AURORA INV TST PLC — Annual Report 2011

Feb 28, 2011

AURORA INVESTMENT TRUST plc

REPORT & ACCOUNTS

2011

---

1 Aurora Investment Trust plc
Annual Report 2011

	Page
Financial Highlights	2
Chairman's Statement	3
Manager's Review and Outlook	8
Directors' Report	12
– Top Ten Holdings	15
– Portfolio Analysis	15
– Analysis of Investments by Sector	16
– Other Information	18
Corporate Governance	22
Directors' Remuneration Report	27
Statement of Directors' Responsibilities	28
Independent Auditors' Report	29
Consolidated Statement of Comprehensive Income	31
Consolidated Balance Sheet	32
Consolidated Statement of Changes in Equity	33
Consolidated Cash Flow Statement	34
Company Balance Sheet	35
Company Statement of Changes in Equity	36
Company Cash Flow Statement	37
Notes to the Accounts	38
Directors, Manager and Advisers	46
Notice of Meeting	47

---

Aurora Investment Trust plc
Annual Report 2011

OBJECTIVE

Capital appreciation through investments listed mainly on the London Stock Exchange.

POLICY

To invest primarily in equities but with some exposure also to Fixed Interest. In general the portfolio will be weighted towards larger and mid-cap stocks. A distinctive feature is an emphasis on investments in companies with exposure to economies growing at a faster rate than the UK.

BENCHMARK

The FTSE All-Share Index

	Year ended 28 February 2011 %	Five years ended 28 February 2011 %	Since launch (13/3/1997) %
Net Asset Value per share (NAV)^	+40.6	+9.9	+175.4*
FTSE All-Share Index	+13.5	+5.1	+44.1

^ capital-only return
* by reference to a starting value of 97.78p (net of launch expenses)

---

Aurora Investment Trust plc
Annual Report 2011

Chairman's statement

Another Year of Stock Market Recovery: the market rises 13½%:

The recovery in the world's stock markets which began just after our 2009 year end – in March of that year – continued for the course of our latest year. And yet it was a year of some turbulence, though mostly in the world's currency markets, as first of all the Euro crisis hit in the early part of the summer of 2010 and thereafter the US Dollar (usually the safe haven currency in troubled times) just drifted lower and lower. Stock markets generally performed well with the exception of China, which is tackling its inflation problem with a variety of controls, including higher interest rates. That cannot be said to be the case in either America or the UK, both in denial that there is even a problem.

Indeed it is arguable that the overriding reason stock markets are strong but the US Dollar and the Euro are weak stems from the loose monetary policies generally and in particular from the US Federal Reserve Board's monetary "quantitative easing". Nothing reflects better the growing distrust for most of the world's fiat currencies than the soaring price of gold. As can be seen from the table below, it rose in value against all currencies, including by circa 27% against the US Dollar, and has risen yet further since.

| | | Index (LC) | Change over the year
Change in LC v. E1 | Index (£) |
| --- | --- | --- | --- | --- |
| Australia | All Ords | +5.9% | +6.5% | +12.7% |
| Brazil | BOVESPA | +1.3% | +1.9% | +3.2% |
| Canada | S&P/TSX Comp | +21.6% | +1.4% | +23.3% |
| China | Shanghai Comp | -4.8% | -2.6% | -7.3% |
| France | CAC | +10.8% | -5.3% | +4.9% |
| Germany | DAX | +29.0% | -5.3% | +22.2% |
| Japan | Nikkei 225 | +4.9% | +1.7% | +6.7% |
| UK | FTSE A-S | +13.5% | +0.0% | +13.5% |
| USA | S&P Comp | +20.5% | -6.2% | +13.0% |
| GOLD | (in US$s) | +27.3% | -6.2% | +19.4% |

LC = Local Currency

There are two reasons for looking at the course of global stock markets over our year. In the first place our shareholders have a choice of where to invest their portfolios so that the prospect for different global stock market returns is relevant to all investors. We might do well in UK terms but if the UK is not doing well internationally then investors' wealth will migrate to other stock markets. As can be seen from the table the UK stock market performed well in comparison to many other major stock markets.

The second reason for keeping an eye on other stock markets is that their prospects (influenced as they are by their own domestic economic circumstances) provide a guide as to which UK listed shares we should choose for our portfolio. Indeed our Policy (on page 2) iterates our "emphasis on investments in companies with exposure to economies growing at a faster rate than the UK".

The Year's Results: Net Asset Value: 269.24p (+40.6%) Benchmark (FTSE A-S): 3,106.6 (+13.5%)

After the difficulties in the stock market in 2007 and 2008, it is particularly pleasing to be able to report a second excellent year, following last year's 71% increase in the net asset value per share. This year the net asset value has risen by a further 40.6%, ending our year at 269.24p per ordinary share. Any return of such magnitude in any year is more than acceptable but

---

Aurora Investment Trust plc
Annual Report 2011

particularly so when the stock market itself didn't produce anything like as good a return. As measured by the FTSE All-Share Index (our benchmark), it rose by 13.5% – so that an excellent absolute and relative return was earned. On behalf of all of us shareholders, I would like to congratulate James on the returns earned in the last two years and thank him most warmly for his efforts and for our success.

With the economic growth of emerging market economies, including and most particularly China, continuing apace, the demand for natural resources continues to grow and grow – and with them their market prices. The table below illustrates the remarkable increase in the prices of just three commodities that has occurred over the last two years – the three commodities that Aurora's portfolio is most exposed to:

COMMODITY		Feb-09	Feb-10	Feb-11	Increase 2009-11
Oil	$ per barrel	$41.8	$74.7	$97.7	134.0%
Copper	$ per ton	$3,328.4	$6,876.7	$9,880.9	196.9%
Iron Ore	$ per ton	$75.6	$127.6	$187.2	147.6%

Source: Index Mundi

The concentration in the portfolio is illustrated in the table below, showing that over half of it is invested in natural resources of one sort or another. The net asset value has benefited enormously from our exposure to these sectors (to the tune of 49p per share last year). We have to be mindful of course that commodity prices are very volatile and are hugely influenced by confidence and expectations; they can and do go down as well as up.

	Investment	% NAV	2010 Gain	2010 Gain p. sh.
Raw Materials	£10,115,025	29.0%	+£2,101,631	+16.2p
Energy	£9,854,041	28.3%	+£4,234,490	+32.7p
Building & Construction	£2,953,370	8.5%	+£2,698,151	+20.8p
Total	£22,922,436	65.8%	+£9,034,272	+69.7p

The specific holdings in the portfolio that have helped to produce the returns for the year are set out in the table below. West China Cement, one of China's largest cement producers, was the biggest contributor, the gain from our investment being achieved despite top slicing the holding throughout the year: 35% of the holding was sold at various stages. It clearly is benefiting from the huge amount being spent on infrastructure development in the country.

GCM Resources, which is awaiting the go-ahead to develop its enormous coal reserve in Bangladesh, performed particularly well but it remains quite an early stage investment given that there is a lot of Bangladesh politics involved in any development decision. Petro Matad is an oil exploration company based in Mongolia and has recently acquired some exciting exploration licences in the country. Its proximity to the oil hungry Chinese market is one of the attractions of the investment. Asian Citrus operates orange groves in China; it has new groves coming on stream and is benefiting from the growth of domestic consumption within China. And finally of the top five contributors, Antofagasta is a Chilean copper mining group and is clearly enjoying the soaring copper price.

---

Aurora Investment Trust plc
Annual Report 2011

	Profit	Per share	%
Top 5 Contributors
West China Cement	+£2,698,151	+20.8p	+110.5%
GCM Resources	+£2,086,436	+16.1p	+91.9%
Petro Matad	+£1,113,924	+8.6p	+96.5%
Asian Citrus	+£943,835	+7.3p	+44.4%
Antofagasta Holding	+£715,375	+5.5p	+57.0%
Total	+£7,557,721	+58.3p

The losses incurred during the year were few and none were hugely significant. The biggest loss came from our holding in Prosperity Minerals – losing £0.5 million or 4p per share. We remain hopeful, however, that we will make good profits from it in time – particularly as the shares look very cheap.

The recurring theme throughout the portfolio is that of China, its fast growing economy and the companies that are benefiting – or will benefit – from it. Despite the fact that the Chinese stock market was a poor performer during our year, the China-centric holdings in the portfolio did well and were the driving force behind these good returns.

Longer term Returns:	Three Years:	NAV: +32.6%;	FTSE A-S I: +3.1%
	Five Years:	NAV: +9.9%;	FTSE A-S I: +5.1%
	Since Launch:	NAV: +175.4%;	FTSE A-S I: +44.1%

The nature of equity investment is that of a long-term undertaking although quite how long "long-term" is rather depends on one's point of view. For a hedge fund it is probably anything over one month! For many other funds, however, three years is often regarded as long-term. In reality of course it is nothing of the sort – for the time horizon of most investors or funds is many times three years and it is the return actually made over that time horizon that matters. We tend to regard five years as the time benchmark for assessing our own performance.

In all three of the time spans listed above the net asset value has produced positive returns (the most important achievement) and done better than the UK stock market. The three years and the "since launch" time spans have produced reasonable returns, amounting to 9.9% and 7.5% per annum respectively but the five year return of 1.9% per annum is not terrific. Having said that, it is positive, it is better than the market and, given the success that the portfolio is enjoying, we believe it is acceptable.

Shareholders' Return:	Share Price:	246p (+54.2%)
	Dividend:	3.5p (v. 3.45p)
	Discount:	8.6% (v. 16.7%)

The Board of Directors has declared a slightly increased dividend of 3.5p per share. The Consolidated Statement of Comprehensive Income (what a dreadful mouthful!) on page 31 – which contains the old fashion P&L account – shows a loss for the year because of the inclusion of Aurora's trading subsidiary's loss. Excluding that loss the Company has enough reserves to pay the dividend.

---

Aurora Investment Trust plc
Annual Report 2011

The share price benefited both from the good net asset value return and also the closing of the discount down from 16.7% to 8.6%. The discount itself is determined by the balance of buyers and sellers and clearly during periods of good performance – both absolute and relative – there should be more buyers than sellers and thence a falling discount. We fully understand that the most important thing we can do to keep the discount at an acceptably low level is to continue to produce good returns.

Attribution of Shareholders' Return
| Due to NAV change | +77.7p | +40.6% |
| --- | --- | --- |
| Due to change in Discount | +8.8p | |
| Share Price change | +86.5p | +54.2% |
| Dividend | +3.5p | |
| Total Return | +90.0p | +56.4% |

Annual General Meeting: 12 noon, 18 July 2011 at 145-157 St John Street, EC1

The Annual General Meeting (AGM) will be held at 12 noon on Monday, 18 July at the offices of Cavendish Administration at 145-157 St John Street (nearest tube station: Farringdon). I do urge as many shareholders as possible to attend. It is the occasion when the Board of Directors meet with shareholders and account for the years activities. It gives you a chance to air your views and concerns and for us a chance to discuss them with you.

Your Directors do understand that it is not possible for all shareholders to attend the AGM. We are, however, keen to hear the views of as many shareholders as possible; I would ask those who are not able to attend but would like to communicate with the Board to contact me – or indeed others of the Directors – and we will arrange either a meeting or a telephone call. On page 21 of the annual report you will see a list of the major shareholders at both the year-end and also at the date of this annual report. Since the year-end the clients of Midas Investment Management have sold their holding; it was bought by a number of new shareholders and also by the Company itself. It bought in 1,400,000 shares (circa 11% of the issued capital) at 253p per share, adding circa 4p per share to our net asset value.

During the course of the year the Board of Directors undertook a review of the Company's strategy, following consultation with a number of shareholders. An announcement of its conclusions was made in October. In summary it determined that:

• In future, starting at this forthcoming AGM, a continuation vote will be put to shareholders every three years (it used to be five). The next continuation vote was due to be put to shareholders at the AGM in 2012. Resolutions to effect this form part of the agenda for this year's AGM. The Board of Directors recommend that shareholders vote in favour of a continuation of the Company in business.
• There should be a tender for 10% of the shares of the Company at a discount of 9% if, during the period of six months prior to the calling of the AGM (the date at which the annual report is signed off), the discount to the net asset value per share at which the Company's shares trade has exceeded 10% based on the daily average discount. As at the date of signing these accounts the average discount for the last six months, as verified by Morningstar, was 9.8% and as a consequence there will not be a tender offer this year.

The new arrangements provide shareholders, as a group, the opportunity to liquidate the Company if it is their collective wish but to offer any individual shareholder the possibility of selling his/her shareholding.

---

Aurora Investment Trust plc
Annual Report 2011

I have served on the Board and indeed as Chairman for the past nine or so years. Given that, following the sale of the holding of the clients of Midas Asset Management, there are a number of new shareholders of the Company and given that I will be 70 next year, I have decided it is time for me to hang up my boots and retire. As a consequence, the independent directors – Richard Robinson and Richard Martin – have set in motion the process of finding a new director and chairman, as laid down in the Corporate Governance Statement. I will step down once that process has been concluded and the appointment made.

Because we cannot be certain how long that will take. I will not resign and put myself up for re-election as the other directors do annually but, as stated above, wait until the appointment is made and then resign. Richard Robinson has decided that for personal reasons he is not able to stand for re-election. Richard Martin and James Barstow, however, will be seeking re-election as directors of the Company.

Outlook:

It is perfectly possible to paint two quite contrasting outlooks for stocks and shares in the UK. One, the bearish one, would focus on the fact that nothing very fundamental has been done by the government to address the basic problem of a very low level of savings within the UK economy (be it the government living way beyond its means and the high level of individual indebtedness and tax bias against personal saving). The dependency culture of our politics and of our citizenry has not changed. Continuing to run large budget deficits and funding them with the printing press can only lead to trouble down the line and a lot more trouble than we have been in to date. It risks much higher levels of inflation than are reported at the moment (if you happen to believe the UK statistics) and thence a rather painful end game of tighter money and higher interest rates. That would not be good for stocks and shares.

