Annual Financial Report

RNS Number : 6684B

Acorn Income Fund Ld

19 April 2012

ACORN INCOME FUND LIMITED

ANNOUNCEMENT OF ANNUAL RESULTS

The Directors announce the statement of results for the year ended 31 December 2011 as follows:

Investment Objectives and Policy

for the year ended 31 December 2011

The objectives of Acorn Income Fund Limited are to provide the Company's shareholders with a high income and also the opportunity for capital growth.

The Company's portfolio is invested in equities and high income and fixed interest securities in order to achieve its investment objectives. It is the aim of the Company to provide both income and capital growth predominantly through investment of approximately 70 to 80% of the portfolio in smaller capitalised United Kingdom companies, admitted to the Official List of the United Kingdom Listing Authority and traded on the London Stock Exchange or traded on AIM; and by investing approximately 20 to 30% of its assets in high yielding instruments which will be predominantly fixed interest securities (including corporate bonds, preference and permanent interest bearing shares, convertible and reverse convertible bonds and debentures) but may include up to 15% of the portfolio (measured at the time of acquisition) in high yielding investment company shares.

CHAIRMAN'S STATEMENT

Dear Shareholder,

Since the end of December 2011 the Company has had two classes of share in issue. I should like to take this opportunity to welcome the new holders of the Company's redeemable Zero Dividend Preference Shares ("ZDP Shares").

There have been two significant corporate developments since the previous financial year end. At the General Meeting in August shareholders had an opportunity to vote for or against the continuation of the Company, and voted in favour of continuation, which was in line with the Board's recommendation. As required by the Company's Articles of Association, shareholders will have another opportunity to vote on the continuation of the Company at the General Meeting in 2016.

In November, the Company issued a circular to shareholders with proposals for refinancing the Company's credit facility. Since its launch, the Company has employed structural gearing through the use of a revolving bank loan facility. That facility was due to expire in February 2012. In the current banking climate, our bankers did not wish to renew the facility and after investigating alternative banking arrangements and taking advice from the Company's brokers, the Board decided, subject to shareholder consent, to refinance the bank loan through the issue of ZDP Shares.

These proposals were approved by shareholders at an Extraordinary General Meeting on 15 December 2011. Following the approval, twelve million ZDP Shares were issued raising £11.61 million net of expenses. These funds were deployed to repay the £6 million bank loan facility ahead of the February expiry date with the balance apportioned for investment, approximately 75% to the Smaller Companies Portfolio and 25% to the Income Portfolio. The ZDP Shares were issued on 21 December and the bank facility repaid on 29 December 2011.

The issue of ZDP Shares caused an increase in the gearing applying to the Ordinary Shares and was also expected to result in an increase in the revenue earnings per Ordinary Share which other things being equal would facilitate an improved dividend.

Market Background

The euro crisis that developed during the second half of 2011 caused a sharp setback in markets in July and August 2011. The UK FTSE 100 total return index staged a modest recovery over the final quarter to close the year only 2.1% lower, however the small company sector did not fare so well. Small company stocks continued to trend lower over the final quarter with the FTSE Small Cap (ex ITs) total return index down 15.16% over the year and the RBS HGSC Extended Ex Investment Companies index down 9.1%. This was a considerable dislocation of the performance of small capitalisation stocks from that of larger companies.

Investment performance

The Company's total return on Gross Assets invested (adjusting for the bank debt repayment and the ZDP Share issue) was just positive over the year with a gain of 0.4%. Given the poor outcome for smaller companies (detailed above) and the pressure on financial sector fixed interest securities over the year this was a satisfactory outcome for the Company. Indeed our peer group funds specialising in UK small companies and with an income objective fared much worse. The net asset value per Ordinary Share declined 4.5% over the year with the NAV declining from 194.98 to 186.12. With 7 pence of dividends paid over the year net asset value total return was -1.15%.

The Ordinary Share price total return was -4.38% reflecting a slight widening of the discount to asset value over the year. The Ordinary Shares traded on a discount of 17.5% at the year end.

The main strategic position of the Income Portfolio was to be overweight fixed interest securities in the financial sector and to reduce the portfolio's exposure to the risk of rising interest rates. Both of these positions worked against us with the deepening euro crisis and deteriorating economic outlook in Europe working against banks and financial stocks whilst the prospect of interest rate rises receded.

Performance was hindered by a flight to large stocks during the Euro crisis as they were seen as safe and international. The Smaller Companies Portfolio remains focused on international earners in the small and mid cap sectors with little exposure to the problematic countries within the euro zone.

At the year end both portfolios had an unusually high level of cash as the proceeds of the ZDP Share issue had just been received and were not yet committed to the market.

Dividends

Earnings per Ordinary Share for the year were -1.86 pence and dividends totalling 7.0p (2010: 6.25p) were paid during the year. As indicated in the ZDP Share issue circular, the new capital structure for the Company will give rise to an increase in earnings per Ordinary Share. Accordingly, in year 2012, the directors have declared a first interim dividend of 3 pence which will be payable to shareholders of Ordinary Shares on 30 March 2012. The directors will aim, subject to market conditions and the level of income distribution from our underlying investments, to pay four quarterly dividends at this level for 2012.

Share buy back

As part of its discount management policy, during 2011, the Company repurchased 50,000 Ordinary Shares and now holds 215,000 Ordinary Shares in Treasury. Treasury shares will only be reissued at a premium to net asset value. The ability to buy back shares becomes more constrained with two classes of share to consider. The Company will be permitted to buy back ZDP Shares at a discount to net asset value and to buy back Ordinary Shares and ZDP Shares together in ratio to the number of each class of share in issue, provided that the aggregate purchase price is at a discount to the aggregate NAV of the shares purchased. Ordinary Shares can only be bought back on their own (ie not in ratio with ZDP Shares) if the cover on the ZDP Shares immediately after the buyback has been completed will be above 1.85. This paragraph forms an integral part of the financial statements. Refer to Note 19(f).

John Michael McKean

Michael, who was a director of the Company from its inception stood down from the board at the end of September. Throughout this period, Michael made an outstanding contribution to the governance of the Company and his wise counsels will be missed. An enthusiastic squash player, it is pleasing to record that at the time of writing he is the only British entry in the octogenarian category of the world squash championships to be held in July. We wish him well.

John Nigel Ward

I am pleased to say that Nigel joined the Board following Michael's retirement. Nigel brings a wealth of investment management experience and is already making an important contribution to the direction of your Company.

Outlook

Towards the end of last year a spirit of cautious optimism began to reappear in financial markets and this firmer tone continued into the first quarter of 2012, as a clearer pattern of economic recovery in the USA, and signs that European governments were at last prepared to take decisive steps to deal with the Eurozone crisis, encouraged equity investors. More recently this firmer tone has not been sustained, as markets continue to worry about the strength and sustainability of the recovery following patchy economic data, and meanwhile a growing consensus has emerged that the debt crisis in Europe is still far from resolved.

On balance, your board takes the view that its present policy of investing in well-capitalised businesses with good earnings track records, coupled with selective investments in bonds and other debt securities offering attractive yields and pricing relative to the markets, remains appropriate, and we are cautiously hopeful that financial markets as a whole will resume their forward progress during the current year.

Finally, on a personal note, I shall be standing down from the Board later this year. I should like to take this opportunity to thank my colleagues for their engagement and support during my tenure, and to wish the Company and those who manage its investments continued success in the future.

John Boothman

Chairman

INVESTMENT ADVISORS' REPORT

Smaller Companies Portfolio

During the period under review the value of the Portfolio rose by 0.1% compared to a fall of 9.1% in the RBS HGSC Extended Ex Investment Companies. The outperformance was caused by the international earnings capacity of the Portfolio. The second half of the year was dominated by European economic events which resulted in a fall in the value of the Portfolio of 13.8%.

A number of stocks performed strongly during the year. RPC rose by 13.7% following a rights issue and subsequent acquisition, Fenner rose by 12.0% as growth in the mining market worldwide continued and Consort Medical rose by 10.8% as the medical device market continued to grow. Diploma rose by 22.4% as its results continued to beat expectations and British Polythene Industries rose by 41.1%, benefiting from restructuring and falling polymer prices. The main underperformers were: Acal, down 37.1% due to its European exposure, Phoenix IT, down 40.4% as market conditions deteriorated, and MacFarlane Group, down 39.3% on worries about the UK packaging market.

