Half-yearly Report

THE DIVERSE INCOME TRUST PLC HALF-YEARLY FINANCIAL REPORT FOR THE PERIOD ENDED 30 NOVEMBER 2011 The Directors present the Half-Yearly Financial Report of the Company for the period from incorporation on 30 March 2011 to 30 November 2011. INVESTMENT OBJECTIVE AND POLICY Investment Objective The Company's investment objective is to provide shareholders with an attractive level of dividends coupled with capital growth over the long term. Investment Policy The Company will invest primarily in quoted or traded UK companies with a wide range of market capitalisations but a long-term bias towards small and mid cap equities. The Company may also invest in large cap companies, including FTSE 100 constituents, where it is believed that this may increase shareholder value. The Manager will adopt a stock specific approach in managing the Company's portfolio and therefore sector weightings will be of secondary consideration. As a result of this approach, the Company's portfolio will not track any benchmark index. The Company may utilise derivative instruments including index-linked notes, contracts for differences, covered options and other equity-related derivative instruments for efficient portfolio management, gearing and investment purposes. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments, as described below. The Company will not enter into uncovered short positions. Risk diversification Portfolio risk will be mitigated by investing in a diversified spread of investments. In compliance with section 1158 of the Corporation Tax Act 2010, investments in any one company, other than holdings in another investment company, shall not, at the time of acquisition, exceed 15% of the value of the Company's investment portfolio. Typically it is expected that the Company will hold a portfolio of between 80 and 120 securities, most of which will represent no more than 1.5% of the value of the Company's investment portfolio as at the time of acquisition. The Company will not invest more than 10% of its gross assets, at the time of acquisition, in other listed closed-ended investment funds, whether managed by the Manager or not, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed closed-ended investment funds. Unquoted investments The Company may invest in unquoted companies from time to time subject to prior Board approval. Investments in unquoted companies in aggregate will not exceed 5% of the value of the Company's investment portfolio as at the time of investment. Borrowing and gearing policy The Board considers that long-term capital growth can be enhanced by the use of gearing which may be through bank borrowings and the use of derivative instruments such as contracts for differences. The Company may borrow (through bank facilities and derivative instruments) up to 15% of net asset value ("NAV") (calculated at the time of borrowing). The Board will oversee the level of gearing in the Company, and will review the position with the Manager on a regular basis. In the event of a breach of the investment policy set out above and the investment and gearing restrictions set out therein, the Manager shall inform the Board upon becoming aware of the same and if the Board considers the breach to be material, notification will be made to a Regulatory Information Service. No material change will be made to the investment policy without the approval of shareholders by ordinary resolution. FINANCIAL HIGHLIGHTS At 30 November 2011 At 28 April 2011 (launch) Total net assets £45.33m £48.75m Number of ordinary shares in 100m 100m issue Net asset value per ordinary 45.33p 48.75p share Ordinary share price (mid) 44.50p 50.00p (Discount)/premium to net asset (1.83)% 2.56% value Market capitalisation £44.5m £50.0m Return per ordinary share (3.05)p n/a Dividend per ordinary share* 0.8p n/a *Dividend per ordinary share includes the first interim dividend paid and second interim dividend declared in respect of the period ending 31 May 2012 and will differ from the amounts disclosed in the Statement of Changes in Net Equity. TOTAL RETURN PERFORMANCE 3 months to Since launch to 30 November 2011 30 November 2011 % % Ordinary share price (5.1) (10.4) Net asset value* (2.5) (6.4) *After launch expenses. Total return assumes that dividends are reinvested. FINANCIAL CALENDAR January Announcement of Half-Yearly Financial Report February Payment of second interim dividend for period ending 31 May 2012 May Payment of third interim dividend for the period ending 31 May 2012 August Payment of fourth interim dividend for period ending 31 May 2012 August/September Announcement of Annual Results October Annual General Meeting CHAIRMAN'S STATEMENT This is my first interim statement to shareholders since The Diverse Income Trust ("DIT" or the "Company") was incorporated. The overall aim of DIT is to pay an attractive level of income and invest in stocks that can grow their dividends at a faster rate than average. Importantly, the dividends will be generated from a diverse portfolio so as to avoid the disproportionate risk taken by many comparable funds that invest in the small number of large companies that pay high dividends - just six companies represent nearly 50% of the FTSE 100 dividend payments. The equivalent for DIT is that 23 companies represent about 50% of the dividends generated by the portfolio in the year to date. It is envisaged that by selecting our holdings from all quoted companies, the Company will be able to do better than those restricted mainly to the largest quoted businesses. The Company is well on track to deliver an annualised yield of 4% on the initial capital raised, paid through four dividends to shareholders. In the