Annual Financial Report

RNS Number : 6060A

Acorn Income Fund Ld

22 March 2013

 



ACORN INCOME FUND LIMITED

ANNOUNCEMENT OF RESULTS

The Directors announce the statement of results for the year ended 31 December 2012 as follows:

Investment Objectives and Policy for the year ended 31 December 2012

The objectives of Acorn Income Fund Limited (the "Company") 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

In August 2012 John Boothman, who had been Chairman of the Company since October 2003, stood down from the Board and I took over as Chairman.  We were fortunate in having David Warr join the Board and take my place as Chairman of the Audit Committee.  I would like to take this opportunity to formally express my thanks to John for the significant contribution he made to the Company during his period in office and to welcome David to the Board.  David brings considerable experience to the Board having previously served as a partner of Reads & Co and has been a qualified Chartered Accountant for over 30 years. In this, my first report as Chairman, I am delighted to be able to report a truly spectacular set of results for the Company.  Measured on share price total return (share price with dividends reinvested), the Company was the best performing Investment Company in 2012. (Source: Winterflood Securities Annual Review).

The Company's performance record has in fact been exceptional over longer time periods as well.  Comparing the Company to the forty one closed end funds in the Growth and Income, High Income, Small Companies High Income, UK mid cap and UK smaller companies sectors the Company was the best performing fund measured on Net Asset Value total return over one, three, five and ten years (as at 24 February 2013).  (Source: Morning Star and Numis Securities Limited).

Shortly before the start of the year we issued 12 million Zero Dividend Preference ("ZDP") Shares enabling the Company to repay its bank loan shortly ahead of the expiry date for the facility.  In issuing the ZDP Shares, your Board made a conscious decision to raise more capital than was required to repay the bank loan as our Investment Advisers saw value and opportunity in both smaller company equities and in the fixed interest markets and we felt it was an opportune time to increase gearing.  This decision proved timely as UK smaller companies out performed larger capitalisation stocks and the broad market rallied well over the year.  With the Income Portfolio also performing well the Company had an excellent year both in absolute terms and relative to the market.  The split capital structure and consequent increased dividend on the Ordinary Shares also helped the Company sustain a better rating in the market (lower discount to net asset value) than had been the case with the conventional structure of ordinary shares only. 

Investment Performance

As noted above, the Smaller Companies sector performed particularly well. The Numis Smaller Companies (Ex Investment Companies) Index (Total Return) rose by 29.9% over the year and the FTSE Small Cap (ex- investment trusts) Total Return Index was up 36.3%.  This compares to a 12.3% rise in the FTSE All Share Total Return Index.  The Company's total return on gross assets was 30.5% and with gearing from the ZDP Shares the return on net assets was 48%.

With a rerating to a narrower discount during the year ordinary shareholders enjoyed a total return on their share price of 60.5%.

Dividends

When the ZDP Shares were issued, your Board indicated that it was expecting to increase the dividend and pay four quarterly dividends of 3 pence each.  This was achieved over 2012.

Revenue earnings per share for the year were 12.33 (8.21 pence in 2011) and dividend of 12 pence compared to 7 pence in 2011. Revenue reserves stood at £268,891 at the start of the year and £297,363 at the year end, equivalent to 3.4 pence per ordinary share.

Discount

At the start of the year the Ordinary Shares were trading on a 17.5% discount.  By the year end this had narrowed to 11.4% and the package (total market capitalisation of the Ordinary and the ZDP Shares against the total assets of the Company) was at a 0.5% discount.  The Board had anticipated that the higher yield on the Ordinary Shares resulting from the split structure would assist the rating.  This together with good performance stimulated increased interest in the Company's shares from private investors. The Board reviewed its advisory arrangements at the start of 2013 and appointed Numis Securities as the Company's Corporate Broker to work closely with the Investment Advisers to broaden awareness and ownership of the Company, particularly in the private wealth management sector.

Authority to Issue New Shares

Simultaneously with announcing the year end results, the Company is posting a circular with proposals which include the issue of new Ordinary and new ZDP shares, amendments to the Memorandum, the adoption of new Articles and to convene an EGM and a class meeting of the ZDP Shareholders to seek authority for the proposals. The proposals for further share issuance have been prepared to enable the Company to meet anticipated demand given the Company's strong investment performance. The proposed authority provides for potential issues of Ordinary shares at discounts to NAV, but only in limited circumstances where new ZDP shares can at the same time be issued at a premium to NAV, thereby resulting in the NAV per existing Ordinary shares being enhanced where there is no increase in gearing. The proposed changes to the Memorandum and Articles are principally designed to bring them in line with Guernsey Companies Law. The proposals are conditional on the approval of Ordinary Shareholders at an EGM and, where indicated, the approval of ZDP Shareholders at a Class Meeting.

