Half-yearly Report

THE DIVERSE INCOME TRUST PLC HALF-YEARLY FINANCIAL REPORT The Directors present the Half-Yearly Financial Report of the Company for the six months ended 30 November 2013. The Diverse Income Trust plc is an investment trust quoted on the London Stock Exchange with a total investment portfolio valued at £254m as at 30 November 2013. It is referred to as the Company or as Diverse in the text of this Report. The Company has a Board that is independent of the Investment Manager. This Report covers the Company's progress in the six months to 30 November 2013. The net asset value ("NAV") has risen strongly due to favourable market conditions and the Manager's excellent stock selection. The annual returns should be read in the context of the longer-term trends, with a good and growing dividend being a key measure of success. RESULTS FOR THE HALF YEAR TO 30 NOVEMBER 2013 +22% Total return to shareholders +19% NAV rise per share 0.8p Interim dividends in half year 19% growth in capital - The NAV per share rose from 65.12p to 77.62p over the six months. The general market has not appreciated significantly, but smaller stocks have substantially outperformed in the period. Diverse merged with Miton Income Opportunities Trust plc - "MIOT", formerly known as Henderson Fledgling Trust plc, merged with the Company on 30 September 2013 adding £85m of assets. As at 30 November 2013, the Company's assets were £252m. The increase in scale will reduce the ongoing charges ratio and increase market liquidity for shareholders. Additional management resource - Miton welcomed Bill Mott and Eric Moore to their team of UK equity managers with the acquisition of PSigma Asset Management. They bring additional experience in selecting shares with good and growing income, particularly in the larger stock universe. Potential for increased dividend - The two dividends declared so far this year were unchanged at 0.3p and 0.5p, but portfolio revenue is heavily skewed towards the March to May period. As previously, the fourth dividend is anticipated to be the largest and will include any increase in the total annual dividend. Summary of Results At 30 November At 31 May 2013 2013 Change Equity shareholders' funds (£'000) 251,794 135,909 85.3% Net asset value per ordinary share 77.62p 65.12p 19.2% Ordinary share price (mid) 79.25p 66.00p 20.1% Premium to net asset value 2.10% 1.35% Total return per ordinary share 13.68p 19.27p Ongoing charges 1.29%* 1.45% * Estimated as at 30 November 2013. Ongoing charges are the Company's annualised revenue and capitalised expenses (excluding finance costs and certain non-recurring items) expressed as a percentage of the average monthly net assets of the Company during the year. CHAIRMAN'S STATEMENT Half Year to 30 November 2013 This is my third interim statement to shareholders and covers the six month period ended 30 November 2013. The capital return on the FTSE All-Share Index was just 2.1% in the period, whereas the FTSE SmallCap Index (excluding Investment Companies) rose 15.9% and the AIM All-Share Index rose 13.4%. The Company's NAV return was 19.2%, which contributed to a 21.6% total return per ordinary share. A lack of capital investment by many larger companies may be one reason for the lacklustre economic growth across the globe. As growth expectations have moderated, investors are starting to take a greater interest in allocating additional capital to the smallest quoted companies. The key fact is that smaller businesses have the potential to grow even at times of economic constraint, and this factor is becoming more appreciated. Prior to the credit boom, when the UK economy grew modestly, smaller UK quoted companies outperformed for decades. The Company is well positioned for this trend with around two-thirds of the portfolio invested in smaller UK quoted companies. Results The Company's assets grew to £252m at the end of the period, not only due to the NAV appreciation, but also because of the takeover of Miton Income Opportunities Trust plc, which added £85m of assets. The daily liquidity in the Company's shares has therefore improved further during the period and the ongoing charges ratio will be lower in future through spreading the fixed costs over a larger pool of assets. The Company has declared two interim dividends, together amounting to 0.8p per share, for this six month period. Portfolio dividend payments are heavily skewed towards the March to May period so, as previously, our fourth dividend is anticipated to be the largest, and will include any increase in the annual dividend. Outlook The principal objective of Diverse at launch was to produce a 4% annualised yield on the initial 50p issue price, with a dividend growing thereafter at a rate above the average UK market. For this reason, the