Half Yearly Report

RNS Number : 5947K

Acorn Income Fund Ld

22 August 2012

 



Acorn Income Fund Limited

Half-yearly Financial Report

for the six months ended 30 June 2012

Acorn Income Fund Limited

INVESTMENT OBJECTIVES AND POLICY

The objectives of Acorn Income Fund Limited (the "Company") are to provide 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 70-80% 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.  The Company also aims to further enhance income for shareholders by investing approximately 20-30% 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.

Acorn Income Fund Limited

PERFORMANCE SUMMARY for the six months ended 30 June 2012

Total Return performance
		30 Jun 2012		31 Dec 2011		% change
Total Return on Gross Assets*#						10.77%
Total Return on Net Assets (assets attributable to shareholders)*						16.38%
FTSE All Share Index		4,101		3,970		3.32%
FTSE Small Cap (ex Investment Companies)		3,178		2,804		13.36%
Capital Return performance
Capital return on Gross Assets*						8.89%
FTSE All Share Index		2,891		2,858		1.17%
FTSE Small Cap (ex Investment Companies)		2,412		2,164		11.45%
Share Price and NAV returns		30 Jun 2012		31 Dec 2011		% change
		Pence		Pence
Ordinary Share
NAV		210.69		186.12		13.13%
Mid price		172.50		153.50		12.38%
Zero Dividend Preference Share
Share  Price		107.50		102.75		4.62%
NAV (calculated in accordance with IFRS)		100.47		96.97		3.84%
NAV (calculated in accordance with the Articles)		103.36		100.17		3.18%

*assumes dividends reinvested

# adjusted for debt repayment

Acorn Income Fund Limited

COMPANY SUMMARY
Launch date Domiciled	11 February 1999 Guernsey
Registered in Guernsey	No. 34778
Year end	31 December
Shareholder funds	£18.4m at 30 June 2012
Market Capitalisation	£15.1m at 30 June 2012
Ordinary Income Shares	8,724,790
Zero Dividend Preference Shares ("ZDP Shares")	12,000,000
Treasury Shares	215,000
Dividend History	In respect of year end 31 December	Total dividends declared Pence
	2012 (to 30 June)	6.0
	2011	7.0
	2010	6.25
	2009	6.0
	2008	8.2
	2007	8.0
	2006	9.0**
	2005	9.0**
	2004	9.0**
	2003	9.0**
	2002	12.0
	2001	12.0
	2000	11.0
	1999	8.5
**includes four interim dividends and one special dividend
Manager	Premier Asset Management (Guernsey) Limited
Investment Advisers	Unicorn Asset Management Limited ("Unicorn") - Smaller Companies Portfolio
	Premier Fund Managers Limited ("Premier") - Income Portfolio
Management fee	0.7% per annum, charged 75% to Capital and 25% to Revenue, plus performance fee. Minimum annual management fee - £100,000.

Acorn Income Fund Limited

CHAIRMAN'S STATEMENT & INTERIM MANAGEMENT REPORT

Dear Shareholder

The euro crisis was the overriding influence on market sentiment during the first half of 2012. Markets rallied over the first quarter with the new coalition government in Greece accepting the EU austerity package but fell back sharply in May following a rejection of the bailout package by the Greek electorate and with focus turning towards the solvency of the Spanish banks. By the end of the first half markets had recovered from the May low points as the Greek pro austerity party gained a narrow majority in the June election. In the UK, smaller companies had a good first half with the FTSE Small Cap (ex investment trusts) Total Return index rising 13.4% against a more modest 3.4% rise in the FTSE All Share Total Return index.

Investment performance

The Company's portfolio, with its mix of UK smaller companies and fixed interest securities,  generated a 10.8% total return and with the benefit of leverage the Ordinary Share NAV total return was 16.4% and the return to shareholders (share price total return) 16.2%; a satisfactory outcome against a background of considerable macro uncertainty.  The deployment of the capital raised from the ZDP Share issue in December 2011 was timely. The enhanced return resulting from the leverage on the rising gross assets more than covering the cost of the ZDP Share issue.  