period, our first interim dividend for those holding shares on 30 September 2011 of 0.3p per share was paid to shareholders on 30 November 2011. A second interim dividend for those holding shares on 30 December 2011 of 0.5p has been declared, and is due to be paid to shareholders on 29 February 2012. Markets have been distinctly unsettled in the period since launch, given worries about the impact of austerity budgets and a slowdown in world growth. As markets have fallen, the universe of stocks with good and growing dividend yields has increased. This has widened the range of stocks that can be included in the portfolio. By investing your capital over an extended period, DIT has taken full advantage, as well moderating our shareholders' exposure to falling markets. After initial costs our Net Asset Value ("NAV") has fallen 7.0% between 28 April 2011 and 30 November 2011, which compares with a fall of 10.1% in the FTSE All-Share. Many of the smallest quoted companies have fallen back to a greater extent, and thereby offer even more attractive entry points. At the end of November, the Company was close to being fully invested. Markets are likely to remain volatile whilst policy-makers address the debt burden taken on over the last two decades. However, history shows that the greater part of long-term investment returns comes from dividend growth and this will be particularly important in the current low growth environment. If our Manager is successful at identifying many of those stocks with better prospects for dividend growth, we can expect DIT to deliver premium returns. Michael Wrobel Chairman 31 January 2012 MANAGER'S REPORT Markets Although markets were relatively stable over the early summer after the launch of the Company, they have seen increased volatility in the period up to the end of November. In addition, stock specific risk remains high and the market has been quick to punish disappointments without regard to valuation or the long-term franchise value of the underlying business. Unsurprisingly in times of uncertainty, there has been very little differentiation; stock and sector moves have been highly correlated. Financials are either "all good" or "all bad" on a weekly, daily or even hourly basis. But as favourable announcements are made by individual companies, individual share prices do start to move against the daily trend. Performance In the seven month period since the launch of the Company the FTSE All-Share has fallen back 10.1% to the end of November. This compares with a fall in the Company's NAV of 8.5% in capital terms excluding the accrued income in the period. All indices have sold off in the seven months since launch. However, the FTSE 100 had rallied at the end of November helped by being perceived as a "safe haven" market outside of Euroland. The FTSE SmallCap (Ex Investment Trust) Index fell 19.8% in the period and have yet to recover. We anticipate that individual stocks will catch up with the market trend as results of our holdings come through. It should be remembered that the portfolio is valued on a bid basis. Unsurprisingly given the current stresses in the market the bid/ask spread for certain of the smaller companies can be quite wide, and in this regard the valuation basis stands further from mid prices than many others. Income In the prospectus we set out an aim to generate a 4% annualised dividend yield in the first year. We also sought to stock pick on the basis the portfolio will have scope to grow the dividend at a faster rate than most other UK Equity Income Funds. Initially the capital was only invested slowly given our concerns about risks of a market setback. In the later months we were able to take advantage of the falls, to buy into many businesses at more attractive entry prices, with better dividend yields than previously offered. In spite of holding significant balances of low yielding cash for quite some months our revenue account is on target to generate sufficient income to meet that indicated in the prospectus. Our maiden interim dividend of 0.3p went ex-dividend on 28 September 2011, and a second interim dividend of 0.5p was declared after the end of the half year, going ex-dividend on 28 December 2011. Two further dividends are anticipated to be declared on the earnings in the second half of the year up to 31 May 2012. Portfolio The flexibility of a multi-cap approach within The Diverse Income Trust gives us good opportunity to identify stocks with good levels of income plus the prospect of ongoing dividend growth. The greatest number of opportunities is in smaller companies, including those quoted on the AIM market, and so 65% of the portfolio is currently invested outside the FTSE 350. Although we have invested across a broad range of sectors, there has been an emphasis on the providers of "essential" products and services such as insurance, telecoms and food manufacturers. These are expected to be more resilient in the challenging economic conditions. We also favour businesses with strong net cash and robust balance sheets. These businesses will be able to best capitalise on the weakness of others. It also limits the financial risk and market volatility in the portfolio. The largest holdings at the end of November are set out below. Overall the volatility of the portfolio has been pleasingly low. Twelve stocks exceed 1.5% of the portfolio, and the majority of holdings are weighted around 1% with around 100 holdings in the portfolio. Outlook There are some indications that investors' attitude to the small quoted stocks is changing. The interest in the launch of The Diverse Income Trust was perhaps an early example of this. But it should be noted that three