Outlook

As we entered 2013 the UK equity market rallied strongly, buoyed up by encouraging economic data from the US and recognition that equities looked increasingly attractive relative to the low yields available from UK government securities. Our Manager and Investment Advisers expect companies with strong balance sheets, good dividend cover and prospects for increasing earnings to be attractive to investors in search of real returns in a low interest rate environment. The Company's smaller company portfolio, with a focus on companies generating a high proportion of earnings from fast growing overseas economies, is well positioned to benefit from this trend and currently represents approximately 79% of  the Company's total assets which is at the top end of the normal 70 to 80% range. In the income portfolio our Investment Advisor continues to see opportunities in the fixed interest markets to exploit wrongly priced credit risks whilst remaining cautious regarding the outlook for interest rates.

Helen Green

Chairman

INVESTMENT ADVISERS' REPORT

Smaller Companies Portfolio

During the twelve months to 31 December 2012 the Smaller Companies Portfolio returned 32.7% before management costs, outperforming the benchmark Numis Smaller Companies Index (Ex Investment Companies) Index which returned 29.9%.  The number of holdings at the year end was 30.

This outperformance is particularly pleasing given that UK Smaller Companies were the best performing IMA asset class over 2012.  In fact all UK equity indices delivered robust returns, but UK Smaller Companies outperformed their larger capitalised counterparts by some margin.  This resilience is particularly notable given the backdrop of political and economic uncertainty across Europe and the US, such as the US elections, the 'Fiscal Cliff' negotiations, and the continued indebtedness of large areas of the Eurozone.

Following the issue of ZDP Shares, just prior to the start of the year, the Company was able to top up the majority of its existing holdings.  Six new holdings were also added: Silverdell, the environmental support services firm, was added as it is highly cash generative and focussed on geographically diverse markets facing stringent and increasing regulatory pressures; UK Mail, the provider of collection and delivery services, was added to get exposure to a major player in a restructuring market; Air Partner, the aircraft charter broker; Park Group, the payment card group; James Cropper, a specialist paper and technical fibre manufacturer; and Low & Bonar, the advanced textile developer and manufacturer.

Disposals from the Company were light with two holdings exited in full: Rotork was disposed of after its yield fell too far following an extended period of share price outperformance; a change in Stobart Group's strategy towards focussing on property prompted us to exit the holding.  Partial disposals were made from Renishaw, again after a period of exceptionally strong share price performance reduced the yield to an insignificant level; and RPC.

It is pleasing to report that of the thirty-two stocks that were held over the year only three delivered a negative contribution to performance, and none of these at a significant level. Strong share price performances were seen from the majority of the portfolio, the strongest of which are detailed below:

Renishaw(+106.0%) - the advanced metrological equipment manufacturer has continued to benefit from an increase in capital expenditure from economies, such as China, that are strategically positioning themselves further up the chain of added value production.

Vp(+55.3%) - a specialist equipment rental company engaged in the rental and sale of products to the civil engineering, rail, oil and gas exploration, construction, outdoor events, and industrial markets. Recent results confirmed strong trading as the company continues to gain market share.

Diploma(+63.2%) - the distributor has primarily benefitted from the exposure of its seals division to US earth moving equipment and increased activity through an upturn in US construction.

Secure Trust Bank (+89.2%) - a UK retail bank focused on providing lending solutions to UK customers who may not otherwise be able to access credit.  The bank is highly liquid; ending the year with robust capital and funding positions, and is successfully growing all lending portfolios and its current account product.

We believe the Smaller Companies Portfolio is well positioned to continue outperforming its benchmark as it remains focused on companies which sell specialised products and services to diverse international markets.  There is still very limited exposure to the UK consumer as we expect this area to see persistent spending pressure.  The Smaller Companies Portfolio should also benefit from an expected return of M&A activity.

John McClure

Unicorn Asset Management Limited 

Income Portfolio

Over the last year the High Income Portfolio provided a positive contribution to the performance of the Company, benefiting from the tightening in credit spreads, particularly Financials. The portfolio continues to generate a high income.

Inflation fell during the year with the Consumer Price Index falling from 3.6% to 2.7% and the Retail Prices Index from 3.9% to 3.0%.  However, the rate of inflation did appear to be on the rise again towards the end of the year caused by the introduction of tuition fees and higher energy prices.  LIBOR fell significantly over the year with the 3 month rate falling from 1.08% to 0.52% depicting the cheap finance now available to banks following various government and central bank policies.

The credit markets had a strong first quarter with the European Investment Grade Main Index which represents the most liquid investment grade names tightening from 174bps to 113bps in March before widening out to 184bps in June over concerns in Spain.  Subsequent European policy actions calmed the markets and the index tightened to end the year at 117bps.  The European Crossover Index which consists of the 40 most liquid sub investment grade names in the European market followed a similar pattern opening the year at 754bps and tightening to 504bps in March before widening out again to 751bps in late May and then performing strongly in the second half of the year tightening gradually to end the year at 484bps.  