portfolio has to remain fully invested largely irrespective of the equity market prospects. However, market trends could be becoming more uncertain. Equity markets have enjoyed a very substantial rise over the last five years, principally due to expansive central bank policy rather than decent economic growth. It may be that the current positive trends persist and the Company is well positioned should markets appreciate further. At some point, central banks will have to wind down their policy of Quantitative Easing and some commentators believe that if this happens soon, it might undermine the markets. The rise in UK equities and increase in investor confidence has meant that the cost of market insurance has declined to levels similar to those of the mid-2000s. The Company has therefore invested around 1.6% of the portfolio to purchase some downside protection, covering approximately one-third of the portfolio, extending through to June 2015. Full details are outlined below. The focus of the portfolio remains on a broad spread of companies with strong balance sheets that are well placed to grow their earnings as well as their dividends, even in fluctuating economic circumstances. We remain confident that the portfolio is well-placed to continue to deliver premium returns in the future. Michael Wrobel Chairman 24 January 2014 MANAGER'S REPORT Markets The six month period has been marked by divergent market trends: • Returns on the largest companies have been rather indifferent since 22 May 2013 when the US Federal Reserve announced that they may consider moderating their Quantitative Easing ("QE") bond purchases as the US economy recovers. The FTSE All-Share Index only rose 2.1% in the six months to 30 November 2013. • In contrast, there has been greater interest in smaller companies, especially the smallest stocks, where few institutional investors have significant weightings. The FTSE SmallCap Index (excluding Investment Companies) rose 15.9% in the half year, and even the AIM All-Share Index rose 13.4%. Since the middle of 2011, markets have rallied rather faster than earnings growth, and it has reached a stage where earnings growth may need to accelerate to justify any further rise. The good news is that growth expectations have indeed been upgraded in the UK, and largely sustained in the US during the period. But elsewhere, although there is some talk of a more established recovery, mainland Europe still remains in recession, and growth prospects have been downgraded in many emerging economies. The key advantage of smaller companies is their potential to deliver growth somewhat independently of the general economic trends. During the credit boom, growth was plentiful, both in large and smaller companies, and in developed and developing economies. More recently, world growth has become more limited, so investors are beginning to renew their interest in smaller stocks. If sustained, this is a promising trend for the future. The criteria used for selecting portfolio stocks There are five criteria that the managers use to determine the scope for the business to deliver good and growing dividends. The prospect of turnover growth - If a business is to sustain and grow its dividend, then the portfolio needs to invest in companies that will generate more cash in the coming years. Without decent turnover growth, this is near-impossible to achieve over time. Sustained or improving margins - A business needs to deliver significant value to its customer base if it is to sustain decent margins. Unexpected cost increases cannot be charged on to customers if they are anything less than delighted with their suppliers. Turnover growth will not lead to improved cash generation if declining margins offset it. A forward-looking management team - Businesses often need to make commercial decisions on incomplete information. A thoughtful and forward-looking team has a better chance of making better decisions. Robust balance sheet - There are disproportionate advantages to having the independence of a strong balance sheet in a period of elevated economic and political risks. Conversely, corporates with imprudent borrowings can risk the total loss of shareholders' capital. Low expectation valuation - Many of the most exciting stocks enjoy higher stock market valuations but almost none can consistently beat the high expectations baked in to their share prices. Those with low expectations tend to be less vulnerable to disappointment, but conversely can enjoy excellent share price rises if they surprise on the upside. Companies that best meet these criteria on a prospective basis are believed to be best positioned to deliver attractive returns to shareholders, as well as offering moderated risk. These criteria, used in reverse, can also be useful in determining