Annual Financial Report

Investec Structured Products Calculus VCT plc Annual Financial Report for the year ended 29 February 2012 The full Annual Report and Accounts can be accessed via the following websites: www.calculuscapital.com and www.investecstructuredproducts.com or by contacting the Company Secretary on telephone 01392 477500. INVESTMENT OBJECTIVE The Company's principal objectives for investors are to: - invest in a portfolio of Venture Capital Investments and Structured Products that will provide investment returns that are sufficient to allow the Company to maximise annual dividends and pay an interim return either by way of a special dividend or cash offer for shares on or before an interim return date; - generate sufficient returns from a portfolio of Venture Capital Investments that will provide attractive long-term returns within a tax efficient vehicle beyond an interim return date; - review the appropriate level of dividends annually to take account of investment returns achieved and future prospects; and - maintain VCT status to enable qualifying investors to retain their income tax relief of up to 30 per cent. on the initial investment and receive tax-free dividends and capital growth. Full details of the Company's investment policy can be found in the Business Review below. FINANCIAL REVIEW Ordinary Share Fund 12 Months to 13 Months to 29 February 28 February 2012 2011 Total return Total return (Â£80,000) Â£308,000 Total return per ordinary share (1.7)p 8.3p Revenue Net loss after tax (Â£71,000) (Â£112,000) Revenue return per ordinary share (1.5)p (3.0)p Dividend Recommended final dividend 5.25p 5.25p As at As at 29 February 28 February 2012 2011 Assets (investments valued at bid market prices) Net assets Â£4,501,000 Â£4,836,000 Net asset value ("NAV") per ordinary 95.0p 102.1p share Mid market quotation Ordinary shares 97.5p 99.5p Premium/(discount) to NAV 2.6% (2.5)% C Share Fund 11 Months to 29 February 2012* Total return Total return (Â£33,000) Total return per C share (1.7)p Revenue Net loss after tax (Â£45,000) Revenue return per C share (2.3)p Dividend Recommended final dividend 4.5p As at 29 February 2012 Assets (investments valued at bid market prices) Net assets Â£1,788,000 NAV per C share 92.6p Mid market quotation C shares 94.0p Premium to NAV 1.5% * The C shares were issued in three tranches, on 1 April 2011, 5 April 2011 and 4 May 2011. CHAIRMAN'S STATEMENT I am delighted to present your Company's results for the year ended 29 February 2012. The Investec Structured Products Calculus VCT plc is a tax efficient listed company which aims to address shareholder needs for: - attractive tax-free dividends; - a clear strategy for returning capital; - downside protection through the Structured Products portfolio and investment in lower risk VCT qualifying companies with a high percentage of investments in loan stock and preference shares; and - low annual management fees. The Company, which launched in March 2010, is a joint venture between Investec Structured Products (part of Investec Plc) and Calculus Capital Limited, and brings together both Managers' award winning expertise in their respective fields of structured products and venture capital. The net asset value per ordinary share was 95.0 pence as at 29 February 2012 compared to 102.1 pence as at 28 February 2011. This is after paying a dividend to ordinary shareholders in 2011 of 5.25 pence per share. The net asset value per C share was 92.6 pence as at 29 February 2012 compared to a value immediately following close of the C share fundraising of 93.6 pence. The net asset values have subsequently risen to 95.3 pence per ordinary share and 92.8 pence per C share as at 30 April 2012. Your Board and Managers are encouraged by the performance of the Company to date and believe it is well placed to make further progress in the forthcoming year. Structured Products Portfolio Our non-Qualifying Investments are managed by Investec Structured Products. As at 29 February 2012, the Ordinary Share Fund held a portfolio of eight Structured Products and the C Share Fund held a portfolio of three Structured Products based on the FTSE 100 Index. The products differ by duration and counterparty in order to minimise risk and create a diversified portfolio of investments. Up to 20 per cent. of the Structured Products portfolio of the C Share Fund will be able to be invested in other indices besides the FTSE 100 Index. The Structured Products portfolio is currently performing well. As at 29 February 2012 the FTSE 100 was trading at 5,871.51. This means that while the level of the FTSE 100 will change, if all of the Structured Products in both the Ordinary Share Fund and C Share Fund were to mature at this level, they would yield the maximum payoff for investors in each share fund. Venture Capital Investments Calculus Capital manages the portfolio of VCT Qualifying Investments made by the Company. The overall value of the unquoted portfolio showed a rise of Â£710,000 during the period. Several new Qualifying Investments were made during the period on behalf of the Ordinary Share Fund and the C Share Fund across a broad range of industries. A detailed analysis of the new investments and the investment performance can be found in the Investment Manager's Review that follows this statement. Dividend In line with our aim to provide a regular tax-free dividend stream, the Directors are pleased to propose a final dividend of 5.25 pence per ordinary share and 4.5 pence per C share which, subject to shareholder approval, will be paid on 31 July 2012 to ordinary shareholders and C shareholders on the register on 15 June 2012. Developments Since the Year End Since the year end, the Royal Bank of Scotland Autocall Structured Product has matured with a total return of 110.5 (initial capital of 100 and growth of 10.5). There was Â£50,000 held in the Ordinary Share Fund and Â£200,000 in the C Share Fund. The Ordinary Share Fund has also sold its Â£343,000 investment in the Nomura Bank International Structured Product which matures on 20 February 2013 to the C Share Fund at current market value of Â£441,875. This Product was originally bought to pay back any borrowing, however the early sale, which was made possible by positive market performance, has allowed for the borrowing requirement in each fund to be reduced. The Company has used the funds to invest in new Qualifying Investments. In April 2012, Â£175,000 and Â£75,000 were invested in Participate Sport Limited and Â£100,000 and Â£50,000 in Secure Electrans Limited on behalf of the Ordinary and C Share Funds respectively. Board Changes The Directors have reviewed the operation of the Board and concluded that it is operating effectively. However, pressure of other commitments has led Mark Rayward and Philip Swatman to decide to stand down as Directors at the Annual General Meeting. The Board has decided that the remaining four Directors (three of them independent) will constitute a Board of adequate size, given that the Structured Products investments have been made and the Qualifying Investment programme is well underway. I would like to thank Mark and Philip for their wisdom and effort since the Company's launch. Outlook The euro zone crisis continues to be a concern for the UK economy, which is expected to remain fragile in 2012. Access to finance for smaller UK companies remains tight despite Government initiatives, providing an attractive investment scenario for the Company. Your Board and Managers are encouraged by the number of attractive investment opportunities available and will continue to build a diversified portfolio of investments to deliver sustained long-term performance. Michael O'Higgins Chairman 1 June 2012 INVESTMENT MANAGER'S REVIEW (Qualifying Investments) Portfolio Developments Calculus Capital Limited manages the portfolio of Qualifying Investments made by the Company. It is intended that approximately 75 per cent. of the Company's funds will be invested over a three year period in a diversified portfolio of holdings in unquoted qualifying companies. During the year under review, the Company completed Qualifying Investments in five unquoted companies, Terrain Energy Limited ("Terrain"), MicroEnergy Generation Services Limited ("MicroEnergy"), Lime Technology Limited ("Lime"), Heritage House Media Limited ("Heritage") and Viscount Safe Custody Services Limited ("Viscount"). Terrain Energy Limited In March 2011, the Ordinary Share Fund made a follow-on equity investment of Â£50,000 in Terrain, and in August, the C Share Fund made a Â£90,000 investment, of which Â£45,000 was in ordinary shares and Â£45,000 was 7 per cent. long-term loan stock. Terrain was established in October 2009 to develop a portfolio of onshore oil and gas production and development assets, predominantly in the UK. Terrain acquired interests in two additional licences during the year. The new licence interests are a 10 per cent. interest in a gas exploration opportunity in the Larne-Lough Neagh basin in County Antrim and a 12.5 per cent. interest in an oil exploration licence at Burton on the Wolds in the East Midlands. The main prospect at Larne is a conventional gas play which is thought to be an extension of the Morecambe Bay gas field. 288 km of 2D seismic data has recently been obtained with the plan to drill a gas appraisal well in 2013. Burton on the Wolds is located on the southern margin of the Widmerpool Gulf geological basin. A well is planned for the third/fourth quarter of 2012 to evaluate a prospect with targets at two distinct stratigraphic levels. Of the other licence interests, Keddington is oil producing and there are plans to convert gas also produced to electricity on site and feed into the grid. Kirklington and Dukes Wood are due to be brought back into production in May 2012. Ordinary C Share Share 2010 Fund Fund Latest Audited Â£'000 Investment Information Â£'000 Â£'000 Results Year ended 31 December Turnover 271 Total cost 300 90 Income recognised in Pre-tax loss (158) period 14 2 Net assets 1,953 Equity valuation 113 48 Valuation basis: Fair value based on cost of investment supported by discounted cash flow and comparable company analysis Loan stock valuation 200 45 Total valuation 313 93 Voting rights* 2.50% 1.05% *Other funds managed by Calculus Capital, excluding those shown above, have combined voting rights of 19.20 per cent. MicroEnergy Generation Services Limited In early April 2011, Â£300,000 was invested in MicroEnergy from the Ordinary Share Fund, of which Â£150,000 was ordinary equity and Â£150,000 was 7 per cent. long-term loan stock. MicroEnergy is a company set up to acquire renewable, microgeneration facilities, including (but not limited to) wind, anaerobic digestion, hydro and micro CHP (Combined Heat and Power). The company has entered into a contract to buy a fleet of 84 small wind turbines (<5kW) installed on farm land in East Anglia. The portfolio will provide MicroEnergy with sufficient scale to mitigate concerns of poor short-term performance at any particular site. The first eighteen turbines of the fleet had been installed by the end of the Company's financial year, with a further 21 installed since that date giving a total to date of 39. The revenues from the fleet of installed turbines come from two sources, both of which are inflation protected, being directly linked to RPI. First there is the Government backed feed-in tariff ("FIT") paid by the electricity suppliers for every kilowatt of electricity generated. Secondly there is the export tariff for any surplus electricity not used by the site owner that is exported to the grid. Provided electricity generation is maintained, FITs are guaranteed at 28p (inflation linked to RPI) per kWh for 20 years. Ordinary C Share Share Fund Fund Latest Audited Results Investment Information Â£'000 Â£'000 No accounts have been produced Total cost 300 - Income recognised in period 10 - Equity valuation 150 - Loan stock valuation 150 - Valuation basis: Cost Total valuation 300 - Voting rights* 8.67% - * Other funds managed by Calculus Capital have combined voting rights of 9.89 per cent. Lime Technology Limited A small additional investment of approximately Â£8,000 was invested from the Ordinary Share Fund in Lime, a low carbon based building materials developer, to convert warrants into shares. The company's main product is Hembuild, a lime, hemp and linseed based building material manufactured in panel form and used in the mainstream construction industry. Lime has recently completed its contracts for the new Marks & Spencer Cheshire Oaks' superstore, their largest outside Marble Arch, and a warehouse for Kane's Foods. Lime is currently completing a contract to build new archives for the London Science Museum. Lime's subsidiary, Hemp Technology, which operates a fibre processing plant, has been operating profitably since August 2011. Hemp Technology's sales of processed linseed to the paper industry have increased from nil to an annualised rate of approximately 5,000 tonnes since Easter 2011. Ordinary C Share Share Latest Audited 2011 2010 Investment Information Fund Â£'000 Fund Results Â£'000 Â£'000 Â£'000 Year ended 31 Oct 4 Nov Turnover 4,507 3,726 Total cost 307 - Pre-tax loss (2,020) (1,556) Income recognised in period 19 - Net (liabilities)/ assets (157) 252 Equity valuation 30 - Loan stock valuation 250 - Valuation basis: Earnings multiple Total valuation 280 - Voting rights* 0.47% - * Other funds managed by Calculus Capital have combined voting rights of 41.86 per cent. Heritage House Media Limited An investment of approximately Â£125,000 and Â£63,000 was made in Heritage on behalf of the Ordinary and C Share Funds respectively following a corporate and financial restructuring of the