On the portfolio side we maintained an overweight in financials throughout the year believing that greatest value was to be found over the medium to longer term.  This financials overweight consisted not only of contingent convertibles (CoCos) in stable banks such as Credit Suisse and Rabobank but also fund managers such as F&C and Fidelity and brokers such as ICAP. The Financials sector was the best performing sector in Sterling credit vindicating our large overweight position, and the financial bonds held also outperformed the sector by a handsome margin.  As the year closed we moved to take profit in certain financials names rotating from the most junior tranches into more senior tranches in banks and in high yield exposure

following the strong credit rally.  We also added risk in Real Estate Credit Investments preference shares as we lacked exposure to this potentially cheap asset class.  In Q3 we reduced our French government bond position at 63bps over the German government bonds having tightened in from a peak of 145bps during May.  Towards the end of the year we moved to increase our exposure to corporates buying bonds in names such as Marks & Spencer, Mitchells & Butlers and Rentokil.  Away from plain vanilla corporates we invested in the debut 3.75% due 2052 issue for University of Cambridge and the retail bond issue for the specialist property company Unite Group plc which is focused on UK student accommodation.

We remain overweight financial bonds despite some recent profit taking but are diversifying this financials exposure away from banks and are adding risk in corporate bonds and investment companies where the underlying asset class is cheap and we can see value in the discount to NAV.  We strategically look to take longer credit duration and hedge out the government duration. We are not restrained by credit ratings and prefer exposure to the 5B's (bonds rated triple B and double B).

Paul Smith

Premier Fund Managers Limited

SCHEDULE OF PRINCIPAL INVESTMENTS as at 31 December 2012

			NOMINAL		VALUATION		TOTAL
TOP 10 HOLDINGS			HOLDINGS				ASSETS
					GBP		%
Smaller Companies Portfolio
VP plc			466,414		1,576,479		4.45
James Halstead plc			245,500		1,473,000		4.16
Diploma plc			263,960		1,434,623		4.05
Lupus Capital plc			882,242		1,358,653		3.84
Castings plc			424,112		1,340,194		3.79
Consort Medical plc			171,171		1,321,440		3.73
Secure Trust Bank plc			78,009		1,201,339		3.39
Brewin Dolphin Holdings plc			580,506		1,193,520		3.37
RPC Group plc			300,000		1,191,000		3.36
British Polythene Industries			282,500		1,115,875		3.15
					13,206,123		37.29
Income Portfolio
GE Capital Funding 8% 14/01/2039			250,000		365,943		1.03
Credit Suisse 7.875% 24/02/2041			500,000		324,131		0.92
Greenwich Loan Income Fund Limited			625,000		320,313		0.90
Rabobank Nederland 6.875% 03/19/2020			350,000		316,375		0.89
Real Estate Credit Preference Shares NPV			300,000		301,500		0.85
Standard Life UK 3.5% CULS 231/03/2018			250,000		270,000		0.76
F&C Finance Plc 9% 20/12/2016			245,000		262,001		0.74
Invesco Leveraged High Yield Fund			425,000		261,375		0.74
Unite Group 6.125% 12/06/2020			250,000		254,000		0.72
Juridica Ord NPV			250,000		225,000		0.64
					2,900,637		8.17
TOTAL					16,106,759		45.48

SCHEDULE OF PRINCIPAL 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

COMPANY DETAILS

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. Gross proceeds of £12 million were raised from the issue of the ZDP Shares which enabled the repayment of all of the Company's borrowings of £6 million with the Royal Bank of Scotland 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.

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).

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 Ordinary Share (together with any dividends paid by reference to the relevant period) over the benchmark NAV per Ordinary Share. No performance fee was paid or is payable for the year under review. The total expenses ratio 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 2012 indicates that no refund is due from the Manager. The net management fee charged in 2012 was £226,575.

MANAGEMENT REPORT

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.

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

Director's Responsibility Statement

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

(a)        The management report (comprising the Chairman's Statement, the Investment Advisers' Reports and the Directors' 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.

Helen Green                                                 Nigel Ward

Chairman                                                        Director          

RISK FACTORS

The Board has an on-going 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 includes investments bearing interest at fixed rates.

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 2012

						Year ended												Year ended
					Notes	31 Dec 2012												31 Dec 2011
						Revenue				Capital				Total				Total
						GBP				GBP				GBP				GBP
	Net gains / (losses) on financial assets designated as at fair value through profit or loss
					10	-				7,638,853				7,638,853				(317,648)
	Losses on derivative financial instruments				4	-				(27,605)				(27,605)				(314,432)
	Investment income				3	1,359,333				-				1,359,333				1,000,765
	Total income and gains					1,359,333				7,611,248				8,970,581				368,685
	Expenses				5	(284,472)				(226,672)				(511,144)				(409,543)
	Return on ordinary activities before finance costs and taxation					1,074,861				7,384,576				8,459,437				(40,858)
	Interest payable and similar charges				7	586				(858,793)				(858,207)				(121,987)
	Return on ordinary activities before taxation					1,075,447				6,525,783				7,601,230				(162,845)
	Taxation on ordinary activities					-				-				-				-
	Other comprehensive income					-				-				-				-
	Total comprehensive income for the year attributable to Ordinary Shareholders
						1,075,447				6,525,783				7,601,230				(162,845)
						Pence				Pence				Pence				Pence
	Return per Ordinary Share				9	12.33				74.79				87.12				(1.86)
	Dividend per Ordinary Share				8	12.00				0.00				12.00				7.00
	Return per ZDP Share				9	-				0.07				0.07				0.06
	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 these financial statements.