the timing of portfolio stocks that should be considered for divestment. So a business in danger of suffering a period of turnover declines, for example, would naturally be expected to generate less cash flow in future years and thereby struggle to sustain their current dividend over time, let alone grow it. Performance Over the half year to 30 November 2013, the Company delivered a total return of 21.6%. During the period, the Company merged with Miton Income Opportunities Trust plc, and this transaction grew the Company by an additional £85m of capital. Generally, the Company was largely fully invested throughout the period, although the borrowing facility was not greatly used. Following the growth of the Company, the portfolio continues to hold a widely diversified list, now totalling 131 holdings. The largest 40 stocks in the portfolio are listed below. It will be noted that most holdings are around 1% of the portfolio. On occasions, when the risk/reward ratio appears particularly attractive, some holdings are purchased to take them up to around 1.5% of the portfolio. With differential share price moves, some of these holdings can move up to slightly larger percentages. However, the overall volatility of the portfolio has been well below other trusts in the UK Growth and Income sector. In part, this is related to the wide diversification within the portfolio, and in part to the naturally lower volatility of higher income stocks, especially those with strong balance sheets. The Company launched on the London Stock Exchange on 28 April 2011. Since that time, on a price basis, the FTSE All-Share Index has appreciated by 12.5%, with the FTSE SmallCap Index (excluding Investment Companies) up by 43.5%, although the FTSE AIM All-Share has fallen by 10.2%. The NAV return on the Company over that period has been 57.9%. Portfolio The change in attitudes to smaller quoted stocks is still nascent. Institutions find it difficult to invest significant capital in smaller companies which are, by their nature, small in scale and under-researched. Yet prior to the credit boom, institutional portfolios were fully weighted in smaller companies given their key advantage tends to fuel sizeable outperformance. We believe that institutional weightings in the smallest stocks will gradually be rebuilt over the coming years. The portfolio is invested in a wide range of individual stocks that, together, offer the prospect of good and growing dividend income. Although smaller companies have recently enjoyed a period of outperformance, we continue to identify plenty of holdings where valuations appear far too low. Although there are some in the FTSE 100 Index which we find attractive, they are fairly limited in number. For that reason, the portfolio has only 9.4% of its capital invested in these stocks. There are a greater number in the FTSE 250 or MidCap indices and, therefore, the Company holds 22.4% in this area of the market. Overall, around one-third of the portfolio is invested in the largest 350 stocks, which implies that around two-thirds is invested in the remaining universe of some 1,250 quoted stocks, with around 38.0% invested in AIM listed companies. In December 2013, the Company purchased a Put option that amounted to 1.6% of the portfolio. Full details of the reasoning are outlined below. Gervais Williams and Martin Turner Miton Asset Management Limited 24 January 2014 What are the advantages of using a Put option as part of the Diverse strategy? As noted above, in December 2013 the Company purchased a Put option. Put options are different to ordinary shares which make up the vast majority of the Diverse portfolio. Although the price of Put options is principally driven by the movement of an index, the relationship is inversely correlated. Therefore, whereas most stocks rise when markets are buoyant, Put options tend to fall in value. Conversely, when markets fall back, Put options tend to rise in value. One key advantage of holding a Put option in the portfolio is that it reduces the daily NAV fluctuations. The reason most funds do not use them is that Put options are time limited, often extending to no more than a few quarters; their value also decays over time. Using them generally reduces the volatility for investors, but at a cost. We believe that, as a general rule, the most dependable way to generate an attractive return for shareholders over the long term is by investing in a portfolio of individual businesses with promising prospects on a bottom-up basis. For most, there is little value to reducing market risk through the purchase of a Put option, given that corporate profits tend to gradually grow over time with productivity growth and inflation. Although options are frequently traded, in general most expire at the end of their term