridge Accra

Dated 6th May 2009

By Order of the Manager.

JOSEPH NKETSIAH For: HFC Investment Services Limited

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HFC EQUITY TRUST

STATEMENT OF TRUSTEES RESPONSIBILITIES

The Trust Deed requires the Trustees to prepare financial statements for each financial period, which gives a true and fair view of the state of affairs of the Equity Trust. In preparing the financial statements, the Trustees are required to:

 Select suitable accounting policies and apply them consistently,

 Make judgments and estimates that are responsible and prudent,

 State whether applicable accounting standards have been followed, subject to any material departures, disclosed and explain them in the financial statements, and

 Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Investment Trust will continue in business.

The Trustees are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Equity Trust, which will ensure that the financial statements comply with the Trust Deed and Securities Industry Law, 1993 (PNDCL 333). They are also responsible for safeguarding the assets of the Investment Trust and taking reasonable steps for the prevention and detection of fraud and other irregularities.

The statements should be read in conjunction with the statement of the Auditors’ responsibilities as set out on page 16, the respective responsibilities of the Trustees and the Auditors in relation to the financial statement.

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REPORT OF THE TRUSTEES TO THE UNITHOLDERS OF THE HFC EQUITY TRUST

In our opinion, according to the information made available to us and the explanations provided, we confirm that in all material respects, the manager has managed the scheme during the period covered by these financial statements in accordance with the Trust Deed dated 1st December 2006 and all regulations for the time being in force under the Securities Industry Law, 1993 (PNDCL 333).

Dated this………………………………………. Day of..………………2009

Signature required

For: MERCHANT BANK (GHANA) LIMITED

6 FUND MANAGER’S REPORT FOR THE YEAR ENDED DECEMBER 31, 2008

ECONOMIC OVERVIEW OF YEAR 2008 Introduction

The Ghanaian economy witnessed significant expansion through robust revenue generation and a disproportionately high expenditure levels as has been indicated by provisional fiscal data for 2008. These were contained in the midst of the global food and crude oil crisis which threatened macro-economic stability particularly in emerging markets and developing countries.

Inflation

Inflation, which was 12.7% as at December 2007 consistently moved upward to 18.41% as at the end of the second quarter. It declined steadily to 17.44% by November 2008 before edging up to close the year at 18.13%. The rise in inflation was primarily a result of global food shortages and high energy prices. On the local front, increase in domestic demand and the fast pace of economic activity contributed to inflation levels recorded at the end of the year.

Interest rate

Interest rates generally moved upwards in 2008. The Prime Rate was increased on three occasions. From 13.5% at the beginning of the year, it went up to 14.5% in March, 16.0% in May and rose again in July to 17.0%. In response to the Prime Rate trends, average interest rates on Government Securities and inter-bank market also went up during the year. The benchmark 91-Day Treasury bill gained 14.06 percentage points to close the year at 24.67%. The 1-Year and the 2-Year Notes also increased by 7.70% and 8.20% to close the year at 20.0% and 21.0% respectively. The base rates of banks followed an upward trend in line with the direction of rates on Government Securities. The average base rate of banks in Ghana was 26.12% as at the end of September 2008. This was revised upward in the fourth quarter to an average of 27.22%.

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Exchange rates

On the inter-bank market the Cedi was steady during the first quarter of the year. However, in the second quarter, it weakened sharply and by the end of the first half of the year, it had depreciated by 6.0%, 4.6% and 11.7% against the US Dollar, the Pound Sterling and the Euro respectively. The performance of the Cedi in the second quarter was partly as a result of the re-alignment of major international currencies, a surge in demand for foreign exchange to meet higher oil and food prices and servicing of external debt.

The local currency continued to depreciate against the US Dollar and the Euro but traded strongly against the Pound Sterling in the second half of the year. On annual basis, the Cedi depreciated by 20.1% and 16.1% against the US Dollar and the Euro respectively, but appreciated by 5.2% against the Pound Sterling.

Real GDP

The slippage in the growth of the economy in 2007 manifested in the first few months of 2008. Macro-economic balances weakened and thus increased the country’s external vulnerabilities. Provisional data point to a growth in the GDP in the region of 6 to 7 percent for the year 2008.