STATEMENT OF FINANCIAL POSITION as at 31 December 2012

										31 Dec 2012			31 Dec 2011
										GBP			GBP
							Notes
	NON-CURRENT ASSETS
	Financial assets designated as at
	fair value through profit or loss						10			34,358,936				22,042,663
	CURRENT ASSETS
	Receivables						11			418,464				361,730
	Cash and cash equivalents									618,376				5,829,513
	Derivative financial assets						18			707				23,165
										1,037,547				6,214,408
	TOTAL ASSETS									35,396,483				28,257,071
	CURRENT LIABILITIES
	Derivative financial liabilities						18			-				24,178
	Payables - due within one year						12			106,361				357,578
	NON-CURRENT LIABILITIES
	ZDP Shares						13			12,496,984				11,636,432
	TOTAL LIABILITIES									12,603,344				12,018,188
	NET ASSETS									22,793,138				16,238,883
	EQUITY
	Share capital						14			89,398				89,398
	Share premium									79,173				79,173
	Treasury shares						15			(303,211)				(303,211)
	Revenue reserve									297,363				268,891
	Special reserve									10,000,000				10,000,000
	Capital reserve									12,630,415				6,104,632
	TOTAL EQUITY									22,793,138				16,238,883
										Pence				Pence
	Net asset value per Ordinary Share (per IFRS and Articles)									261.25				186.12
	Net asset value per ZDP Share (per IFRS)									104.14				96.97
	Net asset value per ZDP Share (per Articles)									106.71				100.17
	The financial statements were approved by the Board of Directors and authorised for issue on 21 March 2013 and signed on its behalf by:
	Director			Director
	The notes form an integral part of these financial statements

STATEMENT OF CASH FLOWS  for the year ended 31 December 2012
									31 Dec 2012		31 Dec 2011
									GBP		GBP
Operating activities						Notes
Return on ordinary activities before taxation									7,601,230		(162,845)
Net (gains) / losses on financial assets						10			(7,638,853)		317,648
designated as at fair value through profit or loss
Investment income						3			(1,359,333)		(1,000,765)
Interest expense									858,207		121,987
Decrease / (increase) in derivative financial assets									22,458		(23,165)
Decrease in derivative financial liabilities						18			(24,178)		(18,386)
(Decrease) / Increase in payables and appropriations						12			(251,217)		287,600
Decrease in receivables excluding accrued investment income						11			54,496		16,461
Net cash flow from operating activities before investment income									(737,190)		(461,465)
Investment income received									1,248,102		930,624
Net cash flow from operating activities before taxation									510,912		469,160
Tax paid									-		-
Net cash flow from operating activities after taxation									510,912		469,160
Investing activities
Purchase of financial assets						10			(21,500,190)		(7,576,479)
Sale of financial assets									16,822,771		5,929,161
Net cash flow from investing activities									(4,677,419)		(1,647,318)
Financing activities
Equity dividends paid						8			(1,046,975)		(611,610)
Drawdown of bank loan									-		1,650,000
Repayment of bank loan									-		(6,000,000)
Purchase of own shares						15			-		(96,193)
Bank loan interest paid									2,345		(99,553)
Proceeds from issue of ZDP Shares									-		12,000,000
Cost of issue of ZDP Shares									-		(386,002)
Net cash flow from financing activities									(1,044,630)		6,456,642
(Decrease) / Increase in cash and cash equivalents									(5,211,137)		5,278,483
Cash and cash equivalents at beginning of year									5,829,513		551,030
Cash and cash equivalents at end of year									618,376		5,829,513
The notes form an integral part of these financial statements.

STATEMENT OF CHANGES IN EQUITY  as at 31 December 2012
		Share Capital		Share Premium		Treasury Reserve		Revenue Reserve		Special Reserve		Capital Reserve		Total
		31 Dec 2012		31 Dec 2012		31 Dec 2012		31 Dec 2012		31 Dec 2012		31 Dec 2012		31 Dec 2012
		GBP		GBP		GBP		GBP		GBP		GBP		GBP
Balances as at 1 January 2012		89,398		79,173		(303,211)		268,891		10,000,000		6,104,632		16,238,883
Total comprehensive income for the year attributable to shareholders		-		-		-		1,075,447		-		6,525,783		7,601,230
Dividends		-		-		-		(1,046,975)		-		-		(1,046,975)
Treasury shares acquired		-		-		-		-		-		-		-
Transfer between reserves		-		-		-		-		-		-		-
Balances as at 31 December 2012		89,398		79,173		(303,211)		297,363		10,000,000		12,630,415		22,793,138
		Share Capital		Share Premium		Treasury Reserve		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

