Foreign & Colonial delivers despite £2.3 million hit from BP

Fraser said that he believes markets will remain turbulent for some time to come.

He said: We were right to expect 2010 to be a volatile and difficult year but being right is no consolation for falling share prices.

'We expect European equity, bond and currency markets to remain turbulent and we are worried by signs of slowing growth in China and the tepid recovery in the US. Governments are starting to reverse the huge fiscal measures adopted in response to the global financial crisis but it is not clear how this process will affect individual countries and markets.'

'On the positive side, many companies are in a strong financial position, and exporting companies can benefit from weak currencies. Dividends are rising again and market valuations are not high. Merger and acquisition activity may pick up and the prospects for private equity are clearer than they were a year ago.

'On balance we think the opportunities are greater than the threats and our increased gearing reflects this view. Our highly diversified portfolio gives us great flexibility to cope with whatever markets might do in the rest of 2010.'

The trust is currently standing on a 10.7% discount. Over the past three years to 29 July the trust's net asset value has fallen by 0.91% compared to a loss of 5.23% from the FTSE WI World index.