FINANCIAL MARKET ENVIRONMENT

Stock Market Review-2008

The Ghana Stock Exchange once again recorded significant gains during the year despite the turmoil on the world’s major capital markets. The GSE All-share index recorded a gain of 58.06% as at December 2008, compared with a gain of 31.84% in December 2007. Ecobank Transnational Incorporated (ETI) and UT Financial services Ltd (UTFSL) both commenced their initial public offers (IPOs) for subscription in the year 2008. However, only UT Financial services Ltd was listed on the stock exchange by the end of 2008.

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Fund Performance for 2008

Following the impressive performance in the year 2007, the fund manager redesigned the portfolio of the Fund in the quest to pursue the Fund’s objective of delivering higher long- term returns to its unit holders. This resulted in an improvement in the net fund value by 323.93% from a value of GH¢0.95 million to GH¢4.03 million by the end of year 2008. This achievement exceeded your manager’s pledge to double the fund value within the period under review. The HFC Equity Trust posted a yield of 38.89% to close the year 2008. This represented an all time high return since the year 2005 and a performance which compares favourably with other schemes in the country.

OUTLOOK FOR YEAR 2009

The year 2009 will prove exceptionally difficult for both developed and emerging economies. Ghana, as a major recipient of donor inflows and primarily a commodity exporter will find it difficult to avoid the anticipated worldwide recession this year. Government’s commitment to achieve set macro economic targets however has lead to strong and positive expectations by both businesses and consumers about the prospect of the economy in the year 2009.

The Ghana Stock market is expected to see further turbulences when investors’ outstanding sale orders are executed. This could trigger a downward movement in the prices of the respective stocks. As an exchange that has enjoyed huge patronage of foreign investors, it stands to suffer from the effects of the global financial crisis on these foreign investors as they seek to sell their stake in most listed companies in order to realize their capital gains. This will result in a bearish market.

Your fund manager will strategize to minimize the effects of the downturn on the capital market. In pursuance of this strategy, there will be a holistic restructuring of the current investment portfolio held by the fund. Thus, in spite of the expected declines in the prices of

9 stocks listed on the Ghanaian bourse in year 2009, HFC Equity Trust will outperform its peers on the market.

Below are specific tables and graphical representations on the performance of the HFC Equity Trust for the year 2008:

Table 1: Investment Portfolio as at Dec 31, 2008 Value (GH¢) Proportion of NFV Equities 2,666,354.75 65.85% Preference Shares 54,674.18 1.35% Short term Securities 766,616.60 18.93% Bonds 100,000.00 2.47% Bank & Cash 401,196.73 9.91% Other Investments 60,409.48 1.49% Gross Fund Value 4,049,251.74 100.00%

Fig 1:

Table II: Growth in Value of HFC Equity Trust

HFC Equity Trust Fund Value Year (GH¢'000) % Change 2005 690 - 2006 529.39 -23.28 2007 950.87 79.62 2008 4,031.03 323.93 10 Fig II:

Table III: Top ten (10) equities Value Proportion of Net Stock (GH¢'000) Fund Value (NFV) EBG 330,439.50 8.20% EIC 299,951.64 7.44% SCB 257,906.00 6.40% BOPP 250,773.00 6.22% FML 185,877.00 4.61% ETI 184,765.50 4.58% UNIL 170,060.00 4.22% GCB 155,467.40 3.86% GGBL 123,330.00 3.06% HFC 102,300.00 2.54% 2,060,870.04 51.13%

11 Fig III:

Table IV: Comparative Performance of HFC Equity Trust and GSE All Share Index Over a four-year period Type 2005 2006 2007 2008 % % % % Equity Trust -21.25 12.46 34.19 38.89

GSE All-Share Index -29.89 4.97 31.84 58.06

Fig IV:

12 Details of Stock Transactions for year 2008 No. of Market No. of Shares as price Value Purchases Sales Shares as at Market price at Dec 31, GH¢ (Dec (GH¢) (end (No. of (No. of Dec 31, GH¢ (Dec 31, Value (GH¢) Dividend Returns Stock 2007 31, '07) of 2007) Shares) Shares) 2008 2008) (end of 2008) (GH¢) (%)

Aluworks (ALW) 27,075 0.71 19,223.25 - - 27,075 0.61 16,515.75 - (14.08)