business. As part of this transaction, the Company also invested Â£1,834 and Â£917 on behalf of the Ordinary and C Share Funds respectively to acquire 100 per cent. of the shares in Investec SPV Limited ("Investec SPV"). Investec SPV, in turn, owns shares and securities in Heritage which were purchased from Foresight 2 VCT plc and Foresight 3 VCT plc. The Heritage business includes printed visitor attractions and accommodation directories published under the brands Hudson's, VisitBritain, Dream Weddings and OpenBritain and a contract publishing division providing guidebooks for visitor attractions. The aim of the restructuring was to position Heritage to migrate from printed directories to a digital media offering. Although a significant start has been made on the digital media plan, progress is behind schedule. The company's bank has given notice of the withdrawal of overdraft facilities. We have decided against providing additional capital to make up the shortfall, have put the business up for sale and have written the investment down to nil. Ordinary C Share Share 2010 2009 Investment Fund Fund Â£'000 Â£'000 Information Â£'000 Â£'000 Latest Audited Results Year ended 30 September Net liabilities (3,639) (1,522) Total costâ€ 127 64 Income recognised in period - - Equity valuation - - Loan stock valuation - - Valuation basis: Discounted cash flow Total valuation - - Voting rights held directly* 2.00% 1.00% Voting rights held by Investec SPV* 5.70% 2.90% â€ Including the investment in Investec SPV of Â£1,834 and Â£917 respectively. * Other funds managed by Calculus Capital, excluding those shown above, have combined voting rights of 36.30 per cent. Viscount Safe Custody Services Limited Viscount is the holding company for Metropolitan Safe Deposits, which provides safe custody services in the central London area. The Ordinary Share Fund invested Â£190,000, of which Â£90,000 was invested as ordinary equity and Â£100,000 as 8 per cent. long-term loan stock, and the C Share Fund invested Â£90,000, of which Â£40,000 was ordinary equity and Â£50,000 was 8 per cent. long-term loan stock. In a connected transaction, Viscount acquired United Gold. United Gold was recently launched to provide private investors with a seamless way to buy, store, insure and sell bullion. Founded in 1983, Metropolitan is one of the oldest established brands in the safe custody sector in London. The company currently runs two safe custody sites in Knightsbridge and St John's Wood. These profitable businesses provide customers with access to the vaults seven days a week. Traditionally, this service has been provided by the clearing banks but high street banks are fast withdrawing from such physical banking services and Metropolitan is well placed to take advantage of these opportunities. Providing private investors with a seamless and convenient way to buy, store and sell bullion, primarily gold, is a logical extension of Metropolitan's services to customers. Ordinary C Share Share Latest Audited 2011 2010 Investment Fund Fund Results Â£'000 Â£'000 Information Â£'000 Â£'000 Year ended 30 June Turnover 1,327 1,271 Total cost 190 90 Pre-tax profit 196 210 Income recognised in period - - Net assets 772 776 Equity valuation 90 40 Loan stock valuation 100 50 Valuation basis: Earnings multiple Total valuation 190 90 Voting rights* 2.20% 1.00% * Other funds managed by Calculus Capital, excluding those shown above, have combined voting rights of 39.00 per cent. Qualifying Investments As at the year end, Â£1,222,000 had been invested on behalf of the Ordinary Share Fund in Qualifying Investments, representing approximately 27.0 per cent. of the net funds raised. Â£243,000 had been invested in Qualifying Investments on behalf of the C Share Fund, representing approximately 13.3 per cent. of the net funds raised. Developments Since the Year End Since the year end, Â£175,000 and Â£75,000 has been invested in Participate Sport Limited from the Ordinary Share Fund and C Share Fund respectively. Participate is a mass participation sports event business which owns, promotes and delivers sports events across cycling, running, triathlon and open water swimming. Participate has, in turn, acquired Human Race to create the UK's largest and most diverse mass participation sports events company, delivering over 55 events to over 100,000 participants. The combined entity is to be rebranded Human Race. A further Â£100,000 and Â£50,000 has been invested from the two funds in Secure Electrans Limited. Secure is a payment technology company holding key patents covering e-commerce security. British Gas holds a stake of approximately 20 per cent. Both investments were made in April 2012. Outlook Recent figures for the UK's gross domestic product (GDP) for the first quarter of 2012 show the second consecutive quarter of decline. Smaller companies can be a good lead indicator of underlying economic activity. Although the outlook remains challenging, there are signs that the UK economy may fare better in 2012 than is generally predicted and the Manager believes that, overall, the portfolio is well-positioned to benefit from any upturn. Calculus Capital Limited 1 June 2012 INVESTMENT MANAGER'S REVIEW (Structured Products) Our non-Qualifying Investments are managed by Investec Structured Products. As at the date of this report, the Company held a portfolio of Structured Products based on the FTSE 100 Index. The products differ by duration and counterparty. In line with the Company's strategy set out in the original Offer documents, a large percentage of the initial cash raised has been used to build a portfolio of Structured Products. The portfolio of Structured Products has been constructed with different issuers and differing maturity periods to minimise risk and create a diversified portfolio. The FTSE 100 Initial Index Levels for these investments range from 4,805.75 to 5,718.13. At the year end, the FTSE 100 closing level was 5,871.51. The total amount to date invested in Structured Products stands at Â£2,542,980 for the Ordinary Share Fund and Â£850,000 for the C Share Fund, representing 56.2 per cent. and 46.7 per cent. of the net funds raised respectively. As at 29 February 2012 the Structured Products portfolio was valued at Â£3,156,172 for the Ordinary Share Fund and Â£934,538 for the C Share Fund. Since year end, the FTSE 100 has been volatile, causing fluctuations in the value of the Structured Products portfolio. However, while values may change, as at 30 April 2012 the Structured Products portfolio was valued at Â£2,687,000 for the ordinary shares and Â£1,168,000 for the C shares. Since the year end, both funds had their first product mature in the middle of March 2012 - the RBS Autocall matured with a payout of 10.5 per cent. after being invested for one year. The original intention was to use borrowings to fund Qualifying Investments pending maturity of some of the portfolio of Structured Products. The Managers have managed to minimise such borrowings by the Ordinary Share Fund by selling its Â£350,000 investment in the Nomura Bank International Structured Product after the year end at its current fair market value of Â£441,875 to the C Share Fund. The price this sold at allows for the C Share Fund to gain a sizeable return in nine months, which is better than could be had for a similar risk by investing in a primary issue but also gave a healthy return to the Ordinary Share Fund. The cash flow improves for the Company as a whole, as returns have been captured earlier than expected. The starting level of the FTSE 100 for the Nomura Structured Product was 5188.43, so as long as the Final Index Level is above this level when it matures on 20 February 2013, the product would yield the maximum payoff. Markets have been turbulent since the half-year report; however, 5 year swap rates are roughly the same, volatility has dropped, but the FTSE has increased substantially. Overall this has led to an increase in the valuations of the Structured Products portfolio. The Investment Manager constantly reviews the portfolio of investments to assess asset allocation and the need to realise investments. Ordinary Share Fund Structured Products Portfolio as at 29 February 2012 Price Valuation FTSE 100 as at as at Return/Capital Strike Maturity Initial Index Notional Purchase 29 February 29 February at Risk Issuer Date Date Level Investment Price Cost 2012 2012 ("CAR")â€ 162.5% if FTSE100* higher; CAR if The Royal FTSE100 falls Bank of by more than Scotland plc 05/05/2010 12/05/2015 5,341.93 Â£275,000 Â£0.96 Â£264,000 Â£1.1026 Â£303,215 50% 185% if FTSE100* higher; CAR if FTSE100 falls Investec by more than Bank plc 14/05/2010 19/11/2015 5,262.85 Â£500,000 Â£0.98 Â£489,550 Â£1.2247 Â£612,332 50% 185% if FTSE100* Abbey higher; CAR if National FTSE100 falls Treasury by more than Services 25/05/2010 18/11/2015 4,940.68 Â£350,000 Â£0.99 Â£346,430 Â£1.3319 Â£466,165 50% â€ Capital at Risk ("CAR") is explained in note 15. The above investments have been designed to meet the 43.75p per ordinary share interim return by 14 December 2015. FTSE 100 Price Valuation Initial as at as at Return/Capital Strike Maturity Index Notional Purchase 29 February 29 February at Risk Issuer Date Date Level Investment Price Cost 2012 2012 ("CAR") 137% if FTSE100* higher; CAR if Nomura FTSE100 falls Bank by more than International 28/05/2010 20/02/2013 5,188.43 Â£350,000 Â£0.98 Â£343,000 Â£1.2471 Â£436,485 50% 134% if FTSE100* higher; CAR if Morgan FTSE100 falls Stanley by more than International 10/06/2010 17/12/2012 5,132.50 Â£500,000 Â£1.00 Â£500,000 Â£1.2436 Â£621,800 50% 125.1% if FTSE100* higher; CAR if FTSE100 falls HSBC by more than Bank plc 01/07/2010 06/07/2012 4,805.75 Â£500,000 Â£1.00 Â£500,000 Â£1.2223 Â£611,165 50% Autocallable 10.5% p.a.; The Royal CAR if FTSE Bank of 100 falls more Scotland 18/03/2011 20/03/2017 5,718.13 Â£50,000 Â£1.00 Â£50,000 Â£1.0637 Â£53,185 than 50% plc** 126% if FTSE Abbey 100* higher; National CAR if FTSE Treasury 100 falls more Services** 03/08/2011 05/02/2014 5,584.51 Â£50,000 Â£1.00 Â£50,000 Â£1.0365 Â£51,825 than 50% The above investments are aimed to provide additional return as dividends. These investments may be sold prior to maturity if it is deemed that a greater return can be made by Calculus Capital investing in Qualifying Investments. C Share Fund Structured Products Portfolio as at 29 February 2012 Price Valuation FTSE 100 as at as at Return/Capital Strike Maturity Initial Index Notional Purchase 29 February 29 February at Risk Issuer Date Date Level Investment Price Cost 2012 2012 ("CAR") 182% if FTSE 100* higher; CAR if FTSE Investec 100 falls more Bank plc** 05/08/2011 10/03/2017 5,246.99 Â£450,000 Â£1.00 Â£450,000 Â£1.1433 Â£514,498 than 50% The above Investec Structured Product investment in the C Share Fund (Â£450,000) is a collateralised product. The collateral comprises a portfolio of securities issued by each of HSBC Bank plc, Nationwide Building Society, Santander UK plc, The Royal Bank of Scotland plc and Lloyds TSB Bank plc, and/or cash and/or UK government debt. Insolvency risk to Investec Bank plc is replaced with a risk spread across these named institutions. Price Valuation FTSE 100 as at as at Return/Capital Strike Maturity Initial Index Notional Purchase 29 February 29 February at Risk Issuer Date Date Level Investment Price Cost 2012 2012 ("CAR") Autocallable The Royal 10.5% p.a.; Bank of CAR if FTSE Scotland 100 falls more plc** 18/03/2011 20/03/2017 5,718.13 Â£200,000 Â£1.00 Â£200,000 Â£1.0637 Â£212,740 than 50% 126% If FTSE Abbey 100* higher; National CAR if FTSE Treasury 100 falls more Services** 03/08/2011 05/02/2014 5,584.51 Â£200,000 Â£1.00 Â£200,000 Â£1.03065 Â£207,300 than 50% The above investments target an average return of 9.58 per cent. per annum. These investments may be sold prior to maturity if it is deemed that a greater return can be made by Calculus Capital by investing in Qualifying Investments. * The Final Index Level is calculated using `averaging', meaning that we take the average of the closing levels of the FTSE 100 on each Business Day over the 2 - 6 months of the Structured Product term (the length of the averaging period may differ for each Structured Product). The use of averaging to calculate the return can reduce adverse effects of a falling market or sudden market falls shortly before maturity. Equally, it can reduce the benefits of an increasing market or sudden market rises shortly before maturity. ** These investments were purchased in the 2011-2012 financial year. Investec Structured Products 1 June 2012 INVESTMENT PORTFOLIO AS AT 29 FEBRUARY 2012 Ordinary Share Fund Net assets % of net assets Structured Products 71% Unquoted - loan stock 16% Unquoted - ordinary and preference 8% shares Unquoted - liquidity funds 4% Net current assets 1% 100% Sector % of portfolio Structured Products 72% Unquoted - Qualifying Investments 24% Unquoted - other non-Qualifying 4% 100% Investments Nature of Book Cost Valuation % of Net % of Company Business Â£'000 Â£'000 Assets Portfolio Structured Products Investec Bank plc Banking 490 612 14% 14% The Royal Bank of Scotland plc Banking 314 356 8% 8% Abbey National Treasury Services Banking 396 518 11% 12% Nomura Bank International Banking 343 437 10% 10% Morgan Stanley International Banking 500 622 14% 14% HSBC Bank plc Banking 500 611 14% 14% Total Structured Products 2,543 3,156 71% 72% Qualifying Investments Terrain Energy Onshore oil Limited and gas production 300 313 7% 7% Lime Technology Limited Construction 307 280 6% 6% Heritage House Publishing and Media Limited* media services 127 - - - Viscount Safe Safe Custody Services depository Limited services 190 190 4% 4% MicroEnergy Generation Services Limited Energy 300 300 7% 7% Total