other funds have issued with very similar mandates, including our own OEIC. Finally towards the end of the year there were indications that trading volumes in the smallcap end of the market were actually increasing over prior years, a trend if sustained that is different from other parts of the UK market. As yet, this change in perception has not been reflected in the premium return of the smallcap sector overall. But the relatively good performance of our portfolio might be a result of some buying interest in higher yielding smallcap stocks. Gervais Williams and Martin Turner Midas Capital Partners Limited 31 January 2012 PORTFOLIO INFORMATION as at 30 November 2011 Top forty holdings by market value Valuation Portfolio Yield* Rank Company Sector £'000 % % 1 Greencore Consumer Goods 832 2.11 7.48 2 Abbey Protection Financials 805 2.04 5.12 3 32 Red Consumer Services 780 1.97 2.35 4 CML Microsystems Technology 773 1.96 1.81 5 Paypoint Support Services 693 1.75 5.04 6 Stobart Industrials 663 1.68 5.22 7 Randall & Quilter Financials 658 1.67 8.06 Investment Holdings 8 Stadium Industrials 653 1.65 4.12 9 Laird Technology 630 1.60 5.08 10 London Capital Group Financials 627 1.59 3.87 Holdings 11 KCOM Telecommunications 612 1.55 5.48 12 British Polythene Industrials 608 1.54 3.70 Industries 13 Zotefoams Basic Materials 581 1.47 3.78 14 Secure Trust Bank Banks 569 1.44 7.20 15 CRH Industrials 567 1.44 4.44 16 Office2Office Support Services 563 1.42 8.27 17 Drax Utilities 560 1.42 4.41 18 Catlin Financials 559 1.41 6.77 19 Amlin Financials 557 1.41 7.00 20 Chamberlin Industrials 550 1.39 2.44 21 Sainsbury (J) Consumer Service 548 1.39 5.32 22 ECO Animal Health Health Care 538 1.36 3.89 23 IMI Industrials 527 1.33 3.96 24 Hilton Foods Consumer Goods 526 1.33 4.12 25 Vodafone Telecommunications 517 1.31 7.55 26 Charles Taylor Consulting Financials 500 1.27 8.25 27 National Grid Utilities 500 1.27 6.38 28 Dairy Crest Consumer Goods 496 1.26 6.14 29 Berendsen Support Services 496 1.26 5.96 30 KBC Advanced Technologies Oil & Gas 495 1.25 3.32 31 Interserve Support Services 489 1.24 5.67 32 Fairpoint Financials 484 1.22 7.73 33 4imprint Consumer Services 482 1.22 6.27 34 Consort Medical Health Care 478 1.21 3.80 35 Cineworld Consumer Services 476 1.21 5.45 36 Hansard Global Financials 470 1.19 8.68 37 Hornby Consumer Goods 462 1.17 3.95 38 McBride Consumer Goods 456 1.15 5.93 39 Go-Ahead Consumer Services 447 1.13 6.43 40 DCC Industrials 432 1.09 4.03 Top 40 Holdings 22,659 57.37 Balance held in 64 holdings 16,838 42.63 Total Portfolio 39,497 100.00 Unless otherwise stated all investments are in the ordinary shares of the investee company. *Yield is based on the Investment Manager's estimated annual income for each of the forty holdings. Portfolio exposure by sector Financials 21.2% Industrials 17.3% Consumer Services 13.9% Support Services 13.2% Consumer Goods 11.5% Technology 5.9% Telecommunications 5.8% Basic Materials 4.2% Health Care 3.1% Utilities 2.7% Oil & Gas 1.2% Portfolio by asset allocation AIM/PLUS 29.7% FTSE SmallCap 26.8% FTSE 250 23.7% FSTE 100 8.4% FTSE Fledgling 6.5% International 4.9% Portfolio by spread of investment income to 30 November 2011 FTSE 250 42.5% FTSE SmallCap 22.4% FTSE 100 17.7% AIM/PLUS 14.1% International 1.9% FTSE Fledgling 1.4% Source: Midas Capital Partners Limited INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT Interim Management Report The Company was incorporated on 30 March 2011. The ordinary shares were admitted to trading on the London Stock Exchange on 28 April 2011. The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal risks and uncertainties for the remaining six months of the financial year are set out in the Chairman's Statement and the Manager's Report above and also below. Principal Risks and Uncertainties 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 8 to the financial statements. The Board has also identified the following additional risks and uncertainties: Investment and strategy There can be no guarantee that the investment objective of the Company will be achieved. The Company is an investment trust which invests mainly in UK equities. However, the Company has a very wide investment policy and may also invest in cash and bonds, unquoted investments, derivative instruments and other investments and securities, as appropriate. The Company does not follow any benchmark. Accordingly, the portfolio of investments held by the Company will not mirror the stocks and weightings that constitute any particular index or indices, which may lead to the ordinary shares failing to follow either the direction or extent of any moves in the financial markets generally (which may or may not be to the advantage of shareholders). Smaller companies The Company will invest primarily in quoted UK companies with a wide range of market capitalisations but a long-term bias toward small and mid equities. Smaller companies can be expected, in comparison to larger companies, to have less mature businesses, a more restricted depth of management and a higher risk profile. In addition, the relatively small market capitalisation of such companies can make the market in their shares illiquid. Prices of smaller capitalisation stocks are often more volatile than prices of larger capitalisation stocks and the risk of bankruptcy of many smaller companies (with the attendant losses to investors) is higher. Sectoral diversification The Company is not constrained from weighting to any sector. This may lead to the Company having significant exposure to portfolio companies from certain business sectors from time to time. Greater concentration of investments in any one sector may result in greater