The Board

The Company's Board, of which David Staples is Chairman, is comprised solely of non-executive directors. No separate senior independent director has been appointed as in the view of the Directors it is inappropriate to do so given the size and composition of the Board. Each of the Directors are considered to be independent of the Investment Adviser, MedicX Adviser Ltd and directors' independence is subject to review as part of the Board's annual performance evaluation.

There are no executive directors or employees of the Company. The Investment Adviser agreement establishes the areas of authority that have been delegated to the Investment Adviser, but remain under the supervision of the Board, and the limits on the Investment Adviser's scope of operation whereby Board approval must be sought. All other areas outside the agreement remain under Board authority. These areas include all strategy matters, investment and divestment policies and approvals, financing and dividend policies and corporate governance processes.

The Board meets formally at least five times a year and receives full information on financial performance and financial position along with other relevant information on a timely basis ahead of meetings and on an ongoing basis throughout the year. These meetings include a review of the investment performance and associated matters such as portfolio performance, gearing, marketing, investor relations, peer group information and industry developments amongst other things. One meeting a year is dedicated to an annual review of the Company position, long term performance objectives and strategy.

In addition to the formal meetings, the Board will convenes as required to discuss and assess and approve opportunities for investment or divestment, approval of dividends to shareholders and any other matters of corporate governance where a meeting of the Board is considered appropriate.

Corporate governance statement

The performance of the Board is assessed annually and from next year, once every three years, going forward will use the services of a third party facilitator following the principles outlined by the AIC. In particular the following areas are assessed:

• Size of the Board;
• The relevant expertise and composition of the Board;
• The performance of individual directors and the Board as a whole;
• The independence of the Directors and the Board as a whole;
• The training and development needs of each Director; and
• The frequency and effectiveness of Board meetings.

Training and development for Directors includes all aspects of the business, and will incorporate such matters as environmental, social, financial, regulatory and governance issues as they affect the Company. As part of this assessment, the performance of the Chairman was assessed by the Board, with the review led by Mr Bennett as the Chairman of the Audit Committee. Following a formal self-review, the Board are satisfied with their performance overall and the performance of the Chairman, consider that the structure of the Board is appropriate, and that there are no areas where a significant lack of expertise exists.

The Company does not maintain nomination, management engagement or remuneration committees.

A nomination committee is not considered necessary, as all the non-executive directors are contributors to nomination discussions regarding the appointment of new members. The Board policy is that decisions regarding appointments include the consideration of a wide number of factors including the experience, aptitude and motivation for the role and overall fit with the Board taking into account best practice with regards to board diversity.

A management engagement committee is not considered necessary as all the non-executive directors are considered independent of the Investment Adviser, and are contributors to the assessment of the Investment Adviser's performance and discussions surrounding the continued appointment of the incumbent.

Similarly, all the Directors are party to remuneration reviews and are paid fees as set out in their letters of appointment, and any such discussion is led by the Chairman except in relation to his own fees whereupon the Audit Committee chairman leads. The Directors fees are set with regard to those of comparable investment companies and also take into account such factors as complexity, time requirements and responsibilities of the roles. For further information, refer to the Directors' remuneration report.

Each member of the Board is subject to removal without notice under the Articles. As each Director's letter of appointment allows for termination on three months' notice, in cases of poor performance the Chairman or shareholders could remove a Director without the Company incurring a substantial compensation liability.

New directors receive an induction from the Chairman, Investment Adviser and Company Secretary on joining the Board and all directors receive relevant training as necessary. Directors are required under their letters of appointment to be reappointed every three years.

Appropriate directors' and officers' liability insurance is maintained by the Company.

The numbers of scheduled and ad-hoc Board and Audit Committee meetings held during the year to 30 September 2011 along with the attendance of the directors were:

It is the Board's policy that members in the United Kingdom at the time of a meeting are not permitted to attend the meeting in question. Mr. Hearle is resident in the UK and is not normally expected to attend ad hoc meetings which are of a more routine nature.