Qualifying Investments 1,224 1,083 24% 24% Other non-Qualifying Investments Fidelity Liquidity Fund Liquidity fund 81 81 2% 2% Goldman Sachs Liquidity Fund Liquidity fund 50 50 1% 1% Scottish Widows Liquidity Fund Liquidity fund 65 65 1% 1% Total Other non-Qualifying Investments 196 196 4% 4% Total Investments 3,963 4,435 99% 100% Net Current Assets less Creditors due after one year 66 1% Net Assets 4,501 100% * Included in the cost is Â£1,834 invested in Investec SPV. C Share Fund Net assets % of net assets Structured Products 53% Unquoted - loan stock 5% Unquoted - ordinary and preference 5% shares Unquoted - liquidity funds 32% Net current assets 5% 100% Sector % of portfolio Structured Products 55% Unquoted - Qualifying Investments 11% Unquoted - other non-Qualifying 34% 100% Investments Nature of Book Cost Valuation % of Net % of Company Business Â£'000 Â£'000 Assets Portfolio Structured Products Investec Bank plcâ€ Banking 450 515 29% 30% The Royal Bank of Scotland plc Banking 200 213 12% 13% Abbey National Treasury Services Banking 200 207 12% 12% Total Structured Products 850 935 53% 55% Qualifying Investments Terrain Energy Onshore oil Limited and gas production 90 93 5% 6% Heritage House Publishing and Media Limited* media services 64 - - - Viscount Safe Safe Custody Services depository Limited services 90 90 5% 5% Total Qualifying Investments 244 183 10% 11% Other non-Qualifying Investments Fidelity Liquidity Liquidity fund 251 251 14% 15% Fund Goldman Sachs Liquidity Fund Liquidity fund 100 100 6% 6% Scottish Widows Liquidity Fund Liquidity fund 222 222 12% 13% Total Other non-Qualifying Investments 573 573 32% 34% Total Investments 1,667 1,691 95% 100% Net Current Assets less Creditors due after one year 97 5% Net Assets 1,788 100% â€ This is a collateralised product, and the credit risk is equally spread across five counterparties: HSBC Bank plc, Nationwide Building Society, Santander UK plc, The Royal Bank of Scotland plc and Lloyds TSB Bank plc. *Included in the cost is Â£917 invested in Investec SPV. BOARD OF DIRECTORS Michael O'Higgins (Chairman)* Kate Cornish-Bowden* John Glencross Steve Meeks* Mark Rayward (Audit Committee Chairman)* Philip Swatman* * independent of the Investment Managers INVESTMENT MANAGERS Calculus Capital Calculus Capital Limited is the Venture Capital Investments portfolio manager (VCT Qualifying Investments). Investec Structured Products Investec Structured Products (a trading name of Investec Bank plc) is the Structured Products portfolio manager (non VCT Qualifying Investments). BUSINESS REVIEW Activities and status The Company is registered as a public limited company and incorporated in England and Wales with registration number 07142153. Its shares have a premium listing and are traded on the London Stock Exchange. The Company carries on business as a venture capital trust ("VCT") and its affairs are conducted in a manner to satisfy the conditions to enable it to obtain approval as a venture capital trust under sections 258-332 of the Income Tax Act 2007 ("ITA 2007"). Details of the Company's investment policy are set out below. On incorporation, the Company was an investment company under section 833 of the Companies Act 2006. On 18 May 2011 investment company status was revoked by the Company. This was done in order to allow the Company to pay dividends to shareholders using the special reserve (a distributable capital reserve), which had been created on the cancellation of the share premium account on 20 October 2010. During the year, the Company acquired 100 per cent. of the shares in Investec SPV Limited. As set out in the Investment Manager's Review (Qualifying Investments), Investec SPV owns shares and securities in Heritage which were acquired on behalf of the Ordinary Share Fund and the C Share Fund. The Company has not prepared consolidated accounts and has accounted for Investec SPV as an investment on the grounds that its results are immaterial to the Company and control is intended to be temporary because the subsidiary has been acquired and held exclusively with a view to its subsequent disposal in the near future. This Business Review should be read in conjunction with the Chairman's Statement, the Investment Managers' Reviews and the portfolio analysis. Performance The Board reviews performance by reference to a number of key performance indicators ("KPIs") and considers that the most relevant KPIs are those that communicate the financial performance and strength of the Company as a whole: - total return per share - net asset value per share - share price and discount/premium to net asset value Further KPIs are those which show the Company's position in relation to the VCT tests which it is required to meet in order to meet and maintain its VCT status. These tests are set out in the full Annual Report and Accounts. The Company has received provisional approval as a VCT from HM Revenue & Customs. The financial performance of the Company is set out below: Year Ended Period Ended 29 February 2012 28 February 2011 Ordinary Share Fund Fair value portfolio Â£4.4m Â£4.5m valuation Total return (after tax) (Â£80,000) Â£308,000 Total return per ordinary share (1.7)p 8.3p NAV per ordinary share 95.0p 102.1p Ordinary share price 97.5p 99.5p Ordinary share price premium/(discount) to NAV 2.6% (2.5)% C Share Fund Fair value portfolio valuation Â£1.7m n/a Total return (after tax) (Â£33,000) n/a Total return per C share (1.7)p n/a NAV per C share 92.6p n/a C share price 94.0p n/a C share price premium to NAV 1.5% n/a Dividend The Directors are recommending a final dividend of 5.25p per ordinary share and 4.5p per C share. Subject to approval by shareholders at the Annual General Meeting, these dividends will be paid on 31 July 2012 to shareholders on the register on 15 June 2012. Share capital An offer for subscription for C ordinary shares of 1p each ("C shares") was launched in January 2011. A total of 1,931,095 C shares with an aggregate nominal value of Â£19,311 and a total consideration of Â£1,931,095 were issued during the year, as follows: - 1,644,826 C shares at 100p per share on 1 April 2011 - 187,679 C shares at 100p per share on 5 April 2011 - 98,590 C shares at 100p per share on 4 May 2011 At the year end and at the date of this report, the issued share capital comprised 4,738,463 ordinary shares (representing 71.05 per cent. of total voting rights) and 1,931,095 C shares (representing 28.95 per cent. of total voting rights). No shares were held in Treasury. The ordinary shares and C shares have equal voting rights, and at general meetings of the Company, holders are entitled to one vote on a show of hands and on a poll to one vote for every share held. There are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid. The authority to issue or buy back the Company's shares and amendment of the Company's Articles of Association require a relevant resolution to be passed by shareholders. At the Annual General Meeting held on 30 June 2011, the Directors were granted authority to allot shares up to an aggregate nominal amount of Â£206,700. They were also authorised to issue shares for cash (without rights of pre-emption applying) (i) up to Â£100,000 of each class of share by way of offer for subscription and (ii) up to 10 per cent. of each class of share for general purposes and to buy back up to 14.99 per cent. of each of the ordinary and C shares in issue. The Board's proposals for the renewal of the authorities to issue and buy back shares are detailed in the full Annual Report and Accounts. Investment policy It is intended that approximately 75 per cent. of the monies raised by the Company will be invested within 60 days in a portfolio of Structured Products. The balance will be used to meet initial costs and invested in cash or near cash assets (as directed by the Board) and will be available to invest in Venture Capital Investments and to fund ongoing expenses. In order to qualify as a VCT, at least 70 per cent. of the Company's assets must be invested in Venture Capital Investments within approximately three years. Thus there will be a phased reduction in the Structured Products portfolio and corresponding build up in the portfolio of Venture Capital Investments to achieve and maintain this 70 per cent. threshold along the following lines: Average Exposure Year 1 Year 2 Year 3 Year 4 Year 5 Year 6+ per Year Structured Products and cash/near cash 85% 75% 35% 25% 25% 0% Venture Capital Investments 15% 25% 65% 75% 75% 100% Note: the investment allocation set out above is only an estimate and the actual allocation will depend on market conditions, the level of opportunities and the comparative rates of returns available from Venture Capital Investments and Structured Products. The combination of Venture Capital Investments and the Structured Products will be designed to produce ongoing capital gains and income that will be sufficient to maximise both annual dividends for the first five years from funds being raised and an interim return by an interim return date by way of a special dividend or cash tender offer for shares. After the interim return date, unless Investec Structured Products are requested to make further investments in Structured Products, the relevant fund will be left with a portfolio of Venture Capital Investments managed by Calculus Capital with a view to maximising long-term returns. Such returns will then be dependent, both in terms of amount and timing, on the performance of the Venture Capital Investments, but with the intention to source exits as soon as possible. The portfolio of Structured Products will be constructed with different issuers and differing maturity periods to minimise risk and create a diversified portfolio. The Structured Products may also be collateralised whereby notes are issued by one issuer (such as Investec Bank plc) but with the underlying investment risk being linked to more than one issuer (as approved by the Board) reducing insolvency risks, creating diversity and potentially increasing returns for shareholders. If the Company invests in a collateralised Structured Product, the amount of the exposure to an underlying issuer will be taken into account when reviewing investments for diversification. The maximum exposure to any one issuer (or underlying issuer) will be limited, in aggregate, to 15 per cent. of the assets of the Company at the time of investment. Structured Products can and may be sold before their maturity date if required for the purposes of making Venture Capital Investments and Investec Structured Products have agreed to make a market in the Structured Products, should this be required by the Company. The intention for the portfolio of Venture Capital Investments is to build a diverse portfolio of primarily established unquoted companies across different industries. In order to generate income and where it is felt it would enhance shareholder return, investments may be structured to include loan stock and/or redeemable preference shares as well as ordinary equity. It is intended that the amount invested in any one sector and any one company will be no more than approximately 20 per cent. and 10 per cent. respectively of the Venture Capital Investments portfolio (in both cases at the date of the investment). The Board and its Managers review the portfolio of investments on a regular basis to assess asset allocation and the need to realise investments to meet the Company's objectives or maintain VCT status. Where investment opportunities arise in one asset class which conflicts with assets held or opportunities in another asset class, the Board will make the investment/divestment decision. Under its Articles, the Company has the ability to borrow a maximum amount equal to 25 per cent. of the gross assets of the Company. The Board will consider borrowing if it is in the shareholders' interests to do so. In particular, because the Board intends to minimise cash balances, the Company may borrow on a short-term to medium-term basis (in particular, against Structured Products) for cashflow purposes and to facilitate the payment of dividends and expenses in the early years. The Company will not vary the investment objective or the investment policy, to any material extent, without the approval of shareholders. The Company intends to be a generalist VCT investing in a wide range of sectors. Risk diversification The Board controls the overall risk of the Company. Calculus Capital will ensure the Company has exposure to a diversified range of Venture Capital Investments from different sectors. Investec Structured Products will ensure the Company has exposure to a diversified range of Structured Products. The Board believes that investment in these two asset classes provides further diversification. Co-investment policy Calculus Capital has a co-investment policy between its various funds whereby investment allocations are generally offered to each party in proportion to their respective funds available for investment, subject to: (i) a priority being given to any of the funds in order to maintain their tax status; (ii) the time horizon of the investment opportunity being compatible with the exit strategy of each fund; and (iii) the risk/reward profile of the investment opportunity being compatible with the target return for each fund. The terms of the investments may differ between the parties. In the event of any conflicts between the parties, the issues will be resolved at the discretion of the independent directors, designated members and committees. It is not intended that the Company will co-invest with directors or members of the Calculus Capital management team (including family members). In respect of the Venture Capital Investments, funds attributable to