On the other hand the UK stock market is made up of the stocks and shares of a lot of well run companies (they certainly run their affairs much more responsibly than does government), whose profitability has improved markedly over the last two years, whose balance sheets generally are pretty strong and which are generating enough cash to increase their dividends to their shareholders. Well over half of their sales and profits are earned outside the country and there are plenty of areas of the world (most notably the emerging market economies, including those of China, India and Brazil) where the economies are financially sound and the prospects for companies most exciting. Corporate success tends to lead to stock market success over time.

China is the particularly compelling theme. It is not of course without risk; its economy's very high rate of growth does have certain side effects, notably the inflation it is dealing with. It is a long-term – even a generational – story and exposure to companies benefiting from its growth has proved and should continue to prove rewarding. There will be ups and downs along the way. As I have always written, our prospects lie importantly in our own hands – to take advantage of the opportunities that the stock market has to offer. I am sure we will continue to do so.

Alex Hammond-Chambers

Chairman

1 June 2011

---

Manager's review and outlook

Rafael A. Al-Aziz

Reflecting back on my career as an investment manager, which commenced on the most appropriate day of the year, namely 1 April, it is impossible to conclude that the period has been dull. During the thirty year time span there have been several booms and busts, financial deregulation, the collapse of communism in Eastern Europe, a banking crisis, the ERM debacle, as well as five conflicts involving the UK's armed forces, the horrors of 9/11 and several natural disasters, amongst other events to keep me on my toes.

Fortunately, I am happy to report to shareholders that the company's year just ended was a relatively calm and uneventful one. The main features being intermittent scares over Eurozone sovereign debt problems, a soft patch in the US economy in early summer, and BP's oil spill disaster in the Gulf of Mexico.

My macro economic approach to investment of creating a portfolio with a major emphasis on companies with a high degree of exposure to economies likely to grow at a superior rate to that of the UK (not too difficult to find at the moment!) proved successful.

The outcome, dare I say it myself, was a sparkling performance relative to the peer group, on account of there being considerably many more winners than losers. I certainly did not, however, achieve quite the degree of accuracy attained by the late renowned psychic German octopus, named Paul, which correctly predicted the outcome of every World Cup match in which the German team participated.

Almost everything has changed since the start of the new reporting period -- mayhem has broken out! Not since the stock-market crash of 1987 have I lost so much sleep in a single week as I did in early March on account of the remarkable concatenation of events which occurred in such a short space of time. I refer to the massive earthquake and tsunami followed by nuclear melt-down in Japan, the onset of war against Colonel Gaddafi, not forgetting impending civil wars in Yemen and Bahrain on the borders of Saudi Arabia, the world's largest oil producing nation. More recently, unrest has also spread to Syria.

Unlike the experience of the collapse of communism in Eastern Europe, two decades previously, there is nothing resembling velvet in this revolution in the Arab world. The death toll is mounting rapidly and the incidence of torture is commonplace. It is therefore not difficult to conclude that it would be foolish to under-estimate the implications; they are certain to have far-reaching political and probably inflationary consequences.

The Portfolio

Undoubtedly the most important event during the year, as far as concerned the portfolio, was the listing of West China Cement on the Hong Kong exchange and the cancellation of its AIM quote. This relisting had an immediate and dramatic effect on the share price, once local investors were provided with the opportunity to own shares in this growth company.

Despite the absence of a UK quote, a holding in these shares, (which will definitely not be increased), will remain in the portfolio, albeit perhaps being top-sliced from time to time. I consider the prospects for further share price appreciation and dividends to be excellent over the next several years.

The company is set to benefit from the almost assured feature of rising inflation in the prosperous Eastern provinces of China. The more wages rise in the East the more determined the Chinese government will become to alleviate the bottlenecks. State financed investment into infrastructure projects in the hinterland will continue apace in order to keep the local population in situ, as well as facilitate industrial production, particularly for export, with competitive labour costs. There are no signs yet of any housing bubble taking place in Xian where the company's headquarters are located.

Last year the company managed not only to grow its profits by no less than 90%, but also increased its production capacity from 8.5m to 12.5m tonnes per year and paid a maiden dividend; what a marvellous achievement. Furthermore, the current stated target is for capacity to rise still further to no less than 35m tonnes within three years.

Shareholders should take heart on hearing that the southern part of Shaanxi province, where the company operates, is both devoid of rivers and generally of an upland nature, thus making road transport prohibitively expensive. The recently imposed

---

Aurora Investment Trust plc
Annual Report 2011

ban by the state on the issue of further permits to build new capacity will also help the company to maintain its current level of near 40% margins.

Asian Citrus also enjoyed another successful year. The profits expanded by 90% on account of a rise in production as more trees came into production – a trend set to continue for the next decade. Increased sales to supermarkets at higher than normal margins, as well as a 9% rise in overall prices, were also major contributory factors to this magnificent outcome. A notable feature of the year was the successful agreed takeover last autumn, on an earnings enhancing basis, of the largest fruit-juice manufacturer of ten tropical fruits in China fully capable of earning 30% margins. This latest addition will help to ensure that this remains an exciting investment for several years to come.

Prosperity Minerals is a new name in the portfolio hitherto unknown by most shareholders, I suspect, and therefore worthy of brief mention. In summary, it is a company managed and to a great extent (65%) owned by a most successful Chinese businessman who has been keen to transfer assets out of his private companies into this foreign (Jersey registered) company at a relatively low transfer price. The bulk of the cement interests transferred four years ago have recently been sold at approximately four times that price without any liability to taxation.

The company is now left with a 33% interest in one listed cement company worth the entire market capitalisation of the group (£180m), a near similar amount of cash, no liabilities of any sort, and, in addition, a further £150m or more of net assets in iron ore trading businesses and Chinese property, much of which is rent producing. It is certainly a 'deep value' investment where patience should be handsomely rewarded.

At a time when the majority of large pharmaceutical companies have declining pipelines of new potential drug developments BTG stands out from the crowd. Currently the company is engaged in phase three trials for treatments for multiple sclerosis, diabetes, prostate cancer, toxicity and varicose veins – all with sales potential exceeding one billion dollars per year (i.e. 'blockbusters'). Moreover the new treatment for septicaemia, at present undergoing phase two trials, appears to have even greater potential.

During the year, BTG has fully integrated its acquisition of Protherics and engaged a sales force to market the group's hospital products in the USA to capture their high margins for itself. More recently, it has made an agreed takeover of Biocompatibles, a company noted for its liver cancer treatments. The lack of available finance prevented this company from fully exploiting the Far East markets where the potential is greatest but BTG's strong balance sheet will now facilitate this and hopefully garner huge rewards.

The small investment in Petro Matad, the oil exploration partner of the government of Mongolia, has produced spectacular returns following its success in finding large oil reserves. The original cost has been extracted more than twice already.

GCM has become the portfolio's largest holding, having doubled in value during the year. Although, along with many others, I am disappointed that the Bangladeshi government has not yet awarded the company a licence to commence mining operations, I feel that this exciting moment is not far off. My patience, so necessary when fishing, will then be well rewarded upon such an outcome.

My confidence is based on the knowledge that Bangladesh, a rapidly expanding and relatively low cost economy, has no oil reserves and will, within a few years, run out of natural gas. Furthermore, the government, in order to lessen the current c.40% power deficit, has recently agreed to build two coal fired power stations at Khulna and Chittagong to where it would be uneconomic to import foreign coal and particularly so in view of the fact that GCM's Phulbari coal deposit is already connected by the existing railway network.

Following a visit to inspect the restoration work carried out at RWE's large brown field site near Cologne, the parliamentary standing committee for the coal industry has recommended in December that open cast coal mining is the appropriate way forward in Bangladesh. The matter is now in the hands of the civil servants who are doing their due diligence.

---

Aurora Investment Trust plc
Annual Report 2011

The Awami League won the last Election with a landslide victory, having made the solving of the power shortage its third most important manifesto pledge. The next election now looms less than 20 months away, so time is not in its favour. Meanwhile, following the floods in Queensland and the near halting of the global nuclear programme, in the light of the Fukushima disaster, the prospects for the price of coal look ever more enticing. Once the licence to mine has been obtained the company will almost certainly become a target for takeover activity.

Having made good profits from Randgold, I decided to realise the holding in view of the high political risk of the countries in which the company operates and also the extremely optimistic rating accorded to it by the stock market on account of it being a constituent of the FTSE100 index. Part of the proceeds was later reinvested in Medusa with beneficial effect. This latter company operates in the Christian part of the Philippines where it mines very high grade veins with the result that it can produce gold for US$190 per ounce and so be one of the lowest cost producers of gold in the world.

A commodity super cycle is defined as an extended period when commodity prices rise in real terms because the dominant nation(s) of the world is/are industrialising at a more rapid rate than that with which the expansion of the mining and other producing industries can currently cope. The Western world has witnessed several such periods, namely in respect of the UK and Germany (1760-1820), the USA (1880-1930), and during war and post war reconstruction in Europe and Japan (1940-1960). It is my strong belief that the fourth such super cycle commenced in about the year 2000, on account of the rapid industrialisation amongst the heavily populated BRIC and other countries.

More importantly, I feel confident that history will eventually prove that this current cycle is the most powerful of all. Never before in the history of mankind has 60% of the population of the globe been rapidly industrialising simultaneously and spending on infrastructure programmes at a much faster rate than the natural resources producers can increase supply.

I feel vindicated in my conviction; the last year has certainly witnessed most commodities, both hard and soft, achieve record prices. Although the resource stocks in the portfolio, with the sole exception of BP, on account of its problem in the Gulf of Mexico, have far outperformed the index, I still consider them in general, and Rio Tinto in particular, to be severely undervalued and on derisory ratings in view of their likely future prospects. Accordingly, I remain excited about this sector of the portfolio.

The only change made to the portfolio's exposure to the banking sector was the sale at a substantial profit of the holding in Barclays; my confidence in its future had waned considerably. The main British banks have yet to shrink their balance sheets to any meaningful extent, but when they do so are likely to incur huge losses. Furthermore, they all have large exposures to eurozone sovereign debt which is set to haunt them for a considerable period. In this light, Standard Chartered Bank, whose share price performance far outshone that of its peer group on account of its ability to avoid such problems, remains the portfolio's main exposure to the sector.

Arriva has been a resounding success for the portfolio since its purchase in 2000. This stock was well suited to the theme that most of the government's transport initiatives were designed to encourage more people to travel by public transport rather than in their private motor car.

Much to my disappointment this year it received an unwanted takeover approach from Deutsche Bundesbahn, to which it succumbed at too lowly a price in my opinion. Once again I accompany many others in complaining that the large institutions are too short-term oriented. To date I have not been able to find a suitable replacement for it in the transport sector.

Outlook

Writing as one often criticised for his excess optimism, I foresee an extended period of rising taxation, rising commodity prices, massive public expenditure cuts and an ongoing contraction of the banking system, not to mention higher contributions to the still unaudited European Union budget. Moreover interest rates in Europe have already started to rise, even though the adoption of the Taylor Rule amongst the southern states would suggest that a rate of minus 4.5% would be a more appropriate local rate.

---

Aurora Investment Trust plc
Annual Report 2011

The undoubted consequence is an era of slow growth for the UK economy and for many of its European trading partners with the notable exception of Germany. Eurosceptics are waiting with bated breath for the first nation to suffer 'austerity fatigue' and decide to suffer the consequences of a default or debt restructuring which could lead to abandoning the euro – an event which can be predicted with ever increasing certainty in view of the high prevailing levels of bond yields as the relevant debt is accorded near junk status. Greece, Portugal and Ireland spring immediately to mind as candidates.

It takes only a moment's thought therefore to reach the conclusion that the outlook for UK consumer shares is at best not good for many and dire for most others. They, along with users of commodities are therefore best avoided, as I have studiously and doggedly done. The natural consequence of adopting such discipline to avoid risk is a highly concentrated portfolio. So be it – the rewards are there to be grasped, but with occasional volatility.

Elsewhere, succinctly expressed, it is not only the geological but also the political tectonic plates which have started to move with dramatic effect. As the British Foreign Secretary has sagely predicted, we are currently witnessing only the start of a new long drawn out revolution in the Arab world. Long-established dictatorships will perhaps struggle to survive against the growing demands from restless young social network-using populations for democratic rights and improved standards of living. There are certain to be serious implications for the price of oil, gold and food as well as the level of international trade.

Recent statistics published in the US demonstrate that economic recovery is finally appearing there; even unemployment is starting to fall. Nevertheless government debt continues to mount incessantly with few initiatives being taken to prevent it.

A much brighter picture, however, can be obtained from the Far East and other emerging countries, to which the portfolio is effectively heavily oriented. China, at the time of writing, has just announced a growth rate of 9.75% for the first quarter of the year despite its many attempts to clamp down on growth. Such a figure brings an inner feeling of satisfaction to me, in the belief that the portfolio is well positioned in that region and I see no reason to make major alterations for the time being.

The portfolio overall has fared well in a difficult environment. Sadly few of the problems are going to disappear in the near future, but this does not lower my enthusiasm for the ability to continue to make money from my 'conviction' themes. It does, however, make me all the more determined to concentrate my efforts on stocks which I consider I know well and understand where the risks of investment are lower. To use an apposite analogy, I like to pick the 'low hanging plums' within easy range which I can carefully examine prior to placing in the basket, rather than attempting to climb a ladder to the top of the tree to reach others, at the risk of falling and breaking my limbs, if not those of the fruit tree also, only to find that the wasps have arrived first!