ZDP shareholders should note that the net asset value figure shown for the ZDP Shares in the statutory accounts is calculated in accordance with IFRS accounting standards. This requires the issue costs of the ZDP Share issue to be carried against the ZDP Shares and amortised over their life. This results in a lower ZDP Share NAV than that applying if calculated in accordance with the Company's articles of association which provide for a steady accrual from the starting NAV of 100p. On this basis the ZDP Share NAV ended the period at 103. 36p and the ZDP Shares were trading at 107.50p. With the increase in gross assets, cover for the ZDP Shares improved over the period.

At 30 June 2012 75.6% of gross assets were allocated to the smaller companies portfolio and 20.6% to the income portfolio. Across the whole fund there was 2.2% in cash.  

During the period, the Company reallocated the balance between the two portfolios to increase the weighting of the smaller companies portfolio, taking advantage of perceived market opportunities.

Dividends

Earnings per share for the half year were 4.48p. This compared to 3.15p in the comparable period in 2011. The 42% increase in first half earnings was due principally to the extra revenue generated from the capital provided by the ZDP Share issue. Two interim dividend of 3p each were paid during the period, compared to two dividends of 1.75p each in the comparable period in 2011.  When announcing the first interim dividend in February 2012 the directors indicated that they expected to be able to sustain a 3p quarterly dividend throughout the year but that they would keep the position under review in the light of economic and market conditions.

Outlook

The economic outlook remains uncertain with the euro zone problems still unresolved and the focus now moving to the ability of larger sovereign states, such as Spain, to service their debt. However, as I noted 6 months ago many of the companies in our portfolio are performing well and maintaining their dividend distributions. While gilt yields and forecasted inflation remain low the income generated from our fixed interest portfolio and from equity dividends can provide an attractive return, with the continuing prospect of capital growth.

John Boothman

Chairman.

Acorn Income Fund Limited

RESPONSIBILITY STATEMENT for the period from 1 January 2012 to 30 June 2012

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS34 Interim Financial Reporting;

• the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Signed on behalf of the Board of Directors on 22 August 2012

Helen Green

Director

Acorn Income Fund Limited

INVESTMENT ADVISERS' REPORT

Smaller Companies Portfolio

During the period under review the value of the Portfolio rose by 12.3% compared to a rise of 9.4% in the Numis Smaller Companies Index (ex IC).The outperformance was caused by a significant weighting towards industrial earners which serve worldwide markets.

A number of stocks performed very strongly during the first half. Renishaw rose by 39.3% as a result of recovery in the United States and further growth in China. Diploma rose by 31.1% as the company produced very strong results with pre tax profits increasing by 19.6% and a dividend increase of 20%. James Halstead rose by 25.3% as pre tax profits increased by 14.1% with earnings per share increasing by 16.1%. Mucklow group rose by 26.4% as rental rates have started to harden.

Holdings in the majority of the stocks were increased during the period as a result of additional capital from the ZDP issue. During the period the entire holding in Stobart Group was disposed of as its strategy changed whilst the holdings in RPC and Rotork were reduced following very strong performance. Three new stocks were added to the portfolio; Silverdell, a hazardous removal contractor, Low and Bonar, a performance materials manufacturer and UK Mail, a parcels and mail delivery company.

The portfolio remains weighted towards companies serving international markets where growth prospects are much more encouraging than in the UK. The fund continues to have very little exposure to the UK high street and has no house builders where we think markets will remain difficult.       

John McClure

Unicorn Asset Management Limited

Income Portfolio

The High Income Portfolio performed strongly in the first quarter following a tightening in credit spread, specifically in Financials to which the Portfolio maintains an overweight position. Returns were lacklustre in the second quarter as markets reversed but overall during the interim period the Portfolio produced capital growth whilst generating an attractively high yield.

The Monetary Policy Committee ("MPC") has maintained the base rate at 0.5% whilst the asset purchase programme was increased by £50 billion in February to £325 billion. It was therefore no great surprise to see the announcement that UK GDP fell in the first quarter. Whilst GDP only fell 0.3% this negative move was enough to put the UK technically back into a recession. Inflation has fallen back over the first half of the year and despite inflation remaining elevated the MPC now consider that, on balance, the risks to inflation have shifted to the downside.