separate share classes will co-invest (i.e. pro rata allocation per fund, unless one of the funds has a pre-existing investment where the incumbent fund will have priority, or as otherwise approved by the Board). Any potential conflict of interest arising will be resolved on a basis which the Board believes to be equitable and in the best interests of all shareholders. A co-investment policy is not considered necessary for the Structured Products. Policy on Qualifying Investments Calculus Capital follows a disciplined investment approach which focuses on investing in more mature unquoted companies where the risk of capital loss is reduced and prospects for exit enhanced, typically by the cash generative characteristics and/or strong asset bases of the investee companies. Calculus Capital, therefore, intends to: - Invest in a diversified portfolio from a range of different sectors. - Focus on companies which are cash generative and/or with a strong asset base. - Structure investments to include loans and preference shares where it is felt this would enhance shareholder return. - Invest in companies which operate in sectors with a high degree of predictability and a defensible market position. - Invest in companies which can benefit both from the capital provided by Calculus Capital but also from the many years of operating and financial experience of the Calculus Capital team. It is intended that the Venture Capital Investments portfolio will be spread across a number of investments and the amount invested in any one sector and any one company will be no more than approximately 20 per cent. and 10 per cent. respectively (in both cases at the date of investment). VCT regulation The Company's investment policy is designed to ensure that it will meet, and continue to meet, the requirements for approved VCT status from HM Revenue & Customs. Amongst other conditions, the Company may not invest more than 15 per cent. (by value at the time of investment) of its investments in a single company and must have at least 70 per cent. by value of its investments throughout the period in shares or securities in qualifying holdings, of which 30 per cent. by value must be ordinary shares which carry no preferential rights ("eligible shares"). For funds raised from 6 April 2011, the requirement for 30 per cent. to be invested in eligible shares was increased to 70 per cent. Principal risks and uncertainties facing the Company The Company is exposed to a variety of risks. The principal financial risks and the Company's policies for managing these risks and the policy and practice with regard to financial instruments are summarised in note 15 to the Accounts. The Board has also identified the following additional risks and uncertainties: Loss of approval as a venture capital trust and other regulatory breaches The Company has received provisional approval as a VCT under ITA 2007. Failure to meet and maintain the qualifying requirements for VCT status could result in the loss of tax reliefs previously obtained, resulting in adverse tax consequences for investors, including a requirement to repay the income tax relief obtained, and could also cause the Company to lose its exemption from corporation tax on chargeable gains. The Board receives regular updates from the Managers and financial information is produced on a monthly basis. The Board has appointed an independent adviser to monitor and advise on the Company's compliance with the VCT rules. The Company is subject to compliance with the Companies Act 2006, the rules of the UK Listing Authority and ITA 2007. A breach of any of these could lead to suspension of the listing of the Company's shares on the London Stock Exchange and/or financial penalties, with the resulting reputational implications. Venture Capital Investments There are restrictions regarding the type of companies in which the Company may invest and there is no guarantee that suitable investment opportunities will be identified. Investment in unquoted companies, AIM-traded and PLUS Markets-traded companies involves a higher degree of risk than investment in companies traded on the main market of the London Stock Exchange. These companies may not be freely marketable and realisations of such investments can be difficult and can take a considerable amount of time. There may also be constraints imposed upon the Company with respect to realisations in order to maintain its VCT status which may restrict the Company's ability to obtain the maximum value from its investments. Calculus Capital has been appointed to manage the Qualifying Investments portfolio, and has extensive experience of investing in this type of investment. Regular reports are provided to the Board. Risks attaching to investment in Structured Products Structured Products are subject to market fluctuations and the Company may lose some or all of its investment. In the event of a long-term decline in the FTSE 100 Index, or, in the case of the C Share Fund, in such other index as this fund may be invested, there will be no gains from the Structured Products. In the event of a fall in the relevant index of more than 50 per cent. at any time during the Structured Product term, and where the Final Index Level is below the Initial Index Level, there will be losses on the Structured Products. There may not be a liquid market in the Structured Products and there may never be two competitive market makers, making it difficult for the Company to realise its investment. Risk is increased further where there is a single market maker who is also the issuer of the Structured Product. Investec Structured Products has agreed to make a market in the Structured Products, should this be required by the Company. Factors which may influence the market value of Structured Products include interest rates, changes in the method of calculating the relevant underlying index from time to time and market expectations regarding the future performance of the relevant underlying index, its composition and such Structured Products. Investec Structured Products has been appointed to manage the Structured Products portfolio for its expertise in these types of financial products. Restrictions have been agreed with Investec Structured Products relating to approved counterparties and maximum exposure to any one counterparty. Liquidity/marketability risk Due to the holding period required to maintain up-front tax reliefs, there is a limited secondary market for VCT shares and investors may therefore find it difficult to realise their investments. As a result, the market price of the shares may not fully reflect, and will tend to be at a discount to, the underlying net asset value. The level of discount may also be exacerbated by the availability of income tax relief on the issue of new VCT shares. The Board recognises this difficulty, and has taken powers to buy back shares, which could be used to enable investors to realise investments. Changes to legislation/taxation Changes in legislation or tax rates concerning VCTs in general, and Venture Capital Investments and qualifying trades in particular, may limit the number of new Venture Capital Investment opportunities, and thereby adversely affect the ability of the Company to achieve or maintain VCT status, and/or reduce the level of returns which would otherwise have been achievable. Engagement of third party advisers The Company has no employees and relies on services provided by third parties. The Board has appointed Calculus Capital as Investment Manager of the Qualifying Investments portfolio and Investec Structured Products as Investment Manager of the Structured Products portfolio. Capita Sinclair Henderson Limited provides administration, accounting and company secretarial services, and Investec Wealth & Investments (formerly known as Rensburg Sheppards) acts as custodian. C shares versus ordinary shares The assets relating to the C shares are managed and accounted for separately from the assets attributable to the ordinary shares. However, a number of company regulations and VCT requirements are assessed at company level and, therefore, the performance of one fund may impact adversely on the other. The Board monitors both the performance of each separate fund as well as requirements at a company level to reduce the risk of this occurring. Future developments The Directors believe that the Company is well placed to make progress during 2012 and are encouraged by the number of attractive investment opportunities available. Corporate social responsibility The Company has no employees and the Board is comprised entirely of non-executive Directors. Day to day management of the Company's business is delegated to the Investment Managers (details of the respective management agreements are set out in the full Annual Report and Accounts) and the Company itself has no environmental, social or community policies. In carrying out its activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly. The full Annual Report and Accounts contain the following statements regarding responsibility for the Accounts. DIRECTORS' RESPONSIBILTY STATEMENT Statement of Directors' Responsibilities in respect of the Annual Report and the Accounts The Directors are responsible for preparing the Annual Report and the Accounts in accordance with applicable law and regulations. Company law requires the Directors to prepare Accounts for each financial year. Under that law they have elected to prepare the Accounts in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). 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 for that period. In preparing these Accounts, the Directors are required to: - select suitable accounting policies and then apply them consistently; - make judgments and estimates that are reasonable and prudent; - state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Accounts; and - prepare the Accounts 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 Accounts comply with the Companies Act 2006. 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. Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report (including Business Review), Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations, and for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Services Authority. In so far as each of the Directors is aware: - there is no relevant audit information of which the Company's Auditor is unaware; and - the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the Auditor is aware of that information. The Accounts are published on the www.calculuscapital.com website, which is a website maintained by one of the Company's Investment Managers, Calculus Capital Limited. The maintenance and integrity of the website maintained by Calculus Capital Limited is, so far as it relates to the Company, the responsibility of Calculus Capital Limited. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and accordingly, the Auditor accepts no responsibility for any changes that have occurred to the Accounts since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom covering the preparation and dissemination of the Accounts may differ from legislation in their jurisdiction. We confirm that to the best of our knowledge: - the Accounts, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and - the 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 it faces. On behalf of the Board Michael O'Higgins Chairman 1 June 2012 NON-STATUTORY ACCOUNTS The financial information set out below does not constitute the Company's statutory accounts for the year ended 29 February 2012 and the period ended 28 February 2011 but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies, and those for 2012 will be delivered in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (ii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report and Accounts at www.calculuscapital.com. INCOME STATEMENT for the year ended 29 February 2012 Year Ended 29 February 2012 Period Ended 28 February 2011 Revenue Capital Revenue Capital Return Return Total Return Return Total Note Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Ordinary Share Fund Investment holding gains 8 - 26 26 - 446 446 Income 2 48 - 48 20 - 20 Investment management fee 3 (12) (35) (47) (9) (26) (35) Other operating expenses 4 (107) - (107) (123) - (123) (Loss)/profit on ordinary activities before taxation (71) (9) (80) (112) 420 308 Taxation on ordinary activities 5 - - - - - - (Loss)/profit on ordinary activities after taxation (71) (9) (80) (112) 420 308 Return per ordinary share - basic 7 (1.5)p (0.2)p (1.7)p (3.0)p 11.3p 8.3p C Share Fund Investment holding gains 8 - 24 24 Income 2 7 - 7 Investment management fee 3 (4) (12) (16) Other operating expenses 4 (48) - (48) (Loss)/profit on ordinary activities before taxation (45) 12 (33) Taxation on ordinary activities 5 - - - (Loss)/profit on ordinary activities after taxation (45) 12 (33) Return per C share - basic 7 (2.3)p 0.6p (1.7)p The total column of these statements represents the Income Statement of the Ordinary Share Fund and C Share Fund. Year Ended 29 February 2012 Period Ended 28 February 2011 Revenue Capital Revenue Capital Return Return Total Return Return Total Note Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Total Investment holding gains 8 - 50 50 - 446 446 Income 2 55 - 55 20 - 20 Investment management fee 3 (16) (47) (63) (9) (26) (35) Other operating expenses 4 (155) - (155) (123) - (123) (Loss)/profit on ordinary activities (116) 3 (113) (112) 420 308 before taxation Taxation on ordinary activities 5 - - - - - - (Loss)/profit on ordinary activities (116) 3 (113) (112) 420 308 after taxation Return per ordinary share - basic 7 (1.5)p (0.2)p (1.7)p (3.0)p 11.3p 8.3p Return per C share - basic 7 (2.3)p 0.6p (1.7)p The total column of this statement represents the Company's Income Statement. The supplementary revenue return and capital return columns are both prepared in accordance with the Association of Investment Companies' ("AIC") Statement of Recommended Practice ("SORP"). No operations were acquired or discontinued during the year. All items in the above statements derive from continuing operations. There were no recognised gains or losses other than those passing through the Income Statement. The notes form an integral part of these Accounts. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 29 February 2012 Share Capital Capital Share Premium Special Reserve Reserve Revenue Capital Account Reserve Realised Unrealised Reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Ordinary Share Fund For the year ended 29 February 2012 1 March 2011 47 752 3,729 (26) 446 (112) 4,836 Cancellation of share premium - (747) 747 - - - - Expenses on share issue - (5) (1) - - - (6) Unrealised net increase in value of - - - - 26 - 26 investments Management fee allocated to capital - - - (35) - - (35) Revenue return on ordinary activities - - - - - (71) (71) after tax Dividend paid - - (249) - - - (249) Closing balance 47 - 4,226 (61) 472 (183) 4,501 For the period to 28 February 2011 1 February 2010 - - - - - - - Unrealised net increase in value of - - - - 446 - 446 investments Management fee allocated to capital - - - (26) - - (26) Revenue return on ordinary activities - - - - - (112) (112) after tax Issue of redeemable non-voting shares 50 - - - - - 50 Redemption of redeemable non-voting (50) - - - - - (50) shares Increase in share capital in issue 47 4,740 - - - - 4,787 Expenses on share issues - (259) - - - - (259) Cancellation of share premium - (3,729) 3,729 - - - - 28 February 2011 47 752 3,729 (26) 446 (112) 4,836 Share Capital Capital Share Premium Special Reserve Reserve Revenue Capital Account Reserve Realised Unrealised Reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 C Share Fund For the year ended 29 February 2012 1 March 2011 - - - - - - - Increase in share capital in issue 19 1,912 - - - - 1,931 Cancellation of share premium - (1,802) 1,802 - - - - Expenses on share issue - (110) - - - - (110) Unrealised net increase in value of - - - - 24 - 24 investments Management fee allocated to capital - - - (12) - - (12) Revenue return on ordinary activities - - - - - (45) (45) after tax Closing balance 19 - 1,802 (12) 24 (45) 1,788 Share Capital Capital Share Premium Special Reserve Reserve Revenue Capital Account Reserve Realised Unrealised Reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Total For the year ended 29 February 2012 1 March 2011 47 752 3,729 (26) 446 (112) 4,836 Increase in share capital in issue 19 1,912 - - - - 1,931 Cancellation of share premium - (2,549) 2,549 - - - - Expenses on share issue - (115) (1) - - - (116) Unrealised net increase in value of - - - - 50 - 50 investments Management fee allocated to capital - - - (47) - - (47) Revenue return on ordinary activities - - - - - (116) (116) after tax Dividend paid - - (249) - - - (249) Closing balance 66 - 6,028 (73) 496 (228) 6,289 For the period to 28 February 2011 1 February 2010 - - - - - - - Unrealised net increase in value of - - - - 446 - 446 investments Management fee allocated to capital - - - (26) - - (26) Revenue return on ordinary activities - - - - - (112) (112) after tax Issue of redeemable non-voting shares 50 - - - - - 50 Redemption of redeemable non-voting (50) - - - - - (50) shares Increase in share capital in issue 47 4,740 - - - - 4,787 Expenses on share issues - (259) - - - - (259) Cancellation of share premium - (3,729) 3,729 - - - - 28 February 2011 47 752 3,729 (26) 446 (112) 4,836 The notes form an integral part of these Accounts. BALANCE SHEET as at 29 February 2012 29 February 2012 28 February 2011 Note Â£'000 Â£'000 Ordinary Share Fund Fixed assets Investments designated at fair value through profit or loss 8 4,435 4,488 Current assets Debtors 9 119 214 Cash at bank and on deposit 28 326 147 540 Creditors: amount falling due within one year Creditors 10 (66) (176) (66) (176) Net current assets 81 364 Non-current liabilities IFA trail commission (15) (16) Total net assets 4,501 4,836 Capital and reserves Called-up share capital 11 47 47 Share premium account - 752 Special reserve 4,226 3,729 Capital reserve - realised (61) (26) Capital reserve - unrealised 472 446 Revenue reserve (183) (112) Equity shareholders' funds 4,501 4,836 Net asset value per ordinary share - basic 12 95.0p 102.1p 29 February 2012 Note Â£'000 C Share Fund Fixed assets Investments designated at fair value through profit or loss 8 1,691 Current assets Debtors 9 51 Cash at bank and on deposit 104 155 Creditors: amount falling due within one year Creditors 10 (48) (48) Net current assets 107 Non-current liabilities IFA trail commission (10) Total net assets 1,788 Capital and reserves Called-up share capital 11 19 Share premium account - Special reserve 1,802 Capital reserve - realised (12) Capital reserve - unrealised 24 Revenue reserve (45) Equity shareholders' funds 1,788 Net asset value per C share - basic 12 92.6p 29 February 2012 28 February 2011 Note Â£'000 Â£'000 Total Fixed assets Investments designated at fair value through profit or loss 8 6,126 4,488 Current assets Debtors 9 170 214 Cash at bank and on deposit 132 326 302 540 Creditors: amounts falling due within one year Creditors 10 (114) (176) (114) (176) Net current assets 188 364 Non-current liabilities IFA trail commission (25) (16) Total net assets 6,289 4,836 Capital and reserves Called-up share capital 66 47 Share premium account - 752 Special reserve 6,028 3,729 Capital reserve - realised (73) (26) Capital reserve - unrealised 496 446 Revenue reserve (228) (112) Equity shareholders' funds 6,289 4,836 Net asset value per ordinary share - basic 12 95.0p 102.1p Net asset value per C share - basic 12 92.6p The notes form an integral part of these Accounts. These Accounts were approved by the Board of Directors and were authorised for issue on 1 June 2012 and were signed on its behalf by: Michael O'Higgins Chairman Registered No. 07142153 England & Wales CASH FLOW STATEMENT for the year ended 29 February 2012 Year Ended Period Ended 29 February 28 February 2012 2011 Note Â£'000 Â£'000 Ordinary Share Fund Operating activities Investment income received 24 7 Deposit interest received 2 6 Investment management fees (46) (24) Other cash payments (104) (169) Cash expended from operations 13 (124) (180) Cash flow from investing activities Purchase of investments (755) (4,042) Sale of investments 855 - Net cash flow from investing 80 (4,042) activities Net cash flow before financing (44) (4,222) Cash flow from financing activities Redeemable non-voting shares issued - 50 Redemption of redeemable non-voting - (50) shares Shares issued - 4,787 Expenses on share issues (5) (239) Net cash flow from financing (5) 4,548 activities Equity dividend paid (249) - (Decrease)/increase in cash at bank and on deposit (298) 326 Year Ended 29 February 2012 Note Â£'000 C Share Fund Operating activities Investment income received 4 Investment management fees (12) Other cash payments (79) Cash expended from operations 13 (87) Cash flow from investing activities Purchase of investments (2,594) Sale of investments 928 Net cash flow from investing (1,666) activities Net cash flow before financing (1,753) Cash flow from financing activities Shares issued 1,931 Expenses on share issues (74) Net cash flow from financing 1,857 activities Increase in cash at bank and on 104 deposit Year Ended Period Ended 29 February 28 February 2012 2011 Note Â£'000 Â£'000 Total Operating activities Investment income received 28 7 Deposit interest received 2 6 Investment management fees (58) (24) Other cash payments (183) (169) Cash expended from operations 13 (211) (180) Cash flow from investing activities Purchase of investments (3,369) (4,042) Sale of investments 1,783 - Net cash outflow from investing (1,586) (4,042) activities Net cash outflow before financing (1,797) (4,222) Cash flow from financing activities Redeemable non-voting shares issued - 50 Redemption of redeemable non-voting - (50) shares Shares issued 1,931 4,787 Expenses on share issues (79) (239) Net cash inflow from financing 1,852 4,548 activities Equity dividend paid (249) - (Decrease)/increase in cash at bank and on deposit (194) 326 The notes form an integral part of these Accounts. NOTES TO THE ACCOUNTS 1. Accounting Policies Basis of accounting These Accounts cover the 12 month period 1 March 2011 to 29 February 2012, and have been prepared under the historical cost convention, except for the valuation of financial assets at fair value through profit or loss, in accordance with UK Generally Accepted Accounting Practice ("UK GAAP"). In determining the analysis of total income and expenses as between capital return and revenue return, the Directors have followed the guidance contained in the AIC SORP, as revised in 2009, and on the assumption that the Company maintains VCT status. The Company has not prepared consolidated accounts and has accounted for its subsidiary, Investec SPV, as an investment on the grounds that its results are immaterial to the Company and control is intended to be temporary because the subsidiary has been acquired and held exclusively with a view to its subsequent disposal in the near future. The Company's Accounts are presented in Sterling. Investments at fair value through profit or loss The Company aims to invest in portfolios of Structured Products and Venture Capital Investments that will provide sufficient total returns to allow the Company to pay annual dividends and provide long-term capital returns for investors. As a result, all investments held by the Company are designated, upon initial recognition, as held at fair value through profit or loss, in accordance with Financial Reporting Standard 26 Financial Instruments: Recognition and Measurement'. The Company manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy, and information about the portfolio is provided internally on this basis to the Board. Fair value is the amount for which an asset can be exchanged between knowledgeable, willing parties in an arm's length transaction. Investments held at fair value through profit or loss are initially recognised at cost, being the consideration given and excluding transaction or other dealing costs associated with the investment, which are expensed and included in the capital column of the Income Statement. Subsequently, investments are measured at fair value, with gains and losses on investments recognised in the Income Statement and allocated to capital. All purchases and sales of investments are accounted for on trade date basis. For investments actively traded in organised financial markets, fair value is generally determined by reference to quoted market bid, or last, prices, depending on the convention of the exchange on which the investment is quoted, at the close of business on the Balance Sheet date. Structured Products are valued by reference to the FTSE 100 Index, with mid prices for the Structured Products provided by the product issuers. An adjustment is made to these prices to take into account any bid/offer spreads prevalent in the market at each valuation date. These spreads are either determined by the issuer or recommended by the Structured Products Manager, Investec Structured Products (a trading name of Investec Bank plc). Returns are linked to the FTSE 100 Index by way of a fixed return that is payable as long as the Final Index Level is no lower than the Initial Index Level (Final Index Level and Initial Index Level being the closing (or average closing) level of the FTSE 100 Index at the end of the relevant Index Calculation Period (being the relevant period over which the Initial and Final Index Levels are determined in accordance with the terms of the Structured Product) for a Structured Product). All of the investments in Structured Products in respect of the Ordinary Share Fund and C Share Fund (to the extent that the latter invests in FTSE 100 linked Structured Products) will either be capital protected or capital at risk on a one-to-one basis where the FTSE 100 Index falls by more than 50 per cent. and the Final Index Level is below the Initial Index Level. If the FTSE 100 Index does fall by more than 50 per cent. at any time during the investment period and fails to recover at maturity, the capital will be at risk on a maximum one-to-one basis (i.e. if the FTSE 100 Index falls by more than 50 per cent. during the investment period and on maturity is down 25 per cent., capital within that Structured Product will be reduced by 25 per cent.). The majority of the Structured Products are designed to produce capital appreciation. Unquoted investments are valued using an appropriate valuation technique so as to establish what the transaction price would have been at the Balance Sheet date. Such investments are valued in accordance with the International Private Equity and Venture Capital Association ("IPEVCA") guidelines. Primary indicators of fair value are derived from earnings multiples, recent arm's length market transactions, net assets or, where appropriate, at cost for recent investments or the discounted cash flow valuation as at the previous reporting date. Income Dividends receivable on equity shares are recognised as revenue on the date on which the shares or units are marked as ex-dividend. Where no ex-dividend date is available, the revenue is recognised when the Company's right to receive it has been established. Interest receivable from fixed income securities is recognised using the effective interest rate method. Interest receivable on bank deposits