In my opinion, the coming fruit harvest is showing signs of being a most productive one. Economic recovery will continue to strengthen and even though Western consumers may be drowning in debt, corporations, by contrast, are swimming in liquidity – a portent of increasing levels of M & A activity. I also feel extremely confident that the Renmimbi, to which the portfolio is heavily exposed, will be materially revalued.

In summary, despite everything, I remain hopeful that I will be able to report in twelve months time that the portfolio has enjoyed another good year.

Meanwhile, I wish to thank long-standing shareholders for their continuing loyalty, whilst at the same time welcoming several new shareholders on the register for having expressed their faith in me by adding their support at a difficult time.

MJ Barstow
1 June 2011

---

Directors' report

The Directors present their report and financial statements for the year ended 28 February 2011. This report deals with the results of Aurora Investment Trust plc and its subsidiary ("the Group").

BUSINESS REVIEW

Investment Policy

The Company's objectives are pursued through investments in securities, the majority of which are listed on the London Stock Exchange, predominantly comprising equities but allowing exposure to fixed interest and equity related securities. In general the portfolio is weighted towards larger and mid-cap stocks. A distinctive feature is an emphasis on investments in companies with exposure to economies growing at a faster rate than the UK.

In pursuing this policy, the Manager takes into account the following considerations:

Distribution of the portfolio relative to the benchmark

An element of risk is inherent in investment undertaken on a selective basis. The Company seeks to mitigate the degree of risk by investing in securities in substantial organisations, normally listed and traded on the London Stock Exchange, and by spreading its investments across a range of such securities.

The benchmark is the FTSE All-Share Index, which is an index of over 700 of the largest capitalised stocks quoted on the London market. This Index is not only representative of the UK economy but also includes a significant degree of international exposure, because the London Stock Exchange has become the stock market of choice for many of the emerging world's largest companies and, furthermore, many of the largest stocks are multinational companies with the majority of their revenues derived outside the UK. Therefore the Manager can achieve the aim of exposure to fast-growing economies while investing selectively in stocks quoted on the London market. However, the Manager makes no attempt to replicate the benchmark and the weightings of the portfolio to particular sectors may differ significantly from those of the benchmark.

A performance fee is payable to the Manager only if the benchmark is beaten and a NAV is achieved that is greater than the NAV at the time when the previous performance fee was paid. This incentivises the Manager to seek to achieve a superior distribution in the portfolio to that of the benchmark.

Risk diversification

At 28 February 2011 the Company's investments were spread across 39 holdings and across 7 main sectors (details are shown on pages 15 to 17).

The Board does not believe that it should normally or continuously impose prescriptive limits on the Manager regarding the geographic breakdown or distribution by sector of the portfolio. However, these matters are a subject of repeated discussion between the Board and the Manager and from time to time particular informal limits are agreed between them.

The Company can and sometimes does hold large positions in certain stocks. However, the Company, as an investment trust, is prohibited from creating a holding at the time of investment that represents more than 15% of the portfolio in any company. Furthermore, it does not hold more than 15% of the portfolio in other investment trusts.

Gearing Policy

The Company is usually geared to a moderate degree. Borrowings are limited by the articles to a maximum of 30% of NAV and by the Company's bank covenant to 25% of NAV. The Board has adopted a policy whereby under normal circumstances borrowings are to be kept to within 20% of the Company's NAV, but with the flexibility to rise for limited periods. This flexibility is considered desirable to avoid the possibility of forced sales in adverse market conditions.

The Board keeps the level of gearing and the extent, if any, of borrowing in foreign currencies under close review.

Hedging

The Company does not use derivatives to hedge market or currency exposure.

Objectives and key performance indicators (KPIs)

The Company's principal investment objective is to achieve capital growth. The Company's success in attaining its objectives is measured by reference to KPIs as follows:

1. The Company seeks to achieve a positive total return over the long-term. To measure its success, the Board compares shareholders' returns from owning the shares (share price appreciation and dividends) over one and five years and since launch to the return on an appropriate

---

Aurora Investment Trust plc
Annual Report 2011

gilt-edged security (without reinvestment of dividends or interest). The Board considers long-term performance to be of greater importance than short-term and that the five-year comparison is the Company's Primary KPI.

(b) The Company's Benchmark is the FTSE All-Share Index, against which the Net Asset Value (NAV) return (capital only) is compared. After achieving the goal of making absolute returns for shareholders, the next aim is to provide a better return from the portfolio than from the market as measured by the Benchmark.

(c) The Company also seeks to outperform other investment companies that it considers to be its Peer Group. The Company's one and five year NAV returns are therefore compared with those of the AIC UK Growth Sector Size Weighted Average.

(d) The Company seeks to ensure that the operating expenses of running the Company as a proportion of NAV (the Total Expense Ratio) are reasonable.

The Board has also sought to achieve a dividend rising in line with inflation, although this is not defined as a KPI.

Performance

Since its launch the management of the Company's investments has been contracted to Mars Asset Management Limited, which is regulated by the FSA. The principal participant in the management of the Company's investments is James Barstow (managing director). Mr Barstow reports in detail upon the Company's activities in his Report on pages 8 to 11.

The Company's performance relative to the KPIs described above was as follows:

(a) Performance of share price vs. gilt edged security

	Year ended 28 February 2011	Five years ended 28 February 2011	Since launch (1997)
Share price and dividends	+56.4%	+22.3%	+185.4%
Treasury 9% stock 2011 and interest	+0.9%	+20.8%	+101.4%

The Company has outperformed the 9% gilt over all three comparative periods.

(b) Performance of NAV vs. Benchmark

	Year ended 28 February 2011	Five years ended 28 February 2011	Since launch (1997)
Net Asset Value per share	+40.6%	+9.9%	+175.4%*
Benchmark	+13.5%	+5.1%	+44.1%

All NAV figures are for capital-only performance
*by reference to a starting value of 97.78p (net of launch expenses).

The Company has achieved this objective over all three comparative periods.

(c) Performance vs. Peer Group

	Year ended 28 February 2011	Five years ended 28 February 2011
Net Asset Value per share	+40.6%	+9.9%
AIC UK Growth Sector Weighted Average	+24.5%	+28.1%

The Company has achieved this objective over one year, but not over five years.

(d) Total Expense Ratio

	Year ended 28 February 2011	Year ended 28 February 2010
Total Expense Ratio	1.58%	1.81%

The ratio is calculated excluding finance costs but including operating expenses charged to capital and applied to the average NAV of the year.

Increase in dividend

The Company has generally succeeded in achieving a steady increase in the level of dividend paid. The directors are recommending a dividend of 3.5p per share for the year ended 28 February 2011.

Revenue result and dividend

The Group's revenue loss after tax for the period amounted to £126,269 (2010: profit £563,345). The Company made a revenue profit after tax of £304,164 (2010: £483,851).

At the Annual General Meeting on 18 July 2011 a resolution will be proposed to approve a final dividend of 3.5p (2010: 3.45p) per ordinary share, absorbing £404,329 (2010: £466,852). The final dividend will be paid on 25 July 2011 to shareholders

---

Aurora Investment Trust plc
Annual Report 2011

on the register at 1 July 2011; the ordinary shares will go ex-dividend on 29 June 2011. In accordance with International Financial Reporting Standards this dividend is not reflected in the financial statements for the year ended 28 February 2011.

Risk analysis

The Board considers that the principal risks faced by the shareholders of the Company fall into two categories:

External Risks

Poor performance in the UK and/or world economies; poor corporate profits and dividends.

Poor stock market performance caused by market-specific factors, such as rising interest rates, the unwinding of "bubbles" or disinvestment by institutions, superimposed on general economic factors, or caused by shocks, wars, disease etc. The Board does not consider, however, that short-term volatility represents a risk for the long-term shareholder that the Company seeks to avoid, since it regards long-term performance to be of primary importance.

Internal Risks

Poor asset management, which may include poor stock selection, excessive concentration of the portfolio, mistakes regarding currency movements, speculation in shares of companies without sound or established businesses and speculation in derivatives.

Poor control of borrowing, including borrowing at excessive rates of interest relative to likely returns and borrowing

excessive amounts leading to the breach of covenants and possible enforced sales of assets at disadvantageous prices.

Poor governance, compliance or administration, including particularly the risk of loss of investment trust status.

All these and other risks can result in shareholders not making acceptable returns from their investment in the Company.

Risk controls

External risks

Information on the mitigation of risk by diversification and by control of gearing and hedging is given in the Investment Policy section on page 12 above.

Further details concerning currency risks, liquidity risks and interest rate risks are given in note 19 on page 44.

Internal risks

The control of risks related to governance, compliance and administration is dealt with in the report on Corporate Governance on pages 22 to 26.

---

15 Aurora Investment Trust plc
Annual Report 2011

Five year summary

The following data are all expressed as pence per share. NAV figures are all calculated at bid prices. They are shown both as previously published and as adjusted by adding back the final dividend for each year.

Year	NAV	Dividend in respect of year	Special dividend	Share price (mid market)
2006	244.98	2.95	–	215.5
2007	246.88	3.10	–	222.5
2008	203.04	3.15	–	181.0
2009	111.86	3.25	1.75	81.0
2010	191.52	3.45	–	159.5
2011	269.24	3.50	–	246.0

Outlook

The outlook for the Group is discussed in the Chairman's Statement on page 7 and the Manager's Review and Outlook on pages 10 and 11.

Corporate governance

The Corporate Governance Statement on pages 22 to 26 forms part of the Directors' Report.

TOP TEN HOLDINGS – CONSOLIDATED At 28 February 2011

All holdings are of ordinary shares, unless otherwise stated

	By valuation £'000	Percentage of Portfolio
GCM Resources Plc	3,813	9.51%
West China Cement	2,953	7.37%
Asian Citrus	2,903	7.24%
Petro Metad	2,814	7.02%
BTG Plc	2,447	6.10%
Prosperity Minerals	2,298	5.73%
Rio Tinto Plc	2,155	5.37%
Antofagasta Holding	1,970	4.91%
Kazakhmys Plc	1,586	3.96%
Royal Dutch Petroleum	1,539	3.84%
	24,478	61.05%
Other holdings	15,617	38.95%
Total investments*	40,095	100.00%

*Includes both fixed and current investments.

PORTFOLIO ANALYSIS At 28 February 2011

	Percentage of Portfolio
Information Technology	5.33%
Resources	48.33%
General Industries	8.28%
Non-Cyclical Services	15.05%
Cyclical Services	5.74%
Financials	14.36%
Fixed Interest	2.91%
	100.00%

---

Aurora Investment Trust plc
Annual Report 2011

ANALYSIS OF INVESTMENTS BY SECTOR

At 28 FEBRUARY 2011

All holdings are of ordinary shares, unless otherwise indicated

	Company	Value £'000	Percentage of Portfolio
Fixed income	Amlin 6.5% 2026	459	1.22
	Cheltenham & Gloucester 11.75% PIBS	636	1.69
		1,095	2.91
Banks, Retail	HSBC Holdings	480	1.27
	Standard Chartered	1,372	3.64
		1,852	4.91
Financials	Charlemagne Capital	368	0.98
	Man Group	718	1.90
		1,086	2.88
Information Technology	Emblaze Systems	459	1.22
	Gresham Computing	336	0.89
	China Shoto	988	2.62
	Synchronous	225	0.60
		2,008	5.33
Insurance	Amlin	97	0.26
	Aviva	1,166	3.09
	Prudential	1,209	3.21
		2,472	6.56
Mining	Anglo Pacific	498	1.32
	Antofagasta	1,970	5.23
	BHP Billiton	973	2.58
	GCM Resources	3,597	9.55
	Kazakhmys	1,586	4.21
	Medusa Mining Ltd	761	2.01
	Prosperity Minerals	768	2.04
	Rio Tinto	2,155	5.72
	Xstrata AG	1,404	3.73
		13,712	36.39

---

Aurora Investment Trust plc
Annual Report 2011

ANALYSIS OF INVESTMENTS BY SECTOR

Continued

All holdings are of ordinary shares, unless otherwise indicated

Company	Value £'000	Percentage of Portfolio
Non-Cyclical Consumer Goods
Asian Citrus	2,903	7.71
Bright Futures Group	15	0.04
BTG	2,447	6.49
GlaxoSmithKline	118	0.31
Purecircle Ltd	185	0.49
	5,668	15.04
Oil Exploration & Production
BP	989	2.63
Petro Matad Ltd	1,410	3.74
Premier Oil	1,054	2.80
Royal Dutch Petroleum 'B' Shares	1,539	4.08
Tullow Oil	144	0.38
	5,136	13.63
General Industrials
BAE Systems	164	0.44
Transport
Ocean Wilsons Holding	126	0.34
Oil, Integrated
BG Group	1,122	2.98
Cleres Power Holdings	281	0.75
Cyclical Services
West China Cement	2,953	7.84
Basic Industries
Total Portfolio	37,675	100.00
ANALYSIS BY TYPE, MARKET & CURRENCY
	£'000
Ordinary shares	36,580
Fixed interest securities	1,095
	37,675
Listed securities	26,914
AIM securities	10,746
Other	15
	37,675
Denominated in sterling	34,361
Denominated in Hong Kong $	3,314
	37,675

---

Aurora Investment Trust plc
Annual Report 2011

OTHER INFORMATION

Legal and taxation status

In the opinion of the Directors, the Company has conducted its affairs so as to be able to seek approved investment trust status from HM Revenue and Customs under Section 1159 of the Corporation Tax Act 2010 for the year ended 28 February 2011. The Company will continue to seek approval each year. Approval of investment trust status has been received for all years to 28 February 2010. Under Section 833 of the Companies Act 2006 the Company is an investment company and operates as such.