Following the success of the European Central Bank's sizeable Long Term Refinancing Operation ("LTRO") in December, which allowed European Banks to address their near term refinancing requirements with three years loans, markets rallied. Credit spreads tightened as the likelihood of a disorderly Greek default reduced and 'safe-haven' yields rose. However despite a second LTRO in February markets remained volatile with Greek elections proving to be just one of several market moving events. Following a re-run of the Greek elections a disorderly exit was avoided as a coalition party was formed, however markets sharply turned their attention to Spain. It is believed that Spain will be the next country to seek financial aid however it is thought that financial support could be provided directly to its banks, rather than through the sovereign.

Within the Portfolio, despite the continued market volatility, we remain predominately invested in financials as we believe they offer the best return potential over the medium term. This interim period experienced significant gains from our largest holdings of Contingent Convertibles as the major banks became swamped with cash and raised capital ratios. Other bank paper issued by the likes of HSBC, Countrywide, Goldman Sachs and ING Bank also contributed significantly to the Portfolio's performance, typically returning over 10% over the period.  Given the majority of the Portfolio is invested in Financials, poor performers were hard to find although utilities exposure disappointed, especially our holding of Gas Natural which suffered amidst Spanish concerns. With the proceeds received from the Company's  ZDP Share issue at the end of last year, we invested into a variety of credit such as Fidelity, RSL Finance and we further increased our exposure to Contingent Convertibles. We are positioned for risk free rates to rise quicker than the market anticipates and to capitalise on a tightening in credit spreads, specifically in financials. We continue to believe that credit risk is currently more attractive than interest rate risk.

Paul Smith and Ben Hamilton

Premier Fund Managers Limited

Acorn Income Fund Limited

SCHEDULE OF PRINCIPAL INVESTMENTS as at 30 June 2012

TOP 10 HOLDINGS					NOMINAL HOLDINGS		VALUATION		TOTAL ASSETS
							GBP		%
Smaller Companies portfolio
Castings plc					424,112		1,314,747		4.30
James Halstead plc					245,500		1,313,425		4.30
Vp plc					466,414		1,233,665		4.04
Consort Medical plc					171,171		1,201,620		3.93
Diploma plc					263,960		1,175,941		3.85
RPC Group plc					300,000		1,164,000		3.81
Lupus Capital plc					882,242		1,129,270		3.70
Renishaw plc					78,730		1,102,220		3.61
Devro plc					363,000		1,099,890		3.60
Acal plc					557,222		991,855		3.25
							11,726,634		38.39
Income portfolio
GE Capital Funding 8% 14/01/2039					250,000		342,638		1.12
Lloyds 7.8673% 17/12/2019					350,000		300,307		0.98
Credit Suisse 7.875% 24/02/2041					500,000		300,025		0.98
Greenwich Loan Income Fund Limited					625,000		296,875		0.97
Rabobank Nederland 6.875% 03/19/2020					350,000		274,772		0.90
Invesco Leveraged High Yield Fund					500,000		268,750		0.88
Standard Life UK 3.5% CULS 2018					250,000		253,750		0.83
F&C Finance Plc 9% 20/12/2016					245,000		246,847		0.81
UK Treasury 8% 06/07/2021					150,000		230,715		0.76
Republic Of France 3.25% 25/10/2021					250,000		212,745		0.70
							2,727,425		8.93
TOTAL							14,454,059		47.32