worthless. With this in mind, it is only worth considering utilising Put options within the context of a portfolio when the initial purchase costs are unusually low, and the potential benefits to shareholders could be sizeable. However, we do take a greater interest in the running costs of holding a Put option. When these are high, it is self-evident that the risk/reward ratio is unattractive. However, when the time decay cost comes down to very low levels, then the risk/reward ratio becomes more attractive. It will be noted that prior to the credit crunch, when markets were exceptionally buoyant, the price of volatility fell to very low levels. However, during the global financial crisis, the price of volatility rose several multiples above its previous level. The price of volatility is a key part of the cost of a Put option, and it has recently fallen to levels not dissimilar to those seen at the best stages of the credit boom. The running cost of a Put option appears low at present. Since 2009, markets have risen a lot faster than the modest inflation and corporate profit growth. Of course, the 2009 market levels may not be any more accurate than its current level, but this may indicate that QE may have caused markets to rise rather more than justified by fundamentals. Given that the US is now planning to reduce QE, the scope for markets to appreciate as rapidly as they have in the past few years appears more limited, and it may be that if there were an unexpected adverse event they could fall back. A key objective of the Company is to find ways to grow the dividend at a premium rate to most others. The strategy involves selecting the portfolio from amongst all quoted companies for those with the best prospects. The Company does not have a formal index benchmark, so the individual stock positions are all relatively minor in absolute terms, and as a result the returns are not heavily dependent upon the success or otherwise of a few large holdings, but rather on the selection of a broad range of stocks. It is believed that the risk/reward ratio has become sufficiently attractive for the portfolio to invest around 1.6% of the capital in a Put option. The option has a notional value that equates to around one-third of the capital of the Company. If the FTSE 100 Index and the price of volatility remain as they were at the time of the purchase of the Put option, then the value of this holding will reduce the NAV of the Company by 0.08% on average per month. The Company has little need to hold precautionary cash with a Put option, so if the markets remain buoyant then the portfolio remains well positioned to fully participate in that market rise. This will maximise the further potential for the Company to continue to add value through successful stock selection. Conversely, if markets were to fall back, then the value of the Put option would rise and could become significant in the context of the whole Company. At those times, its rise in value might offset the reduction in the regular portfolio to some degree. Better still, the Put option could then be sold so the scale of the portfolio could be increased at a time when market prices were depressed. Of course, probably the most likely outcome is that somehow markets muddle along somewhere in the middle, and the value of the Put option fluctuates along the way. However, we believe that the added value from the stock selection in the portfolio would more than offset the time value decay of the Put option. Terms of the option Strike Price This is the level of the FTSE 100 at which the Put option technically begins to protect against a further market fall. The cost of buying a Put option at the current FTSE 100 level is highly onerous so the purchased option is at the 5,800 level. In truth, the strategy is not seeking to protect the Company against a minor move in the markets, but rather against a more significant setback. Duration The Put option will expire on 19 June 2015. It will therefore have time value for the whole of the current year and one half of the next year. If markets were to fall back, the extended time value could become significantly more valuable. An option of this duration is better placed to take full advantage should the price of volatility rise. Notional Value The cost of the option is only 1.6% of the portfolio, but the notional value reflects how much the option would be worth if the FTSE 100 Index went to zero. The notional value of the Put option is £68.8m. PORTFOLIO INFORMATION as at 30 November 2013 Valuation % of net Yield* Rank Company Sector & main activity £'000 assets % 1 Randall & Quilter Investment Holdings** Non Life Insurance 5,129 2.0 4.7 2 SQS Software** Software & Computer 4,808 1.9 1.4 3 Quindell Portfolio** Software & Computer 4,688 1.9 - 4 Charles Taylor