volatility in the value of the Company's investments and consequently its NAV. Unquoted companies The Company may invest in unquoted companies from time to time. Such investments, by their nature, involve a higher degree of valuation and performance uncertainties and liquidity risks than investments in listed and quoted securities and they may be more difficult to realise. Use of derivative instruments The Company may utilise derivative instruments including index-linked notes, contracts for differences, covered options and other equity-related derivative instruments for efficient portfolio management, gearing and investment purposes. Cash holdings A proportion of the Company's portfolio may be held in cash, depending on the Manager's view on the market, from time to time. This proportion of the Company's assets will not be invested in the market and will not benefit from positive stock market movements. Dividends The Company's investment objective includes the aim of providing shareholders with a dividend income. There is no guarantee that any dividends will be paid in respect of any financial year or period. The ability to pay dividends is dependent on a number of factors including the level of dividends earned from the portfolio and the net revenue profits available for that purpose. The redemption of shares pursuant to the redemption facility may also reduce distributable reserves to the extent that the Company is unable to pay dividends. Share price volatility and liquidity/marketability risk The market price of the Company's shares, like shares in all investment companies, may fluctuate independently of the NAV and thus may not reflect the underlying NAV of the shares. The shares could trade at a discount or premium to NAV at different times, depending on factors such as supply and demand for the shares, market conditions and general investor sentiment. Gearing The Company's investment strategy may involve the use of gearing to enhance investment returns, which exposes the Company to risks associated with borrowings. Gearing may be generated through the use of options, futures, options on futures, swaps and other synthetic or derivative financial instruments. Such financial instruments inherently contain much greater leverage than a non-margined purchase of the underlying security or instrument. While the use of borrowings should enhance the total return on the shares where the return on the Company's underlying assets is rising and exceeds the cost of borrowing, it will have the opposite effect where the return on the Company's underlying assets is rising at a lower rate than the cost of borrowing or falling, further reducing the total return on the shares. As a result, the use of borrowings by the Company may increase the volatility of the NAV per share. C shares The Directors have been authorised to issue up to 100 million C shares without the application of pre-emption rights. If the Directors decide to issue C shares on a non-pre-emptive basis the proportions of the voting rights held by ordinary shareholders will be diluted on the issue of such C shares as each C share carries the right to one vote. The voting rights may be diluted further on conversion of the C shares depending on the applicable conversion ratio. Redemption facility The operation of the annual redemption facility may lead to a more concentrated and less liquid portfolio which may adversely affect the Company's performance and value. Further, redemptions may also adversely affect the secondary market liquidity of the ordinary shares. Taxation The affairs of the Company are conducted so as to satisfy the conditions of approval as an investment trust under Chapter 4 of Part 24 of the Corporation Tax Act 2010, including any amended conditions arising from the recent review of the investment trust rules. Any change in the Company's tax status or in taxation legislation or practice generally could affect the value of the investments held by the Company, affect the Company's ability to provide returns to shareholders, lead the Company to lose its exemption from tax on chargeable gains or alter the post-tax returns to shareholders. Compliance with laws or regulations The Company is subject to compliance with the Companies Act 2006 and the continuing obligations imposed by the UK Listing Authority on investment companies whose shares are listed on the Official List. 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. The Alternative Investment Fund Managers' Directive is expected to be brought into force shortly, and it seems likely that there will be an increase, potentially a material increase, in the Company's governance, administration and custodian expenses as a result of its implementation. Engagement of third party advisers The Company has no employees and the Directors have all been appointed on a non-executive basis. Whilst the Company has taken all reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations, the Company is reliant upon the performance of third party service providers for its executive function. RESPONSIBILITY STATEMENT The Directors confirm that to the best of their knowledge: ● the condensed set of financial statements has been prepared in accordance with the Statement on Half-Yearly Financial Reports issued by the UK Accounting Standards Board and gives a true and fair view of the assets, liabilities and financial position of the Company; and ● this Half-Yearly Financial report includes a fair review of the information required by: a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first eight months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first eight months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions that could do so. This Half-Yearly Financial Report was approved by the Board of Directors on 31 January 2012 and the above responsibility statement was signed on its behalf by Michael Wrobel, Chairman. INDEPENDENT REVIEW REPORT TO THE DIVERSE INCOME TRUST PLC Introduction We have been engaged by the Company to review the condensed set of financial statements in the Half-Yearly Financial Report for the period ended 30 November 2011 which comprises the Income Statement, Statement of Changes in Equity, Balance Sheet, Cash Flow Statement and related notes 1 to 10. We have read the other information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed. Directors' responsibilities The Half-Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in note 1, the annual financial statements of the Company will be prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this Half-Yearly Financial Report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half-Yearly Financial Report based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half-Yearly Financial Report for the period ended 30 November 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. Ernst & young LLP London 31 January 2012 INCOME STATEMENT for the period from 30 March 2011 (incorporation) to 30 November 2011 Period ended 30 November 2011 Revenue Capital return return Total Note £'000 £'000 £'000 Losses on investments held at fair - (3,862) (3,862) value through profit or loss Income 3 1,377 - 1,377 Investment management fee (72) (217) (289) Other expenses (269) - (269) Return on ordinary activities 1,036 (4,079) (3,043) before taxation Taxation (2) - (2) Return on ordinary activities after 1,034 (4,079) (3,045) taxation pence pence pence Basic and diluted return per 4 1.03 (4.08) (3.05) ordinary share The Company does not have any income or expense that is not included in the net profit for the period. Accordingly the net return after taxation for the period is also the Total Comprehensive Income for the period and consequently no separate Statement of Comprehensive Income has been presented. The total column of this statement is the Income Statement of the Company prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the EU. The Supplementary revenue return and capital return columns are presented in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP"). All revenue and capital items in the above statement derive from continuing operations. STATEMENT OF CHANGES IN EQUITY for the period from 30 March 2011 (incorporation) to 30 November 2011 Share Share premium Capital Revenue capital account reserve reserve Total £'000 £'000 £'000 £'000 £'000 At the start of the period - - - - - Total comprehensive income: Net return for the period - - (4,079) 1,034 (3,045) Transaction with shareholders recorded directly to equity: Issues of ordinary shares 100 49,900 - - 50,000 Expenses of share issue - (1,322) - - (1,322) Equity dividends paid - - - (300) (300) As at 30 November 2011 100 48,578 (4,079) 734 45,333 BALANCE SHEET as at 30 November 2011 30 November 2011 Note £'000 Investments held at fair value through 39,497 profit or loss Current assets: Other receivables 653 Cash and cash equivalents 6,370 7,023 Current liabilities: Other payables (1,187) Net current assets 45,333 Total net assets 45,333 Capital and reserves: Share capital 6 100 Share premium account 48,578 Capital reserve (4,079) Revenue reserve 734 Shareholders' funds 45,333 pence Net asset value per ordinary share 7 45.33 CASH FLOW STATEMENT for the period from 30 March 2011 (incorporation) to 30 November 2011 30 November 2011 £'000 Net cash inflow from operating activities 768 Taxation: Withholding tax paid (2) Net cash outflow from taxation (2) Investing activities: Purchases of investments (59,211) Sales of investments 16,437 Net cash outflow from investing activities (42,774) Financing: Cash inflow from placing and offer for subscription 50,000 Cash outflow from expenses of placing and offer for (1,322) subscription Equity dividends paid (300) Net cash inflow from financing 48,378 Increase in cash and cash equivalents 6,370 Reconciliation of net cash flow to movements in net funds: Net cash inflow from cash and cash equivalents 6,370 Cash and cash equivalents at the end of the period 6,370 NOTES TO THE FINANCIAL STATEMENTS 1 General information The Diverse Income Trust plc is a company incorporated and registered in England and Wales. The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010. The financial information contained in this Half-Yearly Financial Report does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. This Half-Yearly Financial Report has been reviewed by the Company's Auditors, their report is shown above. As this is the Company's first accounting period, annual statutory financial statements have not yet been filed with the Registrar of Companies. Initial Accounts for the period to 31 August 2011 have been filed with the Registrar of Companies. 