Acorn Income Fund Limited

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				3.60
	Vp plc								420,414			923,860				3.27
	Fenner plc								228,375			911,445				3.23
	Lupus Capital plc								775,714			868,800				3.07
	Diploma plc								253,135			859,899				3.04
	Devro plc								325,000			835,250				2.96
	Consort Medical plc								153,171			811,806				2.87
	Stobart Group plc								676,000			810,524				2.87
												9,491,393				33.59
	Income portfolio
	UK Treasury 8% 06/07/2021								250,000			382,800				1.35
	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% 01/08/2034								400,000			262,401				0.93
	Rabobank Nederland 6.875% 03/19/2020								350,000			250,843				0.89
	Greenwich Loan Income Fund Limited								625,000			259,375				0.92
	Standard Life UK 3.5% CULS 2018								250,000			251,250				0.89
	Invesco Leveraged High Yield Fund								500,000			248,750				0.88
	Icap Group Holdings plc								250,000			210,995				0.75
	Electra Private Equity 5% CULS 29/12/2017								200			213,000				0.75
												2,623,928				9.29
	TOTAL											12,115,321				42.88
	Acorn Income Fund Limited
	STATEMENT OF COMPREHENSIVE INCOME (unaudited) for the period ended 30 June 2012
				Period ended										Period ended
			Notes		30 Jun 2012										30 Jun 2011
				Revenue			Capital			Total				Total
				GBP			GBP			GBP				GBP
Net gains on financial assets designated as at fair value through profit or loss			10	-			2,753,696			2,753,696				2,801,012
Gains / (losses) on foreign currency contracts			4	-			(37,479)			(37,479)				(93,157)
Investment income			3	633,908			-			633,908				455,758
Total income and gains				633,908			2,716,217			3,350,125				3,163,613
Expenses			5	(137,030)			(127,667)			(264,697)				(197,097)
Return on ordinary activities before finance costs and taxation				496,878			2,588,550			3,085,428				2,966,516
Interest payable and similar charges				(104,500)			(313,499)			(417,999)				(51,521)
Return on ordinary activities before taxation				392,378			2,275,051			2,667,429				2,914,995
Taxation on ordinary activities				-			-			-				-
Other comprehensive income				-			-			-				-
Total comprehensive income for the period attributable to Ordinary Shareholders				392,378			2,275,051			2,667,429				2,914,995
				Pence			Pence			Pence				Pence
Return per Ordinary share			9	4.48			26.07			30.55				33.27
Dividend per Ordinary share			8	6.00			0.00			6.00				3.50
Return per ZDP share			9	0.00			3.50			3.50				NA
The notes form an integral part of these financial statements

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 period, all amounts above relate to continuing operations.
No operations were acquired or discontinued in the period.
Acorn Income Fund Limited
STATEMENT OF FINANCIAL POSITION (unaudited) as at 30 June 2012
												30 Jun 2012			31 Dec 2011
												GBP			GBP
								Notes
	NON-CURRENT ASSETS
	Financial assets designated as at fair value through profit or loss							10				29,372,539			22,042,663
	CURRENT ASSETS
	Receivables							11				469,930			361,730
	Cash and cash equivalents											667,857			5,829,513
	Derivative financial assets							18				37,101			23,165
												1,174,888			6,214,408
	TOTAL ASSETS											30,547,427			28,257,071
	CURRENT LIABILITIES
	Derivative financial liabilities							18				-			24,178
	Payables - due within one year							12				107,827			357,578
	NON-CURRENT LIABILITIES
	ZDP shares							13				12,056,776			11,636,432
	TOTAL LIABILITIES											12,164,603			12,018,188
	NET ASSETS											18,382,824			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											137,781			268,891
	Special reserve											10,000,000			10,000,000
	Capital reserve											8,379,683			6,104,632
	TOTAL EQUITY											18,382,824			16,238,883
												Pence			Pence
	Net asset value per Ordinary Share											210.69			186.12
	Carrying value per ZDP Share											100.47			96.97
	The financial statements were approved by the Board of Directors and authorised for issue on 22 August 2012 and signed on its behalf by:
	John Boothman                         Helen Green
	Director					Director
	The notes form an integral part of these financial statements

Acorn Income Fund Limited
STATEMENT OF CASH FLOWS (unaudited) for the period ended 30 June 2012
												Period ended			Period ended
												30 Jun 2012			30 Jun 2011
												GBP			GBP
	Operating activities							Notes
	Return on ordinary activities before taxation											2,667,429			2,914,995
	Net gains on financial assets designated as at fair value through profit or loss							10				(2,753,696)			(2,801,012)
	Investment income							3				(633,908)			(455,758)
	Interest expense											417,999			51,521
	(Increase) in derivative financial assets											(13,936)			(9,800)
	(Decrease) in derivative financial liabilities											(24,178)			(65,229)
	(Decrease) / increase in payables and appropriations							12				(249,751)			324,618
	(Increase) / decrease in receivables excluding accrued investment income							11				(26,738)			28,367
	Net cash flow from operating activities before investment income											(616,779)			(12,298)
	Investment income received											552,446			416,039
	Net cash flow from operating activities before taxation											(64,333)			403,741
	Tax paid											-			-
	Net cash flow from operating activities after taxation											(64,333)			403,741
	Investing activities
	Purchase of financial assets							10				(9,987,389)			(4,121,651)
	Sale of financial assets							10				5,411,209			4,122,280
	Net cash flow from investing activities											(4,576,180)			629
	Financing activities
	Equity dividends paid							8				(523,488)			(306,243)
	Drawdown of bank loan							13				-			650,000
	Purchase of own shares							15				-			(96,193)
	Bank loan interest paid											2,345			(51,521)
	Net cash flow from financing activities										(521,143)			196,043