Consulting Financial Services 4,507 1.8 4.3 5 Fairpoint** Financial Services 4,479 1.8 4.4 6 Conviviality Retail** Food and Drug Retailers 4,145 1.6 - 7 CML Microsystems Technology Hardware & Equipment 3,717 1.5 1.0 8 Plus500** Financial Services 3,712 1.5 - 9 Greencore Food Producers 3,703 1.5 2.1 10 Secure Trust Bank** Banks 3,603 1.4 2.3 Top 10 investments 42,491 16.9 11 St Ives Support Services 3,501 1.4 3.7 12 Lancashire Holdings Non Life Insurance 3,428 1.4 7.6 13 Interserve Support Services 3,422 1.4 3.2 14 Novae Non Life Insurance 3,280 1.3 3.5 15 Dairy Crest Food Producers 3,273 1.3 4.1 16 UK Mail Industrial Transportation 3,259 1.3 3.3 17 Bloomsbury Publishing Media 3,160 1.3 3.2 18 KCOM Fixed Line 3,143 1.2 4.6 Telecommunications 19 Huntsworth Media 3,133 1.2 5.1 20 Abbey Protection** Non Life Insurance 3,112 1.2 4.6 Top 20 investments 75,202 29.9 21 Cable & Wireless Fixed Line Telecommunications 3,042 1.2 5.2 22 Stobart Industrial Transport 3,031 1.2 4.3 23 Bioventix** Pharmaceuticals & 2,882 1.2 3.6 Biotechnology 24 Vodafone Mobile Telecommunications 2,862 1.1 4.9 25 Amino Technologies** Technology Hardware & Equipment 2,848 1.1 3.4 26 Amlin Non Life Insurance 2,823 1.1 5.4 27 Belvoir Lettings** Real Estate Investment & Services 2,819 1.1 3.4 28 Powerflute** Forestry & Paper 2,780 1.1 3.8 29 Esure Non Life Insurance 2,747 1.1 - 30 Air Partner Travel and Leisure 2,679 1.1 3.6 Top 30 investments 103,715 41.2 31 Catlin Non Life Insurance 2,666 1.1 5.5 32 Ibex Global** Support Services 2,648 1.1 - 33 Personal Group** Non Life Insurance 2,646 1.0 4.4 34 TalkTalk Telecom Fixed Line Telecommunications 2,570 1.0 4.0 35 Macfarlane General Industrials 2,563 1.0 4.0 36 4imprint Media 2,532 1.0 2.6 37 RPC General Industrials 2,531 1.0 3.0 38 Staffline** Support Services 2,509 1.0 1.6 39 Direct Line Insurance Non Life Insurance 2,491 1.0 3.4 40 Provident Financial Financial Services 2,485 1.0 5.0 Top 40 investments 129,356 51.4 Balance held in 89 equity investments 119,358 47.4 Total equity investments 248,714 98.8 Fixed interest and convertible investments 1,221 0.5 249,935 99.3 Derivative instruments - listed Put option FTSE 100 - June 2015 5,800 Put 3,616 1.4 Total investment portfolio 253,551 100.7 Other net current liabilities (1,757) (0.7) Net assets 251,794 100.0 * Source: Interactive Data. Based on historic yields. New issues left blank in the absence of historic data. ** AIM/ISDX listed. PORTFOLIO INFORMATION as at 30 November 2013 Portfolio exposure by sector Consumer Services 16.8% Insurance & Insurance Services 16.0% Financial Services 14.1% Industrials 9.9% Technology 8.8% Support Services 8.3% Consumer Goods 7.6% Telecommunications 5.5% Health Care 4.8% Basic Materials 3.9% Oil & Gas 2.0% Cash and Fixed Interest/Convertibles 1.2% Utilities 1.1% 100.0% Portfolio by asset allocation FTSE 100 9.4% FTSE 250 22.4% FTSE SmallCap 16.8% FTSE Fledgling 8.8% AIM/ISDX 38.0% Other 3.4% Cash and Fixed Interest/Convertibles 1.2% 100.0% Portfolio by spread of investment income to 30 November 2013 FTSE 100 12.5% FTSE 250 29.3% FTSE SmallCap 22.1% FTSE Fledgling 4.7% AIM/ISDX 28.6% Fixed Interest and Other 2.8% 100.0% Estimated annual income by sector* Insurance & Insurance Services 19.8% Financial Services 16.8% Consumer Services 14.6% Industrials 8.6% Telecommunications 8.1% Support Services 7.5% Consumer Goods 7.3% Basic Materials 4.5% Health Care 4.2% Technology 3.6% Oil & Gas 2.8% Utilities 1.2% Fixed Interest/Convertibles 1.0% 100.0% *Projected income based on portfolio as at 30 November 2013. Source: Interactive Data. INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT Interim Management Report 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. The principal risks facing the Group are substantially unchanged since the date of the Annual Report for the year ended 31 May 2013 and continue to be as set out in that report. Risks faced by the Group include, but are not limited to, investment and strategy, smaller companies, sectoral diversification, unquoted companies, use of derivative instruments, dividends, share price volatility and liquidity/ marketability risk, gearing, key man risk, C shares, redemption facility, taxation, compliance with laws or regulation and engagement of third party advisers. Responsibility Statement The Directors confirm that to the best of their knowledge: • the condensed set of financial statements has been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, as adopted by the European Union; and gives a true and fair view of the assets, liabilities and financial position of the Group; 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 six 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 six months of the current financial year and that have materially affected the financial position