	NOTES TO THE FINANCIAL STATEMENTS
	for the year ended 31 December 2012
	1	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 all in compliance with The Companies (Guernsey) Law, 2008.  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 it is not expected to have any impact on future financial periods:
		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.
		The following Standards or Interpretations have been issued by the IASB but not yet adopted by the Company:
		IFRS 1 - First -time Adoption of International Financial Reporting Standards (amendments resulting from annual improvements) effective for annual periods beginning on or after 1 January 2013.
		IFRS 7 Financial Instruments: Disclosures (amendments related to the offsetting of assets and liabilities) effective annual periods beginning on or after 1 January 2015.
		IFRS 9 Financial Instruments - Classification and Measurement of financial liabilities to incorporate requirements for de-recognition of financial assets and financial liabilities as well as modifies relief from restating comparative periods and their associated disclosures.  This is effective for annual periods beginning on or after 1 January 2015.
		IFRS 13 Fair Value Measurement was published in May 2011 and is effective for annual periods beginning on or after 1 January 2013. The IFRS sets out a single framework for measuring fair value including definitions, disclosures and details regarding the 'fair value hierarchy.'
		IAS 1 Presentation of Financial Statements (annual amendments) effective for annual periods beginning on or after 1 January 2013.
		IAS 32 Financial Instruments: Presentation (amendments relating to the offsetting of assets and liabilities) effective for annual periods beginning on or after 1 January 2014.
		IAS 32 Financial Instruments: Presentation (annual improvements) 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 on going 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 18.
(c)	Ordinary share capital
	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 rate 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 has elected to remain exempt following changes to in the Guernsey tax regime. The Company 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, commissions paid and the appropriation in respect of ZDP Shares is charged to the capital account.
	All other expenses are charged through the revenue account.

	(i)	Investment income
		Interest income and distributions 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. All investment income is treated as a revenue item in the Statement of Comprehensive Income.
	(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, other than investments, 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 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. For investments actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices as at the close of business on the reporting date.
	(m)	Derivatives
		Derivatives consist of forward exchange contracts and long gilt futures 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 (2011: 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 on going basis. The Investment Advisers will always act under the terms of the Prospectus which cannot be radically changed without 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 Advisers' 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. In reaching this conclusion, the directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows. In addition, during 2011 the Company's passed its continuation vote and is not subject to a further continuation vote until 2016.
	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		Smaller companies		Unallocated		Total
				portfolio		portfolio
				GBP		GBP		GBP		GBP
		2012
		External revenues:
		Net gains on financial assets designated
		as at fair value through profit or loss		959,870		6,678,983		-		7,638,853
		Losses on derivative financial instruments		(102,799)		-		75,194		(27,605)
		Investment income:
		Bank interest		-		-		2,995		2,995
		Dividend income		118,272		899,155		-		1,017,427
		Bond income		338,911		-		-		338,911
		Total income and gains		1,314,254		7,578,138		78,189		8,970,581
		Expenses		-		-		(511,144)		(511,144)
		Interest payable and similar charges		-		-		(858,207)		(858,207)
		Total comprehensive income for the year		1,314,254		7,578,138		(1,291,162)		7,601,230
		attributable to shareholders

				Income		Smaller companies		Unallocated		Total
				portfolio		portfolio
				GBP		GBP		GBP		GBP
		2012
		Financial assets designated as at fair value through		7,096,762		27,262,174		-		34,358,936
		profit or loss
		Receivables		270,533		144,225		3,706		418,464
		Derivative financial assets		-		-		707		707
		Cash and cash equivalents		303,270		177,913		137,192		618,375
		Total assets		7,670,565		27,584,312		141,605		35,396,482
		Derivative financial liabilities		-		-		-		-
		Payables		-		-		106,361		106,361
		Total liabilities		-		-		106,361		106,361
				Income		Smaller companies		Unallocated		Total
				portfolio		portfolio
		2011		GBP		GBP		GBP		GBP
		External revenues:
		Net gains / (losses) 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
		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
		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)
		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 and counterparties to derivative transactions.

				Other	Rest of
	UK	Guernsey	Jersey	Europe	the World	Australia	Total
31 Dec 2012	GBP	GBP	GBP	GBP	GBP	GBP	GBP
External revenues
Total
Revenue	1,104,983	105,906	24,063	100,793	20,593	-	1,356,338
				Other	Rest of
	UK	Guernsey	Jersey	Europe	the World	Australia	Total
31 Dec 2011	GBP	GBP	GBP	GBP	GBP	GBP	GBP
External revenues
Total
Revenue	800,745	76,516	23,750	80,287	12,264	5,922	999,485
The Company did not hold any non-current assets during the year other than financial instruments (2011: £nil).