Conflicts of interest

All Directors have a statutory responsibility to avoid situations where a conflict of interest exists, or may exist, between the Company and an entity that the director is either directly or indirectly involved with. The Board have procedures in place to identify potential conflicts and resolve any that should arise. In the case of a conflict of interest, the nature and extent of the conflict are assessed against the existing internal control structure, and the results of this assessment and actions taken to resolve the conflict are documented in the minutes of the relevant Board meeting. Where conflicts of interest arose during the year, the Director involved was required to leave the meeting and abstain from voting on the matter upon which the conflict arose.

Independence of directors

As part of the annual assessment of the Board, the independence of all Directors has been reviewed in accordance with the guidelines in the AIC Code. As part of its policy, the Board does not consider that length of service will necessarily compromise the independence or effectiveness of Directors and as such no limit has been placed on the overall length of service. Rather the Board considers that such continuity and experience can be of significant benefit to the Company and its shareholders. However, in accordance with best practice, the Board has determined as part of its policy that any director who has served for more than nine years will be required to stand for re-election on an annual basis.

The longest serving directors are Mr. Hearle, Mrs. Mason and Mr. Bennett who have all served on the Board for five years. There is no concern that the independence of the Directors has been compromised by length of service.

All Directors are considered to be independent in character and judgement in general, and specifically of the Investment Adviser. In particular the status of Mr. Hearle has been reviewed given the nature of the relationship between the Investment Adviser and Aitchison Rafferty, a company of which he is Chairman, which is a supplier of professional services to both the Investment Adviser and the Company. The fees paid to Aitchison Raffety in the year were £33,000 (2010: £34,000). The Board are satisfied that Mr. Hearle is independent of the Investment Adviser despite this relationship as Mr Hearle is sufficiently removed from the team that performs the work for the Investment Adviser and Company, and there are several other suppliers of similar professional services currently engaged by the Investment Adviser. The Board is also satisfied that appropriate procedures are in place to deal with any conflicts of interest that may arise.

Audit Committee

The Audit Committee (the "Committee") is chaired by Christopher Bennett and the other members are David Staples and Shelagh Mason. The Board consider that the inclusion of the Board Chairman on the Audit Committee is appropriate due to the small size of the Board, and in order that the members of the Committee can benefit from Mr. Staples' professional qualifications and experience. The Committee operates within its terms of reference as determined by the Board and as published on the Company website. During the year, the Audit Committee carried out its duties as laid out in the terms of reference including the reappointment and appointment of external and internal auditor, monitoring the performance of the auditor, reviewing the financial statements of the Company, the results and scope of the audit, and setting and monitoring the Company's system of internal controls. It is within the Committee's terms of reference for the Directors to seek independent professional advice, at the Company's expense, as required in the furtherance of their duties.

The Committee meets at least three times a year and meets the auditor at least annually without the Investment Adviser. The Committee reviews the performance and continued suitability of the Fund's external auditor on an annual basis. They assess the external auditor's independence, qualification, relevant experience, effectiveness of audit procedures as well as the robustness of their quality assurance procedures. In advance of each audit, the Committee obtains confirmation from the external auditor that they are independent and of the level of non-audit fees earned by them and their affiliates. The Board believe that it is appropriate for the external auditor to provide other services to the Group for a variety of reasons including cost effectiveness, depth of knowledge and the ongoing relationship between the Board and the external auditor. Where non-audit fee levels are considered significant, the Committee considers the appropriateness of the independence safeguards put in place by the auditor. Note 4 details the total fees paid to PKF (UK) LLP in the financial year to 30 September 2011. The Committee considers PKF (UK) LLP to be independent of the Company and the Group, and that the provision of non-audit services does not threaten the objectivity and independence of the audit.