or performance of the Group 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 24 January 2014 and the above responsibility statement was signed on its behalf by Michael Wrobel, Chairman. CONDENSED CONSOLIDATED INCOME STATEMENT for the period to 30 November 2013 Six months ended Six months ended Year ended 30 November 2013 30 November 2012 31 May 2013* Revenue Capital Revenue Capital Revenue Capital return return Total return return Total return return Total Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Gains on investments held at fair value through profit or loss - 31,920 31,920 - 8,766 8,766 - 28,196 28,196 Income 2 3,264 - 3,264 1,736 - 1,736 4,765 - 4,765 Investment management fee (242) (726) (968) (95) (284) (379) (256) (767) (1,023) Other expenses (275) - (275) (242) - (242) (532) - (532) Return before finance costs and taxation 2,747 31,194 33,941 1,399 8,482 9,881 3,977 27,429 31,406 Finance costs (2) (5) (7) - (1) (1) (3) (9) (12) Return before taxation 2,745 31,189 33,934 1,399 8,481 9,880 3,974 27,420 31,394 Taxation - overseas withholding tax (10) - (10) (1) - (1) (25) - (25) Return for the period 2,735 31,189 33,924 1,398 8,481 9,879 3,949 27,420 31,369 pence pence pence pence pence pence pence pence pence Basic and diluted return: Per ordinary share 3 1.10 12.58 13.68 1.18 7.16 8.34 2.42 16.85 19.27 Per C share 3 - - - - - - 0.63 4.32 4.95 * Audited. The Group does not have any income or expense that is not included in the "return for the period". Accordingly, the "return for the period" is also the Total Comprehensive Income for the period as defined in International Accounting Standard 1 (revised), and consequently no separate Statement of Comprehensive Income has been presented. The total column of this statement is the Income Statement of the Group prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union. 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. No operations were acquired or discontinued during the period. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Share premium Special Capital Revenue capital account reserve reserve reserve Total Note £'000 £'000 £'000 £'000 £'000 £'000 As at 31 May 2013* 209 59,337 48,558 25,529 2,276 135,909 Total comprehensive income: Net return for the period - - - 31,189 2,735 33,924 Transactions with shareholders recorded directly to equity: Issue of ordinary shares 5 115 85,369 - - - 85,484 Expenses of share issue - (1,144) - - - (1,144) Equity dividends paid 4 - - - - (2,379) (2,379) As at 30 November 2013 324 143,562 48,558 56,718 2,632 251,794 As at 1 June 2012 100 - 48,558 (1,891) 1,059 47,826 Total comprehensive income: Net return for the period - - - 8,481 1,398 9,879 Transactions with shareholders recorded directly to equity: Issue of ordinary shares 57 29,176 - - - 29,233 Expenses of share - (8) - - - (8) issue Equity dividends paid 4 - – - - (1,230) (1,230) As at 30 November 2012 157 29,168 48,558 6,590 1,227 85,700 As at 1 June 2012 100 - 48,558 (1,891) 1,059 47,826 Total comprehensive income: Net return for the year - - - 27,420 3,949 31,369 Transactions with shareholders recorded directly to equity: Issue of ordinary shares 109 60,891 - - - 61,000 Expenses of share issue - (1,554) - - - (1,554) Equity dividends paid 4 - - - - (2,732) (2,732) As at 31 May 2013* 209 59,337 48,558 25,529 2,276 135,909 * Audited. CONDENSED CONSOLIDATED BALANCE SHEET 30 November 30 November 31 May 2013 2012 2013* Note £'000 £'000 £'000 Investments held at fair value through profit or loss 249,935 86,232 128,897 Current assets: Derivative instruments 3,616 - - Investments held for trading 222 170 - Trade and other receivables 3,983 324 6,609 Cash and cash equivalents - 1,034 893 7,821 1,528 7,502 Current liabilities: Trade and other payables (571) (2,060) (490) Bank overdraft (5,391) - - (5,962) (2,060) (490) Net current assets/(liabilities) 1,859 (532) 7,012 Total net assets 251,794 85,700 135,909 Capital and reserves: Share capital 5 324 157 209 Share premium account 143,562 29,168 59,337 Special reserve 48,558 48,558 48,558 Capital reserve 56,718 6,590 25,529 Revenue reserve 2,632 1,227 2,276 Shareholders' funds 251,794 85,700 135,909 pence pence pence Net asset value per ordinary share 6 77.62 54.76 65.12 * Audited. CONDENSED CONSOLIDATED CASH FLOW STATEMENT Six Six months months Year ended ended ended 30 November 30 November 31 May 2013 2012 2013* £'000 £'000 £'000 Operating activities: Net return before finance costs and taxation 33,941 9,881 31,406 Increase in investments (121,260) (39,763) (82,258) Decrease/(increase) in trade and other receivables 2,626 896 (5,389) Increase/(decrease) in trade and other payables 81 1,260 (310) Increase in derivative instruments (3,616) - - (88,228) (27,726) (56,551) Finance costs paid (7) (1) (12) Withholding tax paid (10) (1) (25) Net cash outflows from operating activities (88,245) (27,728) (56,588) Financing: Shares issued from C share conversions - 30,000 61,000 Proceeds from issue of ordinary shares to acquire MIOT investment portfolio 85,484 - - Expenses of share issues (1,144) (775) (1,554) Equity dividends paid (2,379) (1,230) (2,732) Net cash inflow from financing 81,961 27,995 56,714 (Decrease)/increase in cash and cash equivalents (6,284) 267 126 Reconciliation of net cash flow to movements in (net debt)/funds: Cash and cash equivalents at the start of the period 893 767 767 Net cash (outflow)/inflow from cash and cash equivalents (6,284) 267 126 (Net debt)/cash at the end of the period (5,391) 1,034 893 * Audited. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1 General Information The consolidated financial statements, which comprise the unaudited results of the Company and its wholly owned subsidiary, DIT Income Services Limited, together referred to as the "Group", for the half year to 30 November 2013, have been prepared in accordance with IFRS, as adopted by the European Union, and with the AIC SORP dated January 2009, where the SORP is consistent with the requirements of IFRS. These financial statements cover the six month period to 30 November 2013. The comparatives cover the six month period from 1 June 2012 to 30 November 2012 and for the twelve month period from 1 June 2012 to 31 May 2013. The financial statements have been prepared on the basis of the accounting policies set out in the Annual Report and Financial Statements for the year ended 31 May 2013. The financial information contained in this report does not constitute full statutory accounts as defined in Section 434 of the Companies Act 2006. The financial statements for the six months to 30 November 2013 and 30 November 2012 have not been either audited or reviewed by the Company's Auditors. The information for the year ended 31 May 2013 has been extracted from the latest published Annual Report and Financial Statements, which have been filed with the Registrar of Companies. The Report of the Auditors on those financial statements contained no qualification or statement under Section 498(2) or (3) of the Companies Act 2006. The Directors consider that it is appropriate to adopt the going concern basis in preparing the financial statements. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the dividend policy. After making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the portfolio and the Company's ability to meet obligations as they fall due. 2 Income Six months Six months Year ended ended ended 30 November 30 November 31 May 2013 2012 2013 £'000 £'000 £'000 Income from investments: UK dividends 2,446 1,370 3,486 UK REIT dividend income 24 - 57 Unfranked dividend income 589 266 1,035 UK fixed interest 35 5 40 3,094 1,641 4,618 Other income: Deposit interest - 1 2 Underwriting income - 2 2 Net dealing profit of subsidiary 170 92 143 Total income 3,264 1,736 4,765 3 Return per Share Ordinary Shares: Six months ended Six months ended Year ended 30 November 2013 30 November 2012 31 May 2013 Net Per Net Per Net Per return share return share return share £'000 pence £'000 pence £'000 pence Revenue return 2,735 1.10 1,398 1.18 3,563 2.42 Capital return 31,189 12.58 8,481 7.16 24,780 16.85 Total return 33,924 13.68 9,879 8.34 28,343 19.27 Weighted average number of ordinary shares 247,886,842 118,527,206 147,044,788 C Shares: Six months ended Six months ended Year ended 30 November 2013 30 November 2012 31 May 2013 Net Per Net Per Net Per return share return share return share £'000 pence £'000 pence £'000 pence Revenue return - - - - 386 0.63 Capital return - - - - 2,640 4.32 Total return - - - - 3,026 4.95 Weighted average number of C shares - - 61,136,364 Returns per share are based on the weighted average number of shares in issue during the period. Normal and diluted return per share are the same as there are no dilutive elements on share capital. 4 Dividends per Ordinary Share Amounts recognised as distributions to equity holders in the period. Six months ended Six months ended Year ended 30 November 2013 30 November 2012 31 May 2013 £'000 pence £'000 pence £'000 pence In respect of the previous period: Fourth interim dividend 1,753 0.84 930 0.93 930 0.93 In respect of the period under review: First interim dividend 626 0.30 300 0.30 300 0.30 Second interim dividend - - - - 782 0.50 Third interim dividend - - - - 720 0.46 2,379 1.14 1,230 1.23 2,732 2.19 The Board has declared a second interim dividend of 0.5p per ordinary share, payable on 28 February 2014 to shareholders registered at the close of business on 27 December 2013. In accordance with IFRS, this dividend has not been included as a liability in these financial statements. 