		Major customers
		The Company regards its shareholders as customers. There were no shareholders with a  holding greater than 10% at the period end.
	3	INVESTMENT INCOME				Year ended		Year ended
						31 Dec 2012		31 Dec 2011
						GBP		GBP
		Bank interest				2,995		1,280
		Dividend income				1,017,427		732,901
		Bond income				338,911		266,584
						1,359,333		1,000,765
	4	LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS				Year ended		Year ended
						31 Dec 2012		31 Dec 2011
						GBP		GBP
		Unrealised (loss) / gain on forward foreign currency contracts				(54,486)		43,379
		Realised gain / (loss) on forward foreign currency contracts				129,680		(8,129)
		Appreciation / (depreciation) on fair value of derivative financial assets				24,178		(14,121)
		Realised (losses) on derivative financial assets				(126,977)		(335,561)
						(27,605)		(314,432)

	5	EXPENSES		Year ended
				31 Dec 2012
				Revenue		Capital		Total
				GBP		GBP		GBP
		Manager's fee *		56,644		169,931		226,575
		Administrator's fee		59,585		-		59,585
		Registrar's fee		11,671		-		11,671
		Directors' fees		54,358		-		54,358
		Custody fees		15,506		-		15,506
		Audit fees		23,054		-		23,054
		Directors' and Officers' insurance		6,940		-		6,940
		Annual fees		16,285		-		16,285
		Bank charges		1,506		-		1,506
		Commission paid		-		56,741		56,741
		Broker fees		12,938		-		12,938
		Sundry costs		13,205		-		13,205
		Legal and professional fees		2,600		-		2,600
		Loss on foreign exchange		10,180		-		10,180
				284,472		226,672		511,144

*The Company has entered into a Management Agreement with Premier Asset Management (Guernsey) Limited, a wholly-owned, Guernsey incorporated subsidiary of Premier Asset Management Limited.  The Manager receives a management fee of 0.7% per annum of total assets, calculated monthly and payable quarterly in arrears, out of which it pays fees to the Investment Advisers.  The Manager is also paid a shareholder communication and support fee, currently £3,100 for the twelve months from 1 April 2012 to 31 March 2013. The Manager is also potentially entitled to a performance fee of 15% of any excess of the Net Asset Value per Ordinary Share (together with any dividends paid by reference to the relevant period) over the benchmark NAV per Ordinary Share.  No performance fee was paid or is payable for the year under review.  The Management Agreement may be terminated by either party on 12 months' written notice.

				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

	6	DIRECTORS' REMUNERATION
		Under their terms of appointment, each Director is paid a fee of £17,500 per annum by the Company, except for the Chairman, who receives £22,500 per annum.

	7	INTEREST PAYABLE AND SIMILAR CHARGES
				Year ended 31 Dec 2012			Year ended 31 Dec 2011
				Revenue	Capital	Total	Revenue	Capital	Total
				GBP	GBP	GBP	GBP	GBP	GBP
		Bank loan interest		(586)	(1,759)	(2,345)	24,888	74,665	99,553
		Appropriation in respect of ZDP Shares		-	784,800	784,800	-	20,400	20,400
		Amortisation of ZDP issue costs		-	75,752	75,752	-	2,034	2,034
				(586)	858,793	858,207	24,888	97,099	121,987

	8	DIVIDENDS IN RESPECT OF ORDINARY SHARES
						Year ended 31 Dec 2012
						GBP		Pence per share
		First interim payment				261,743		3.00
		Second interim payment				261,744		3.00
		Third interim payment				261,744		3.00
		Fourth interim payment				261,744		3.00
						1,046,975		12.00
						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
						611,611		7.00

	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 £7,601,230 (2011: -£162,845) and on 8,724,790 (2011: 8,742,735) 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 £1,075,447 (2011: £717,422) and on 8,724,790 (2011: 8,742,735) 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 £6,525,783 (2011: -£880,267) and on 8,724,790 (2011: 8,742,735) 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 share issue costs totalling £860,552 (2011: £22,434) and on 12,000,000 (2011: 361,644) 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 2012		31 Dec 2011
		INVESTMENTS				GBP		GBP
		Opening portfolio cost				17,493,826		13,777,724
		Unrealised appreciation on valuation brought forward				4,548,837		6,935,269
		Opening valuation				22,042,663		20,712,993
		Movements in the year
		Purchases at cost				21,500,190		7,576,479
		Sales
		- proceeds				(16,822,771)		(5,929,161)
		- realised gains on sales				1,540,631		2,068,784
		Unrealised appreciation / (depreciation) on valuation for the year				6,098,222		(2,386,432)
		Fair value of investments at 31 December 2012				34,358,936		22,042,663
		Closing book cost				23,711,877		17,493,826
		Closing unrealised appreciation				10,647,059		4,548,837
						34,358,936		22,042,663
		Realised gains on sales				1,540,631		2,068,784
		Increase / (decrease) in unrealised appreciation				6,098,222		(2,386,432)
		Net gains / (losses) on financial assets designated as at fair value
		through profit or loss				7,638,853		(317,648)
		As at 31 December 2012, the closing fair value of investments comprises £27,807,487 (2011: £17,709,268) of equity shares and £6,551,449 (2011: £4,333,395) 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 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 market value of the investment as at the reporting date:

Financial assets designated as at fair value through profit or loss

31 Dec 2012

31 Dec 2012

31 Dec 2011

31 Dec 2011

Market Value

Market Value

Market Value

Market Value

%

GBP

%

GBP

Level 1

100

34,358,936

100

22,042,663

Total

100

34,358,936

100

22,042,663

Derivative financial  assets and liabilities designated as at fair value through profit or loss

31 Dec 2012

31 Dec 2012

31 Dec 2011

31 Dec 2011

Market Value

Market Value

Market Value

Market Value

%

GBP

%

GBP

Level 2 derivative financial assets

100

707

100

23,165

Level 2 derivative financial liabilities

100

-

100

24,178

		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 fair value of derivative financial instruments that use only observable market data and require little management judgement and estimation.
	11	RECEIVABLES
						31 Dec 2012		31 Dec 2011
						GBP		GBP
		Prepayments				3,706		2,977
		Accrued income				314,408		203,178
		Sundry receivables				100,350		155,575
						418,464		361,730
	12	PAYABLES
		(amounts falling due within one year)				31 Dec 2012		31 Dec 2011
						GBP		GBP
		Accrued expenses				26,066		107,698
		Sundry payables				-		208,559
		Trade creditors				80,295		41,321
						106,361		357,578

	13	ZDP Shares
								31 Dec 2012		31 Dec 2011
								GBP		GBP
		12,000,000 ZDP Shares issued 21 December 2011						12,000,000		12,000,000
		Appropriation in respect of ZDP Shares						805,200		20,400
		ZDP value (calculated in accordance with the Articles)						12,805,200		12,020,400
		ZDP issue costs						(383,968)		(386,002)
		Issue costs amortised during period						75,752		2,034
		ZDP value (calculated in accordance with IFRS)						12,496,984		11,636,432
		The fair value of the ZDP Shares is considered to be the same as the value calculated in accordance with IFRS.
		ZDP Shares carry no entitlement to income distributions to be made by the Company. 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. If the Company had been wound up on 31 December 2012, the ZDP Shares would have had an entitlement of 106.71 pence each. 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.

	14	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 2009					29,600,002
		Tender offer		17 January 2007					(20,660,212)
		Purchase of treasury shares - Year ended 31 December 2011							(215,000)
		Number of shares in issue at 1 January 2012 and 31 December 2012							8,724,790
		Issued capital as at 31 December 2012							89,398
		Ordinary Shares carry rights to dividends and the holders have the right to vote at general meetings of the Company.  ZDP Shares carry no rights to receive dividends and holders only have the ability to vote on any resolutions affecting their class of shares. The ZDP Shares will be repaid on 31 January 2017.
	15	TREASURY SHARES
							31 Dec 2012		31 Dec 2011
							GBP		GBP
		Balance as at 1 January 2012					(303,211)		(207,018)
		Acquired during the period					-		(96,193)
		Balance as at 31 December 2012					(303,211)		(303,211)
		The Treasury Shares reserve represents 215,000 Ordinary shares purchased in the market at various prices ranging from £1.23 to £1.92 and held by the Company in treasury. No cancellations or purchases of Shares took place during the year under review.
	16	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.
		£226,575 (2011: £164,634) of costs were incurred by the Company with this related party in the year, of which £62,382 (2011: £42,466) was due to this related party as at 31 December 2012.
		Directors' remuneration is disclosed in Note 6.

	17	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 entities and derivative financial assets;
	(c)	ZDP Shares; and
	(d)	Derivative financial liabilities.
	18	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 2012		31 Dec 2011
						GBP		GBP
		Financial assets
		Financial assets at fair value through profit or loss				34,358,936		22,042,663
		Derivative financial assets				707		23,165
		Total financial assets at fair value through profit or loss				34,359,643		22,065,828
		Loans and receivables				1,036,839		6,191,243
		Total assets				35,396,482		28,257,071

						31 Dec 2012		31 Dec 2011
						GBP		GBP
		Financial liabilities
		Financial liabilities at fair value through profit or loss:
		Accrued expenses				106,361		357,578
		Derivative financial liabilities				-		24,178
		Total financial liabilities at fair value through profit or loss				106,361		381,756
		Financial liabilities measured at amortised cost				12,496,984		11,636,432
		Total liabilities excluding net assets attributable to holders of Ordinary shares				12,603,344		12,018,188
		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 accrued expenses and ZDP Shares as detailed in the Statement of Financial Position.
		Derivative financial assets presented above represent forward foreign exchange contracts. Long gilts exist but are valued at zero.
		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.
		Details of the Company's Investment Objective and Policy are given inside the front cover of this Report.
		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 2012, 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 £5,153,840 (2011: £3,306,399) 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 22.61% (2011: 20.36%).
		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 £5,153,840 (2011: £3,306,399) 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 22.61% (2011: 20.36%).