As part of its annual review procedures, the Committee has obtained sufficient assurance from their own evaluation, the audit feedback documentation and from correspondence and discussion with PKF (UK) LLP's senior partner. Based on the assurance obtained, the Committee has recommended to the Board that PKF (UK) LLP is reappointed and that a resolution to this effect be proposed at the forthcoming AGM. PKF (UK) LLP, who succeeded PKF Guernsey, have held office as statutory auditor in respect of the Fund's last three statutory reporting periods and, consequently auditor rotation is not required.

There is no formal third party process for evaluation of the performance of the Committee. The Committee did, however, conduct an evaluation of its performance during the year, following the AIC guidelines. Following the review, the Committee are satisfied with their performance, that the structure of the Committee is appropriate and that there are no areas where a significant lack of experience exists.

Internal control

The Committee has in place a formal procedure for identifying, evaluating and monitoring the risks most likely to impact the Group, with the key risks identified on page 30 of this report. The Committee uses a matrix to record internal and external risks that are graded High, Medium or Low and the control processes used to mitigate those risks, setting out the parties responsible for the processes. At each meeting, the matrix is reviewed and updated for changes to the risk profile or processes. The Committee is provided with status updates from any actions raised in previous meetings.

In addition to the formal review of risk at the regular Committee meetings, the Board operates the following key controls in relation to financial reporting:

• Valuation reports are prepared by the external Valuer which are reviewed by the Board on a quarterly basis, including the impact on the financial statements, and reviewed annually by the external Auditor;
• The Board review monthly management reports and supporting documents that are provided by the Investment Adviser including comparison to budget and forecasts as well as key performance indicators;
• Regular performance and compliance reports are required from the Investment Adviser, Administrator and Broker;
• The internal processes of the Investment Adviser are subjected to regular review by the Internal Auditor under the direction of the Audit Committee;
• The Board has procedures in place for the approval of expenses and payments to third parties;
• The information contained within the annual report and other financial reports is reviewed separately by the Audit Committee prior to consideration by the Board; and
• The Board reviews all financial information and announcements prior to publication.

The Company's internal control procedures are regularly monitored by the Board and are further enhanced by the continued appointment of Roffe Swayne, an independent firm of accountants as internal auditor during the year. The scope of the internal audit reviews are determined by the Audit Committee to ensure full coverage of key risk areas. The internal auditor continued their programme of rolling reviews during the year to 30 September 2011 and reported their findings to the Committee. No material weaknesses have been identified as the result of the work carried out to date.

At each Board meeting, the Board receive reports from the Investment Adviser, the Administrator and Company Secretary and the Brokers in respect of compliance activities, Group financial performance and financial position. The Board annually reviews performance of key service providers such as the Investment Adviser, the Administrator and the Financial Adviser and Broker, to ensure adherence to service agreements. The Directors believe that the control procedures in place combined with internal and external audits and independent quarterly valuations by independent chartered surveyors adequately safeguard the Group's assets.

Health and safety

Health and Safety is of prime importance to the Group and is considered equally with all other business management activities to ensure protection of our stakeholders, be they tenants, developers, advisers, suppliers, visitors or others.

The Group is committed to fostering the highest standards in health and safety as it believes that all unsafe acts and unsafe conditions are preventable. All our stakeholders have a responsibility to support the aim of ensuring a secure and safe environment, and all our stakeholders are tasked with the responsibility for achieving this commitment.

Corporate responsibility

The Group regards corporate responsibility as integral to how it conducts its business. It is committed to being a good corporate citizen and behaving responsibly with a demonstrated transparency of approach.

To achieve this goal, the Group applies the following principles to its operations:

Business conduct

The Group's investment decisions are made on the basis of generating shareholder value and ensuring the long-term success of the business. The selection of suppliers will be made independently by the Group's Directors upon advice from the Investment Adviser, and in the best interests of the Group. The Group will ensure that appropriate controls are in place to guarantee independence from its supply chain.

All our suppliers will be treated fairly and responsibly.

The Group will not provide financial support to political parties or politicians.