A number of purchases were made during the year including RPC, James Halstead, British Polythene and VP Group. Two new stocks were also added to the Portfolio. Secure Trust Bank, a self-funded private bank spun out of Arbuthnot Banking Group which serves the retail market, was added to the portfolio in November. The international electronic component distributor, Electrocomponents, was also purchased during the year. Sales included the disposals in full of IMI, Spirax Sarco and Laird Group. Partial disposals of Diploma, Fenner, Devro and Renishaw also took place.

The Portfolio remains focused on businesses serving truly international markets which served us well over the past year, especially in the second half as eurozone worries grew while emerging markets continued to grow. There is very little exposure to the UK consumer and with government expenditure cuts still to come through this position is likely to remain. Corporate activity is coming back into the market, especially from well funded overseas buyers which we think is likely to continue.

John McClure

Unicorn Asset Management Limited

Income Portfolio

Performance

The Monetary Policy Committee ("MPC") voted to maintain the UK base rate at 0.5% throughout the reporting period. Split opinion merged into one towards the end of the year as the MPC determined that immediate monetary stimulus was required to support the ailing economy. The MPC voted to restart the quantitative easing programme with an additional £75 billion to be spent over four months. The asset purchase programme is likely to be increased in 2012 if Eurozone troubles persist or escalate. Inflation is expected to fall sharply over the first quarter of the year as the VAT increase, higher energy and higher import prices fall out of the twelve month calculations, enabling the MPC to use quantitative easing further. However, it may fail to keep government bond yields low if market participants believe this loose monetary policy to be inflationary as an economic recovery has already begun.

The Portfolio's hedge against the returns of gilts has been maintained throughout the year. The hedge acts to reduce the duration of the Portfolio, limiting interest rate risk. With the hedge in place the return profile will be more aligned with credit performance. As a result the Income Portfolio did not fully benefit from the gilt rally over the year.

Risk aversion was high and financial markets were volatile at the beginning of the year exacerbated by the tension in the Middle East during the 'Arab Spring' and the Japanese earthquake and tsunami. A failure to find solid resolutions to the sovereign debt crisis increased the level of fear and risk aversion in the financial markets both domestically and on a global scale. This was intensified by the lack of consistent positive economic news.

Credit spreads were initially tight over the first quarter with financials and particularly subordinated financials benefitting. However, as the concerns over the global unrest and sovereign solidity took effect, credit spreads widened in the second quarter. The negative market sentiment continued into the third quarter and as a result of concern over both sovereign and bank stability, credit spreads on financials widened sharply. Over the last quarter there appeared to be headway towards addressing the debt levels of certain nations in Europe. Though credit spreads tightened, they remained volatile, spiking in late November and again in early December. We believe credit spreads will remain volatile until collective action is taken to resolve the Eurozone crisis.

Over the reporting period, as credit spreads widened we added to our holding of Gas Natural Bonds, increasing our weighting in corporates that are systematically important in troubled Eurozone economies. We also bought Convertible Unsecured Loan Stock ("CULS") as these CULS offer a suitable yield given their downside protection whilst also offering the opportunity for significant upside potential if the Company's assets perform. Further investments were made into financials via the purchase of a long dated Barclays' bond as well as such financials as Henderson Group and Old Mutual. New Investments were also made into the Contingent Convertible Bond ("CoCo") holdings of Rabobank and Credit Suisse to complement our existing holding of Lloyds CoCos. An additional position added to the fund was a bearish product linked to the Halifax House Price Index. Weakness in the UK housing market could be seen as a risk for our bank exposures and so this position can be seen as a partial hedge. In the latter half of the reporting period we also added French and Italian Government bonds, the latter benefiting from the ECB intention to purchase Spanish and Italian government bonds.

The stumbling blocks over fiscal deficits and bank funding have still not been overcome, even though governments, central banks, financials and corporates appear to be more aware of these risks and more capable of solving them. We believe credit risk is more attractive than interest rate risk. We remain overweight in financial bonds and despite the possibility of volatility in the short term we expect superior returns from this position over the medium to long term.

Paul Smith

Premier Fund Managers Limited

SCHEDULE OF PRINCIPLE INVESTMENTS

As at 31 December 2011

TOP 10 HOLDINGS	NOMINAL HOLDINGS	VALUATION	TOTAL ASSETS
		GBP	%

Smaller Companies Portfolio

RPC Group plc	396,875	1,420,812	5.03
James Halstead plc	245,500	1,031,100	3.65
Castings plc	384,112	1,017,897	3.61
VP plc	420,414	923,860	3.27
Fenner plc	228,375	911,445	3.23
Lupus Capital plc	775,714	868,800	3.08
Diploma plc	253,135	859,899	3.05
Devro plc	325,000	835,250	2.96
Consort Medical plc	153,171	811,806	2.88
Stobart Group plc	676,000	810,524	2.87

		9,491,393	33.63


Income Portfolio

UK Treasury 8% 06/07/2021	250,000	382,800	1.36
Credit Suisse 7.875% 24/02/2041	500,000	287,264	1.02
Lloyds 7.8673% 17/12/2019	350,000	257,250	0.91
Italy (Govt) 5% 03 01/08/2034	400,000	262,401	0.93
Rabobank 6.875% 03/19/2020	350,000	250,843	0.89
Greenwich Loan Income Fund	625,000	259,375	0.92
Standard Life UK 3.5% CULS 31/03/2018	250,000	251,250	0.89
Invesco Leveraged High Yield	500,000	248,750	0.88
ICAP Group 7.5% 28/07/2014	250,000	210,995	0.75
Electra Private Equity 5% CULS 29/12/17	200	213,000	0.75

		2,623,928	9.30

TOTAL		12,115,321	42.93

SCHEDULE OF PRINCIPLE INVESTMENTS

As at 31 December 2010

TOP 10 HOLDINGS	NOMINAL HOLDINGS	VALUATION	TOTAL ASSETS
		GBP	%

Smaller Companies Portfolio

Fenner plc	395,788	1,412,172	6.55
Devro plc	525,000	1,316,175	6.10
Diploma plc	378,135	1,037,035	4.81
Renishaw plc	80,703	992,647	4.60
James Halstead plc	122,750	902,213	4.18
RPC Group plc	275,000	866,250	4.02
VP plc	352,914	811,702	3.76
Castings plc	284,112	752,897	3.49
IMI plc	79,300	749,385	3.47
Primary Health Properties	193,969	635,248	2.94

		9,475,724	43.92


Income Portfolio

Lloyds 7.8673% 17/12/2019	350,000	304,675	1.41
ICAP Group 7.5% 28/07/2014	250,000	229,078	1.06
Invesco Leveraged High Yield Fund	400,000	220,000	1.02
ING Bank NV 6.875% 9/05/2023	200,000	202,117	0.94
Aviva 5.9021% PERP-20	250,000	198,056	0.92
Santander 7.3% 27/*07/2019	200,000	194,058	0.90
HSBC 6.25% 19/03/2018	200,000	185,695	0.86
Greenwich Loan Income Fund	625,000	178,125	0.83
JP Morgan FRN 26/09/2013	200,000	168,132	0.78
Barclays 4.875% 29/12/2049	250,000	167,564	0.78

		2,047,500	9.50

TOTAL		11,523,224	53.42

COMPANY DETAILS

For the year ended 31 December 2011

History

The Company was incorporated on 5 January 1999 and commenced its activities on 11 February 1999. 29,600,002 Ordinary Shares were issued.

The special resolution proposed at the Company's Annual General Meeting in 2006, that the Company cease as an investment company, was not carried by the necessary 75% majority of votes cast. Nevertheless, to provide an exit opportunity for the shareholders the Company made a Tender Offer to repurchase up to all of its Ordinary Shares at net asset value, calculated after taking account of all costs. Applications under the Tender Offer were received for 20,660,212 Ordinary Shares, leaving 8,939,790 Ordinary Shares in issue after the Extraordinary General Meeting on 5 January 2007.

At the 5 January 2007 Extraordinary General Meeting, it was resolved that the issued share capital of the Company be reduced from £7,400,000.50 to £296,000.02, effected by the cancellation of 24 pence per issued Ordinary Share, thus reducing the nominal amount of such shares from 25 pence to 1 pence per Ordinary Share. It was also resolved that £17,000,000 standing to the credit of the Company's share premium account be cancelled. The £7,104,000.48, resulting from the cancellation of share capital, and the £17,000,000, resulting from the cancellation of the share premium account, were credited to a distributable reserve.

As part of the Tender Offer, the Manager changed from Collins Stewart Fund Management Limited to Premier Asset Management (Guernsey) Limited.