The Company's wholly-owned subsidiary AIT Trading Limited ("AIT") undertakes purchases of investments for re-sale in the shorter term, with the objective of achieving a trading profit. At 28 February 2011 AIT held investments to a value of £2,420,474 (2010: £Nil).

Share capital

The Company has one class of capital, Ordinary Shares. There are no special restrictions or obligations. Shareholders have equal rights with regard to distributions of all kinds in proportion to their shareholdings. Final dividends are payable subject to approval by the AGM; interim dividends can be paid by the Directors, but it is not the Board's policy to do so. Purchases of the Company's own shares may be carried out if the relevant sanction is given by shareholders. Resolutions at general meetings may be carried by a show of hands, when each shareholder present in person or by proxy has one vote, or by poll, when each shareholder present in person or by proxy has one vote for every share.

At 28 February 2011 there were 14,391,389 shares in issue, of which 1,439,139 were held in Treasury. Therefore the number of shares with voting rights was 12,952,250. Since 28 February, the Company has purchased a further 1,400,000 of its own shares; the number of shares held in Treasury has increased to 2,839,139 and the number of voting shares in issue is 11,552,250.

Continuation votes

The Company announced on 1 October 2010 the results of a strategic review carried out by the Directors. The Board concluded that the Company should move to a schedule of more frequent continuation votes, starting in 2011. Therefore an ordinary resolution that the Company should continue as an investment trust would be put to shareholders at the Annual General Meeting (AGM) in 2011. This is item 7 in the Notice of Meeting.

It was also proposed that, if resolution 7 is passed, similar resolutions would be put forward at the AGMs in 2014 and every three years thereafter. In order to clarify and regularise the position beyond 2012, the Directors seek approval for a special resolution amending article 154 of the articles of association so as to provide for an ongoing schedule of three-yearly continuation votes. The new procedure, which the Directors believe is simpler and more transparent, would replace the existing provision that provides for five-yearly winding up votes but also the ability to cancel such votes by a resolution in the year prior to each vote. This is item 12 in the notice of meeting.

It was confirmed within the announcement on 1 October 2010, as a logical ancillary to the new schedule of continuation votes, that an ordinary resolution would be put forward at the AGM in 2011 releasing the Board from the obligation to hold the winding up vote that would otherwise be scheduled for 2012. Such a procedure is provided for in the current wording of article 154 and is not dependent upon the passing of special resolution 12. This is item 8 in the Notice of Meeting.

Purchase of own shares

A resolution is to be proposed at the AGM to renew the Company's powers to purchase its own shares. This is item 9 in the Notice of Meeting.

Authority was granted on 28 July 2010 to purchase up to 1,941,542 shares. As described above, no purchases were made during the year ended 28 February 2011. Since 28 February 2011 a further 1,400,000 shares have been purchased.

The Directors recommend that these powers continue to be held in reserve in case of need. The renewed authority sought by the Company is to purchase up to 14.99% of the voting shares that are currently in issue (and will be in issue at the time of this year's AGM) which is 1,731,682 shares.

Holding shares in Treasury

The Board monitors on an ongoing basis whether shares should be repurchased and, if so whether they should be held in Treasury. Shares held in Treasury will only be re-sold at a

---

Aurora Investment Trust plc
Annual Report 2011

discount lower than that at which purchased, thus resulting in a net increase in NAV per share over the combined transaction.

Issue of own shares for cash

The Directors recommend that their powers to allot shares for cash, granted at the last Annual General Meeting, be renewed, providing them with flexibility to allot to applicants on demand a limited number of Ordinary Shares (representing approximately 5% of the current issued share capital of the Company) for cash on a non pre-emptive basis.

Resolution 10 in the Notice of the Annual General Meeting will, if passed, give the Directors the general power to allot securities up to an aggregate nominal amount of £179,892 representing 5% of the issued share capital of the Company at the date of this document.

Resolution 11 will, if passed, empower the Directors to make allotments of shares for cash other than according to the statutory pre-emption rights which require all shares issued for cash to be offered first to all existing shareholders.

The Board and re-election of directors

The Directors of the Company and of AIT at any time during the year are stated below.

Alex Hammond-Chambers (Chairman)
James Barstow FCA
Richard Robinson
Richard Martin (appointed 8 September 2010)

All directors are non-executive, in as much as Mr Barstow is an employee of Mars Asset Management Limited and not of the Company.

Directors are required by the Company's Articles to retire by rotation at the Annual General Meeting so that each director is subject to re-election at a maximum interval of three years. Mr Barstow, being a representative of the Manager, is subject to annual re-election. Mr Martin, having been appointed by the Board since the last AGM, will retire and offer himself for re-election.

The Board has determined as a matter of policy that all directors should submit to annual re-election. This year,

however, as described in the Chairman's Statement, Mr Hammond-Chambers and Mr Robinson will not stand for re-election.

Accordingly, resolutions will be put to reappoint Mr Barstow and Mr Martin. A process is under way to recruit one or more new directors.

The report on Corporate Governance on pages 22 to 26 below contains a description of the Board's composition, of its method of operation, of its work during the year and that of its Committees and of how its performance has been evaluated. The Board recommends that Mr Barstow and Mr Martin should be re-elected.

Under the Articles, the Directors are indemnified by the Company against losses and liabilities incurred in the performance of their duties. The Articles permit insurance cover against directors' and officers' liabilities to be arranged by the Company and such a policy is maintained.

Directors' shareholdings

The Directors' shareholdings in the Company, all of which were beneficially owned, were:

	At 28 February 2011 and at the date of this report Ordinary shares	At 28 February 2010 Ordinary shares
A Hammond-Chambers	15,000	15,000
MJ Barstow	839,000	839,000
R Robinson	-	-
R Martin	6,100	N/A

During the year, no rights to subscribe for shares in or debentures of the Company or its subsidiary have been granted to, or exercised by, any director or a member of his immediate family. No shares in AIT were held by any director.

Management contract

The manager is appointed under a contract subject to twelve months' notice, and is remunerated at a rate of 0.75% per year of the Group's Total Assets, payable monthly in arrears. The manager is also entitled to an annual performance-related fee equal to 10% of any outperformance by the Group's NAV over the FTSE All-Share Actuaries' Index. If the Group's NAV underperforms the Index, the amount of that

---

underperformance will be carried forward and no further performance-related fee will be payable until the NAV has both recovered the underperformance carried forward and exceeded the performance on a cumulative basis (and such performance fee would then be calculated only on the amount of the cumulative outperformance). Any performance fee in excess of 0.75% of NAV must be invested by the Manager, net of tax, in the Company's ordinary shares, which must then be held by the Manager for at least five years.

For the purposes of fee calculation, NAV is the value of the Group's shareholders' funds and Total Assets are the Group's shareholders' funds plus borrowings, less the current-year revenue balance. No performance fee was earned in respect of the year ended 28 February 2011 (2010: £Nil).

Management engagement

The Remuneration and Management Engagement Committee and the Board have reviewed the position of the Manager. The process of evaluation is described in the report on Corporate Governance on page 25. Having taken into account the performance of and the prospects for the Company, the Committee and the Board have concluded that the continuation of the existing management contract is in the interests of shareholders.

Company Secretary and Administrator

Cavendish Administration Limited (“Cavendish”) was the secretary of the Company for the entire year under review, and remains so. Cavendish is also responsible for all administrative matters. Cavendish is appointed under a contract subject to 180 days' notice and receives a fee of 0.125% per year of Total Assets.

Banking and Borrowings

At 28 February 2011 the gross external borrowings of the Company and of the Group were £5,876,080 (2010: £4,957,780). There were no borrowings in foreign currency (2010: £Nil).

During the year ended 28 February, the Company closed its accounts with Lloyds TSB Bank and entered into new banking arrangements with Coutts & Co. The Company holds cash balances with Coutts & Co and the total net debt of the Group to Coutts & Co was £5,826,147 (2010: £4,888,072 net debt to Lloyds TSB Bank).

During the year the Company advanced funds to AIT to finance AIT's purchases of investments. At 28 February 2011 AIT owed £3,570,625 (2010: £725,625) to the Company.

Market information

The Company's share capital is listed on the London Stock Exchange. The market price is shown daily in the Financial Times and The Daily Telegraph. The NAV per share is calculated twice monthly and released twice monthly to the London Stock Exchange and monthly to the Association of Investment Companies. The Company subscribes to the website www.trustnet.com, which compares the Company's performance to that of its peer group.

Custody

The Northern Trust Company was custodian to the Group throughout the year.

Payment of suppliers

It is the Company's payment policy to obtain the best possible terms for all business and therefore there is no consistent policy as to the terms used. The Company contracts with its suppliers the terms on which business will take place and abides by such terms. By far the most significant supplier of services to the Company is the investment manager, as described above. The investment manager is reimbursed according to Group Total Assets at the close of each month and is due to be paid within the month following; the Company has maintained payments according to this schedule throughout the year.

There were no invoiced, unpaid trade creditors outstanding at 28 February 2011 (2010: £Nil); amounts shown as creditors in the Balance Sheet comprised accrued expenses and other uninvoiced short-term liabilities. Brokers' commissions are paid in accordance with Stock Exchange terms and are included in Sales for Future Settlement and Purchases for Future Settlement.

---

Aurora Investment Trust plc
Annual Report 2011

Significant shareholdings

The directors have been notified of, or have identified, at the date of this report the following shareholdings comprising 3% or more of the issued share capital of the Company:

	At 28 February 2011		At the date of this report
	Ordinary Shares	%	Ordinary Shares	%
Clients of Midas Investment Management	3,850,678	29.7	N/A	-
Clients of Jupiter Asset Management	1,151,883	9.8	1,151,883	10.0
Galaxy Asset Management	-	-	1,000,000	8.7
Clients of Brewin Dolphin	926,501	7.7	921,605	8.0
Milton Asset Management	850,000	6.6	900,000	7.8
MJ Barstow	839,000	6.5	839,000	7.3
Clients of Pershing Keen	601,689	4.8	838,390	7.3
Mr J Booth	-	-	800,000	6.9
Clients of JP Morgan	545,000	4.2	488,500	4.2
South Yorkshire Pension Fund	449,653	3.4	449,653	3.9
CG Asset Management	442,000	3.4	N/A	-

Settlement of Ordinary Share transactions

Ordinary shares in the Company are settled by the CREST share settlement system.

Donations

The Company did not make any donations during the year under review.

Going concern

After making inquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio, its cash position, borrowings, income and expense flows. The directors also believe they have reasonable grounds to expect that the continuation vote will be passed at the forthcoming AGM. For this reason, they have adopted the going concern basis in preparing the accounts.

Auditors

In accordance with Section 489 of the Companies Act 2006, a resolution proposing that Grant Thornton UK LLP be reappointed as auditors of the Company will be put to the Annual General Meeting.

Social, Ethical and Environmental matters

Being an investment company, with no staff, premises, manufacturing or other operations of its own, the Company does not have any direct influence on social, ethical and environmental matters. However, the Manager bears in mind such matters when choosing investments and aims to avoid investment into companies that are found to perform badly in those areas.

By order of the Board

John Luetchford

for Cavendish Administration Limited

Company Secretary

1 June 2011

---

Corporate Governance

The Company is committed to high standards of corporate governance. The Board has put in place a framework for corporate governance which it believes is appropriate for the Company. In doing so, the Board is particularly guided by the AIC Code of Corporate Governance issued by the Association of Investment Companies. The resulting procedures enable the Company to comply with almost all provisions relevant to the Company in the Principles and Provisions of Good Governance (“the Combined Code”) published by the Financial Reporting Council in 2008. Those instances where the Company's practice differs from that of the AIC Code or the Combined Code are stated and explained at the foot of this report.

This Corporate Governance statement forms part of the Directors' Report that is set out on pages 12 to 21.

The Board

Board composition

The Board currently consists of a Chairman, Mr Hammond-Chambers, two independent directors, Mr Robinson and Mr Martin, and Mr Barstow. Mr Barstow has served since the Company started in business in 1997. Mr Hammond-Chambers joined the Board on 3 October 2002, Mr Robinson joined the Board on 18 December 2007 and Mr Martin joined the Board on 8 September 2010.

All Board members except Mr Barstow are independent of the investment manager, Mars Asset Management Limited, of which Mr Barstow is a director and shareholder. Mars Asset Management Limited supplied fund management services to the Company throughout the period under a contract described under the “Management” section in the Directors' Report on page 20. With this exception, there were no contracts subsisting during or at the end of the year in which a director was or is materially interested.

Alex Hammond-Chambers, aged 68, worked for Ivory & Sime for 27 years, serving as chairman during 1985-91. He currently sits on a number of investment trust and company boards, including Montanaro European Smaller Companies Trust, International Biotechnology Trust and Hansa Trust. He has served as a governor of the NASD in the USA and as Chairman of the AIC.

James Barstow FCA, aged 61, is the Managing Director of Mars Asset Management Limited. He is the fund manager responsible for managing the Company's portfolio and for formulating the investment rationale and policies of Mars Asset Management Limited.

Richard Robinson, aged 53, is investment director of the Paul Hamlyn Foundation. He was previously Head of Charities at Schroders plc and before that a senior fund manager at Rothschild Asset Management Ltd and has over 25 years' experience in the financial services sector. He is a director of Soutterham Bank, the publisher Constable & Robinson Ltd and the property company 11 Rutland Gate Ltd.

Richard Martin, aged 66, is a strategic adviser to T Bailey Asset Management Ltd. He is non-executive chairman of F & C Managed Portfolio Trust plc and a non-executive director of Invesco Perpetual AIM VCT plc and Montenaro European Smaller Companies Trust plc.