0.49 Benso Oil Palm Plantation (BOPP) - - - - 250,773 1.00 250,773.00 - (8.99)

Cal Bank (CAL) 272,108 0.44 119,727.52 - 170,000.00 102,108 0.60 61,264.80 2,857.13 305.62

Ecobank Ghana Ltd (EBG) 31,834 2.00 63,668.00 41,597 - 73,431 4.50 330,439.50 2,430.85 30.00

Enterprise Insurance Company (EIC) 69,000 1.30 89,700.00 26,526 - 95,526 3.14 299,951.64 634.80 92.01

Ecobank Transnational Inc. (ETI) 2,200 1.28 2,819.30 408,390 - 410,590 0.45 184,765.50 312.40 0.38

Fan Milk (FML) 10,000 2.39 23,900.00 31,306 - 41,306 4.50 185,877.00 575.00 4.67

Ghana Commercial Bank (GCB) 48,106 1.00 47,865.47 93,228 - 141,334 1.10 155,467.40 2,637.28 6.90

Guiness Ghana Breweries Ltd (GGBL) 21,000 1.23 25,830.00 40,665 - 61,665 2.00 123,330.00 1,311.11 31.33

Ghana Oil Company (GOIL) 142,068 0.31 44,041.08 80,000 - 222,068 0.32 71,061.76 1,430.12 (4.25)

Golden Web (GWEB) 364,000 0.06 20,020.00 - - 364,000 0.05 18,200.00 - (9.09)

Golden Star Resources (GSR) - - - 20,000 - 20,000 3.10 62,000.00 - 3.30

HFC Bank (Ghana) Ltd (HFC)* - 0.54 - 156,000 - 165,000 0.62 102,300.00 - 17.49

Mechanical Lloyd Co. Ltd (MLC) - 0.21 - 364,005 - 364,005 0.21 76,441.05 552.00 0.59

Standard Chartered Bank (SCB) 2,150 26.00 55,900.00 4,637 - 6,787 38.00 257,906.00 3,117.50 16.16

SG-SSB 17,600 1.25 22,000.00 15,129 - 32,729 1.35 44,184.15 717.96 4.08

SIC Insurance Company Ltd (SIC) - - - 200,000 - 200,000 0.50 100,000.00 2,280.00 70.47

Starwin Products Limited (SPL) 900,000 0.06 49,500.00 - - 900,000 0.05 45,000.00 - (9.09)

Total Petroleum Gh. Ltd (TOTAL) - 5.49 - 5,897 - 5,897 7.60 44,817.20 - 0.94

Unilever Ghana Ltd (UNIL) 272 2.11 573.92 42,243.00 - 42,515 4.00 170,060.00 2,382.31 (4.00)

UT Financial Services (UTFSL) - - - - - 200,000 0.33 66,000.00 - 10.00

Total/Average 584,768.54 2,666,354.75 21,238.46 25.92

*Embarked on a rights issue

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On behalf of the trustees and management, I wish to express our profound appreciation for your continued confidence in the Trust. This is what has propelled the Trust to an enviable position in the industry.

JOSEPH NKETSIAH GENERAL MANAGER

15 REPORT OF THE AUDITORS TO THE UNITHOLDERS OF HFC EQUITY TRUST ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2008

We have audited the accompanying Balance Sheet of HFC Equity Trust as at 31st December 2008 and the related statements of Income and Expenditure Account for the year then ended. These financial statements have been prepared under the accounting policies set out therein.

Respective Responsibilities of Trustees and Auditors

The Trustees of the Equity Trust are responsible for the preparation of financial statements. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

Basis of Opinion

We have conducted our audit in accordance with International Standards on Auditing. An audit includes examination on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Trustees in the preparation of the financial statements and of whether the accounting policies are appropriate to the Equity Trust circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we required in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements.

16 Opinion

The financial statements are in agreement with the books of account, which in our opinion have been properly kept. We obtained the information and explanations we required. In our opinion the financial statements give a true and fair view of the state of affairs of the Equity Trust as at 31 December 2008 and of the Income and Expenditure Account for the year then ended and have been properly prepared in accordance with the Securities Industry Law, 1993 (PNDCL 333) and Ghana National Accounting Standards.