At the Extraordinary General Meeting on 15 December 2011 it was resolved to approve the issue of 12,000,000 ZDP Shares at the price of £1 each. Admission to the London Stock Exchange's market for listed securities became effective and unconditional and dealings in ZDP Shares commenced on the London Stock Exchange at 8.00 a.m. on 21 December 2011.

Proceeds raised from the sale of the ZDP shares enabled the repayment of all of the Company's £6 million credit facility with the Royal Bank of Scotland. The remainder of the proceeds raised from the redeemable ZDP Shares, being approximately £5.6 million, has been invested into the Company's two portfolios.

Investment Objectives

The Company's investment objectives are to provide the Company's shareholders with a high income and also the opportunity for capital growth.

Investment Policy

The Company's investment policy is to allocate approximately 70% to 80% of the Company's assets to the Smaller Companies Portfolio with the balance to the Income Portfolio. (Prior to the Tender Offer, this was approximately 75% to the Smaller Companies Portfolio with the balance allocated to the Income Portfolio).

The Smaller Companies Portfolio is principally invested in UK equities with a market capitalisation of under £1 billion. Unicorn, as the Investment Adviser of the Smaller Companies Portfolio, focuses on companies with experienced and well motivated management, products or services supplying growth markets, sound operational and management controls, good cash generation and a progressive dividend.

Premier manages the Income Portfolio and aims to maximise income with the objective of capital protection. The Income Portfolio comprises sterling denominated fixed interest securities including corporate bonds, preference and permanent interest bearing shares, convertibles, reverse convertibles bonds, contingent convertible bonds, debentures and other similar securities. The Income Portfolio may also contain higher yielding shares of other investment companies, including property investment companies, however these will not exceed 15% of the overall portfolio (at the time of acquisition).

Bank Loan

As a result of the Extraordinary General Meeting held on 15 December 2011, where the shareholders approved the admission of ZDP shares to the Official List of the London Stock Exchange, the issue raised gross proceeds of £12 million. The proceeds raised enabled the repayment of all of the Company's borrowings of £6 million on 29 December 2011 and the borrowing facility was subsequently cancelled. The remainder of the proceeds raised from the redeemable ZDP Shares, being approximately £5.6 million have been invested into the Company's two portfolios.

Management Fees

The management fee is 0.7% per annum of total assets and theManager is also potentially entitled to a performance fee of 15% of any excess of the Net Asset Value per share (together with any dividends paid by reference to the relevant period) over the benchmark NAV per share. No performance fee was paid or is payable for the year under review. The total expenses ratio ("TER") of the Company is capped at 1.5% of total assets, excluding performance fees and non-routine administration and professional fees and with adjustments made to allow for repayment of debt or the buy back of shares. The application of these calculations for 2011 indicates that no refund is due from the Manager. The net management fee charged in 2011 was £164,634. The Board has considered the level of fees charged on comparable investment trusts and recognises the importance of setting a level that enables the management contract to be commercially viable for the Manager.

At the general meeting held on 24 August 2010, the shareholders approved the proposal to increase the minimum fee, payable to the Manager (to £100,000 from £50,000) which took effect from 1 January 2011. This was included in the TER calculation.

MANAGEMENT REPORT

For the year ended 31 December 2011

A description of important events which have occurred during the financial period, their impact on the performance of the Company as shown in the financial statements and a description of the principal risks and uncertainties facing the Company is given in the Chairman's Statement, Investment Advisers' Reports, the schedule of Risk Factors and the notes to the financial statements and is incorporated here by reference.

There were no material related party transactions which took place in the financial period.

Going Concern

In accordance with the Company's articles of association, the shareholders voted on the continuation of the Company at the Annual General Meeting on 24 August 2011. At the Annual General Meeting a special resolution that, in accordance with Article 134(1), the Company should cease to continue as presently constituted, was defeated by 2,221,995 votes against to 1,567,043 in favour. The Company is required, pursuant to the Articles, to propose a similar continuation vote at the general meeting to be held in 2016.

The Board concluded that, after making enquiries, there was a reasonable expectation that the Company has adequate resources to continue it's existence for the foreseeable future. Thus it continues to adopt the going concern basis of accounting in preparing the annual financial statements.

Responsibility Statement

The directors confirm to the best of their knowledge and belief:

(a) This annual report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces; and

(b) The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profits of the Company.

Director

RISK FACTORS

For the year ended 31 December 2011

The Board has an ongoing process in place for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the year under review and up to the date of the Annual Financial Report, is regularly reviewed by the Board and accords with the Turnbull guidance.

Structure of the Company and gearing

The Company's business could be materially and adversely affected by a number of risks. External factors to the Company may either adversely or favourably affect the volatility and liquidity of the Smaller Companies and Income Portfolios, as well as their values. These can be caused by economic conditions, changes to tax laws, competition and a number of other factors.

Investors holding either Ordinary Shares or ZDP Shares should have carefully considered whether these investments, given the risks attached, are suitable for them. Investors in ZDP Shares should be aware that interest rate movements will affect the value of their investment. Further risks include the lower level of regulatory protection than applies to premium listed shares.

Holders of Ordinary Shares should be aware that the issue during 2011 of ZDP Shares to replace the existing bank borrowing facility increased the implicit level of gearing and thus exaggerated the likely impact of adverse movements in the value of the Company's investments. Furthermore, since the policy of the Company is not to amortise the increase in its ultimate liability to ZDP shareholders, the amount eventually realised by Ordinary shareholders on the liquidation or winding up of the Company will be adversely impacted by the prior redemption of the ZDP shares.

Risks associated with investments held in the Smaller Companies Portfolio

Investing in smaller companies, including AIM companies and unlisted companies, can carry greater risks than those usually associated with larger capitalised companies. Liquidity, in particular, can be lower in such shares with a risk of reducing the underlying asset value of the portfolio. Such companies, being less diversified, may be more vulnerable to weaknesses in the markets they serve, and may be less well placed than larger companies to secure financial support if required.

Risks associated with investments held in the Income Portfolio

The Income Portfolio primarily contains fixed interest securities. Bond prices and interest rates are inversely correlated. Thus, when interest rates increase, the price of a bond with a fixed coupon will decline. Alternatively, when interest rates decline, the price of a bond with a fixed coupon will increase. Therefore, interest rate movements are carefully monitored by the Investment Adviser, but when interest rates rise or credit ratings decline losses are probable.

The Income Portfolio may contain higher yielding investment company shares (including shares of split capital investment trusts) and bonds (including reverse convertible bonds and contingent convertible bonds).

As a result of the underlying gearing in some investment company shares, any increase or decrease in the value of such shares might magnify movements in their net asset values and consequently affect the value of the Income Portfolio accordingly. In accordance with the Listing Rules, the Company makes monthly stock exchange announcements detailing its holdings in other UK listed investment companies which themselves do not have a stated investment policy to invest no more than 15% of their gross assets in other UK listed investment companies (including investment trusts).

Dividend levels

Dividends paid on the Company's Ordinary Shares rely on receipt of interest payments and dividends from the securities in which the Company invests. The Company's revenue levels are monitored on a regular basis by the Board and the Investment Advisers.

Currency risk

The majority of the Company's assets and all of its liabilities are denominated in sterling. To the extent that the Company has fixed interest investments denominated in foreign currency, this exposure is likely to be hedged back to sterling. Therefore, there is unlikely to be any significant risk.

Market price risk

Since the Company invests in financial instruments, market price risk is inherent in these investments. In order to minimise this risk, a detailed analysis of the risk/reward relationship of each investee company is undertaken by the Investment Advisers prior to making investments.

Interest rate risk

The Company's investment portfolio consists of investments bearing interest at floating rates or non-interest bearing investments.

Liquidity risk

Liquidity risk is the risk that the Company will encounter in realising assets or otherwise raising funds to meet financial commitments.

Discount volatility

Being a closed-end fund, the Company's shares may trade at a discount to their net asset value. The magnitude of this discount fluctuates daily and can vary significantly. Thus, for a given period of time, it is possible that the market price could decrease despite an increase in the Company's net asset value. The directors review the discount levels regularly. The Investment Advisers actively communicate with the Company's major shareholders and potential new investors, with the aim of managing discount levels.