2 Accounting policies The half-yearly financial information covers the period from incorporation, on 30 March 2011, to 30 November 2011 and has been prepared in accordance with International Accounting Standard ("IAS") 34, `Interim Financial Reporting'. As this is the first reporting period since the Company was incorporated no comparative figures have been shown. The Company's annual financial statements for the period to 31 May 2012 will be prepared in conformity with International Financial Reporting Standards ("IFRS") as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and as applied in accordance with provisions of the Companies Act 2006. The annual financial statements will also be prepared in accordance with the Statement of Recommended Practice ("SORP") (as amended in January 2009) for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS. The accounting policies adopted in the preparation of the half-yearly financial statements are the same as will be applied in the forthcoming Annual Report and are summarised below. Segmental analysis The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business and therefore segmental information is not disclosed. Basis of preparation The financial statements have been prepared on a going concern basis and on the assumption that approval as an investment trust company will be granted. The financial statements are presented in sterling, which is the Company's functional currency as the UK is the primary environment in which it operates, rounded to the nearest £'000, except where otherwise indicated. Presentation of the Income Statement In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been prepared alongside the Income Statement. In accordance with the Company's status as a UK investment company under Section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividends. Additionally, the net revenue return is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 1158 of the Corporation Tax Act 2010. Accounting developments At the date of authorisation of the financial statements, the following Standards which have not been applied in these financial statements were in issue but were not yet effective (and in some cases had not yet been adopted by the European Union): International Accounting Standards (IAS/ Accounting periods begin on or IFRS) after IFRS 9 Financial Instruments: Classification 1 January 2013 & Measurement Improvements to IFRS Various dates Critical accounting judgements and key sources of estimation uncertainty The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the Balance Sheet, the Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future periods. Valuation of investments All investments held by the Company are classified as 'fair value through profit or loss'. Investments are initially recognised at cost, being the fair value of the consideration given. All investments are recognised on trade date, i.e. the day that the Company commits to purchase or sell the investment. After initial recognition, investments are measured at fair value, with unrealised gains and losses on investments and impairment of investments recognised in the Income Statement and allocated to capital. Gains and losses on investments sold are calculated as the difference between sale proceeds and cost and recognised in the Income Statement and allocated to capital. In accordance with the Company's status as an investment company under Section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividends. For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted bid prices and SETS at last trade price at the close of business on the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset. In accordance with the AIC SORP the Company includes transaction costs within gains/(losses) on investments. Cash and cash equivalents Cash comprises cash in hand, overdrafts and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Income Dividends receivable on quoted equity shares are taken to the revenue return on an ex-dividend basis except where, in the opinion of the Directors, the dividend is capital in nature, in which case it is taken to the capital return. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. All other income is accounted for on an accruals basis and is recognised in the Income Statement. Expenses All expenses are accounted for on an accruals basis. On the basis of the Board's expected long-term split of total returns in the form of capital and revenue returns of 75% and 25%, respectively, the Company charges 75% of its investment management fee to capital. All other administrative expenses are charged through the revenue column in the Income Statement. Taxation There is no charge to United Kingdom income tax as the Company's allowable expenses exceed its taxable income. The total tax assessed is however higher than 0% due to irrecoverable withholding tax paid on overseas investment income. Deferred tax assets in respect of unrelieved excess expenses are not recognised as it is unlikely that the Company will generate sufficient taxable income in the future to utilise these expenses. Deferred tax is not provided on capital gains and losses because the Company meets the conditions for approval as an investment trust company. Dividends payable to shareholders Dividends to shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of Changes in Net Equity. Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date. Capital reserve Gains or losses on disposal of investments and changes in the fair value of investments held at the period end are transferred to the capital reserve. Also, certain other expenses net of any related taxation effects are charged to this reserve in accordance with the expenses policy above. Share issue costs Costs incurred directly in relation to the placing and offer for subscription of ordinary shares have been deducted from equity. 3 Income 30 March to 30 November 2011 £'000 Income from investments: UK dividends 1,242 Overseas dividends 127 1,369 Other income: Deposit interest 4 Underwriting income 4 8 Total income 1,377 4 Return per share 30 March to 30 November 2011 Weighted average number of Net Ordinary Per return shares share £'000 pence Capital Return per ordinary share (4,079) 100,000,000 (4.08) Revenue Return per ordinary share 1,034 100,000,000 1.03 Total Return per ordinary share (3,045) 100,000,000 (3.05) Normal and diluted return per share are the same as there are no dilutive elements on share capital. 