The notes form an integral part of these financial statements
							Period ended		Period ended
							30 Jun 2012		30 Jun 2011
							GBP		GBP
(Decrease) / increase in cash and cash equivalents							(5,161,656)		600,413
Cash and cash equivalents at beginning of period							5,829,513		551,030
Cash and cash equivalents at end of period							667,857		1,151,443
The notes form an integral part of these financial statements

Acorn Income Fund Limited STATEMENT OF CHANGES IN EQUITY (unaudited)
as at 30 June 2012
			Share Capital			Share Premium					Treasury Shares						Revenue Reserve							Special Reserve					Capital Reserve				Total
			30 Jun 2012			30 Jun 2012					30 Jun 2012						30 Jun 2012							30 Jun 2012					30 Jun 2012				30 Jun
			GBP			GBP					GBP						GBP							GBP					GBP				2012 GBP
Balance 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 period attributable to shareholders		-			-				-					392,378					-									2,275,051					2,667,429
Dividends		-			-				-					(523,488)					-									-					(523,488)
Treasury shares acquired		-			-				-					-					-									-					-
Transfer between reserves		-			-				-					-					-									-					-
Balance as at 30 June 2012			89,398				79,173					(303,211)				137,781							10,000,000						8,379,683				18,382,824
			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
Balance 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							-
Balance as at 31 December 2011			89,398				79,173					(303,211)				268,891							10,000,000						6,104,632				16,238,883
The notes form an integral part of these financial statements.

1	NOTES TO THE FINANCIAL STATEMENTS for the period ended 30 June 2012 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 (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 issued by the IASB but not yet adopted by the Company:
	IFRS 7 Financial Instruments: Disclosures (amendments)
	IAS 1 Presentation of Financial Statements (amendments)
	IAS 24 Related Party Disclosures (amendments)
	The following Standards or Interpretations have been issued by the IASB but not yet adopted by the Company:
	IFRS 7 Financial Instruments: Disclosures amendments related to the offsetting of assets and liabilities effective for annual periods beginning on or after 1 January 2013 and interim periods within those periods.
	IFRS 9 Financial Instruments: Classification and Measurement reissue to include requirements for the classification and measurement of financial liabilities and incorporate existing derecognition requirements  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 relating to offsetting of 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.

(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 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 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 is charged to the capital account

All other expenses are charged through the revenue account.

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 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 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 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 (June 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 ongoing 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 of the period end is 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.

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 GBP			Smaller companies portfolio GBP			Unallocated GBP			Total GBP
	30 Jun 2012
	External revenues:
	Net gains on financial assets designated as at fair value through profit or loss			265,460			2,488,236			-			2,753,696
	(Losses)/gains on derivative financial instruments			(89,199)			-			51,720			(37,479)
	Investment income:
	Bank interest			-			-			221			221
	Dividend income			39,625			432,386			-			472,011
	Bond income			161,676			-			-			161,676
	Sundry income			-			-			-			-
	Total income and gains			377,562			2,920,622			51,941			3,350,125
	Expenses			-			-			(264,697)			(264,697)
	Interest payable and similar charges			-			-			(417,999)			(417,999)
	Total comprehensive income for the period attributable to shareholders			377,562			2,920,622			(630,755)			2,667,429

	30 Jun 2012
	Financial assets designated as at fair value through profit or loss		6,265,140		23,107,399		-		29,372,539
	Receivables		247,571		169,389		52,970		469,930
	Derivative financial assets		13,600		-		23,501		37,101
	Cash and cash equivalents		256,847		347,986		63,024		667,857
	Total assets		6,783,158		23,624,774		139,495		30,547,427
	Derivative financial liabilities		-		-		-		-
	Payables		-		-		(12,164,603)		(12,164,603)
	Total liabilities		-		-		(12,164,603)		(12,164,603)
	31 Dec 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)/gains 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		(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)
	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.