As described below under “Evaluation of Board Performance” the Board conducts a review of its strengths and weaknesses, with the aim of ensuring that there is available a good balance of attributes that are useful to the direction of the Company, in addition to the skills and commitment of the Manager. The Chairman has extremely wide and deep experience of the governance of investment trusts through the other relevant directorships that he has held and his close involvement with the AIC. Mr Robinson and Mr Martin have a long track record of success in the fields of investment and asset management. The Board confirms that its members are highly experienced, both generally and in respect of the direction of an investment trust, and that the backgrounds and seniority of the independent directors provide the Board with a high overall level of independence.

Policy with regard to tenure and reappointment

The Board considers that the benefits of experience and seniority to be particularly important and generally help promote independent performance by directors in carrying out their duties. Therefore the Board's policy will not be to follow rigid procedures in the matter of requiring directors to cease to act either at the end of nine years' service or on reaching the age of 70.

The Directors have appointment letters which do not state any specific term. The Company's Articles of Association state that a third of the directors, or the nearest whole number not exceeding one-third, retire by rotation at each Annual General

---

Aurora Investment Trust plc
Annual Report 2011

Meeting. The Company's Articles were amended at the AGM in 2001 to ensure that directors are subject to re-election at a maximum interval of three years, thus complying with Code provision A.7.1. Also, the Listing Rules of the UK Listing Authority now require a director representing the Manager, in the Company's case Mr Barstow, to stand for re-election at the AGM each year. Further, the Board recognises that different shareholders may have different views on issues of tenure and reappointment. Bearing this in mind, the Board has decided that each director will be subject to annual re-election by shareholders, although this is not a requirement of the Articles.

How the Board operates

The Board has contractually delegated to external agencies, including the investment manager, the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the registration services and the accounting and company secretarial requirements. Each of these contracts was entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Company. The Board undertakes no executive functions, but is responsible to shareholders for the overall strategy and performance of the Company. It reviews and evaluates all aspects of the Company's performance and all functions performed by the service providers.

There is no formal schedule of matters reserved for the Board. Such a schedule would be inappropriate since the Board decides on all aspects of the activities of the Company and is of sufficiently small size to decide upon most such matters as a full Board.

A procedure has been adopted for directors, in the furtherance of their duties, to take independent professional advice at the expense of the Company.

Attendance at Board meetings

The Board holds at least four meetings a year.

During the year ended 28 February 2011 there were seven meetings of the Board. Mr Hammond-Chambers and Mr Barstow attended all the meetings. Mr Robinson attended six meetings. Mr Martin attended four meetings (representing 100% attendance at meetings held after his appointment).

There were also three meetings of the Board's committees, as detailed below and on page 27.

Evaluation of Board performance

The Board has instituted a procedure for the evaluation of director performance, whereby each director reports to the Chairman upon his ability to meet a given set of criteria. These criteria relate to the director's personal qualities, his competence and experience, both generally and with specific reference to the Company's business, his contribution to boardroom proceedings and his independence, including a review of any potential conflicts of interest. Each director indicates to the Chairman whether there are any areas in which additional training or other assistance would enable him to perform his duties better. The Board then evaluates the Chairman in a similar way.

Directors' Remuneration

A report on directors' remuneration is included on page 27 below.

Board Committees

Since all directors are non-executive and the Chairman is both non-executive and independent, the Board considers, first, that it is unnecessary for Committees to have separate chairmen and secondly that Committee meetings should be attended by all directors except on those occasions when, as described below, it is inappropriate for the representative of the Manager to be involved. The main purpose of the Committees in the context of the Company's structure is that their existence ensures that time is set aside on a formal basis to cover certain important issues of governance, without those issues obscuring the flow of general Board business. The Committees have formal terms of reference, which are available to shareholders upon request from the Company's registered office.

Audit Committee

It is considered appropriate that issues related to the review of the annual financial statements, the appointment of the auditor and internal control procedures, including those of the Manager and the Secretary, should be considered by those directors who are independent. Therefore the Board has formed an Audit Committee, which is comprised of those directors who are independent of the investment manager, namely Mr Hammond-Chambers, Mr Robinson and Mr Martin. The Audit Committee has formal terms of reference

---

Aurora Investment Trust plc
Annual Report 2011

and copies of these are available on request from the Company Secretary of the Company.

Mr Hammond-Chambers acts as chairman of the Committee, which is not in accordance with the guidance of the Smith report, but is considered appropriate to the circumstances of the Company.

The Audit Committee also reviews any non-audit services provided by the auditor. Such services have been, and are, limited to the provision of advice on tax compliance. The Committee considers that such advice can be more efficiently and economically provided by the same firm as that conducting the audit, particularly in view of the fact that the audit of an investment trust cannot be completed without a review of its tax status. The Committee is satisfied that the provision of such advice does not in any way prejudice the objectivity and independence of the auditor.

All members of the Committee are active in the investment markets and/or the investment trust sector and the Committee considers that all have recent and relevant financial experience.

During the year ended 28 February 2011 the Audit Committee met three times. Mr Hammond-Chambers and Mr Robinson attended all three meetings. Mr Martin attended both meetings held after his appointment.

Remuneration and Management Engagement Committee

The Board has formed a Remuneration and Management Engagement Committee, which considers the level of fees paid to directors and also considers issues related to the engagement of the Manager and other service providers, making recommendations as appropriate to the Board. Since all the executive functions of the Company are delegated to service providers, issues concerning the remuneration of those functions relate to the payment of service providers rather than of directors or employees. The Committee therefore considers whether amounts paid to service providers are appropriate, with particular reference to those contracted to the Company on a continuing basis, including the Manager, and whether those contracts should be maintained.

The criteria which are taken into consideration when reviewing the performance of the Manager are as follows:

• Quality of team – the skills and particularly the experience of the team involved
• Commitment to the investment trust business generally and to the Company in particular
• Investment management skills – experience, track record, use of gearing, knowledge of currency issues and other investment related considerations
• General management skills – understanding of administrative and financial issues and working relationship with the Administrator/Company Secretary
• Shareholder relations – consciousness of and commitment to shareholders' needs and objectives, share price awareness and discount management
• Reasonableness of Management Agreement – fees, notice period and duties

When considering issues related to directors' fees and the remuneration of service providers other than the Manager, the Committee comprises all the directors. Mr Barstow stands down from the Committee when the management contract and management issues are under discussion.

The work of the Committee during the year ended 28 February 2011 is further described in the Directors' Remuneration Report on page 27.

Relations with Shareholders and with Investee Companies

Relations with shareholders

The investment manager has a programme of meetings with the largest shareholders and reports back to the Board on these meetings. The Company encourages all shareholders to attend the Annual General Meeting and seeks to provide twenty working days' notice of that meeting. The Notice of Meeting sets out the business of the AGM and any item not of an entirely routine nature is explained in the Directors' Report. Separate resolutions are proposed for each substantive issue.

Exercise of voting powers

Since the Company's investments are usually in large companies and form only a small proportion of their issued capital, the Company does not have a fixed policy always to vote its holdings, but treats each case on its merits. The Board

---

Aurora Investment Trust plc
Annual Report 2011

is opposed to “mindless” voting carried out merely as a box-ticking exercise and prefers that all voting should be carefully considered. The Board delegates voting of a routine nature to the Manager, but retains ultimate control and the Manager consults the Board with regard to any voting on controversial issues.

Social and environmental policy

The Company has no staff, premises, manufacturing or other operations. The Company encourages investee companies to adopt responsible social and environmental policies.

Internal Controls

Review of internal controls

The Combined Code requires the Board to review the effectiveness of the Company’s system of internal controls. The Board recognises its ultimate responsibility for the Company’s system of internal controls and for monitoring its effectiveness. The system of internal controls is designed to manage rather than eliminate the risk of failure to achieve business objectives. It can provide only reasonable assurance against material misstatement or loss. The Board has undertaken a review of the aspects covered by the Financial Reporting Council (Turnbull Review Group) and has identified risk management controls in the key areas of business objectives, accounting, compliance, operations and secretarial as being matters of particular importance upon which it requires reports. The Board believes that the existing arrangements, set out below, represent an appropriate framework to meet the internal control requirements. By these procedures the directors have kept under review the effectiveness of the internal control system throughout the year and up to the date of this report.

Assessment by the Board of service providers

The investment manager and the administrator are normally invited to attend each full meeting of the Board and have in practice done so. Between these meetings there is further, regular contact with the investment manager and the administrator. The manager reports in writing to the Board on operational and compliance issues prior to each meeting, and otherwise as necessary. Directors receive and consider regular monthly reports from the administrator, giving full details of all holdings in the portfolio and of all transactions and of all aspects of the financial position of the Company. The administrator reports separately in writing to the Board concerning risks and internal control matters within its

purview, including internal financial control procedures, compliance with Section 1159 of the Corporation Tax Act and secretarial matters, highlighting any changes which have occurred. Additional ad hoc reports are received as required and directors have access at all times to the advice and services of the Corporate Company Secretary, which is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with.

This contact with the investment manager and the administrator enables the Board to monitor the Company’s progress towards its objectives and encompasses an analysis of the risks involved. These matters are assessed on an ongoing basis through the year and again, formally, at year-end and this process of assessment has continued up to the date of this report.

Financial Aspects of Internal Control

The directors are responsible for the internal financial control systems of the Company and for reviewing their effectiveness. These aim to ensure the maintenance of proper accounting records, the reliability of the financial information upon which business decisions are made and which is used for publication and that the assets of the Company are safeguarded. As stated above, the Board has contractually delegated to external agencies the services the Company requires, but they are fully informed of the internal control framework established by the investment manager and the administrator to provide reasonable assurance on the effectiveness of internal financial controls.

The key procedures include monthly production of management accounts and NAV calculations, monitoring of performance at regular board meetings, supervision by directors of the valuation of securities, segregation of the administrative function from that of securities and cash custody and of both from investment management, maintenance of appropriate insurance and adherence to physical and computer security procedures. In addition, the Board keeps under its own direct control all material payments out of the company other than for investment purposes. Payment of management and administration fees is authorised only by directors, including at least one independent director, after they have studied the financial data upon which those fees are based.

---

Aurora Investment Trust plc
Annual Report 2011

The directors' statement of responsibilities in respect of the accounts is on page 28 and a statement of going concern is on page 21. The report of the auditors is on pages 29 and 30.

Statement of compliance with the Combined Code

The Company has complied, throughout the year ended 28 February 2011, with the AIC Code and the relevant provisions of section 1 of the Combined Code, except for the provisions relating to the role of Chief Executive, executive directors' remuneration and the need for an internal audit function. For the reasons set out in the preamble to the AIC Code the Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. The Board has therefore not reported further on these areas. In accordance with Financial Reporting Council endorsement, full details of compliance with the AIC Code are set out below.

The size and structure of the Board is such that it is considered unnecessary to identify a senior independent director other than the Chairman, who is de facto the senior independent director.

The size and structure of the Board, with four non-executive members of whom three are entirely independent, makes it essential that a decision concerning the recruitment of a director should be decided by the whole Board; it also makes discussion of such a matter by the complete Board entirely practicable. Therefore a Nominations Committee to make recommendations on the appointment of new directors has not been established. However, the process of identifying and interviewing candidates for nomination would be led by the independent directors, who would at all times be the driving force behind the recruitment process.

---

Aurora Investment Trust plc
Annual Report 2011

Directors' Remuneration Report

This report has been prepared in accordance with the requirements of Schedule 8 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008. An ordinary resolution for the approval of this report will be put forward at the forthcoming Annual General Meeting.

Information not subject to audit

Remuneration Committee

The Company has three wholly independent non-executive directors and a fourth director, Mr Barstow, who is employed by the Manager. The Remuneration Committee comprises the whole Board when considering directors' fees and the remuneration of contracted service suppliers other than the Manager. Mr Barstow stands down when issues related to the Manager's fees are discussed.

The Committee did not meet formally during the year ended 28 February 2011. The Board had considered the position as a matter of strategic policy and had concluded that the level of fees should remain unchanged, at £26,250 per year for the Chairman, £17,500 per year for non-executive directors other than Mr Barstow and £15,000 per year for Mr Barstow. However, Mr Barstow has continued to disclaim the increase in fees determined on his behalf in 2007 and is remunerated at £11,000 per year.

No services have been provided by, or fees paid to, advisers in respect of remuneration policy during the year ended 28 February 2011.

Policy on directors' fees

The Board's policy is that the remuneration of non-executive directors should be fair and should reflect the experience, work involved, responsibilities and potential liabilities of the Board as a whole. The non-executive directors' fees are determined within the limit set out in the Company's Articles of Association and they are not eligible for bonuses, pension benefits, share benefits, share options, long-term incentive schemes or other benefits.

The Committee will keep the position under review and will consider an increase in the levels of remuneration if general market rates of remuneration for non-executive directors increase and if the current improvement in the Company's performance is sustained. No change is anticipated for the coming year.

Directors' service contracts

The Directors do not have service contracts. The Directors have appointment letters which do not state any specific term.

However, the Company's Articles require that Directors are subject to re-election by shareholders at a maximum interval of three years.

Performance

The performance of the Company's shares, with dividends reinvested, is compared to that of the FTSE All-Share Index, which is the Company's Benchmark.

Information subject to audit

Directors' emoluments for the year

The following emoluments in the form of fees were payable to the directors who served during the year:

	2011 £	2010 £
Alex Hammond-Chambers	26,250	26,250
James Barstow	11,000	11,000
David Hunter	-	6,515
Richard Robinson	17,500	17,500
Richard Martin	8,402	-
	63,152	61,265

The fees of Mr Hammond-Chambers were paid to Alex Hammond-Chambers & Company.