5 Called up Share Capital During the six month period to 30 November 2013, the Company issued 115,684,143 ordinary shares as a result of the merger with Miton Income Opportunities Trust plc, raising gross proceeds of £85,484,000. Following this transaction, there were 324,377,450 ordinary shares in issue as at 30 November 2013. The surplus of net proceeds received from the issue of new shares over the par value of such shares was £85,369,000 and has been credited to the share premium account. Redemption of ordinary shares The Company has a redemption facility through which shareholders are entitled to request the redemption of all or part of their holding of ordinary shares annually on 31 May. The Board may, at its absolute discretion, elect not to operate the annual redemption facility in whole or in part. 6 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: 30 November 2013 30 November 2012 31 May 2013 Net asset Net asset Net asset Net asset Net asset Net asset value value value value value value per share attributable per share attributable per share attributable pence £'000 pence £'000 pence £'000 Ordinary shares: Basic and diluted 77.62 251,794 54.76 85,700 65.12 135,909 Net asset value per ordinary share is based on net assets at the period end and 324,377,450 ordinary shares, being the number of ordinary shares in issue at the period end (30 November 2012: 156,507,978 and 31 May 2013: 208,693,307 ordinary shares). 7 Transaction Costs During the period, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows: Six months ended Six months ended Year ended 30 November 2013 30 November 2012 31 May 2013 £'000 £'000 £'000 Costs on acquisitions 489 245 460 Costs on disposals 40 18 52 529 263 512 8 Management Fee Under the terms of an agreement dated 7 April 2011, the Company appointed Miton Capital Partners Limited (name changed from Midas Capital Partners Limited on 14 December 2012) to be the Manager. On 1 January 2014, the Investment Management Agreement was novated from Miton Capital Partners Limited to Miton Asset Management Limited. The basic investment management fee is calculated at the rate of one-twelfth of 1.0% of the average 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 2013, an amount of £213,000 was outstanding and due to Miton Capital Partners Limited in respect of management fees (30 November 2012: £147,000 and 31 May 2013: £226,000). 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 invests 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 adopts a stock specific approach in managing the Company's portfolio and therefore sector weightings are of secondary consideration. As a result of this approach, the Company's portfolio does 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. Investments in any one 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 around 120 securities, predominantly 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. In addition to this restriction, the Directors have further determined that no more than 15% of the Company's gross assets will, at the time of acquisition, be invested in other listed closed-ended investment funds (including investment trusts) notwithstanding whether or not such funds have stated 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 (calculated at the time of borrowing). The Board will oversee the level of gearing in the Company, and reviews 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 the London Stock Exchange. No material change will be made to the investment policy without the approval of shareholders by ordinary resolution. DIRECTORS AND ADVISERS Directors (all non-executive) Solicitors Michael Wrobel Stephenson Harwood LLP Tom Bartlam 1 Finsbury Circus Paul Craig London EC2M 7SH Lucinda Riches Jane Tufnell Stockbroker Secretary and Registered Office Cenkos Securities plc 6.7.8 Tokenhouse Yard Capita Sinclair Henderson Limited London EC2R 7AS (trading as Capita Asset Services) Beaufort House Bankers and Custodians 51 New North Road Exeter EX4 4EP HSBC Bank plc Telephone: 01392 412122 8 Canada Square London E14 5HQ Investment Manager Registrar and Transfer Office Miton Asset Management Limited 51 Moorgate Capita Asset Services London EC2R 6BH Shareholder Services Department The Registry Telephone: 0118 338 4033 34 Beckenham Road Website: www.mitongroup.com Beckenham Kent BR3 4TU Company website www.mitongroup.com/dit Telephone: 0871 664 0300 (calls will cost 10p per minute plus Auditor Network charges) Ernst & Young LLP Fax: 020 639 2342 1 More London Place Email: ssd@capitaregistrars.com London SE1 2AF Website: www.capitaregistrars.com An investment company as defined under 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: www.mitongroup.com/dit 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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