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2011

		Year ended 31 Dec 2011			Year ended 31 Dec 2010
	Note	Revenue GBP	Capital GBP	Total GBP	Total GBP

Net (losses) / gains on financial
assets designated as at fair value
through profit or loss	10	-	(317,648)	(317,648)	5,763,137

Losses on derivative financial instruments	4	-	(314,432)	(314,432)	(23,502)

Investment income	3	1,000,765	-	1,000,765	826,732

Total income and gains / (losses)		1,000,765	(632,080)	368,685	6,566,367

Expenses	5	(252,846)	(156,697)	(409,543)	(349,366)

Return on ordinary activities
before finance costs and taxation		747,919	(788,777)	(40,858)	6,217,001

Interest payable and similar
charges	7	(30,497)	(91,490)	(121,987)	(78,084)

Return on ordinary activities
before taxation		717,422	(880,267)	(162,845)	6,138,917

Taxation on ordinary activities		-	-	-	-

Other comprehensive income		-	-	-	-

Total comprehensive income for
the year attributable to
Ordinary Shareholders		717,422	(880,267)	(162,845)	6,137,917


		Pence	Pence	Pence	Pence
Return per Ordinary share	9	8.21	(10.07)	(1.86)	69.36

Dividend per Ordinary share	8	7.00	0.00	7.00	6.25

Return per ZDP share		-	0.06	0.06	N/A

The supplementary revenue return and capital return columns have been prepared in accordance with the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC").

In arriving at the results for the financial year, all amounts above relate to continuing operations.

No operations were acquired or discontinued in the year.

The notes form an integral part of the financial statements.

STATEMENT OF FINANCIAL POSITION

As at 31 December 2011

	Notes	31 Dec 2011	31 Dec 2010
		GBP	GBP
NON-CURRENT ASSETS
Financial assets designated as at fair value through profit
or loss	10	22,042,663	20,712,993

CURRENT ASSETS
Receivables	11	361,730	308,050
Cash and cash equivalents		5,829,513	551,030
Derivative financial assets	19	23,165	-

		6,214,408	859,080

TOTAL ASSETS		28,257,071	21,572,073

CURRENT LIABILITIES
Derivative financial liabilities	19	24,178	42,564
Payables - due within one year	12	357,578	69,978

NON-CURRENT LIABILITIES
Payables - due after one year	13	-	4,350,000
ZDP shares	14	11,636,432	-

TOTAL LIABILITIES		12,018,188	4,462,542

NET ASSETS		16,238,883	17,109,531


EQUITY
Share capital	15	89,398	89,398
Share premium		79,173	79,173
Treasury shares	16	(303,211)	(207,018)
Revenue reserve		268,891	1,363,079
Special reserve		10,000,000	10,000,000
Capital reserve		6,104,632	5,784,899

TOTAL EQUITY		16,238,883	17,109,531


		Pence	Pence
Net asset value per Ordinary Share		186.12	194.98

Carrying value per ZDP Share		96.97	N/A

The financial statements within this report were approved by the Board of Directors on 18 April 2012 and signed on its behalf by:

John Boothman Helen Green

The notes form an integral part of these financial statements.

STATEMENT OF CASH FLOWS

For the year ended 31 December 2011 STATEMENT OF CASH FLOWS	Notes	Year ended 31 Dec 2011	Year ended 31 Dec 2010
		GBP	GBP
Operating activities

Return on ordinary activities before taxation		(162,845)	6,138,917
Net losses / (gains) on financial assets designated as at fair
value through profit or loss	10	317,648	(5,763,137)
Investment income	3	(1,000,765)	(826,732)
Interest expense		121,987	78,084
Increase in derivative financial assets		(23,165)	-
(Decrease) / increase in derivative financial liabilities		(18,386)	151,127
Increase / (decrease) in payables and appropriations	12	287,600	(2,436)
Decrease / (increase) in receivables excluding accrued
investment income	11	16,461	(67,289)

Net cash outflow from operating activities before
investment income		(461,465)	(291,466)

Investment income received		930,624	873,262

Net cash flow from operating activities before taxation		469,159	581,796

Tax paid		-	-

Net cash flow from operating activities after taxation		469,159	581,796

Investing activities

Purchase of financial assets	10	(7,576,479)	(3,081,851)
Sale of financial assets	10	5,929,161	4,580,632

Net cash flow from investing activities		(1,647,318)	(1,498,781)

Financing activities

Equity dividends paid	8	(611,610)	(553,374)
Drawdown of bank loan	13	1,650,000	-
Repayment of bank loan	13	(6,000,000)	(1,650,000)
Purchase of own shares	16	(96,193)	(207,018)
Bank loan interest paid		(99,553)	(78,084)
Proceeds from issue of ZDP shares		12,000,000	-
Cost of issue of ZDP shares		(386,002)	-

Net cash flow from financing activities		6,456,642	(2,488,476)

Increase/ (decrease) in cash and cash equivalents		5,278,483	(407,899)

Cash and cash equivalents at beginning of year		551,030	958,929

Cash and cash equivalents at end of year		5,829,513	551,030

The notes form an integral part of these financial statements.

STATEMENT OF CHANGES IN EQUITY

As at 31 December 2011

	Share Capital	Share Premium	Treasury Shares	Revenue Reserve	Special Reserve	Capital Reserve	Total

	31 Dec 2011	31 Dec 2011	31 Dec 2011	31 Dec 2011	31 Dec 2011	31 Dec 2011	31 Dec 2011
	GBP	GBP	GBP	GBP	GBP	GBP	GBP

Balances as at 1 January 2011	89,398	79,173	(207,018)	1,363,079	10,000,000	5,784,899	17,109,531
Total comprehensive income for the year attributable to shareholders	-	-	-	717,422	-	(880,267)	(162,845)
Dividends	-	-	-	(611,610)	-	-	(611,610)
Treasury shares acquired	-	-	(96,193)	-	-	-	(96,193)
Transfer between reserves	-	-	-	(1,200,000)	-	1,200,000	-

Balances as at 31 December 2011	89,398	79,173	(303,211)	268,891	10,000,000	6,104,632	16,238,883

	Share Capital	Share Premium	Treasury Shares	Revenue Reserve	Special Reserve	Capital Reserve	Total

	31 Dec 2010	31 Dec 2010	31 Dec 2010	31 Dec 2010	31 Dec 2010	31 Dec 2010	31 Dec 2010
	GBP	GBP	GBP	GBP	GBP	GBP	GBP

Balances as at 1 January 2010	89,398	79,173	-	1,348,416	10,000,000	214,019	11,731,006
Total comprehensive income for the year attributable to shareholders	-	-	-	568,037	-	5,570,880	6,138,917
Dividends	-	-	-	(553,374)	-	-	(553,374)
Treasury shares acquired	-	-	(207,018)	-	-	-	(207,018)
Transfer between reserves	-	-	-	-	-	-	-

Balances as at 31 December 2010	89,398	79,173	(207,018)	1,363,079	10,000,000	5,784,899	17,109,531

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2011

ACCOUNTING POLICIES

(a) Basis of preparation

The financial statements, which give a true and fair view, have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB"), the AIC's SORP (as revised in January 2009) where this is consistent with the requirements of IFRS and in compliance with The Companies (Guernsey) Law, 2008 (as amended). All accounting policies adopted for the period are consistent with IFRS issued by the IASB. The financial statements have been prepared on an historical cost basis except for the measurement at fair value of financial assets designated as at fair value through profit or loss and derivative financial instruments.

The following Standards or Interpretations have been adopted in the current year. Their adoption has not had any impact on the amounts reported in these financial statements and is not expected to have any impact on future financial periods:

IAS 1 Presentation of Financial Statements (annual amendments).

IFRS 7 Financial Instruments: Disclosures (annual amendments).

IAS 24 Related Party Disclosures - revised definition of related parties.

The following Standards or Interpretations have been issued by the IASB but not yet adopted by the Company:

IFRS 7 Financial Instruments: Disclosures - Amendments enhancing disclosures about transfer of financial assets effective for annual periods beginning on or after 1 July 2011.

IFRS 7 Financial Instruments: Disclosures - Amendments enhancing disclosures about offsetting of financial assets and financial liabilities effective for annual periods beginning on or after 1 January 2013.

IFRS 7 Financial Instruments: Disclosures - Amendments requiring disclosures about the initial application of IFRS 9 effective for annual periods beginning on or after 1 January 2015.

IFRS 9 Financial Instruments - Classification and Measurement (revised November 2009) effective for annual periods beginning on or after 1 January 2015.

IFRS 9 Financial Instruments - Accounting for financial liabilities and derecognition effective for annual periods beginning on or after 1 January 2015.

IFRS 13 Fair Value Measurement effective for annual periods beginning on or after 1 January 2013.