	UK	Guernsey	Jersey	Other Europe	Rest of the World	Australia	Total
30 Jun 2012	GBP	GBP	GBP	GBP	GBP	GBP	GBP
External revenues
Total Revenue	520,494	37,047	12,500	54,651	8,995	-	633,687
	UK	Guernsey	Jersey	Other Europe	Rest of 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 period other than financial instruments (Dec 2011: 0).
	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
							Period ended 30 June 2012		Period ended 30 June 2011
							GBP		GBP
	Bank interest						221		999
	Dividend income						472,011		323,648
	Bond income						161,676		131,111
	Sundry income						-		-
							633,908		455,758

4	FOREIGN CURRENCY CONTRACTS
							Period ended 30 June 2012		Period ended 30 June 2011
							GBP		GBP
	Unrealised gain / (loss) on forward foreign currency contracts						30,233		(9,785)
	Realised gain / (loss) on forward foreign currency contracts						21,487		(33,873)
	Depreciation on fair value of derivative financial assets						37,778		19,857
	Realised losses on derivative financial assets						(126,977)		(69,356)
							(37,479)		(93,157)
5	EXPENSES
					Period ended 30 June 2012
					Revenue GBP		Capital GBP		Total      GBP
	Manager's fee				26,888		80,663		107,551
	Administrator's fee				29,100		-		29,100
	Registrar's fee				6,539		-		6,539
	Directors' fees				24,864		-		24,864
	Custody fees				7,430		-		7,430
	Broker fees				1,981		-		1,981
	Audit fee				10,900		-		10,900
	Directors' and Officers' insurance				3,697		-		3,697
	Annual fees				8,426		-		8,426
	Bank charges				943		-		943
	Commission paid				-		47,004		47,004
	Sundry costs				8,131		-		8,131
	Loss on foreign exchange				8,131		-		8,131
					137,030		127,667		264,697

					Period ended 30 June 2011
					Revenue GBP		Capital GBP		Total  GBP
	Manager's fee				20,229		60,686		80,915
	Administrator's fee				29,137		-		29,137
	Registrar's fee				2,174		-		2,174
	Directors' fees				24,794		-		24,794
	Custody fees				5,802		-		5,802
	Broker fees				-		-		-
	Audit fee				9,887		-		9,887
	Directors' and Officers' insurance				6,044		-		6,044
	Annual fees				9,018		-		9,018
	Bank charges				3,058		-		3,058
	Commission paid				-		21,729		21,729
	Sundry costs				7,249		-		7,249
	Gain on foreign exchange				(2,710)		-		(2,710)
					114,682		82,415		197,097
6	DIRECTORS' REMUNERATION
	Under their terms of appointment, each Director was paid a fee of £15,000 per annum by the Company, except for the Chairman, who received £20,000 per annum, until 30 June 2012. From 1 July 2012, each Director will be paid additional fees of £2,500 per annum each.
7	INTEREST PAYABLE AND SIMILAR CHARGES
							Period ended 30 June 2012 GBP		Period ended 30 June 2011 GBP
	Bank loan interest						(2,345)		51,521
	Appropriation in respect of ZDP shares						382,800		-
	Amortisation of ZDP issue costs						37,544		-
							417,999		51,521

8	DIVIDENDS IN RESPECT OF ORDINARY SHARES
					Period ended 30 June 2012
					GBP		Pence per share
	First interim payment				261,744		3.00
	Second interim payment				261,744		3.00
					523,488		6.00
					Year ended 31 December 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
9	EARNINGS PER SHARE
	Ordinary shares
	The total return per Ordinary share is based on the total return on ordinary activities for the period attributable to Ordinary Shareholders of £2,667,429 (Jun 2011: £2,914,995) and on 8,724,790 (Jun 2011: 8,760,978) shares, being the weighted average number of shares in issue during the period. 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 period attributable to Ordinary Shareholders of £392,378 (Jun 2011: £328,196) and on 8,724,790 (Jun 2011: 8,760,978) shares, being the weighted average number of  shares in issue during the period. 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 period attributable to Ordinary Shareholders of £2,275,051 (Jun 2011: £2,586,799) and on 8,724,790 (Jun 2011: 8,760,978) shares, being the weighted average number of shares in issue during the period. 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 £420,344 (Jun 2011: NA) and on 12,000,000 (Jun 2011: NA) shares, being the weighted average number of ZDP shares in issue during the period.