Farrar Avenue PANNELL KERR FORSTER Accra. CHARTERED ACCOUNTANTS

……………………………… 2009.

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HFC EQUITY TRUST

FINANCIAL STATEMENTS

31 DECEMBER 2008

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HFC EQUITY TRUST INCOME AND EXPENDITURE STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008

NOTES 2008 2007 GH ¢ GH ¢

INCOME 192,445 51,320

LESS: EXPENSES Management Fees 2 49,650 11,083 Auditors Remuneration 7,000 4,900 Other Expenses 3 20,989 15,756 77,639 31,739

NET INCOME 114,806 19,581 Less Interest Paid on Disinvestments (185,253) (18,711)

(Loss) / Profit Transferred To Distribution Account (70,447) 870

DISTRIBUTION STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008

BALANCE AT 1 JANUARY (54,460) (93,359)

Prior Year Adjustments 12 0 38,029

Restated Balance (54,460) (55,330)

Net (Loss) / Profit For 870 The Year (70,447) BALANCE AT 31 DECEMBER (124,907) (54,460)

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HFC EQUITY TRUST BALANCE SHEET AS AT 31 DECEMBER 2008

2008 2007 NOTES GH ¢ GH ¢ ASSETS

Investments 4 3,786,930 907,897

Deferred Expenditure 5 2,530 5,901

Accounts Receivable 6 20,857 27,280

HFC Unit Trust Current Account 65 1,468

Bank Balances 7 226,942 33,653

4,037,324 976,199

LIABILITIES

Accounts Payable 8 41,301 29,597

41,301 29,597

NET ASSETS 3,996,023 946,602

REPRESENTED BY:

Capital Account 9 3,769,073 847,400

Distribution Account (124,907) (54,460)

Capital Surplus 10 351,857 153,662

3,996,023 946,602

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SIGNED FOR HFC INVESTMENT SERVICES LIMITED………………………2009

……………………………. ……………………. GENERAL MANAGER DIRECTOR

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HFC EQUITY TRUST CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008

2008 2007 GH ¢ GH ¢ CASH FLOWS FROM OPERATING ACTIVITIES

Net (Loss) / Profit for the year (70,447) 870 Profit on Sale of Shares (38,538) 0 (108,985) 870

Changes In Working Capital

Decrease In Accounts Receivable 7,826 11,075 Decrease In Deferred Expenditure 3,371 3,371 Increase In Accounts Payable 11,704 4,450

Net Cash flow from Operating Activities (86,083) 19,766

INVESTING ACTIVITIES

Sale of Long Term Investment 103,819 5,571 Purchase of Long Term Investment (2,746,120) (312,002) Net Cash used in Investing Activities (2,642,301) (306,431)

FINANCING ACTIVITIES

Increase In Capital Account 2,921,673 272,382

Net Increase in Cash and Cash Equivalents 193,289 (14,283) Balance at 1 January 33,653 47,936 226,942 33,653

Cash And Cash Equivalents

Bank and Cash Balances 226,942 33,653 Short Term Investments 0 0 226,942 33,653

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HFC EQUITY TRUST NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008

1. ACCOUNTING POLICIES The principal accounting policies adopted by the Equity Trust and which have been used in preparing these financial statements are set out below and in accordance with Ghana National Accounting Standards.

a. Basis of Accounting

The Equity Trust prepares the financial statements under the historical cost convention as modified by the revaluation of listed investments.

b. Investments:

i) Government Securities Government Securities comprise treasury bills and bonds which are debt securities issued by the government of Ghana. These securities are stated at cost.

ii) Listed Securities Listed Securities are initially recognized at cost and subsequently re-measured at fair value (market price). Unrealised gains or losses arising from the changes in the fair value are recognised in equity. On disposal the fair value adjustment accumulated in equity are recognised in the income statement. Dividends from listed securities are recognised when the right to receive income is established.