IAS 1 Presentation of Financial Statements - Amendments to revise the way other comprehensive income is presented effective for annual periods beginning on or after 1 July 2012.

IAS 32 Financial Instruments: Presentation - Amendments to application guidance on the offsetting of financial assets and liabilities effective for annual periods beginning on or after 1 January 2014.

The Directors have considered the above and are of the opinion that these Standards and Interpretations are not expected to have an impact on the Company's financial statements except for the presentation of additional disclosures and changes to the presentation of components of the financial statements. These items will be applied in the first financial period for which they are required.

(b) Use of estimates and judgements

The preparation of the financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Management use estimates and judgements in allocating expenses between Revenue and Capital and in ascertaining the risk disclosures contained in note 19.

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity.

(d) Zero Dividend Preference shares

Under IAS 32, the Zero Dividend Preference ("ZDP") shares are classified as financial liabilities and are held at amortised cost. Appropriation for the period in respect of ZDP shares is included in the Statement of Comprehensive Income as a finance cost and is calculated using the effective interest method ("EIR"). The costs of issue of the ZDP shares are being amortised over the period until the ZDP shares will be redeemed.

(e) Taxation

The Company has been granted exemption under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 from Guernsey Income Tax, and pays an annual fee of £600.

(f) Treasury shares

Treasury shares are classified as a deduction from equity and recorded for the consideration paid.

(g) Capital reserve

The following are accounted for in this reserve:

- gains and losses on the realisation of investments;

- expenses charged to this account in accordance with the policy below;

- increases and decreases in the valuation of the investments held at the year end; and

- unrealised exchange differences of a capital nature.

(h) Expenses

All expenses are accounted for on an accruals basis. Expenses are charged to the capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated.

75% of the Company's management fee and financing costs are charged to the capital reserve in line with the Board's expected long-term split of returns between income and capital gains from the investment portfolio.

100% of any performance fee is charged to the capital account.

All other expenses are charged through the revenue account.

(i) Investment income

Interest income and dividends receivable are accounted for on an accruals basis. Interest income relates only to interest on bank balances. Bond income is accounted for on the effective interest rate ("EIR") basis. Dividends are recognised on the ex-dividend date.

(j) Foreign currency translation

The currency of the primary economic environment in which the Company operates (the functional currency) is Great British Pounds (GBP) which is also the presentational currency.

Transactions denominated in foreign currencies are translated into GBP at the rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities, denominated in foreign currencies at the reporting date are translated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation, other than for investments, are recognised in the Statement of Comprehensive Income. Foreign exchange differences relating to investments are taken to the capital reserve. Realised and unrealised foreign exchange differences on non-capital assets or liabilities are taken to the Statement of Comprehensive Income in the period in which they arise.

(k) Cash and cash equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits and short term, highly liquid investments readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash, deposits at bank and money market deposits.

(l) Investments

All investments have been designated as financial assets at "fair value through profit or loss". Investments are initially recognised on the date of purchase at fair value, with transaction costs recognised in the Statement of Comprehensive Income. Unrealised gains and losses on movement in fair value of investments are recognised in the Statement of Comprehensive Income. Investments are derecognised on the date of sale. Gains and losses on the sale of investments will be taken to the Statement of Comprehensive Income in the period in which they arise and is calculated using the average cost method. For investments actively traded in organised financial markets, fair value is determined by reference to quoted market bid prices as at the close of business on the reporting date.

(m) Derivatives

Derivatives consist of forward exchange contracts which are stated at market value, with the resulting net realised and unrealised gains and losses being reflected in the Statement of Comprehensive Income.

(n) Trade date accounting

All "regular way" purchases and sales of financial assets are recognised on the "trade date", i.e. the date that the entity commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of the asset within the timeframe generally established by regulation or convention in the market place.

(o) Segmental reporting

The Company retains two Investment Advisers, Unicorn Asset Management Limited and Premier Fund Managers Limited for the Smaller Companies Portfolio and Income Portfolio respectively. As the Board reviews the performance of each portfolio separately and decides on the allocation of resources based on this performance, the Board has determined that the Company has two reportable segments (2010: two).

The Board is charged with setting the Company's investment strategy in accordance with the Prospectus. They have delegated the day to day implementation of this strategy to its Investment Advisers but retain responsibility to ensure that adequate resources of the Company are directed in accordance with their decisions. The investment decisions of the Investment Advisers are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Board. The Investment Advisers have been given full authority to act on behalf of the Company, including the authority to purchase and sell securities and other investments on behalf of the Company and to carry out other actions as appropriate to give effect thereto. Whilst the Investment Advisers may make the investment decisions on a day to day basis regarding the allocation of funds to different investments, any changes to the investment strategy or major allocation decisions have to be approved by the Board, even though they may be proposed by the Investment Advisers. The Board therefore retains full responsibility as to the major allocation decisions made on an ongoing basis. The Investment Advisers will always act under the terms of the Prospectus which cannot be radically changed without the approval of the Board and the Shareholders.

The key measure of performance used by the Board to assess the Company's performance and to allocate resources is the total return on the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

The schedule of principal investments held as at the period end are presented in the Investment Adviser's Report.

(p) Going concern

The Company has adequate financial resources and as a consequence, the directors believe the Company is well placed to manage its business risks successfully despite the current economic climate.

2 OPERATING SEGMENTS

The Company has two reportable segments, being the Income Portfolio and the Smaller Companies Portfolio. Each of these portfolios is managed separately as they entail different investment objectives and strategies and contain investments in different products.

For each of the portfolios, the Board reviews internal management reports on a quarterly basis. The objectives and principal investment products of the respective reportable segments are as follows:

Segment Investment objectives and principal investments products

Income Portfolio To maximise income through investments in sterling denominated fixed interest securities including corporate bonds, preference and permanent interest bearing shares, convertibles, reverse convertibles, debentures and other similar securities.

Smaller Companies Portfolio To maximise income and capital growth through investments in UK equities with a market capitalisation of under £1 billion.

Information regarding the results of each reportable segment is included below. Performance is measured based on the increase in value of each portfolio, as included in the internal management reports that are reviewed by the Board.

Segment information is measured on the same basis as those used in the preparation of the Company's financial statements.

	Income Portfolio	Smaller Companies Portfolio	Unallocated	Total
	GBP	GBP	GBP	GBP
2011
External revenues:
Net (losses) / gains on financial assets designated as at fair value through profit or loss	(299,774)	(17,874)	-	(317,648)
Losses on derivative financial instruments	(349,682)	-	35,250	(314,432)
Investment income:
Bank interest	-	-	1,280	1,280
Dividend income	66,189	666,712	-	732,901
Bond income	266,584	-	-	266,584
Sundry income	-	-	-	-
Total income and gains / (losses)	(316,683)	648,838	36,530	368,685

Expenses	-	-	(409,543)	(409,543)

Interest payable and similar charges	-	-	(121,987)	(121,987)

Total comprehensive income for the year attributable to shareholders	(316,683)	648,838	(495,000)	(162,845)

	Income Portfolio	Smaller Companies Portfolio	Unallocated	Total
	GBP	GBP	GBP	GBP
2011
Financial assets designated as at fair value through profit or loss	5,327,783	16,714,880	-	22,042,663
Receivables	227,747	97,308	36,675	361,730
Cash and cash equivalents	1,038,855	4,542,956	247,702	5,829,513
Derivative financial assets	-	-	23,165	23,165

Total assets	6,594,385	21,355,144	307,542	28,257,071

Derivative financial liabilities	(24,178)	-	-	(24,178)
Payables	(208,559)	-	(11,785,451)	(11,994,010)

Total liabilities	(232,737)	-	(11,785,451)	(12,018,188)
	Income Portfolio	Smaller Companies Portfolio	Unallocated	Total
	GBP	GBP	GBP	GBP
2010
External revenues:
Net (losses) / gains on financial assets designated as at fair value through profit or loss	148,404	5,583,053	-	5,731,457
Gains on foreign currency contracts	-	-	8,178	8,178
Investment income:
Bank interest	-	-	138	138
Dividend income	54,608	522,701	-	577,309
Bond income	213,281	-	-	213,281
Sundry income	-	-	36,004	36,004
Total income and gains	416,293	6,105,754	44,320	6,556,367

Expenses	-	-	(349,366)	(349,366)

Interest payable and similar charges	-	-	(78,084)	(78,084)

Total comprehensive income for the year attributable to shareholders	416,293	6,105,754	(383,130)	6,138,917

Financial assets designated as at fair value through profit or loss	3,946,251	16,766,742	-	20,712,993
Receivables	155,502	66,752	85,796	308,050
Cash and cash equivalents	93,850	314,095	143,085	551,030

Total assets	4,195,603	17,147,589	228,881	21,572,073

Derivative financial assets	(10,057)	-	(32,507)	(42,564)
Payables	-	-	(4,419,978)	(4,419,978)

Total liabilities	(10,057)	-	(4,452,485)	(4,462,542)

Geographical information

In presenting information on the basis of geographical segments, segment revenue and segment assets are based on the domicile countries of the investees.