5 Dividends per ordinary share A first interim dividend of 0.3p per ordinary share was paid on 30 November 2011 to shareholders registered at the close of business on 30 September 2011. 30 March to 30 November 2011 £'000 Revenue available for distribution 1,034 First interim dividend of 0.3p (300) Undistributed revenue 734 The Board has declared a second interim dividend of 0.5p per ordinary share, payable on 29 February 2012 to shareholders registered at the close of business on 30 December 2011. 6 Called up share capital 30 November 2011 £'000 Allotted, issued and fully paid: 100,000,000 ordinary shares of 0.1p each 100,000 The Company was incorporated on 30 March 2011 with an issued share capital of £50,000 represented by 50,000 management shares of £1 each. On 28 April 2011, 100,000,000 ordinary 0.1p shares were issued at 50p per share in a placing and offer for subscription. Redemption of ordinary shares The Company has a redemption facility through which shareholders will be entitled to request the redemption of all or part of their holding of ordinary shares on an annual basis. The first redemption point for the ordinary shares will be 31 May 2012. The Board may, at is absolute discretion, elect not to operate the annual redemption facility in whole or part. Management shares The 50,000 management shares with a nominal value of £1 each were allotted to MAM Funds Plc, the parent company of the Manager, on the basis of undertaking to pay one-quarter of their nominal value on or before 30 March 2016 and the balance on demand. The management shares are non-participating and non-redeemable and, upon a winding-up or on a return of capital of the Company, shall only receive the fixed amount of capital paid up on such shares and shall confer no right to any surplus capital or assets of the Company. 7 Net asset value per ordinary share The net asset value per ordinary share and the net asset values attributable at the period end were as follows: Net asset value Net assets per share attributable 30 November 30 November 2011 2011 p £'000 Ordinary shares - Basic and diluted 45.33 45,333 Net asset value per ordinary share is based on net assets at the period end and 100,000,000 ordinary shares, being the number of ordinary shares in issue at the period end. 8 Financial instruments Investment objective and policy The Company's investment objective and policy are detailed above. The Company's investing activities in pursuit of its investment objective involve certain inherent risks. The principal risks and uncertainties analysis undertaken by the Board appears in the Interim Management Report above and information on each risk is detailed in the Prospectus of the Company. In accordance with IFRS 7, 'Financial Instruments Disclosures', this note refers to the identification, measurement and management of risks potentially affecting the value of financial instruments. The Company's financial instruments comprise: ● equity shares held in accordance with the Company's investment objective and policies; and ● cash, liquid resources and short-term debtors and creditors that arise from its operations. The Company has a £20 million overdraft facility in place. This facility has not been used during the period ended 30 November 2011. This facility will be used for short-term liquidity. The risks identified by IFRS 7 arising from the Company's financial instruments are market risk (which comprises market price risk, interest rate risk and foreign currency exposure), liquidity risk, counterparty risk and credit risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies have remained unchanged since the beginning of the accounting period. Market risk Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions by way of price movements, interest rate movements and exchange rate movements. The Manager assesses the exposure to market risk when making each investment decision and these risks are monitored by the Manager on a regular basis and the Board at quarterly meetings with the Manager. Market price risk Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments. The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information from the Manager. Investment performance is reviewed at each Board meeting. The Company's exposure to other changes in market prices as at 30 November 2011 on its investments held at fair value through profit or loss investments was £39,497,000. Interest rate risk Interest rate movements may affect the level of income receivable on cash deposits and payable on its overdraft facility. The majority of the Company's financial assets and liabilities are non-interest bearing. As a result, the Company's financial assets and liabilities are not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. The possible effects on the fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions. The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions. The Company's exposure to interest rate risk at 30 November 2011 is limited to its cash and cash equivalents totalling £6,370,000 and is due within one year of the Balance Sheet date. Foreign currency risk Although the Company's performance is measured in sterling, a proportion of the Company's assets may be either denominated in other currencies or are in investments with currency exposure. The Company was not exposed to material direct foreign currency risk during the period. At 30 November 2011 the Company held three euro denominated equity investments with a sterling equivalent of £1,831,000. Financial assets The Company's financial assets comprise equity investment, short-term debtors and cash. Financial liabilities