2. MANAGEMENT FEES This is based on 2% of the fair market value of the total assets owned by the Trust.

2008 2007 GH ¢ GH ¢ 3. OTHER EXPENSES comprise of the following: Bank Charges 6,012 608 Manager's Reimbursable Expenses 10,930 14,255 Stationary Expenses 4,046 893 Sundry Expenses 0 0 20,989 15,756

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2008 2007 GH ¢ GH ¢ 4 INVESTMENTS Shares in Listed Securities 2,660,790 731,834 Preference Shares 50,000 50,000 Bonds 100,000 50,000 HFC Unit Trust 29,935 29,936 Fixed Deposit 746,205 16,127 Call 200,000 30,000 Treasury Bills 0 0 3,786,930 907,897 5. DEFERRED EXPENDITURE

Amount Deferred 16,859 16,859 Less Amount Amortised (14,329) (10,958) 2,530 5,901

This refers to advertising expenditure incurred by the Trust. The expenditure is amortised over a period of five (5) years.

6. ACCOUNT RECEIVABLE

Treasury Bills 0 0 Bonds 82 11,201 Call 1,929 1,400 Fixed Deposits 18,846 14,679 20,857 27,280

7. BANK BALANCES

Cash at Bank 226,942 33,258 Call Account 0 395 226,942 33,653

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8. ACCOUNTS PAYABLE

Amount Due to Managers 30,701 24,697 Accrued Charges 10,600 4,900 41,301 29,597

9. CAPITAL ACCOUNT 2008 2007 Units GH ¢ Units GH ¢

Balance at 1st January 7,663,135 847,400 5,516,162 575,018

Value of Units Sold and Converted 23,523,035 4,027,142 2,950,907 336,048 31,186,170 4,874,542 8,467,069 911,066

Value of Units Disinvested (9,648,610) (1,105,469) (803,934) (63,666)

Value of the Trust Fund at 31 December 21,537,560 3,769,073 7,663,135 847,400

10. CAPITAL SURPLUS 2008 2007 GH ¢ GH ¢ Balance at 1 January 2008 153,662 10,575

Prior Year Adjustment 0 (38,029)

Net Increase In the value of shares 198,195 181,116

Balance at 31 December 2008 351,857 153,662

This arose as a result of the revaluation of the listed securities by the Managers of the Equity Trust.

11. PRIOR YEAR ADJUSTMENT

This arose as a result of a change in accounting policy for listed securities Investment. 25 Admission Form

Annual General Meeting to be held at the Ebenezer Presbyterian Church Hall, Osu, Accra at 11:00 am on 21st July 2009.

A Unitholder who is unable to attend an Annual General Meeting (AGM) is allowed to vote by proxy. The Proxy form on the next page has been prepared to enable you to exercise your right to vote in case you cannot personally attend the meeting.

Provision has been made on the form for the Chairman of the meeting to act as your proxy, but if you wish, you may insist in the blank space on the form (marked**) the name of any person whether a Unitholder or not, who will attend the meeting and vote on your behalf instead of the Chairman of the Meeting.

Please sign the proxy form on the next page and post it so as to reach the address in the front not later than 30th June 2009.

If executed by a Body Corporate, the proxy form should bear its common seal or be signed on behalf by a director.

IMPORTANT:

a) The name of the Unitholder must be written in BLOCK LETTERS on the Proxy form where marked (**)

b) This admission form must be produced by the Unitholder or his/her proxy in order to obtain admission to the Annual General Meeting.

c) Unitholders or their Proxies are requested to sign the admission form before attending the meeting.

d) In case of joint holders, each joint holder should sign.

26 HFC EQUITY TRUST FUND / Proxy Form

Annual General Meeting to be held at the Ebenezer Presbyterian Church Hall, Osu Accra at 11:00 am on Monday, 21st July 2009.

I/we** being a Unitholder(s) hereby appoint

or failing him/her the Chairman of the Meeting as my/our proxy to act and vote for me/us and on my/our behalf at the Annual General Meeting of the Fund to be held on 21st July 2008 and at any adjournment thereof

Dated this day of 2009

Unit Holder(s) Signature

Resolution For Against

To adopt the 2008 Manager’s Report

To approve the accounts and distribution statement for the financial year ended 31st December, 2008.

To authorize the Manager to Fix the Auditor’s Remuneration

Please indicate with an “X” in the appropriate square how you wish your votes to be cast on the resolution set out above.

Unless otherwise instructed the proxy will vote for or abstain from voting at his/her discretion.

(Do not complete this form if you will attend the meeting)

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