is included in the Accounts on an accruals basis. The gains and losses arising on investments in Structured Products are allocated between revenue and capital according to the nature of each Structured Product. This is dependent on the extent to which the return on the Structured Product is capital or revenue based. Other revenue is credited to the revenue column of the Income Statement when the Company's right to receive the revenue has been established. Expenses All expenses are accounted for on an accruals basis. Expenses are charged to the Income Statement as follows: - expenses, except as stated below, are charged to the revenue column of the Income Statement; - expenses incurred on the acquisition or disposal of an investment are taken to the capital column of the Income Statement; - expenses are charged to the capital column of the Income Statement where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect management fees have been allocated 75 per cent. to the capital column and 25 per cent. to the revenue column of the Income Statement, being in line with the Board's expected long-term split of returns, in the form of capital gains and revenue respectively, from the investment portfolio of the Company; and - expenses associated with the issue of shares are deducted from the share premium account. Annual IFA trail commission covering a five year period since share allotment has been provided for in the Accounts as, due to the nature of the Company, it is probable that this will be payable. The commission is apportioned between current and non-current liabilities. Expenses incurred by the Company in excess of the agreed cap, currently 3 per cent. of the gross amount raised from the offer for subscription of ordinary shares and C shares respectively for the 2009/2010, 2010/2011 and 2011/2012 tax years (excluding irrecoverable VAT, annual trail commission and performance incentive fees), can be clawed back from Investec Structured Products until the interim return date of the relevant share issue. Any claw back is treated as a credit against the expenses of the Company. Investment management and performance fees Calculus Capital, as Investment Manager of the VCT qualifying portfolio, receives an annual investment management fee of an amount equivalent to 1.0 per cent. of the net assets of the respective share fund. Investec Structured Products, as Investment Manager of the Structured Products portfolio, does not receive any annual management fees from the Company. Investec Structured Products is entitled to an arrangement fee from the providers of Structured Products as detailed in note 16. The Investment Managers will each receive a performance incentive fee payable in cash of an amount equal to 10 per cent. of dividends and distributions paid (including the relevant distribution being offered) to holders of ordinary shares over and above 105 pence per ordinary share (this being a 50 per cent. return on an initial net investment of 70 pence per ordinary share taking into account upfront income tax relief) provided holders of ordinary shares have received or been offered an interim return of at least 70 pence per share for payment on or before 14 December 2015. Such performance incentive fees will be paid within 10 business days of the date of payment of the relevant dividend or distribution. For C shares, Investec Structured Products and Calculus Capital will be entitled to performance incentive fees as set out below: - 10 per cent. of C Shareholder Proceeds in excess of 105p up to and including Proceeds of 115p per C share, such amount to be paid within ten business days of the date of payment of the relevant dividend or distribution pursuant to which a return of 115p per C share is satisfied; and - 10 per cent. of C Shareholder Proceeds in excess of 115p per C share, such amounts to be paid within ten business days of the date of payment of the relevant dividend or distribution. Provided in each case that C shareholders have received or been offered the C Share Interim Return of at least 70p per C share on or before 14 March 2017 and at least a further 45p per C share having being received or offered for payment on or before the 14 March 2019. Capital reserve The capital return component of the return for the year is taken to the non-distributable capital reserves within the Reconciliation of Movements in Shareholders' Funds. Special reserve The special reserve was created by the cancellation of the Ordinary Share Fund's share premium account on 20 October 2010. A further cancellation of the share premium account occurred on 23 November 2011 for both the Ordinary Share Fund and C Share Fund. The special reserve is a distributable reserve created to be used by the Company inter alia to write off losses, fund market purchases of its own ordinary and C shares, make distributions and/or for other corporate purposes. The Company was formerly an investment company under section 833 of the Companies Act 2006. On 18 May 2011 investment company status was revoked by the Company. This was done in order to allow the Company to pay dividends to shareholders using the special reserve. Taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the Balance Sheet date where transactions or events that result in an obligation to pay more tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversals of the underlying timing differences can be deducted. Timing differences are differences between the Company's taxable profits and its results as stated in the Accounts. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the Balance Sheet date. Deferred tax is measured on a non-discounted basis. No taxation liability arises on gains from sales of fixed asset investments by the Company by virtue of its Venture Capital Trust status. However, the net revenue (excluding UK dividend income) accruing to the Company is liable to corporation tax at the prevailing rates. Dividends Dividends to shareholders are accounted for in the period in which they are paid or approved in general meetings. Dividends payable to equity shareholders are recognised in the Reconciliation of Movements in Shareholders' Funds when they are paid, or have been approved by shareholders in the case of a final dividend and become a liability of the Company. 2. Income Year Ended Period Ended 29 February 28 February 2012 2011 Â£'000 Â£'000 Ordinary Share Fund UK unfranked loan stock interest 44 14 Liquidity fund interest 2 - Bank interest 2 6 48 20 Total income comprises: Interest 48 20 48 20 C Share Fund UK unfranked loan stock interest 4 Liquidity fund interest 3 7 Total income comprises: Interest 7 7 Total UK unfranked loan stock interest 48 14 Liquidity fund interest 5 - Bank interest 2 6 55 20 Total income comprises: Interest 55 20 55 20 3. Management Fee Year Ended Period Ended 29 February 2012 28 February 2011 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Ordinary Share Fund Investment management fee 12 35 47 9 26 35 C Share Fund Investment management fee 4 12 16 Total Investment management fee 16 47 63 9 26 35 No performance fee was paid during the year. 4. Other Expenses Year Ended Period Ended 29 February 28 February 2012 2011 Â£'000 Â£'000 Ordinary Share Fund Directors' fees 60 73 Secretarial and accounting fees 57 60 Auditor's remuneration - audit services 17 17 - interim review - 11 - reporting accountant on launch - 8 - reporting accountant on issue of ordinary - 6 shares - tax services 3 4 Other 51 129 Clawback of expenses in excess of 3% cap (81) (185) 107 123 C Share Fund Directors' fees 20 Secretarial and accounting fees 19 Auditor's remuneration - audit services 6 - tax services 1 Other 51 Clawback of expenses in excess of 3% cap (49) 48 Year Ended Period Ended 29 February 28 February 2012 2011 Â£'000 Â£'000 Total Directors' fees 80 73 Secretarial and accounting fees 76 60 Auditor's remuneration - audit services 23 17 - interim review - 11 - reporting accountant on launch - 8 - reporting accountant on issue of ordinary - 6 shares - tax services 4 4 Other 102 129 Clawback of expenses in excess of 3% cap (130) (185) 155 123 Further details of Directors' fees can be found in the Directors' Remuneration Report in the full Annual Report and Accounts. 5. Taxation Year Ended 29 February 2012 Period Ended 28 February 2011 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Ordinary Share Fund (Loss)/profit on ordinary activities before tax (71) (9) (80) (112) 420 308 Theoretical tax at UK Corporation Tax rate of 26.5% (2011: 28%) (19) (2) (21) (31) 118 87 Timing differences: Loss not recognised, carried forward 19 - 19 31 - 31 Effects of non-taxable gains - 2 2 - (118) (118) Tax on (loss)/profit for the period - - - - - - C Share Fund (Loss)/profit on ordinary activities before tax (45) 12 (33) Theoretical tax at UK Corporation Tax rate of 26.5% (12) 3 (9) Timing differences: Loss not recognised, carried forward 12 - 12 Effects of non-taxable gains - (3) (3) Tax on (loss)/profit for the period - - - Total (Loss)/profit on ordinary activities before tax (116) 3 (113) (112) 420 308 Theoretical tax at UK Corporation Tax rate of 26.5% (2011: 28%) (31) 1 (30) (31) 118 87 Timing differences: Loss not recognised, carried forward 31 - 31 31 - 31 Effects of non-taxable gains - (1) (1) - (118) (118) Tax on (loss)/profit for the period - - - - - - At 31 December 2011, the Ordinary Share Fund and C Share Fund had Â£241,103 (28 February 2011: Â£136,328) and Â£57,680 respectively (Company: Â£298,783 (28 February 2011: Â£136,328)) of excess management expenses to carry forward against future taxable profits. The deferred tax asset of Â£59,070 (28 February 2011: Â£35,786) and Â£14,132 for the Ordinary Share Fund and C Share Fund respectively (Company: Â£73,202 (28 February 2011: Â£35,786)) has not been recognised due to the fact that it is unlikely the excess management expenses will be set off in the foreseeable future. 6. Dividends Year Ended Period Ended 29 February 28 February 2012 2011 Â£'000 Â£'000 Ordinary Share Fund Declared and paid: 5.25p per ordinary share in respect of the period ended 28 February 2011 (2011: nil) 249 - Proposed final dividend: 5.25p per ordinary share in respect of the year ended 29 February 2012 249 249 C Share Fund Proposed final dividend: 4.5p per C share in respect of the year ended 29 February 2012 87 The proposed dividends are subject to approval by shareholders at the forthcoming Annual General Meeting and have not been included as a liability in these Accounts. 7. Return per Share Year Ended Period Ended 29 February 2012 28 February 2011 Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence Return per ordinary share (1.5) (0.2) (1.7) (3.0) 11.3 8.3 Return per C (2.3) 0.6 (1.7) share Ordinary Share Fund Revenue return per ordinary share is based on the net revenue loss on ordinary activities after taxation of Â£71,000 (28 February 2011: Â£112,000) and on 4,738,463 ordinary shares (28 February 2011: 3,721,530), being the weighted average number of ordinary shares in issue during the year. Capital return per ordinary share is based on the net capital loss for the year of Â£9,000 (28 February 2011: gain of Â£420,000) and on 4,738,463 ordinary shares (28 February 2011: 3,721,530), being the weighted average number of ordinary shares in issue during the year. Total return per ordinary share is based on the total loss on ordinary activities after taxation of Â£80,000 (28 February 2011: gain of Â£308,000) and on 4,738,463 ordinary shares (28 February 2011: 3,721,530), being the weighted average number of ordinary shares in issue during the year. C Share Fund Revenue return per C share is based on the net revenue loss on ordinary activities after taxation of Â£45,000 and on 1,919,142 C shares, being the weighted average number of C shares in issue since their first allotment during the year. Capital return per C share is based on the net capital gain for the year of Â£12,000 and on 1,919,142 C shares, being the weighted average number of C shares in issue since their first allotment during the year. Total return per C share is based on the total loss for the year of Â£33,000 and on 1,919,142 C shares, being the weighted average number of C shares in issue since their first allotment during the year. 8. Investments Year Ended 29 February 2012 Structured Product Unquoted Other Investments Investments Investments Total Â£'000 Â£'000 Â£'000 Â£'000 Ordinary Share Fund Opening bookcost 2,443 549 1,050 4,042 Opening unrealised appreciation 439 7 - 446 Opening valuation 2,882 556 1,050 4,488 Movements in year: Purchases at cost 100 675 1 776 Sales proceeds - - (855) (855) Increase/(decrease) in unrealised appreciation 174 (148) - 26 Movements in year 274 527 (854) (53) Closing valuation 3,156 1,083 196 4,435 Closing bookcost 2,543 1,224 196 3,963 Closing unrealised appreciation/(depreciation) 613 (141) - 472 3,156 1,083 196 4,435 Unquoted investments include unquoted shares valued at Â£nil in the Company's subsidiary, Investec SPV. These shares cost Â£1,834, resulting in an unrealised loss of Â£1,834. C Share Fund Movements in year: Purchases at cost 850 244 1,501 2,595 Sales proceeds - - (928) (928) Increase/(decrease) in unrealised appreciation 85 (61) - 24 Closing valuation 935 183 573 1,691 Closing bookcost 850 244 573 1,667 Closing unrealised appreciation/(depreciation) 85 (61) - 24 935 183 573 1,691 Unquoted investments include unquoted shares valued at Â£nil in the Company's subsidiary, Invested SPV. The shares cost Â£917, resulting in an unrealised loss of Â£917. Year Ended 29 February 2012 Structured Product Unquoted Other Investments Investments Investments Total Â£'000 Â£'000 Â£'000 Â£'000 Total Opening bookcost 2,443 549 1,050 4,042 Opening unrealised 439 7 - 446 appreciation Opening valuation 2,882 556 1,050 4,488 Movements in year: Purchases at cost 950 919 1,502 3,371 Sales proceeds - - (1,783) (1,783) Increase/(decrease) in unrealised appreciation 259 (209) - 50 Movements in year 1,209 710 (281) 1,638 Closing valuation 4,091 1,266 769 6,126 Closing bookcost 3,393 1,468 769 5,630 Closing unrealised appreciation/(depreciation) 698 (202) - 496 4,091 1,266 769 6,126 Note 15 provides a detailed analysis of investments held at fair value through profit and loss in accordance with Financial Reporting Standard 29 'Financial Instruments: Disclosures'. During the year the Company incurred no transaction costs on purchases in respect of ordinary shareholder activities or C shareholder activities. Investec SPV was incorporated on 29 November 2011. As at 29 February 2012, Investec SPV had share capital of Â£2,751 and deficit and net loss of Â£2,751 (note: this essentially values Investec SPV at Â£nil). 