The case is costing almost exactly the same amount as its monthly income from public donations.

The fund's Chief Executive Dr Andrew Purkis said the case, against the Franklin Mint Company, concerns the unauthorised exploitation of the princess's property rights. It is expected to come to trial in March if no prior settlement is reached.

Mr Purkis said the legal costs would be covered by one of the two trading companies within the fund, and would not, under any circumstances, be taken out of public donations.

Kofi Annan: Keen to stress "the Aids crisis is not over"

He said the cost was justified because it was important to send a message to others in the market that the fund would strongly assert its rights to the princess's name.

Out of its income of �94m, �71m was raised by donations or royalties linked to the sale of products.

The most successful have been the Royal Mail commemorative stamps, which brought in �8.9m, and the "Princess" Beanie Babies, which provided �5.8m by December 1998.

There are plans to donate future grants to children in the UK who have suffered personal loss.

Annan's Aids speech

It will also give to two organisations working to relieve the suffering of refugees arriving in the UK from the Balkans, and Albanian Youth Action will receive �287,000.

Meanwhile, the United Nations Secretary-General Kofi Annan is to deliver the first Diana, Princess of Wales Memorial Lecture, on the worldwide threat of Aids.

The annual speech is organised by the National Aids Trust, of which the princess was a patron from 1991 until her death in 1997.