By order of the Board

John Luetchford

for Cavendish Administration Limited

Company Secretary

1 June 2011

---

Aurora Investment Trust plc
Annual Report 2011

Statement of Directors' Responsibilities for the Annual Report

The directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law in the United Kingdom requires the directors to prepare financial statements for each financial year. Under that law the directors have to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs). Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates which are reasonable and prudent;
• state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the website used by the Company.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Disclosure of information to auditor

The Directors who held office at the date of approval of this directors' report confirm that, in so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Statement under the Disclosure & Transparency Rules 4.1.12

The Directors confirm that to the best of their knowledge and belief:

(a) This annual report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces; and

(b) The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company.

For and on behalf of the Board

Alex Hammond-Chambers
Chairman

1 June 2011

---

Aurora Investment Trust plc
Annual Report 2011

Independent auditors' report to the members of Aurora Investment Trust plc

We have audited the financial statements of Aurora Investment Trust plc for the year ended 28 February 2011 which comprise the group and parent company balance sheets, the group statement of comprehensive income, the group and parent company statements of cash flow, the group and parent company statements of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors' Responsibilities Statement set out on page 28, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm

Opinion on financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 28 February 2011 and of the group's profit for the year then ended;

• the group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union; and

• the parent company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

• the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;

• the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

---

Aurora Investment Trust plc
Annual Report 2011

Under the Listing Rules, we are required to review:

• the directors' statement, set out on page 21, in relation to going concern;
• the part of the Corporate Governance Statement relating to the company's compliance with the nine provisions of the June 2008 Combined Code specified for our review; and
• certain elements of the report to the shareholders by the Board on directors' remuneration.

Julian Bartlett
Senior Statutory Auditor

for and on behalf of

Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London

1 June 2011

---

Aurora Investment Trust plc
Annual Report 2011

Consolidated statement of comprehensive income

For the year ended 28 February 2011
	Notes	Revenue £'000	2011 Capital £'000	Total £'000	Revenue £'000	2010 Capital £'000	Total £'000
Gains on investments designated at fair value through profit or loss		-	10,865	10,865	-	10,539	10,539
Realised gains of trading subsidiary at fair value through profit or loss		92	-	92	76	-	76
Unrealised losses of trading subsidiary at fair value through profit or loss		(595)	-	(595)	-	-	-
Investment income	2	826	-	826	815	-	815
Total income		323	10,865	11,188	891	10,539	11,430
Investment management fees	3	(136)	(136)	(272)	(94)	(94)	(188)
Other expenses	3	(229)	-	(229)	(199)	-	(199)
Profit/(loss) before finance costs and tax		(42)	10,729	10,687	598	10,445	11,043
Finance costs	6	(90)	(90)	(180)	(43)	(43)	(86)
Profit/(loss) before tax		(132)	10,639	10,507	555	10,402	10,957
Tax	7	6	-	6	9	-	9
Profit/(loss) and total comprehensive income for the year		(126)	10,639	10,513	564	10,402	10,966
Earnings per share	9	(0.97)p	82.14p	81.17p	4.35p	80.31p	84.66p

The revenue and capital columns, including the revenue and capital earnings per share data, are supplementary information prepared under guidance published by the AIC. As permitted by S408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income. The amount of the Company's profit for the financial year was £10,512,968 (2010: £10,965,467).

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All revenue is attributable to the equity holders of the parent company. There are no minority interests.

The Board recommends a final dividend of 3.5p per share (see note 8) out of the Company's profit and revenue reserves.

The notes on pages 38 to 45 form part of these accounts

---

Aurora Investment Trust plc
Annual Report 2011

Consolidated balance sheet

| At 28 February 2011 | Notes | 2011
£'000 | 2010
£'000 |
| --- | --- | --- | --- |
| Non-current assets | | | |
| Investments designated at fair value through profit or loss | 10 | 37,675 | 29,659 |
| Current assets | | | |
| Investments held for trading | | 2,420 | - |
| Other receivables | | 68 | 86 |
| Cash and cash equivalents | | 1,431 | 101 |
| | | 3,919 | 187 |
| Total assets | | 41,594 | 29,846 |
| Current liabilities | | | |
| Purchases for future settlement | | 741 | - |
| Other payables | | 105 | 82 |
| Bank overdraft | | 5,876 | 4,958 |
| | | 6,722 | 5,040 |
| Total assets less current liabilities | | 34,872 | 24,806 |
| Equity | | | |
| Called up share capital | 12 | 3,598 | 3,598 |
| Capital redemption reserve | | 179 | 179 |
| Share premium account | | 10,997 | 10,997 |
| Gains on disposal | 14 | 14,487 | 11,290 |
| Investment holding gains/(losses) | 14 | 6,097 | (1,345) |
| Revenue reserve | | (486) | 87 |
| Total equity | | 34,872 | 24,806 |
| Net assets per ordinary share | 15 | 269.24p | 191.52p |

Approved by the Board of Directors on 1 June 2011 and signed on their behalf by:

A Hammond-Chambers

MJ Barstow

Company no. 03300814

The notes on pages 38 to 45 form part of these accounts

---

Aurora Investment Trust plc

Annual Report 2011

Consolidated statement of changes in equity

For the year ended 28 February 2011
	Note	Share capital£'000	Capital redemption reserve£'000	Share premium account£'000	Realised capital reserve£'000	Unrealised capital reserve£'000	Revenue reserve£'000	Total£'000
Opening equity		3,598	179	10,997	11,290	(1,345)	87	24,806
Total comprehensive income/(loss) for the year		-	-	-	3,197	7,442	(126)	10,513
Dividends paid	8	-	-	-	-	-	(447)	(447)
Closing equity		3,598	179	10,997	14,487	6,097	(486)	34,872
For the year ended 28 February 2010
---	---	---	---	---	---	---	---	---
	Notes	Share capital£'000	Capital redemption reserve£'000	Share premium account£'000	Realised capital reserve£'000	Unrealised capital reserve£'000	Revenue reserve£'000	Total£'000
Opening equity		3,598	179	10,997	11,382	(11,839)	171	14,488
Total comprehensive income/(loss) for the year		-	-	-	(92)	10,494	564	10,966
Dividends paid	8	-	-	-	-	-	(648)	(648)
Closing equity		3,598	179	10,997	11,290	(1,345)	87	24,806

The notes on pages 38 to 45 form part of these accounts

---

Aurora Investment Trust plc

Annual Report 2011

Consolidated cash flow statement

| For the year ended 28 February 2011 | Note | 2011
£'000 | 2010
£'000 |
| --- | --- | --- | --- |
| Net cash flow from operating activities | | | |
| Cash inflow from investment income and interest | | 845 | 824 |
| Cash (outflow)/inflow from held for trading current asset investments | | (2,923) | 164 |
| Cash outflow from management expenses | | (504) | (355) |
| Payments to acquire non-current asset investments | | (6,946) | (13,272) |
| Receipts on disposal of non-current asset investments | | 10,536 | 8,274 |
| Tax recovered | | 6 | 9 |
| Net cash flow from operating activities | 16 | 1,014 | (4,356) |
| Cash flows from financing activities | | | |
| Dividends paid | | (447) | (648) |
| Increase in bank borrowings | | 918 | 4,283 |
| Interest paid | | (155) | (86) |
| Net cash flow from financing activities | | 316 | 3,549 |
| Increase/(decrease) in cash | | 1,330 | (807) |
| Cash and cash equivalents at beginning of year | | 101 | 908 |
| Increase/(decrease) in cash | | 1,330 | (807) |
| Cash and cash equivalents at end of year | | 1,431 | 101 |

The notes on pages 38 to 45 form part of these accounts

---

Aurora Investment Trust plc
Annual Report 2011

Company balance sheet

| At 28 February 2011 | Notes | 2011
£'000 | 2010
£'000 |
| --- | --- | --- | --- |
| Non-current assets | | | |
| Investments designated at fair value through profit or loss | 10 | 37,675 | 29,659 |
| Investment in subsidiary | 11 | 2,423 | 9 |
| | | 40,098 | 29,668 |
| Current assets | | | |
| Other receivables | | 68 | 86 |
| Cash and cash equivalents | | 1,428 | 92 |
| | | 1,496 | 178 |
| Total assets | | 41,594 | 29,846 |
| Current liabilities | | | |
| Purchases for future settlement | | 741 | - |
| Other payables | | 105 | 82 |
| Other payables | | 5,876 | 4,958 |
| | | 6,722 | 5,040 |
| Total assets less current liabilities | | 34,872 | 24,806 |
| Equity | | | |
| Called up share capital | 12 | 3,598 | 3,598 |
| Capital redemption reserve | | 179 | 179 |
| Share premium account | | 10,997 | 10,997 |
| Gains on disposal | 14 | 14,487 | 11,290 |
| Investment holding gains/(losses) | 14 | 4,950 | (2,062) |
| Revenue reserve | | 661 | 804 |
| Total equity | | 34,872 | 24,806 |

Approved by the Board of Directors on 1 June 2011 and signed on their behalf by:

A Hammond-Chambers

MJ Barstow

The notes on pages 38 to 45 form part of these accounts

---

Aurora Investment Trust plc

Annual Report 2011

Company statement of changes in equity

For the year ended 28 February 2011
	Note	Share capital£'000	Capital redemption reserve£'000	Share premium account£'000	Realised capital reserve£'000	Unrealised capital reserve£'000	Revenue reserve£'000	Total£'000
Opening equity		3,598	179	10,997	11,290	(2,062)	804	24,806
Total comprehensive income/(loss) for the year		-	-	-	3,197	7,012	304	10,513
Dividends paid	8	-	-	-	-	-	(447)	(447)
Closing equity		3,598	179	10,997	14,487	4,950	661	34,872
For the year ended 28 February 2010
	Notes	Share capital£'000	Capital redemption reserve£'000	Share premium account£'000	Realised capital reserve£'000	Unrealised capital reserve£'000	Revenue reserve£'000	Total£'000
Opening equity		3,598	179	10,997	11,382	(12,635)	967	14,488
Total comprehensive income/(loss) for the year		-	-	-	(92)	10,573	485	10,966
Dividends paid	8	-	-	-	-	-	(648)	(648)
Closing equity		3,598	179	10,997	11,290	(2,062)	804	24,806

The notes on pages 38 to 45 form part of these accounts

---

Aurora Investment Trust plc

Annual Report 2011

Company cash flow statement

| For the year ended 28 February 2011 | 2011
£'000 | 2010
£'000 |
| --- | --- | --- |
| Net cash inflow from operating activities | | |
| Cash inflow from investment income and interest | 772 | 820 |
| Cash outflow from management expenses | (504) | (355) |
| Payments to acquire non-current asset investments | (6,946) | (13,272) |
| Receipts on disposal of non-current asset investments | 10,536 | 8,274 |
| Tax recovered | 6 | 9 |
| Net cash inflow from operating activities | 3,864 | (4,524) |
| Cash flows from investing activities | | |
| Increase/(decrease) in investment in subsidiary | (2,844) | 212 |
| Cash flows from financing activities | | |
| Dividends paid | (447) | (648) |
| Increase in bank borrowings | 918 | 4,283 |
| Interest paid | (155) | (86) |
| Net cash flow from financing activities | 316 | 3,549 |
| Increase/(decrease) in cash | 1,336 | (763) |
| Cash and cash equivalents at beginning of year | 92 | 855 |
| Increase/(decrease) in cash | 1,336 | (763) |
| Currency translation difference | - | - |
| Cash and cash equivalents at end of year | 1,428 | 92 |

The notes on pages 38 to 45 form part of these accounts

---

Aurora Investment Trust plc
Annual Report 2011

Notes to the consolidated financial statements

1. Accounting policies

Basis of Accounting

The financial statements of the Company and the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the IASB and International Accounting Standards and Standing Interpretations Committee interpretations approved by the IASC that remain in effect, and to the extent that they have been adopted by the European Union.

Under IFRS, the AIC Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” issued in January 2009 has no formal status, but the Group has taken the guidance of the SORP into account to the extent that is appropriate and compatible with IFRS.

The accounting policies are unchanged from those used in the last annual financial statements except where otherwise stated. The particular accounting policies adopted are described below:

(a) Accounting Convention

The accounts are prepared under the historical cost basis, except for the measurement of fair value of investments.

(b) Basis of Consolidation

The Group accounts consolidate the accounts of the Company and of its subsidiary AIT Trading Limited (“AIT”), both drawn up to 28 or 29 February each year. As permitted by 5408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income. The amount of the Company's profit for the financial year, before consolidation adjustments, is £10,512,968 (2010: £10,885,975).

(c) Investments

As the Company's business is investing in financial assets with a view to profiting from their total return in the form of increases in fair value, investments are designated as fair value through profit or loss on initial recognition in accordance with IAS 39. At this time, fair value is the consideration given, excluding material transaction or other dealing costs associated with the investment.

After initial recognition such investments are valued at fair value. For quoted investments this is established by reference to bid, or last, market prices depending on the convention of the exchange on which the investment is quoted. Gains or losses are recognised in the capital column of the Statement of Comprehensive Income. All purchases and sales of investments are accounted for on a trade date basis.

The investment of the Company in AIT is stated at cost less impairment. AIT's own investments are managed and performance evaluated on a fair value basis and accordingly are designated by AIT as “at fair value through profit or loss”. The AIT investments in quoted securities are valued at all times in accordance with current market values that represent fair value; at the time of acquisition they are valued on the basis of trade date accounting. Securities of companies whose prices are quoted on the London Stock Exchange are valued by reference to the Official List of the London Stock Exchange at their bid market prices at the close of the period.