				Other
	UK	Guernsey	Jersey	Europe	US	Australia	Total
31 Dec 2011 External revenues	GBP	GBP	GBP	GBP	GBP	GBP	GBP
Total
Revenue	800,745	76,516	23,750	80,287	12,264	5,922	999,485

				Other
	UK	Guernsey	Jersey	Europe	US	Australia	Total
31 Dec 2010 External revenues	GBP	GBP	GBP	GBP	GBP	GBP	GBP
Total
Revenue	671,186	50,560	15,000	27,844	17,750	8,250	790,590

The Company did not hold any non-current assets during the year other than financial instruments (2010: nil).

Major customers

The Company regards its shareholders as customers. The Company's only shareholder with a holding greater than 10% at the year end was Charles Stanley Group plc.

3 INVESTMENT INCOME

	Year ended 31 Dec 2011	Year ended 31 Dec 2010
	GBP	GBP

Bank interest	1,280	138
Dividend income	732,901	577,309
Bond income	266,584	213,281
Sundry income	-	36,004

	1,000,765	826,732

4 LOSSES ON DERIVATIVE FINACIAL INSTRUMENTS

	Year ended 31 Dec 2011	Year ended 31 Dec 2010
	GBP	GBP

Unrealised gain / (loss) on forward foreign currency contracts	43,379	(70,664)
Realised (loss) / gain on forward foreign currency contracts	(8,129)	78,842
Depreciation on fair value of derivative financial assets	(14,121)	(44,057)
Realised (losses) / gains on derivative financial assets	(335,561)	12,377

	(314,432)	(23,502)

5 EXPENSES

	Year ended 31 Dec 2011
	Revenue	Capital	Total
	GBP	GBP	GBP

Manager's fee	41,159	123,475	164,634
Administrator's fee	58,289	-	58,289
Registrar's fee	5,019	-	5,019
Directors' fees	47,387	-	47,387
Custody fees	14,735	-	14,735
Audit fees	22,067	-	22,067
Directors' and Officers' insurance	12,154	-	12,154
Annual fees	15,039	-	15,039
Bank charges	4,872	-	4,872
Commission paid	-	33,222	33,222
Sundry costs	13,140	-	13,140
Legal and professional fees	11,680	-	11,680
Loss on foreign exchange	7,305	-	7,305

	252,846	156,697	409,543

	Year ended 31 Dec 2010
	Revenue	Capital	Total
	GBP	GBP	GBP

Manager's fee	33,425	100,273	133,698
Administrator's fee	57,747	-	57,747
Registrar's fee	5,620	-	5,620
Directors' fees	50,000	-	50,000
Custody fees	12,174	-	12,174
Audit fees	20,996	-	20,996
Directors' and Officers' insurance	12,108	-	12,108
Annual fees	18,397	-	18,397
Bank charges	6,418	-	6,418
Commission paid	-	9,919	9,919
Sundry costs	12,825	-	12,825
Legal and professional fees	4,500	-	4,500
Loss on foreign exchange	4,964	-	4,964

	239,174	110,192	349,366

6 DIRECTORS' REMUNERATION

Under their terms of appointment, each Director is paid a fee of £15,000 per annum by the Company, except for the Chairman, who receives £20,000 per annum.

7 INTEREST PAYABLE AND SIMILAR CHARGES

	Year ended 31 Dec 2011	Year ended 31 Dec 2010
	GBP	GBP

Bank loan interest	99,553	78,084
Appropriation in respect of ZDP shares	20,400	-
Amortisation of ZDP issue costs	2,034	-

	121,987	78,084

8 DIVIDENDS IN RESPECT OF ORDINARY SHARES

	Year ended 31 Dec 2011
	GBP	Pence per share

First interim payment	153,559	1.75
Second interim payment	152,684	1.75
Third interim payment	152,684	1.75
Fourth interim payment	152,683	1.75

	611,610	7.00

	Year ended 31 Dec 2010
	GBP	Pence per share

First interim payment	134,097	1.50
Second interim payment	134,097	1.50
Third interim payment	131,622	1.50
Fourth interim payment	153,558	1.75

	553,374	6.25

9 EARNINGS PER SHARE

Ordinary shares

The total return per Ordinary share is based on the total return on ordinary activities for the year attributable to Ordinary shareholders of -£162,845 (2010: £6,138,917) and on 8,742,735 (2010: 8,851,078) shares, being the weighted average number of shares in issue during the year. There are no dilutive instruments and therefore basic and diluted gain per share are identical.

The revenue return per Ordinary share is based on the revenue return on ordinary activities for the year attributable to Ordinary shareholders of £717,422 (2010: £568,037) and on 8,742,735 (2010: 8,851,078) shares, being the weighted average number of shares in issue during the year. There are no dilutive instruments and therefore basic and diluted gain per share are identical.

The capital return per Ordinary share is based on the capital return on ordinary activities for the year attributable to Ordinary shareholders of -£880,267 (2010: £5,570,880) and on 8,742,735 (2010: 8,851,078) shares, being the weighted average number of shares in issue during the year. There are no dilutive instruments and therefore basic and diluted gain per share are identical.

ZDP shares

The return per ZDP share is based on the appropriation in respect of ZDP shares and the amortisation of ZDP shares issue costs totalling £22,434 (2010: £nil) and on 361,644 (2010: nil) shares, being the weighted average number of ZDP shares in issue during the year.

10 FINANCIAL ASSETS DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR LOSS

	31 Dec 2011	31 Dec 2010
	GBP	GBP
INVESTMENTS
Opening portfolio cost	13,777,724	15,180,445

Unrealised appreciation on valuation brought forward	6,935,269	1,167,465

Opening valuation	20,712,993	16,347,910

Movements in the year
Purchases at cost	7,576,479	3,081,851
Sales
- proceeds	(5,929,161)	(4,479,905)
- realised gains / (losses) on sales	2,068,784	(4,667)

Unrealised (depreciation) / appreciation on valuation for the year	(2,386,432)	5,767,804

Fair value of investments at 31 December 2011	22,042,663	20,712,993

Closing book cost	17,493,826	13,777,724
Closing unrealised appreciation	4,548,837	6,935,269

	22,042,663	20,712,993

Realised gains / (losses) on sales	2,068,784	(4,667)
(Decrease) / increase in unrealised appreciation	(2,386,432)	5,767,804

Net (losses) / gains on financial assets designated as at fair value through profit or loss	(317,648)	5,763,137

As at 31 December 2011, the closing fair value of investments comprises £17,709,268 (2010: £16,766,742) of equity shares and £4,333,395 (2010: £3,946,251) of fixed income securities.

IFRS 7 requires the fair value of investments to be disclosed by the source of inputs, using a three-level hierarchy as detailed below:

Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2);

Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

The Investments held by the Company have been classified as Level 1. This is in accordance with the fair value hierarchy.

Details of the value of each classification are listed in the table below. Values are based on the quoted market bid prices of the investments as at the reporting date.

Financial assets designated as at fair value through profit or loss	31 Dec 2011 Market Value	31 Dec 2011 Market Value	31 Dec 2010 Market Value	31 Dec 2010 Market Value
	%	GBP	%	GBP

Level 1	100	22,042,663	100	20,712,993

Total	100	22,042,663	100	20,712,993

Derivative financial assets and liabilities designated as at fair value through profit or loss	31 Dec 2011 Market Value	31 Dec 2011 Market Value	31 Dec 2010 Market Value	31 Dec 2010 Market Value
	%	GBP	%	GBP

Level 2 derivative financial assets	100	23,165	100	-

Level 2 derivative financial liabilities	100	24,178	100	42,564

There have been no transfers between levels of the fair value hierarchy during the year under review.

The derivative financial instruments held by the Company have been classified as Level 2. This is in accordance with the fair value hierarchy. The Company uses widely recognised valuation models for determining the fair value of derivative financial instruments that use only observable market data and require little management judgement and estimation.