The Group is resolutely opposed to bribery and corruption. The Group will not use any illegal or improper means to further its business interests, nor will it accept any forms of inducements intended to influence its investment decisions.

Governance

The Group will protect the interests of its shareholders and other stakeholders through compliance with relevant legal and regulatory environments, and through effective management of business risk and opportunity.

The Group will ensure that its Directors are truly independent, are competent and have the resources and support required to perform their duties optimally, and that the Board's decisions are made in the best interests of the Group. The performance of the Board will be regularly reviewed, and Directors will retire after periods deemed appropriate by the Board in accordance with best practice.

Supply chain

Suppliers are expected to conduct their activities to the same responsible standards as the Group, and in compliance with all relevant national and international laws.

The selection of suppliers will take into account their status as fit and proper organisations. This will include suppliers' management of corporate responsibility related issues, such as health and safety, and environmental matters.

The Group will monitor its suppliers with regard to their business conduct, including their management of corporate responsibility related risks and opportunities, and, when appropriate, may seek to work with suppliers to address issues perceived by the Group as potentially having an impact on the value of the Group's portfolio. It is in the interest of the Group to encourage good business conduct in its supply chain, so as to help protect and enhance the value of the Group's portfolio. On this basis, the Group will work with its suppliers to ensure that its portfolio functions effectively, meeting the needs of tenants, service users and local communities, and with minimal negative impact on the environment.

Transparency

The Group aims to be transparent, and to ensure that it communicates with its shareholders and other stakeholders in a manner that enhances their understanding of our business.

The Group will maintain accounting documentation that clearly identifies the true nature of all business transactions, assets and liabilities, in line with the relevant regulatory, accounting, and legal requirements. No record or entry will knowingly be false, distorted, incomplete, or suppressed.

All reporting will be materially accurate and complete and in compliance in all material respects with stated accounting policies and procedures. The Group will not knowingly misstate or misrepresent management information for any reason, and we expect the same to apply to our suppliers.

The Group may be required to make statements or provide reports to regulatory bodies, government agencies or other government departments, as well as to the media. We will ensure that such statements or reports are correct, timely, and not misleading, and that they are delivered through the appropriate channels.

The Group provides, through its website, www.medicxfund.com, its annual report, other statements, and appropriate information to enable shareholders and stakeholders to assess the performance of its business. The Group will comply with the applicable laws and regulations concerning the disclosure of information relating to the Group.

Communities

The Group aims to ensure that our projects, which are associated with the provision of health services, provide significant value-adding facilities in the communities where we invest. We aim to ensure that our projects are applied optimally for the use and benefit of our communities. We will encourage our suppliers to work with the communities local to our projects to ensure that this goal is achieved.

Relations with shareholders

The Board welcomes shareholders' views and places great importance on communication with the shareholders of the Company. The Board is responsible for the content of communication regarding corporate issues and for communicating the Board's views to shareholders. The Board aims to ensure that shareholders are provided with sufficient information to understand the risk / reward balance to which they are exposed by the holding of shares in the Company. In addition to the annual and interim reports that are available to shareholders, regularly updated information is available on the company website (www.medicxfund.com) including quarterly fact sheets, key policies and procedures and details of the investment property portfolio.

The Board regularly monitors the shareholder profile of the Company. With the majority of shareholders being a combination of institutional investors and private client brokers, the Board receives regular updates on investors' views and attitudes from the Company's broker and the Investment Adviser. During the year several investor update meetings were held between the shareholders, one or more of the Chairman, the Investment Adviser and the Broker. The results of these meetings were reported to the Board as part of the formal reporting undertaken by both the Broker and Investment Adviser.

The Board gives due consideration to any corporate governance matters raised by shareholders.

Should any shareholder wish to raise any matter with the Board or Investment Adviser, they can write to the Company at its registered address as disclosed on page 15, or alternatively use one of the contact links on the Company's website (www.medicxfund.com/contact). The Annual General Meeting of the Company also provides a forum where shareholders may discuss issues with the Board and Investment Adviser.