(d) Income from Investments

Investment income from ordinary shares is accounted for on the basis of ex-dividend dates. Income from fixed interest shares and securities is accounted for on an accruals basis using the effective interest method. Special Dividends are assessed on their individual merits and are credited to the capital column of the Statement of Comprehensive Income if the substance of the payment is a return of capital; with this exception all investment income is taken to the revenue column of the Statement of Comprehensive Income. Income from gifts and bank interest receivable is accounted for on an accruals basis using the effective yield.

(e) Capital Reserves

The Company is precluded by its Articles from making any distribution of capital profits by way of dividend. Profits and losses on disposals of investments are taken to the gains on disposal reserve. Revaluation movements are taken to the investment holding losses reserve via the capital column of the Statement of Comprehensive Income.

(f) Investment Management Fees, Finance Costs and Other Costs

Finance costs and monthly management fees are allocated between capital and revenue according to the Board's expected long-term split of returns between capital gains and income; one-half of these costs are charged to gains on disposal via the capital column of the Statement of Comprehensive Income. Performance-related fees are charged to gains on disposal via the capital column of the Statement of Comprehensive Income. Other costs are normally charged to revenue, unless there is a compelling reason to charge to capital. Tax relief in respect of costs allocated to capital is credited to capital via the capital column of the Statement of Comprehensive Income on the marginal basis.

(g) Taxation

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets.

Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply at their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity.

(h) Foreign currency

The currency of the primary economic environment in which the Group companies operate (the functional currency) is pounds sterling (“Sterling”), which is also the presentational currency of the Group. Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date. At each balance sheet date, monetary items and non-monetary assets and liabilities, which are fair valued and which are denominated in foreign currencies, are retranslated at the closing rates of exchange. Such exchange differences are included in the Statement of Comprehensive Income and allocated to capital if of a capital nature or to revenue if of a revenue nature. Exchange differences allocated to capital are taken to gains on disposal or investment holding losses, as appropriate.

(i) Cash and cash equivalents

Cash and Cash Equivalents in the Cash Flow Statement comprise cash held at bank and do not include loans, long term debt or bank overdrafts that are akin to long term debt.

(j) Dividends payable to equity shareholders

Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity when they are paid, or have been approved by shareholders in the case of a final dividend.

---

Aurora Investment Trust plc
Annual Report 2011

1. Income

	2011 £'000	2010 £'000
Income from investments:
Franked dividends from listed or quoted investments	598	561
Unfranked income from overseas dividends	82	62
Income from listed fixed interest securities	146	192
	826	815
Other income:
Bank interest receivable	-	-
	826	815

1. Investment management fees and other expenses

	Revenue £'000	2011 Capital £'000	Total £'000	Revenue £'000	2010 Capital £'000	Total £'000
Investment management fees
- monthly	136	136	272	94	94	188
- performance	-	-	-	-	-	-
	136	136	272	94	94	188
Administration fees	53	-	53	36	-	36
Custodian's fees	10	-	10	14	-	14
Registrar's fees	10	-	10	8	-	8
Directors' fees	64	-	64	72	-	72
Consultancy payment to broker	27	-	27	-	-	-
Auditors' fees - audit of the Company and of the consolidated financial statements	22	-	22	18	-	18
- audit of the subsidiary	3	-	3	2	-	2
Tax advice	6	-	6	4	-	4
Miscellaneous expenses	34	-	34	45	-	45
Total other expenses	229	-	229	199	-	199

1. Directors' fees

The fees paid or accrued were £63,871 (2010: £71,656). There were no other emoluments. The figures shown for directors' fees in note 3 above include employers' National Insurance charges or VAT, as appropriate. Full details of the fees of each director are given in the Directors' Remuneration Report on page 28.

---

40 Aurora Investment Trust plc
Annual Report 2011

5. Transaction charges

	2011 £'000	2010 £'000
Transaction costs on purchases of investments	51	91
Transaction costs on sales of investments	26	23
Total transaction costs included in gains or losses on investments at fair value through profit or loss	77	114

6. Interest payable and similar charges

	Revenue £'000	2011 Capital £'000	Total £'000	Revenue £'000	2010 Capital £'000	Total £'000
Interest payable	52	52	104	36	36	72
Facility and arrangement fees and other charges	38	38	76	7	7	14
	90	90	180	43	43	86

7. Taxation

	Revenue £'000	2011 Capital £'000	Total £'000	Revenue £'000	2010 Capital £'000	Total £'000
Corporation tax	-	-	-	-	-	-
Overseas tax	(6)	-	(6)	(9)	-	(9)
Tax charge in respect of the current year	(6)	-	(6)	(9)	-	(9)

Current taxation

The current taxation charge for the year is different from the standard rate of corporation tax in the UK (28%). The differences are explained below:

	2011 £'000	2010 £'000
Total profit before tax	10,507	10,957
Theoretical tax at UK corporation tax rate of 28% (2010: 28%)	2,942	3,068
Effects of:
Capital profits that are not taxable	(2,979)	(2,913)
UK dividends which are not taxable	(167)	(157)
Increase/(decrease) in excess tax losses	267	40
Expenses charged to capital account for which a deduction is claimed	(63)	(38)
Overseas tax recovered	(6)	(9)
Actual current tax	(6)	(9)

The Company is an investment trust and therefore is not charged to tax on capital gains.

Factors that may affect future tax charges

The Company has tax losses of £6,277,610 (2010: £5,099,437) in respect of management expenses and of £1,242,278 (2010: £1,836,239) in respect of loan interest. Its subsidiary has trading losses carried forward of £1,413,625 (2010: £905,642). These amounts are available to offset future taxable revenue. A deferred tax asset has not been recognised in respect of those expenses and will be recoverable only to the extent that the Company has sufficient future taxable revenue.

---

Aurora Investment Trust plc
Annual Report 2011

1. Ordinary dividends

	2011 £'000	2010 £'000
Dividends reflected in the financial statements:
Final dividend paid for the year 2010 at 3.45p (2009: 3.25p)	447	648
Dividends not reflected in the financial statements:
Proposed final dividend for the year 2011 at 3.5p (2010: 3.45p)	404	447

1. Earnings per share

Earnings per share are based on the profit of £10,512,968 (2010: £10,965,467) attributable to the weighted average of 12,952,250 (2010: 12,952,250) ordinary shares of 25p in issue during the year, excluding shares held in Treasury.

Supplementary information is provided as follows: revenue earnings per share are based on the revenue loss of £126,269 (2010: profit £563,345); capital earnings per share are based on the net capital profit of £10,639,237 (2010: £10,402,122), attributable to 12,952,250 (2010: 12,952,250) ordinary shares of 25p.

1. Investments designated at fair value through profit or loss

	2011 £'000	2010 £'000
UK listed or quoted securities	37,675	29,659
Total non-current investments	37,675	29,659
Movements during the year:
Opening balance of investments, at cost	31,004	26,081
Additions, at cost	7,687	13,149
Disposals – proceeds received or receivable	(10,536)	(8,270)
– less realised profits	3,423	44
– at cost	(7,113)	(8,226)
Cost of investments at 28 February	31,578	31,004
Revaluation of investments to market value:
Opening balance	(1,345)	(11,839)
Transfer to gains on disposal – realised gains recognised as unrealised in the previous year	1,665	1,061
Increase/(decrease) in unrealised appreciation credited to investment holding reserve	5,777	9,433
Balance at 28 February	6,097	(1,345)
Market value of non-current investments at 28 February	37,675	29,659

The Company holds notifiable interests in the following companies, the percentage shown being the relevant proportion of the share capital held: Bright Futures Group 10.61%, GCM Resources 3.87%.

1. Subsidiary

The Company has an investment in AIT Trading Limited, a wholly owned subsidiary registered in England and Wales, which comprised two ordinary shares of £1 each. AIT undertakes purchases of investments for re-sale in the shorter term, with the objective of achieving a trading profit. The loss before tax of AIT for the year was £430,434 (2010: profit £79,494). The net deficit of AIT at the Balance Sheet date was £1,147,130 (2010: net deficit £716,696). No dividend was paid from AIT to the Company (2010: £nil).

During the year the Company advanced interest-free short-term loans to AIT to finance its trading operations. At 28 February 2011 the amount outstanding was £3,570,625 (2010: £725,625).

	2010 £'000	Movement £'000	2011 £'000
Loan to AIT	725	2,845	3,570
Provision for impairment	(716)	(431)	(1,147)
Net investment	9	2,414	2,423

1. Share capital

At 28 February		2011	2010
Authorised
Ordinary shares of 25p	Number £'000	40,000,000 10,000	40,000,000 10,000
Allotted, issued and fully paid
Ordinary shares of 25p	Number £'000	14,391,389 3,598	14,391,389 3,598

The Company made no purchases of shares during the year (2010: Nil) and cancelled no shares (2010: Nil). At 28 February 2011, the Company had 14,391,389 shares in issue, of which 1,439,139 are held in Treasury; the number of voting shares in issue is 12,952,250.

Since 28 February, the Company has purchased 1,400,000 of its own shares. At the date of this report, the Company has 14,391,389 shares in issue, of which 2,839,139 are held in Treasury; the number of voting shares in issue is 11,552,250.

1. Total equity

Total Equity includes, in addition to Share Capital, the following reserves:

Capital Redemption Reserve. When any shares are redeemed or cancelled, a transfer of realised profit must be made to this reserve in order to maintain the level of capital that is not distributable.

Share Premium Account. When shares are issued at a premium to their nominal value, the "capital profit" arising on their allotment must be held in a Share Premium Account, which is not distributable in the ordinary course and may be utilised only in certain limited circumstances.

Capital profits arising from the Company's investment transactions are held as Capital Reserves, subdivided between Gains on Disposal for profits arising upon sales of investments and Investment Holding gains/losses for portfolio revaluations. The movements on this account are analysed in note 14 below.

---

Aurora Investment Trust plc
Annual Report 2011

13. Total equity (continued)

The Company's Revenue Reserves are the net profits that have arisen from the Company's revenue income in the form of dividends and interest, less operating expenses and dividends paid out to the Company's shareholders.

14. Capital reserves

| | 2011
£'000 | 2010
£'000 |
| --- | --- | --- |
| Gains on disposal | | |
| Opening balance | 11,290 | 11,382 |
| Gains on disposal recognised in current year | 1,762 | 1,105 |
| Gains/(losses) on disposal previously recognised as investment holdings gains/(losses) | 1,665 | (1,061) |
| Net gains on realisation of investments | 3,427 | 44 |
| Expenses of capital management: management fees | (136) | (94) |
| finance costs | (90) | (43) |
| Net expenses | (226) | (137) |
| Exchange differences | (4) | 1 |
| Total transfer to gains on disposal | 3,197 | (92) |
| Balance of gains on disposal account at 28 February | 14,487 | 11,290 |
| | 2011
£'000 | 2010
£'000 |
| Investment holding gains/(losses) | | |
| Opening balance | (1,345) | (11,839) |
| Transfer to gains on disposal – gains | 1,665 | 1,061 |
| Revaluation of investments – listed | 5,777 | 9,433 |
| Total transfer to investment holding profits/(losses) | 7,442 | 10,494 |
| Balance of investment holding profits/(losses) account at 28 February | 6,097 | (1,345) |
| Total capital reserve at 28 February | 20,584 | 9,945 |

The capital reserves of the Company are identical to those of the Group, except that a provision is made when necessary against the Company's investment holding account for any amount loaned to AIT Trading Limited that is not covered by the subsidiary's net assets. At 28 February 2011 such a provision was made of £1,147,132 (2010: £716,696).

15. Net assets per ordinary share

The figure for net assets per ordinary share is based on £34,872,224 (2010: £24,806,111) divided by 12,952,250 (2010: 12,952,250) voting ordinary shares in issue at 28 February 2011, excluding shares held in Treasury.

16. Reconciliation of profit before finance costs and tax to net cash inflow from operating activities

| | 2011
£'000 | 2010
£'000 |
| --- | --- | --- |
| Profit | 10,687 | 11,043 |
| Increase in non-current investments | (8,016) | (15,417) |
| Increase in current investments | (2,420) | - |
| Decrease in sales for future settlement | - | 91 |
| Decrease in other receivables | 18 | 9 |
| Increase/(decrease) in purchases for future settlement | 741 | (123) |
| (Decrease)/increase in other payables | (2) | 32 |
| Taxation recovered | 6 | 9 |
| Net cash inflow from operating activities | 1,014 | (4,356) |

17. Related party transactions

Details of transactions with AIT Trading Limited are set out in note 11.

Details of the management, administration and secretarial contracts can be found in the Directors' Report on page 20. As disclosed in that Report, Mr Barstow is a director both of the Company and of the Manager. Fees payable to the Manager are detailed in note 3 on page 39. Other payables include accruals of a monthly management fee of £25,281 (2010: £18,317) and an administration fee of £4,951 (2010: £3,587). No performance fee was accrued (2010: £Nil). All figures include VAT.

---

Aurora Investment Trust plc
Annual Report 2011

18. Financial assets/liabilities

Investments are carried in the balance sheet at fair value. For other financial assets and financial liabilities, the balance sheet value is considered to be a reasonable approximation of fair value.

Group

Financial assets

The Group's financial assets comprise equity investments, fixed interest securities, short-term receivables and cash balances. The currency and cash-flow profile of those financial assets was:

	Interest bearing £'000	2011 Non-interest bearing £'000	Total £'000	Interest bearing £'000	2010 Non-interest bearing £'000	Total £'000
Non-current investments at fair value through profit or loss:
- £ sterling equities	-	36,580	36,580	-	28,153	28,153
- £ fixed interest	1,095	-	1,095	1,549	-	1,549
	1,095	36,580	37,675	1,549	28,153	29,702
Short-term trade receivables	-	-	-	-	-	-
Cash at bank:
Floating rate - £ sterling	-	1,431	1,431	101	-	101
	-	1,431	1,431	1,650	-	29,803

Cash at bank includes £1,381,257 (2010: £31,271) held by the Group's custodian, The Northern Trust Company.