The Company's financial liabilities are all in sterling and therefore no currency cash flow profile has been shown. Liquidity risk The Company's assets primarily comprise readily realisable securities, which can under normal conditions be sold to meet funding commitments if necessary. They may however be difficult to realise in adverse market conditions. The Company can achieve short-term flexibility by the use of its overdraft facility. Counterparty risk/credit risk Credit risk is the risk of financial loss to the Company if the contractual party to a financial instrument fails to meet its contractual obligations. The carrying amounts of financial assets best represent the maximum credit risk exposure at the Balance Sheet date. The Company's listed investments are held on its behalf by HSBC Bank plc acting as 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. The Board monitors the Company's risk by reviewing the custodian's internal controls report. Investment transactions are carried out with a number of brokers whose creditworthiness is reviewed by the Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered in its obligations before any transfer of cash or securities away from the Company is completed. Cash is only held at banks that have been identified by the Board as reputable and of high credit quality. None of the Company's assets are past due or impaired. Fair value hierarchy Under IFRS 7, the International Accounting Standards Board requires investment companies to disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair values. Classification Input Level 1 Valued using quoted prices in active markets for identical assets or liabilities (actively traded on recognised stock exchanges) Level 2 Valued by reference to valuation techniques using inputs other than quoted prices included within Level 1 Level 3 Valued by reference to valuation techniques using inputs that are not based on observable market data Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The valuation techniques used by the Company are explained in the accounting policies in Note 2 under the heading `Valuation of investments'. At 30 November 2011 all the Company's financial assets at fair value through profit or loss are included in Level 1. 9 Related party transactions Under the terms of an agreement dated 7 April 2011, the Company has appointed Midas Capital Partners Limited to be the Manager. The basic investment management fee is calculated at the rate of one-twelfth of 1.0% of the adjusted market capitalisation of the Company on the last business day of each calendar month. The basic management fee accrues daily and is payable in arrears in respect of each calendar month. For the purpose of calculating the basic fee, the 'adjusted market capitalisation' of the Company is defined as the average daily mid-market price for an ordinary share, multiplied by the number of ordinary shares in issue, excluding those held by the Company in treasury, on the last business day of the relevant month. At 30 November 2011 an amount of £38,000, was outstanding and due to Midas Capital Partners Limited, in respect of management fees. The Manager and its officers and employees may from time to time act for other clients or manage other funds, which may have similar investment objectives and policies to that of the Company. Circumstances may arise where investment opportunities will be available to the Company and which are also suitable for one or more such clients of the Manager or funds. The Directors have satisfied themselves that the Manager has procedures in place to address potential conflicts of interest and that, where a conflict arises, the Manager will allocate the opportunity on a fair basis and in accordance with contractual provisions described in the Prospectus. 10 Going concern The Directors consider that it is appropriate to adopt the going concern basis in preparing the financial statements. The assets of the Company consist almost entirely of securities that are readily realisable and, accordingly, the Company has adequate financial resources to continue in existence for the foreseeable future. DIRECTORS AND ADVISERS Directors (all non-executive) Bankers and Custodians HSBC Bank plc Michael Wrobel 8 Canada Square Paul Craig London E14 5HQ Lucinda Riches Jane Tufnell Registrar and Transfer Office Capita Registrars Secretary and Registered Office Shareholder Service Department Capita Sinclair Henderson Limited The Registry (trading as Capita Financial Group 34 Beckenham Road - Specialist Fund Services) Beckenham Beaufort House Kent BR3 4TU 51 New North Road Telephone: 0871 664 0300 Exeter Ex4 4EP (calls will cost 10p per minute plus Telephone: 01392 412122 network charges) Fax: 020 639 2342 Email: ssd@capitaregistrars.com Website: www.capitaregistrars.com Investment Manager Midas Capital Partners Limited 10 - 14 Duke Street Reading RG1 4RU Solicitors Telephone: 0118 952 8900 Stephenson Harwood Website: www.mamfundsplc.com 1 Finsbury Circus London, EC2M 7SH Auditor Ernst & Young LLP 1 More London Place London SE1 2AF Stockbroker Cenkos Securities plc 6.7.8 Tokenhouse Yard London EC2R 7AS An investment company as defined in Section 833 of the Companies Act 2006. Registered in England No. 7584303. A member of the Association of Investment Companies. The Half-Yearly Financial Report will be posted to shareholders shortly. The Report will also be available for download from the following website: http://www.mamfundsplc.com/financial/fundpages/diverse_income_trust.php or on request from the Company Secretary. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of this announcement.

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