9. Debtors Year Ended Period Ended 29 February 28 February 2012 2011 Â£'000 Â£'000 Ordinary Share Fund Prepayments and accrued income 38 29 Clawback of expenses in excess of 3% cap 81 185 119 214 C Share Fund Prepayments and accrued income 2 Clawback of expenses in excess of 3% cap 49 51 Total Prepayments and accrued income 40 29 Clawback of expenses in excess of 3% cap 130 185 170 214 10. Creditors Year Ended Period Ended 29 February 28 February 2012 2011 Â£'000 Â£'000 Ordinary Share Fund IFA trail commission 5 4 Management fees 11 10 Audit fees 14 17 Directors' fees 9 13 Administration fees 5 10 Other creditors 22 122 66 176 C Share Fund IFA trail commission 2 Management fees 4 Audit fees 6 Directors' fees 4 Administration fees 2 Other creditors 30 48 Total IFA trail commission 7 4 Management fees 15 10 Audit fees 20 17 Directors' fees 13 13 Administration fees 7 10 Other creditors 52 122 114 176 11. Share Capital 29 February 2012 28 February 2011 Number Â£'000 Number Â£'000 Ordinary Share Fund 1 March 2011 4,738,463 47 20 - Shares issued in year - - 4,738,443 47 4,738,463 47 4,738,463 47 C Share Fund 1 March 2011 - - Shares issued in year 1,931,095 19 1,931,095 19 An offer for subscription for C shares of 1p each was launched in January 2011 and the shares were issued in April and May 2011. Under the Articles of Association, a resolution for the continuation of the Company as a Venture Capital Trust will be proposed at the Annual General Meeting falling after the tenth anniversary of the last allotment (from time to time) of shares in the Company and thereafter at five-yearly intervals. 12. Net Asset Value per Share 29 February 28 February 2012 2011 Ordinary Share Fund Net asset value per ordinary share 95.0p 102.1p The basic net asset value per ordinary share is based on net assets (including current period revenue) of Â£4,501,000 (28 February 2011: Â£4,836,000) and on 4,738,463 ordinary shares (28 February 2011: 4,738,463), being the number of ordinary shares in issue at the end of the year. C Share Fund Net asset value per C share 92.6p The basic net asset value per C share is based on net assets (including current period revenue) of Â£1,788,000 and on 1,931,095 C shares, being the number of C shares in issue at the end of the year. 13. Reconciliation of Net Profit before Tax to Cash Expended from Operating Activities Year Ended Period Ended 29 February 28 February 2012 2011 Â£'000 Â£'000 Ordinary Share Fund (Loss)/gain on ordinary activities before (80) 308 taxation Gains on investments (26) (446) Income reinvested (1) - Decrease/(increase) in debtors 95 (214) (Decrease)/increase in creditors (112) 172 Cash expended from operating activities (124) (180) The movement in creditors shown above does not agree with the movement shown in the Balance Sheet principally because of the effect of the short-term liability for trail commission of Â£5,000 (2011: Â£4,000) included in creditors at the year end, which is not part of operating activities. C Share Fund Loss on ordinary activities before taxation (33) Gains on investments (24) Income reinvested (1) Increase in debtors (51) Increase in creditors 22 Cash expended from operating activities (87) The movement in creditors shown above does not agree with the movement shown in the Balance Sheet principally because of the effect of the short-term liability for trail commission of Â£2,000 included in creditors at the year end and the short-term liability for share issue expenses of Â£23,000 which are not part of operating activities. Year Ended Period Ended 29 February 28 February 2012 2011 Â£'000 Â£'000 Total (Loss)/gain on ordinary activities before (113) 308 taxation Gains on investments (50) (446) Income reinvested (2) - Decrease/(increase) in debtors 44 (214) (Decrease)/increase in creditors (90) 172 Cash expended from operating activities (211) (180) The movement in creditors shown above does not agree with the movement shown in the Balance Sheet principally because of the effect of the short-term liability for trail commission of Â£7,000 (2011: Â£4,000) included in creditors at the year end and the short-term liability for share issue expenses of Â£23,000 which are not part of operating activities. 14. Financial Commitments At 29 February 2012 the Company did not have any financial commitments which had not been accrued for. 15. Financial Instruments The Company's objective is to produce ongoing capital gains and income that will provide investment returns sufficient to maximise annual dividends and to fund a special dividend or cash offer in year 6 sufficient to bring distributions per share to 70p. In order to qualify as a VCT, at least 70 per cent. of the Company's investments must be invested in Venture Capital Investments within approximately three years of the relevant funds being raised. Thus, there will be a phased reduction in the Structured Products portfolio and corresponding build up in the portfolio of Venture Capital Investments to achieve and maintain this 70 per cent. threshold along the following lines: Average Exposure per Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6+ Structured Products and cash/near cash assets 85% 75% 35% 25% 25% 0% Venture Capital Investments 15% 25% 65% 75% 75% 100% As at 29 February 2012, the Company's investment portfolio comprised 67 per cent. Structured Products and 21 per cent. Qualifying Investments, by market value. This is split 71 per cent. and 24 per cent. for the ordinary share portfolio and 55 per cent. and 11 per cent. for the C share portfolio. The Company's financial instruments comprise securities and cash and liquid resources that arise directly from the Company's operations. The principal risks the Company faces in its portfolio management activities are: - Market price risk - Credit risk - Liquidity risk The Company does not have exposure to foreign currency risk. With many years experience of managing the risks involved in investing in Structured Products and Venture Capital Investments respectively, both the Investec Structured Products team and the Calculus Capital team, together with the Board, have designed the Company's structure and its investment strategy to reduce risk as much as possible. The policies for managing these risks are summarised below and have been applied throughout the period under review. a) Market price risk Structured Products The return and valuation of the Company's investments in Structured Products is currently linked to the FTSE 100 Index by way of a fixed return that is payable as long as the Final Index Level is no lower than the Initial Index Level. All of the current investments in Structured Products will either be capital protected or capital at risk on a one-to-one basis where the FTSE 100 Index falls by more than 50 per cent. and the Final Index Level is below the Initial Index Level. If the FTSE 100 Index does fall by more than 50 per cent. at any time during the investment period and fails to recover at maturity, the capital will be at risk on a maximum one-to-one basis (Capital at Risk ("CAR")) (e.g if the FTSE 100 Index falls by more than 50 per cent. during the investment period and on maturity is down 25 per cent., capital within that Structured Product will be reduced by 25 per cent.). The tables in the Investment Manager's Review (Structured Products) above provides details of the Initial Index Level at the date of investment and the maturity date for each of the Structured Products. As at 29 February 2012, the FTSE 100 Index closed at 5,871.5. As at 30 May 2012 being the last practicable date prior to the publication of these Accounts, the Index had decreased 9.8 per cent. to close at 5,297.3. The Final Index Level is calculated using 'averaging', meaning that the average is taken of the closing levels of the FTSE 100 on each Business day over the last two to six months of the Structured Product plan term (the length of the averaging period differs for each plan). The Investment Manager of the Structured Products portfolio and the Board review this risk on a regular basis and the use of averaging to calculate the return can reduce adverse effects of a falling market or sudden market falls shortly before maturity. Equally, it can reduce the benefits of an increasing market or sudden market rises shortly before maturity. As at 29 February 2012, the Company's investments in Structured Products were valued at Â£4,091,000 (Ordinary Share Fund: Â£3,156,000; C Share Fund: Â£935,000). A 10 per cent. increase in the level of the FTSE 100 Index at 29 February 2012, given that all other variables remained constant, would have increased net assets by Â£234,000 (Ordinary Share Fund: Â£168,000; C Share Fund: Â£66,000). A 10 per cent. decrease would have reduced net assets by Â£358,000 (Ordinary Share Fund: Â£247,000; C Share Fund: Â£111,000). A 10 per cent. increase would increase the investment management fee due to Calculus Capital by Â£2,343 (Ordinary Share Fund: Â£1,676; C Share Fund: Â£667); a 10 per cent. decrease would reduce the fee by Â£3,580 (Ordinary Share Fund: Â£2,475; C Share Fund: Â£1,105). In recent years, the performance of the FTSE 100 Index has been volatile and the Directors consider that an increase or decrease in the aggregate value of investments by 10 per cent. or more is reasonably possible. Qualifying Investments Market risk embodies the potential for losses and includes interest rate risk and price risk. The management of market price risk is part of the investment management process. The portfolio is managed in accordance with policies in place as described in more detail in the Chairman's Statement and Investment Manager's Review (Qualifying Investments). The Company's strategy on the management of investment risk is driven by the Company's investment objective as outlined above. Investments in unquoted companies, AIM-traded and PLUS Markets-traded companies, by their nature, involve a higher degree of risk than investments in the main market. Some of that risk can be mitigated by diversifying the portfolio across business sectors and asset classes. Interest is earned on cash balances and money market funds and is linked to the banks' variable deposit rates. The Board does not consider interest rate risk to be material. Interest rates do not materially impact upon the value of the Qualifying Investments. The main risk arising on the loan stock instruments is credit risk. The Company does not have any interest bearing liabilities. As required by Financial Reporting Standard 29 'Financial Instruments: Disclosures' (the "Standard") an analysis of financial assets and liabilities, which identifies the risk of the Company's holding of such items, is provided. The Company's financial assets comprise equity, loan stock, cash and debtors. The interest rate profile of the Company's financial assets is given in the table below: As at 29 February 2012 As at 28 February 2011 Fair Value Cash Flow Fair Value Cash Flow Interest Interest Interest Interest Rate Rate Rate Rate Risk Risk Risk Risk Â£'000 Â£'000 Â£'000 Â£'000 Ordinary Share Fund Loan stock 700 - 450 - Money market funds - 196 - 1,050 Cash - 28 - 326 700 224 450 1,376 C Share Fund Loan stock 95 - Money market funds - 573 Cash - 104 95 677 Total Loan stock 795 - 450 - Money market funds - 769 - 1,050 Cash - 132 - 326 795 901 450 1,376 The variable rate is based on the banks' deposit rate, and applies to cash balances held and the money market funds. The benchmark rate which determines the interest payments received on interest bearing cash balances is the Bank of England base rate, which was 0.5 per cent. as at 29 February 2012. Any movement in interest rates is deemed to have an insignificant effect on the Structured Products. b) Credit risk Structured Products The failure of a counterparty to discharge its obligations under a transaction could result in the Company suffering a loss. In its role as the Investment Manager of the Structured Products portfolio and to diversify counterparty risk, Investec Structured Products will only invest in Structured Products issued by approved issuers. In addition, the maximum exposure to any one counterparty (or underlying counterparty) will be limited to 15 per cent. of the assets of the Company at the time of investment. Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amount of financial assets best represents the maximum credit risk exposure at the Balance Sheet date. Qualifying Investments Where an investment is made in loan stock issued by an unquoted company, it is made as part of an overall equity and debt package. The recoverability of the debt is assessed as part of the overall investment process and is then monitored on an ongoing basis by the Investment Manager who reports to the Board on any recoverability issues. Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk. All the assets of the Company which are traded on AIM or PLUS Markets are held by Investec Wealth & Investments, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed or limited. The Board and the Investment Manager monitor the Company's risk by reviewing the custodian's internal control reports. As at 29 February 2012, the Company's credit risk exposure, by credit rating of the Structured Product issuer, was as follows: 29 February 2012 28 February 2011 Credit Risk Rating (Moody's unless otherwise % of % of indicated) Â£'000 Portfolio Â£'000 Portfolio Ordinary Share Fund A1 518 11.7% - - A2 978 22.1% 577 12.9% Aa2 611 13.8% 580 13.0% Aa3 - - 738 16.5% A - (Standard & Poor's) 437 9.9% 405 9.0% Baa3 612 13.8% 582 13.0% 3,156 71.3% 2,882 64.4% Credit Risk Rating 29 February 2012 (Moody's unless otherwise % of indicated) Â£'000 Portfolio C Share Fund A1 207 12.2% A2 213 12.6% Aa2 - - Aa3 - - A - (Standard & Poor's) - - Baa3 515 30.5% 935 55.3% 29 February 2012 28 February 2011 Credit Risk Rating (Moody's unless otherwise % of % of indicated) Â£'000 Portfolio Â£'000 Portfolio Total A1 725 11.8% - - A2 1,191 19.4% 577 12.9% Aa2 611 10.0% 580 13.0% Aa3 - - 738 16.5% A - (Standard & Poor's) 437 7.1% 405 9.0% Baa3 1,127 18.4% 582 13.0% 4,091 66.7% 2,882 64.4% c) Liquidity Risk The Company's liquidity risk is managed on an ongoing basis by the Investment Managers. The Company's overall liquidity risks are monitored on a quarterly basis by the Board. The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses as they fall due. Structured Products If Structured Products are redeemed before the end of the term, the Company may get back less than the amount originally invested. The value of the Structured Products will be determined by the price at which the investments can actually be sold on the relevant dealing date. The Board does not consider this risk to be significant as the planned investment periods in Structured Products will range from six months to five and a half years and there is a planned transition from Structured Products to Qualifying Investments as detailed earlier in this note. There may not be a liquid market in the Structured Products and there may never be two competitive market makers, making it difficult for the Company to realise its investment. Risk is increased further where there is a single market maker who is also the issuer. The Board has sought to mitigate this risk by only investing in approved issuers of Structured Products, and by limiting exposure to any one issuer (or underlying issuer). Qualifying Investments The Company's financial instruments include investments in unlisted equity investments which are not traded in an organised public market and which may be illiquid. As a result, the Company may not be able to realise quickly some of its investments at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. The Board seeks to ensure that an appropriate proportion of the Company's investment portfolio is invested in cash and readily realisable assets, which are sufficient to meet any funding commitments that may arise. Under its Articles of Association, the Company has the ability to borrow a maximum amount equal to 25 per cent. of its gross assets. As at 29 February 2012 the Company had no borrowings. d) Capital management The capital structure of the Company consists of cash held and shareholders' equity. Capital is managed to ensure the Company has adequate resources to continue as a going concern, and to maximise the income and capital return to its shareholders, while maintaining a capital base to allow the Company to operate effectively in the market place and sustain future development of the business. To this end the Company may use gearing to achieve its objectives. The Company's assets and borrowing levels are reviewed regularly by the Board. e) Fair value hierarchy Investments held at fair value through profit and loss are valued in accordance with IPEVCA guidelines. The valuation method used will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCA guidelines. As required by the Standard, an analysis of financial assets and liabilities, which identifies the risk of the Company's holding of such items, is provided. The Standard requires an analysis of investments carried at fair value based on the reliability and significance of the information used to measure their fair value. In order to provide further information on the valuation techniques used to measure assets carried at fair value, we have categorised the measurement basis into a "fair value hierarchy" as follows: - Quoted market prices in active markets - "Level 1" Inputs to Level 1 fair values are quoted prices in active markets for identical assets. An active market is one in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The Company's investments in money market funds are recognised within this category. - Valued using models with significant observable market parameters - "Level 2" Inputs to Level 2 fair values are inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly. The Company's investments in Structured Products are classified within this category. - Valued using models with significant unobservable market parameters - "Level 3" Inputs to Level 3 fair values are unobservable inputs for the asset. Unobservable inputs may have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date (or market information for the inputs to any valuation models). As such, unobservable inputs reflect the assumptions the Company considers that market participants would use in pricing the asset. The Company's unquoted equities and loan stock are classified within this category. As explained in note 1, unquoted investments are valued in accordance with the IPEVCA guidelines. The table below shows movements in the assets measured at fair value based on Level 3 valuation techniques for which any significant input is not based on observable market data. During the year there were no transfers between Levels 1, 2 or 3. Ordinary Share Fund Financial Assets at Fair Value through Profit or Loss At 29 February 2012 Level 1 Level 2 Level 3 Total Â£'000 Â£'000 Â£'000 Â£'000 Structured Products - 3,156 - 3,156 Unquoted equity - - 383 383 Money market funds 196 - - 196 Loan stock - - 700 700 196 3,156 1,083 4,435 Financial Assets at Fair Value through Profit or Loss At 28 February 2011 Level 1 Level 2 Level 3 Total Â£'000 Â£'000 Â£'000 Â£'000 Structured Products - 2,882 - 2,882 Unquoted equity - - 106 106 Money market funds 1,050 - - 1,050 Loan stock - - 450 450 1,050 2,882 556 4,488 C Share Fund Financial Assets at Fair Value through Profit or Loss At 29 February 2012 Level 1 Level 2 Level 3 Total Â£'000 Â£'000 Â£'000 Â£'000 Structured Products - 935 - 935 Unquoted equity - - 88 88 Money market funds 573 - - 573 Loan stock - - 95 95 573 935 183 1,691 Total Financial Assets at Fair Value through Profit or Loss At 29 February 2012 Level 1 Level 2 Level 3 Total Â£'000 Â£'000 Â£'000 Â£'000 Structured Products - 4,091 - 4,091 Unquoted equity - - 471 471 Money market funds 769 - - 769 Loan stock - - 795 795 769 4,091 1,266 6,126 Financial Assets at Fair Value through Profit or Loss At 28 February 2011 Level 1 Level 2 Level 3 Total Â£'000 Â£'000 Â£'000 Â£'000 Structured Products - 2,882 - 2,882 Unquoted equity - - 106 106 Money market funds 1,050 - - 1,050 Loan stock - - 450 450 1,050 2,882 556 4,488 The Standard requires disclosure, by class of financial instruments, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of the investee company. The portfolio has been reviewed and both downside and upside reasonable possible alternative assumptions have been identified and applied to the valuation of the unquoted investments. Applying the downside alternatives, the value of the unquoted investment portfolio for the Ordinary Share Fund would be Â£21,601 or 2.0 per cent. lower, for the C Share Fund would be Â£6,211 or 3.4 per cent. lower, and in total it would be Â£27,812 or 2.2 per cent. lower (2011: Â£8,928 or 1.6 per cent. lower). Using the upside alternatives, the value of the unquoted investment portfolio for the Ordinary Share Fund would be increased by Â£19,581 or 1.81 per cent., for the C Share Fund it would be increased by Â£6,900 or 3.78 per cent., and in total it would be increased by Â£26,481 or 21 per cent. (2011: Â£8,482 or 1.5 per cent.). 16. Related Party Transactions Investec Structured Products is a related party in respect of its appointment as an Investment Manager to the Company and is entitled to a performance incentive fee. Investec Structured Products will receive an arrangement fee of 0.75 per cent. of the amount invested in each Structured Product. This arrangement fee shall be paid to Investec Structured Products by the issuer of the relevant Structured Product. No arrangement fee will be paid to Investec Structured Products in respect of any decision to invest in Investec-issued Structured Products. Investec Structured Products has agreed not to earn an annual management fee from the Company. As at 29 February 2012, Â£22,000 was payable by the C Share Fund (2011: Â£81,000 by the Ordinary Share Fund) to Investec Structured Products in relation to the initial fee of 5 per cent. of the gross funds raised pursuant to the original ordinary share offer. In addition, Â£130,000 (2011: Â£185,000) was owed by Investec Structured Products as claw back of costs in excess of the agreed expenses cap of 3 per cent. (Â£81,000 to the Ordinary Share Fund and Â£49,000 to the C Share Fund). Calculus Capital is regarded as a related party in respect of its appointment as an Investment Manager to the Company. For the year ended 29 February 2012, fees of Â£63,000 (2011: Â£35,000) were payable to Calculus Capital (Â£47,000 payable by the Ordinary Share Fund and Â£16,000 by the C Share Fund), of which Â£15,000 (2011: Â£10,000) were outstanding (Â£11,000 by the Ordinary Share Fund and Â£4,000 by the C Share Fund) as at 29 February 2012. Calculus Capital is also entitled to a performance incentive fee. No incentive fee accrued to either Investment Manager during the year (2011: Â£nil). John Glencross is considered to be a related party due to his position as Chief Executive and a director of Calculus Capital, one of the Company's Investment Managers. He does not receive any remuneration from the Company. He is a director of Terrain Energy Limited, Lime Technology Limited and Participate Sport Limited, companies in which the Company has invested. In the year ended 29 February 2012, Calculus Capital received an arrangement fee of Â£4,200 (2011: Â£7,500) as a result of the Company's investment in Terrain Energy Limited. Calculus Capital also receives an annual fee from Terrain Energy Limited for the provision of John Glencross as a director, as well as an annual monitoring fee which also covers the provision of certain administrative support services. In the year ended 29 February 2012, the amount paid to Calculus Capital which was attributable to the investment made by the Company was Â£3,542 (2011: Â£2,713) (excluding VAT). In the year ended 29 February 2012, Calculus Capital received no arrangement fee (2011: Â£8,233) as a result of the Company's investment in Lime Technology Limited. Calculus Capital receives an annual fee from Lime Technology Limited for the provision of John Glencross as a director, as well as an annual monitoring fee. In the year ended 29 February 2012, the amount paid to Calculus Capital which was attributable to the investment made by the Company was Â£3,865 (2011: Â£1,626) (excluding VAT). In the year ended 29 February 2012, Calculus Capital received an arrangement fee of Â£5,629 (2011: Â£nil) as a result of the Company's investment in Heritage House Media. In the year ended 29 February 2012, Calculus Capital received an arrangement fee of Â£9,000 (2011: Â£nil) as a result of the Company's investment in MicroEnergy Generation Services Limited. Calculus Capital also receives an annual monitoring fee from MicroEnergy Generation Services Limited, which also covers the provision of certain administrative support services. In the year ended 29 February 2012, the amount paid to Calculus Capital which was attributable to the investment made by the Company was Â£2,833 (2011: Â£nil) (excluding VAT). In the year ended 29 February 2012, Calculus Capital received an arrangement fee of Â£8,400 (2011: Â£nil) as a result of the Company's investment in Viscount Safe Custody Services Limited. Calculus Capital also receives an annual fee from Viscount Safe Custody Services Limited for the provision of a Calculus Capital employee as a director, as well as an annual monitoring fee. In the year ended 29 February 2012, the amount paid to Calculus Capital which was attributable to the investment made by the Company was Â£220 (2011: Â£nil) (excluding VAT). Kate Cornish-Bowden subscribed for Â£10,000 of C shares under the offer for subscription. 10,000 C shares were allotted to Ms Cornish-Bowden on 4 May 2011 at a price of 100p per C share. ANNUAL GENERAL MEETING AND SEPARATE CLASS MEETINGS The Company's Annual General Meeting will be held at the offices of Investec Structured Products, 2 Gresham Street, London EC2V 7QP at 11.00 am on Tuesday, 17 July 2012. It will be followed by separate class meetings of the holders of ordinary shares and C shares. For further information, please contact: Investment Manager to the Structured Products Portfolio Investec Structured Products Gary Dale Telephone: 020 7597 4065 Investment Manager to the Venture Capital Portfolio Calculus Capital Limited Susan McDonald Telephone: 020 7493 4940 NATIONAL STORAGE MECHANISM A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.hemscott.com/nsm.do. ENDS Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

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