	(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 2012 the Company's largest exposure to a single investment was £1,576,479 (2011: £1,420,813), 4.45% (2011: 5.03%) 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 2012		31 Dec 2011
						GBP		GBP
		Financial assets designated as at fair value through profit or loss
		(fixed income securities only)				6,551,549		4,333,395
		Cash and cash equivalents				618,376		5,829,513
		Interest, dividends and other receivables				418,464		361,730
						7,588,389		10,524,638

		The credit ratings of the bonds in the income portfolio), as rated by Moody's Investor Services Inc ("Moodys") were:
		Rating		31 Dec 2012		31 Dec 2011
		Aaa		1.16%		9.60%
		Aa		4.09%		1.67%
		A		15.30%		17.64%
		Baa		24.46%		22.46%
		Ba		5.58%		7.08%
		B		2.22%		0.00%
		WR		0.00%		0.00%
		No Rating available		47.19%		41.55%
		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 A2.
	(c)	Liquidity Risk
		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 commitments are its on-going operating expenses and the settlement of the obligation upon maturity of the ZDP Shares on 31 January 2017. The ZDP liability will be settled through realisation of the Company's investment portfolio.
		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 2012:
				1-3 months		Up to 1 year		2 - 5 years
				GBP		GBP		GBP
		Financial liabilities including derivatives
		Payables - due within one year		106,361		-		-
		Derivative financial instruments		-		-		-
		ZDP Share entitlement		-		-		16,560,000
				106,361		-		16,560,000
		As at 31 December 2011:
				1-3 months		Up to 1 year		2 - 5 years
				GBP		GBP		GBP
		Financial liabilities including derivatives
		Payables - due within one year		357,578		-		-
		Derivative financial instruments		24,178		-		-
		ZDP Share entitlement		-		-		16,560,000
				381,756		-		16,560,000

	(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 2012:
			Less than		Non-interest
			1 month	Fixed interest	Bearing		Total
			GBP	GBP	GBP		GBP
		Financial Assets
		Financial assets at fair value
		through profit or loss on initial
		recognition	-	6,551,549	27,807,387		34,358,936
		Cash and cash equivalents	618,375	-	-		618,375
		Interest, dividends and other receivables	-	-	418,464		418,464
		Derivative financial instruments	-	-	707		707
		Total Financial Assets	618,375	6,551,549	28,226,558		35,396,482
		Financial Liabilities
		Derivative financial instruments	-	-	-		-
		Payables	-	-	106,361		106,361
		ZDP Share entitlement	-	12,496,983	-		12,496,983
		Total Financial Liabilities	-	12,496,983	106,361		12,603,344
		Total interest sensitivity gap	618,375	(5,945,434)

		As at 31 December 2011:
			Less than		Non-interest
			1 month	Fixed interest	Bearing	Total
			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
		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)

		Interest rate sensitivity takes account of the effect of interest rate movements on cash balances, loan amounts and fixed interest securities.  Interest rate risk does not affect the cash flows of the fixed interest securities but does affect the fair value and as such this sensitivity has been reflected in the market price risk disclosures at Note 18a.
		Interest rate sensitivity
		If interest rates had been 25 basis points higher and all other variables were held constant, the Company's return on income attributable to Shareholders for the year ended 31 December 2012 would have increased by approximately £1,546 (2011: £14,574) or 0% (2011: 0.05%) of Total Assets due to an increase in the amount of interest receivable on the bank balances.
		If interest rates had been 25 basis points lower and all other variables were held constant, the Company's return on income attributable to shareholders for the year ended 31 December 2012 would have decreased by approximately £1,546 (2011: £14,574) or 0% (2011: 0.05 %) of Total Assets due to a decrease in the amount of interest receivable on the bank balances.
	(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 2012, the Company's holdings in derivatives  translated into GBP were as specified below:
								Notional
								amount of contracts		Fair value assets /
		Type of contract		Expiration		Underlying		outstanding		(liabilities)
										GBP
		Forward		March 2013		Sold USD		1,000,000.00		5,229
		Forward		March 2013		Sold EUR		1,455,000.00		(4,522)
										707

		At 31 December 2011, the Company's holdings in forward currency contracts translated into GBP were as specified below:
								Notional amount of contracts		Fair value assets /
		Type of contract		Expiration		Underlying		outstanding		(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
		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 2012		Monetary Assets		Monetary Liabilities		Forward FX Contracts		Net Exposure
				GBP		GBP		GBP		GBP
		Euro		1,380,666		-		(1,176,773)		203,893
		US Dollar		740,262		-		(620,424)		119,838
		Australian Dollar		14,527		-		-		14,527
		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
		Amounts in the above table 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.
		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				10,297,363
		Share capital and share premium				168,571
		Non distributable reserves				12,630,415
		Treasury shares				(303,211)
		Total				22,793,138
		The distributable reserves comprise the revenue reserve and the special reserve. The non distributable reserves comprise 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 is a non distributable reserve.

For further information about this announcement contact:

Anson Fund Managers Limited

Secretary

Tel:  [phone]

21 March 2013

END OF ANNOUNCEMENT

E&OE - in transmission

 

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