11 RECEIVABLES

	31 Dec 2011	31 Dec 2010
	GBP	GBP

Prepayments	2,977	2,554
Accrued income	203,178	133,037
Sundry receivables	155,575	172,459

	361,730	308,050

12 PAYABLES - amounts falling due within one year

	31 Dec 2011	31 Dec 2010
	GBP	GBP

Accrued expenses	107,698	68,778
Sundry payables	208,559	1,200
Trade creditors	41,321	-

	357,578	69,978

13 PAYABLES - amounts falling due after one year

	31 Dec 2011	31 Dec 2010
	GBP	GBP

Long term bank loan	-	4,350,000

Under a loan agreement dated 13 February 2007 between the Company and the Bank of Scotland a £6,000,000 Revolving Credit Facility was arranged for a period of five years. The interest rate payable on this facility was 1% over Libor with a non-utilisation charge of 0.5% on any undrawn part of the facility.

The capital covenant on the facility requires a ratio of specified investment to debt of 2:1. Specified investments include UK listed securities with a market capitalisation of over £50 million, investment grade bonds and reverse convertible bonds meeting certain criteria relating to the issuer and the reference equity, gilts or US Treasury stock and cash. During the year, the Company has complied with all loan covenants.

During the year, the Company repaid the loan in full.

14 ZDP SHARES

	31 Dec 2011	31 Dec 2010
	GBP	GBP

ZDP share entitlement	11,636,432	-

The above entitlement comprises the following:

12,000,000 ZDP shares issued 21 December 2011	12,000,000	-
Appropriation to 31 December 2011	20,400	-

ZDP value (announced)	12,020,400	-
ZDP issue costs	(386,002)	-
Issue costs amortised during year	2,034	-

ZDP value (IFRS)	11,636,432	-

	Pence	Pence

Net asset value per ZDP share (announced)	100.17	-

Net asset value per ZDP share (IFRS)	96.97	-

ZDP shares carry no entitlement to income distributions to be made by the Company. The ZDP shares will not pay dividends but have a final capital entitlement at the end of their life on 31 January 2017 of 138 pence. It should be noted that the predetermined capital entitlement of a ZDP share is not guaranteed and is dependent upon the Company's gross assets being sufficient on 31 January 2017 to meet the final capital entitlement of ZDP shares. The ZDP shares have the right to receive notice of and attend, but shall not have the right to vote at, any general meeting.

Under the Articles of Association, the Company is obliged to redeem all of the ZDP shares on 31 January 2017 (if such redemption has not already been effected).

The number of authorised ZDP shares is 50,000,000.

15 SHARE CAPITAL

Authorised		GBP

Ordinary shares of 1p each		10,000,000


Issued		Number of
		shares
The issue of Ordinary shares took place as follows:
Ordinary shares	11 February 1999	29,600,002
Tender offer	17 January 2007	(20,660,212)
Purchase of treasury shares - Year ended 31 December 2010		(165,000)

Number of shares in issue at 1 January 2011		8,774,790

Purchase of treasury shares 12 May 2011		(50,000)

Number of shares in issue at 31 December 2011		8,724,790


		GBP

Issued capital as at 31 December 2011		89,398

16 TREASURY SHARES

	31 Dec 2011	31 Dec 2010
	GBP	GBP

Balance as at 1 January 2011	(207,018)	-
Acquired during the period	(96,193)	(207,018)

Balance as at 31 December 2011	(303,211)	(207,018)

The treasury shares reserve represents 215,000 Ordinary shares purchased in the market at various prices ranging from £1.235 to £1.92 and held by the Company in treasury. 50,000 Shares were purchased and no cancellations of Shares took place during the year under review.

17 RELATED PARTIES

Premier Asset Management (Guernsey) Limited is the Company's Manager and operates under the terms of the management agreement in force which gives it complete control over the Company's investment portfolio. For further details regarding the terms of the management agreement see the section in the Report of the Directors.

£164,634 (2010: £133,698) of costs were incurred by the Company with this related party in the year, of which £42,466 (2010: £36,365) was due to this related party as at 31 December 2011.

Directors' remuneration is disclosed in Note 6.

18 FINANCIAL INSTRUMENTS

The Company's main financial instruments comprise:

(a) Cash and cash equivalents that arise directly from the Company's operations;

(b) Investments in listed securities, fixed income securities and derivative financial assets;

(d) Derivative financial liabilities.

19 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The following table details the categories of financial assets and liabilities held by the Company at the reporting date:

	31 Dec 2011	31 Dec 2010
	GBP	GBP
Financial assets
Financial assets at fair value through profit or loss	22,042,663	20,712,993

Total financial assets at fair value through profit or loss	22,042,663	20,712,993

Loans and receivables	6,191,243	859,080
Derivative financial assets	23,165	-
	6,214,408	859.080

Total assets	28,257,071	21,572,073

Financial liabilities
Payables due within one year	357,578	69,978
Financial liabilities at fair value through profit or loss:
Derivative financial liabilities	24,178	42,564

Total financial liabilities	381,756	112,542

Financial liabilities measured at amortised cost	11,636,432	4,350,000

Total liabilities	12,018,188	4,462,542

Loans and receivables presented above represents cash and cash equivalents, balances due from brokers and other receivables as detailed in the Statement of Financial Position.

Financial liabilities measured at amortised cost presented above represents ZDP shares as detailed in the Statement of Financial Position.

Derivative financial liabilities presented above represent forward foreign exchange contracts.

The main risks arising from the Company's financial instruments are market price risk, credit risk, liquidity risk, interest rate risk and foreign exchange risk. The Board regularly review and agrees policies for managing each of these risks and these are summarised below:

(a) Market Price Risk

Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Investment Advisers actively monitor market prices and report to the Board as to the appropriateness of the prices used for valuation purposes. The Investment Advisers also attempt to minimise market price risk by undertaking a detailed analysis of the risk/reward relationship of each investee company prior to any investment being made.

Price sensitivity

The following details the Company's sensitivity to a 15% increase and decrease in the market prices, with 15% being the sensitivity rate used when reporting price risk internally to key management personnel and representing management's assessment of the possible change in market prices.

At 31 December 2011, if market prices had been 15% higher with all the other variables held constant, the return attributable to shareholders for the year would have been £3,306,399 (2010: £3,106,949) greater, due to the increase in the fair value of financial assets at fair value through profit or loss. This would represent an increase in Net Assets of 20.36% (2010: 18.16%).

If market prices had been 15% lower with all the other variables held constant, the net return attributable to shareholders for the year would have been £3,306,399 (2010: £3,106,949) lower, due to the decrease in the fair value of financial assets at fair value through profit or loss. This would represent a decrease in Net Assets of 20.36% (2010: 18.16%).

(b) Credit Risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company. The Directors receive financial information on a regular basis which is used to identify and monitor risk. It is Company policy not to invest more than 20% of the gross assets of the Company in the securities of any one company or group at the time the investment is made.

The Company has no significant concentration of credit risk, with exposure spread over a large number of counterparties. At 31 December 2011 the Company's largest exposure to a single investment was £1,420,813 (2010: £1,412,172), 5.03% (2010: 6.55% ) of total assets.

Investors should be aware that the prospective returns to Shareholders mirror the returns under the Quoted Securities held or entered into by the Company and that any default by an issuer of any such Quoted Security held by the Company would have a consequential adverse effect on the ability of the Company to pay some or all of the entitlement to Shareholders. Such a default might, for example, arise on the insolvency of an issuer of a Quoted Security.

The Company's financial assets exposed to credit risk are as follows:

	31 Dec 2011	31 Dec 2010
	GBP	GBP

Financial assets designated as at fair value through profit or loss (fixed income securities only)	4,333,395	3,946,251
Cash and cash equivalents	5,829,513	551,030
Interest, dividends and other receivables	361,730	308,050

	10,524,638	4,805,331

The credit ratings of the bonds, as rated by Moody's Investor Services Inc ("Moody's") were:

Rating	31 Dec 2011	31 Dec 2010
Aaa	9.60%	4.13%
Aa	1.67%	9.20%
A	17.64%	25.58%
Baa	22.46%	25.95%
Ba	7.08%	9.01%
WR	0.00%	1.10%
No Rating available	41.55%	25.03%

The cash and cash equivalents were held with BNP Paribas, which at the time of signing this report held a credit rating, as rated by Moody's, of Aa3.

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. The Company's main financial commitment is its ongoing operating expenses and the settlement of the obligation upon maturity of the ZDP shares on 31 January 2017. The latter requirement is a new commitment at this year end as during the year, ZDP shares were issued and the previously held bank loan repaid.