Financial liabilities

The Group finances its investment activities through the Company's ordinary share capital, reserves and borrowing. The Group's financial liabilities comprise its overdraft facility and other short-term trade payables. Foreign currency balances are stated in the accounts in sterling at the exchange rate as at the Balance Sheet date.

The Company has an overdraft facility of up to £6 million (or the equivalent in euros and/or US dollars) with Coutts & Co. (replacing the previous facility with Lloyds TSB Bank plc) upon which interest is charged at the bank's variable interest rate. The facility is secured upon the shares and securities of the Company. It is repayable upon demand, but normally is reviewed annually by the bank.

The currency and cash-flow profile of the Group's financial liabilities was:

	2011 £'000	2010 £'000
Interest bearing: Bank overdraft:
Sterling	5,876	4,958
Euros	-	-
US dollars	-	-
	5,876	4,958
Non-interest bearing:
Short-term trade payables	-	-
	5,876	4,958

---

Aurora Investment Trust plc
Annual Report 2011

19. Financial instruments – risk analysis

Company and Group

The general risk analysis undertaken by the Board and its overall policy approach to risk management are set out in the Business Review on page 14. Issues associated with portfolio distribution and concentration risk are discussed in the Chairman's Statement and the Investment Policy section of the Business Review on pages 4 and 12. This note, which is incorporated in accordance with accounting standard IFRS7, examines in greater detail the identification, measurement and management of risks potentially affecting the value of financial instruments and how those risks potentially affect the performance and financial position of the Company.

The risks concerned are categorised as follows:

A) Potential Market Risks, which are principally (i) Currency Risk (ii) Interest Rate Risk and (iii) Other Price Risk.
B) Liquidity Risk
C) Credit Risk

Each is considered in turn below:

A (i) Currency Risk

All the securities listed on pages 16 and 17 are listed on the London Stock Exchange or quoted on AIM, with the exception of West China Cement, which was previously quoted on AIM but is now listed on the Hong Kong Exchange. Where the underlying currency or currency of quotation is not sterling this is noted. The element of currency risk on investments may be indirect and reflected in the effect of underlying currency movements upon the London market price, whether quoted in foreign currency or not.

Based on the portfolio as at 28 February 2011, there were no investment denominated in Euros and consequently there was no currency risk arising from the possibility of a fall in the value of sterling against the Euro, impacting upon the value of investments or income. West China Cement is now denominated in Hong Kong Dollars; a 10% rise in sterling against the Hong Kong Dollar would result, all other factors remaining unchanged, in a fall of £331,000 in the value of the portfolio.

The Company had no foreign currency borrowings at 28 February 2011 (2010: Nil). In view of the elimination of foreign currency borrowings, no sensitivity analysis is presented for this risk.

A (ii) Interest Rate Risk

The weighted average interest rate of the fixed rate financial assets is 9.36% (2010: 9.09%) and the weighted average period for which rates are fixed is indefinite (2010: indefinite). The list of the Company's holdings on pages 16 and 17 includes details of the split between equities and fixed interest securities.

With the exception of cash, no interest rate risks arise in respect of any current asset. All cash held as a current asset is sterling denominated, earning interest at the bank's or custodian's variable interest rates.

Interest is charged on the bank overdraft at the bank's variable interest rates as appropriate to the currency concerned in the case of each balance. At 28 February 2011, the Company's total borrowing was £5,876,080 (2010 £4,957,780): all of which was borrowed in sterling, upon which the interest rate at the year end was 2.75% (2010: 1.45%).

A 2% rise in LIBOR, applied to the sterling overdraft balance as at 28 February 2011, would decrease net revenue by £117,522 on an annual basis.

A (iii) Other Price Risk

The principal price risk for the Company is the price volatility of shares that are owned by the Company. As described in the manager's Review, the Company spreads its investments across different sectors and geographies, but has maintained relatively strong concentrations in particular sectors selected by the Manager.

B Liquidity Risk

Liquidity Risk is considered to be small, because the portfolio is invested in readily realisable securities. As a consequence, cash flow risks are also considered to be small. The Manager estimates that, under normal market conditions and without causing excessive disturbance to the prices of the securities concerned, c75% of the portfolio could be realised within seven days.

The Company's overdraft facility is repayable upon demand, although normally renewed annually. The Directors believe that the facility will be renewed in 2011. In view of the Company's ability to sell investments, as stated above, the Company is able to reduce or eliminate its borrowing, if necessary.

C Credit Risk

The Company invests in quoted equities and fixed interest securities. The Company's investments are held by The Northern Trust Company ("the Custodian"), which is a large international bank with a high reputation. The Company's normal policy is to remain fully invested at most times and not to hold very large quantities of cash. At 28 February 2011, Group cash at bank comprised £1,381,257 (2010: £31,271) held by the Custodian and £49,933 held by Coutts & Co (2010: £69,708 held by Lloyds TSB Bank plc), also part of a large international bank with a very high credit rating.

Credit Risk arising on transactions with brokers relates to transactions awaiting settlement. This risk is considered to be very low because transactions are almost always undertaken on a delivery versus payment basis with member firms of the London Stock Exchange.

D Capital management policies and procedures

The Group's capital management objectives are:

• to ensure the Group's ability to continue as a going concern; and
• to provide an adequate return to shareholders

by pricing products and services commensurately with the level of risk.

The Group monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as presented on the face of the statement of financial position.

The Group sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders (within the statutory limits applying to investment trusts), return capital to shareholders, issue new shares, or sell assets to reduce debt.

Since an overdraft was taken out in 1997, the Group has consistently honoured its covenant obligations, among which the principal capital ratio is described under Gearing Policy on page 12.

---

Aurora Investment Trust plc
Annual Report 2011

20. Fair value hierarchy

Under IFRS7 investment companies are required to disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair values.

Classification	Input
Level 1	Valued using quoted prices in active markets for identical assets
Level 2	Valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1
Level 3	Valued by reference to valuation techniques using inputs that are not based on observable market data

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.

The valuation techniques used by the Company are explained in the Accounting Policies Note 1(c) on page 38. As at 28 February 2011, all investments held by the Company and all current investments held for trading by the Company's subsidiary are considered to fall within Level 1, with the exception of one holding of £15,250 – Bright Futures – which is now designated as being in Level 3.

| | 2011
£'000 | 2010
£'000 |
| --- | --- | --- |
| Level 1 | 40,080 | 29,659 |
| Level 2 | – | – |
| Level 3 | 15 | – |

21. Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group.

Management anticipates that all of the pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements.

IFRS 9 Financial Instruments (effective from 1 January 2013)

The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety by the end of 2010, with the replacement standard to be effective for annual periods beginning 1 January 2013. IFRS 9 is the first part of Phase 1 of this project. The main phases are:

Phase 1: Classification and Measurement

Phase 2: Impairment methodology

Phase 3: Hedge accounting

In addition, a separate project is dealing with derecognition. Management have yet to assess the impact that this amendment is likely to have on the financial statements of the Group. However, they do not expect to implement the amendments until all chapters of the IAS 39 replacement have been published and they can comprehensively assess the impact of all changes.

---

46 Aurora Investment Trust plc
Annual Report 2011

Directors, manager and advisers

Directors

RA Hammond-Chambers (Chairman)
MJ Barstow FCA
RE Robinson
RM Martin

Banker

Coutts & Co.
440 Strand
London WC2R 0QS

Custodian

The Northern Trust Company
50 Bank Street
Canary Wharf
London E14 5NT

Registrar

Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield HD8 0LA

Investment Manager

Mars Asset Management Limited
10-11 Charterhouse Square
London EC1M 4EE
Telephone: 0207 490 4440
www.marsassetmanagement.co.uk

Secretary & Registered Office

Cavendish Administration Limited
145-157 St John Street
London EC1V 4RU

Administrator

Cavendish Administration Limited
145-157 St John Street
London EC1V 4RU

Auditor

Grant Thornton UK LLP
30 Finsbury Square
London EC2P 2YU

A Member of the Association of Investment Companies

---

Aurora Investment Trust plc
Annual Report 2011

Notice of meeting

Notice is hereby given that the Annual General Meeting of Aurora Investment Trust plc will be held on the Third Floor, 145-157 St John Street, London EC1V 4RU on 18 July 2011, at 12.00 noon, for the following purposes:

Ordinary Business:

1. To receive and adopt the financial statements for the year ended 28 February 2011, with the reports of the directors and auditors thereon.
2. To re-elect Mr Barstow as a director of the Company.
3. To re-elect Mr Martin as a director of the Company, having been appointed by the Board since the last Annual General Meeting.
4. To re-appoint Grant Thornton UK LLP as auditors to the Company and to authorise the directors to fix their remuneration.
5. To approve an ordinary dividend of 3.5p per ordinary share in respect of the year ended 28 February 2011.

Special Business:

To consider and if thought fit pass the following resolution as ordinary resolutions:

1. To approve the Directors' Remuneration Report.
2. To approve the continuation of the Company as an investment trust.
3. To cancel the winding-up vote scheduled to take place in 2012.

To consider and if thought fit pass the following resolutions as special resolutions.

1. THAT the Company be and is hereby generally authorised in accordance with section 701 of the Companies Act 2006 ("the Act") to make market purchases (within the meaning of section 693(4) of the Act) of Ordinary Shares of 25p each in the capital of the Company ("Ordinary Shares"), provided that:

(a) the maximum number of Ordinary Shares hereby authorised to be purchased shall be 1,731,682;
(b) the minimum price which may be paid for an Ordinary Share is 25p;
(c) the maximum price which may be paid for an Ordinary Share is an amount equal to 105% of the average of the middle market quotations for an Ordinary Share for the 5 business days immediately preceding the day on which the Ordinary Share is purchased;

(d) the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company in 2012 or, if earlier, on the expiry of 12 months from the passing of this resolution, unless such authority is varied, revoked or renewed prior to such time;
(e) the Company may make a contract to purchase Ordinary Shares under the authority hereby conferred prior to the expiry of such authority, which will or may be executed wholly or partly after the expiration of such authority and may make a purchase of Ordinary Shares pursuant to any such contract.

1. THAT, in substitution for all existing powers, but without prejudice to the exercise of any such power prior to the date hereof, the directors be and are hereby generally and unconditionally authorised to exercise all powers of the Company to allot shares in the Company up to an aggregate nominal amount of £179,892 (being 5% of the aggregate nominal value of the issued share capital as at the date of this document) PROVIDED THAT this authority shall expire (unless previously varied, revoked or renewed by the Company in general meeting) 15 months after the date of the passing of this resolution or at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution, whichever should first occur, save that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired.

2. THAT, subject to the passing of resolution 10, the directors be and are hereby empowered to allot equity securities (as defined in the Act) pursuant to the authority and during the period of the authority conferred by resolution 10, wholly for cash up to an aggregate nominal amount of £179,892, as if Section 561 of the Act did not apply to such allotment.

3. THAT article 154 be deleted and replaced by the following new article 154:

"At the Annual General Meeting of the Company to be held in 2014, and at each third subsequent Annual General Meeting thereafter, the Board shall procure that an ordinary resolution is proposed at such meeting to approve that the Company continue as an investment trust".

By order of the Board

CAVENDISH ADMINISTRATION LIMITED
Company Secretary

Registered Office:
Crusader House
145-157 St John Street
London EC1V 4RU

1 June 2011

---

Aurora Investment Trust plc
Annual Report 2011

NOTES

1. Proxies

A member is entitled to appoint another person as his proxy to exercise all or any of his rights to attend to speak and to vote at the meeting. A member may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member. A proxy need not be a member of the Company. Forms of proxy need to be deposited with the Company's registrar, Capita Registrars at 34 Beckenham Road, Beckenham, Kent, BR3 4TU not later than 48 hours before the time of the meeting. Completion of a form of proxy will not preclude a member from attending and voting in person at the meeting. CREST members may utilise the CREST proxy appointment service by following the directions set out in the form of proxy enclosed with this document.

2. Right to attend and vote

Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that in order to have the right to attend and vote at the meeting (and also for the purpose of determining how many votes a person entitled to attend and vote may cast), a person must be entered on the register of members of the Company at 6.00 p.m. on 16 July 2011 or, in the event of any adjournment, at 6.00 p.m. on the date which is two days before the day of the adjourned meeting. Changes to entries on the register of members after this time shall be disregarded in determining the rights of any person to attend or vote at the meeting.

3. Corporate members

In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that (i) if a corporate shareholder has appointed the Chairman of the meeting as its corporate representative with instructions to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting then on a poll those corporate representatives will give voting directions to the Chairman and the Chairman will vote (or withhold a vote) as corporate representative in accordance with those directions; and (ii) if more than one corporate representative for the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the Chairman of the meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives – http://www.icsa.org.uk – for further details of this procedure. The guidance includes a sample form of representation letter if the Chairman is being appointed as described in (i) above.

4. Nominated persons

Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated Person") may have a right, under an agreement between him/her and the member by whom he/she was nominated, to be appointed (or to have someone else appointed) as a proxy for the meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may have a right, under such an agreement, to give instructions to the member as to the exercise of voting rights.

The statement of the above rights of the members in relation to the appointment of proxies does not apply to Nominated Persons. Those rights can only be exercised by shareholders of the Company.

5. Total number of shares and voting rights

As at 31 May 2011 (being the last practicable business day prior to the publication of this notice) the Company's issued share capital consists of 14,391,389 Ordinary Shares, carrying one vote each. Of these shares 2,839,139 were held in treasury. Therefore, the total voting rights in the Company as at that date are 11,552,250.