The Investment Advisers ensure that the Company has sufficient liquid resources available to fulfil its operational plans and to meet its financial obligations as they fall due. This is monitored by carrying out a solvency calculation on a quarterly basis by reference to management accounts and revenue projections. The Board will approve, if appropriate, a Solvency Certificate resolution prior to declaring any interim dividend distributions.

The ZDP shares will not pay dividends but will have a final capital entitlement at the end of their life on 31 January 2017 of 138 pence. It should be noted that the predetermined capital entitlement of a ZDP share is not guaranteed and is dependent upon the Company's gross assets being sufficient on 31 January 2017 to meet the final capital entitlement of the ZDP shares.

The Board intend to monitor the financial position of the Company to ensure that it has sufficient liquid resources available to fulfil its obligation upon maturity of the ZDP shares.

The table below details the residual contractual maturities of financial liabilities:

As at 31 December 2011:

	1-3 months	Over 3 years
	GBP	GBP
Financial liabilities including derivatives
Payables - due within one year	357,578	-
Derivative financial instruments	24,178	-
Loans payable	-	-
ZDP share entitlement	-	11,636,432

	381,756	11,636,432

As at 31 December 2010:

	1-3 months	Over 1 year
	GBP	GBP
Financial liabilities including derivatives
Payables - due within one year	69,978	-
Derivative financial instruments	42,564	-
Loans payable	-	4,350,000
ZDP share entitlement	-	-

	112,542	4,350,000

(d) Interest Rate Risk

The Company could hedge interest rate risk using various different methods.

The following table details the Company's exposure to interest rate risks. It includes the Company's assets and liabilities at fair values, categorised by the earlier of contractual re-pricing or maturity date measured by the carrying value of the assets and liabilities.

As at 31 December 2011

	Less than 1 month	1 to 3 months	Fixed interest		Non-interest Bearing		Total
	GBP	GBP	GBP		GBP		GBP
Financial Assets
Financial assets at fair value through profit or loss on initial recognition	-	-	4,333,395	17,709,268		22,042,663
Cash and cash equivalents	5,829,513	-	-	-		5,829,513
Interest, dividends and other receivables	-	-	-	361,730		361,730
Derivative financial instruments	-	-	-	23,165		23,165

Total Financial Assets	5,829,513	-	4,333,395	18,094,163		28,257,071

Financial Liabilities
Derivative financial instruments	-	-	-	24,178	24,178
Payables	-	-	-	357,578	357,578
Loans payable	-	-	-	-	-
ZDP share entitlement	-	-	11,636,432	-	11,636,432

Total Financial Liabilities	-	-	11,636,432	381,756	12,018,188
Total interest sensitivity gap	5,829,513	-	(7,303,037)

As at 31 December 2010

	Less than 1 month	1 to 3 months	Fixed interest	Non-interest Bearing	Total
	GBP	GBP	GBP	GBP	GBP
Financial Assets
Financial assets at fair value through
profit or loss on initial recognition	-	-	3,642,210	17,070,783	20,712,993
Cash and cash equivalents	551,030	-	-	-	551,030
Interest, dividends and other
receivables	-	-	-	308,050	308,050

Total Financial Assets	551,030	-	3,642,210	17,378,833	21,572,073

Financial Liabilities
Derivative financial instruments	-	-	-	42,564	42,564
Payables	-	-	-	69,978	69,978
Loans payable	4,350,000	-	-	-	4,350,000
ZDP share entitlement	-	-	-	-	-

Total Financial Liabilities	4,350,000	-	-	112,542	4,462,542
Total interest sensitivity gap	3,798,970	-	3,642,210

Interest rate sensitivity only takes account of the effect of interest rate movements on cash balances and loan amounts. Any other interest rate risks are already reflected in the market price risk disclosures at Note 19(a).

Interest rate sensitivity

If interest rates had been 25 basis points higher and all other variables were held constant, the Company's return attributable to shareholders for the year ended 31 December 2011 would have increased by approximately £14,574 (2010: decreased £9,497) or 0.05% (2010: 0.04%) of Total Assets due to an increase in the amount of interest receivable on the bank balances of £14,574 (2010: £1,378) offset by an increase in the amount of interest payable on the bank loan of £nil (2010: £10,875).

If interest rates had been 25 basis points lower and all other variables were held constant, the Company's return attributable to shareholders for the year ended 31 December 2011 would have decreased by approximately £14,574 (2010: increased £9,497) or 0.05% (2010: 0.04%) of Total Assets due to a decrease in the amount of interest receivable on the bank balances of £14,574 (2010: £1,378) offset by a decrease in the amount of interest payable on the bank loan of £nil (2010: £10,875).

(e) Foreign Exchange Risk

Forward currency transactions are used to hedge the foreign currency exposure in bonds, other investments and cash balances held within the portfolio. The purpose of the hedge is to protect the Company's assets from a decline in value that might arise from the depreciation of a foreign currency against sterling.

At 31 December 2011, the Company's holdings in forward currency contracts translated into GBP were as specified below:

Type of contract	Expiration	Underlying	Notional amount of contracts outstanding	Fair value assets / (liabilities)
				GBP
Forward	March 2012	Sold EUR	250,000	228
Forward	March 2012	Sold EUR	200,000	538
Forward	March 2012	Sold EUR	1,367,000	25,739
Forward	March 2012	Sold USD	630,000	(2,336)
Forward	March 2012	Sold USD	185,000	(1,004)

				23,165

At 31 December 2010, the Company's holdings in forward currency contracts translated into GBP were as specified below:

Type of contract	Expiration	Underlying	Notional amount of contracts outstanding	Fair value assets / (liabilities)
				GBP
Forward	March 2011	Sold EUR	1,130,000	(22,644)
Forward	March 2011	Sold USD	310,000	(1,675)
Forward	March 2011	Sold AUD	220,000	(8,188)

				(32,507)

Exchange rate exposures are managed by minimising the amount of foreign currency held at any one time and entering into forward exchange contracts.

The following table sets out the Company's total exposure to foreign currency risk and the net exposure to foreign currencies of the monetary assets and liabilities:

31 December 2011

	Monetary Assets	Monetary Liabilities	Forward FX Contracts	Net Exposure
	GBP	GBP	GBP	GBP

Euro	1,733,908	(208,559)	(1,542,314)	(16,965)
US Dollar	536,790	-	(521,012)	15,778
Australian Dollar	14,543	-	-	14,543

31 December 2010

Euro	841,235	-	(946,322)	(105,086)
US Dollar	178,336	-	(196,717)	(18,381)
Australian Dollar	99,741	-	(135,998)	(36,257)

Amounts in the above tables are based on the carrying value of monetary assets and liabilities and the underlying principal amount of forward currency contracts.

(f) Capital Management

The principal investment objectives of the Company are to provide shareholders with a high income and also the opportunity for income and capital growth by investing primarily in smaller capitalised United Kingdom companies admitted to the Official List of the United Kingdom Listing Authority and traded on the London Stock Exchange or traded on AIM.

The Company's portfolio is invested in equities and high income and fixed interest and other income-bearing securities in order to achieve its investment objectives. It is the aim of the Company to provide both income and capital growth predominantly through investment of approximately 70% of the portfolio in smaller capitalised United Kingdom companies. The Company also aims to further enhance income for shareholders by investing approximately 30% of its assets in high yielding securities which will be predominantly fixed income securities (including corporate bonds, preference and permanent interest bearing shares, convertible and reverse convertible bonds and debentures) but may include up to 15% of the portfolio (measured at time of acquisition) in high yielding investment company shares.

As the Company's Ordinary Shares are traded on the London Stock Exchange, the Ordinary Shares may trade at a discount to their Net Asset Value per Share on occasion. However, the Directors and the manager monitor the discount on a regular basis and can use share buy backs to manage the discount as detailed within this report.

The Company monitors capital on the basis of the carrying amount of equity as presented on the face of the statement of financial position. Capital for the reporting periods under review is summarised as follows:

	GBP

Distributable reserves	268,891
Share capital and share premium	168,571
Non distributable reserves	16,104,632
Treasury shares	(303,211)

Total	16,238,883

The distributable reserves comprises the revenue reserve. Included in non distributable reserves are the special reserve and the capital reserve. The special reserve was created on the cancellation of part of the Company's share premium account. The directors have resolved that the capital reserve and special reserve are non distributable reserves.

For further information about this announcement contact:

Anson Fund Managers Limited

Secretary

Tel: 01481 722 260

19 April 2012

END OF ANNOUNCEMENT

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