10	FINANCIAL ASSETS DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR LOSS
	INVESTMENTS									30 June  2012 GBP				31 Dec 2011 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 period / year
	Purchases at cost									9,987,389				7,576,479
	Sales
	- proceeds									(5,411,209)				(5,929,161)
	- realised gains on sales									820,162				2,068,784
	Unrealised appreciation on valuation for the period / year									1,933,534				(2,386,432)
	Fair value of investments at 30 June 2012									29,372,539				22,042,663
	Closing book cost									22,890,168				17,493,826
	Closing unrealised appreciation									6,482,371				4,548,837
										29,372,539				22,042,663
	Realised gains on sales									820,162				2,068,784
	Increase / (decrease) in unrealised appreciation									1,933,534				(2,386,432)
	Net gains on financial assets designated as at fair value
	through profit or loss									2,753,696				(317,648)
	As at 30 June 2012, the closing fair value of investments comprises £23,751,848 (Dec 2011: £17,709,268) of equity shares and £5,620,691 (Dec 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 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			30 Jun 2012			30 Jun 2012				31 Dec 2011			31 Dec 2011
				Market Value			Market Value				Market Value			Market Value
				%			GBP				%			GBP
	Level 1			100			29,372,539				100			22,042,663
	Total			100			29,372,539				100			22,042,663
	Derivative financial assets and liabilities designated as at fair value through profit or loss			30 Jun 2012			30 Jun 2012				31 Dec 2011			31 Dec 2011
				Market Value			Market Value				Market Value			Market Value
				%			GBP				%			GBP
	Level 2 Derivative financial assets			100			37,101				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 period 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
											30 Jun 2012			31 Dec 2011
											GBP			GBP
	Prepayments										19,272			2,977
	Accrued income										284,640			203,178
	Sundry receivables										166,018			155,575
											469,930			361,730

12	PAYABLES
	(amounts falling due within one year)						30 Jun 2012		31 Dec 2011
							GBP		GBP
	Accrued expenses						65,994		107,698
	Sundry payables						-		208,559
	Trade creditors						41,833		41,321
							107,827		357,578

13	ZDP SHARES
							30 Jun 2012		31 Dec 2011
							GBP		GBP
	ZDP share entitlement						12,056,776		11,636,432
	The above entitlement comprises the following:
	12,000,00 ZDP shares issued 21 December 2011						12,000,000		12,000,000
	Appropriation in respect of ZDP shares						403,200		20,400
	ZDP value (calculated in accordance with the Articles)						12,403,200		12,020,400
	ZDP issue costs						(386,002)		(386,002)
	Issue costs amortised during period						39,578		2,034
	ZDP value (calculated in accordance with IFRS)						12,056,776		11,636,432
							Pence		Pence
	Net asset value per ZDP share (calculated in accordance with the Articles)						103.36		100.17
	Net asset value per ZDP shares (calculated in accordance with IFRS)						100.47		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.

14	SHARE CAPITAL
	Authorised									GBP
	Ordinary shares of 1p each								10,000,000
	Issued
									Number of shares
	The issue of shares took place as follows:
	Ordinary shares - 11 February 1997								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								8,724,790
	Purchase of treasury shares								-
	Number of shares in issue at 30 June 2012								8,724,790
									GBP
	Issued capital as at 30 June 2012								89,398
15	TREASURY SHARES
							30 Jun 2012		31 Dec 2011
							GBP		GBP
	Balance as at 1 January 2012						(303,211)		(207,018)
	Acquired during the period						-		(96,193)
							(303,211)		(303,211)
	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. No cancellations of Shares took place during the period 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.
	£107,551 (Jun 2011: £80,915) of costs were incurred by the Company with this related party in the period, of which £33,698 (Dec 2011: £42,466) was due to this related party as at 30 June 2012.
	Directors' remuneration is disclosed in Note 5.

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:

30 Jun 2012

31 Dec 2011

GBP

GBP

Financial assets

Financial assets at fair value through profit or loss

29,372,539

22,042,663

Derivative financial assets

37,101

23,165

Total financial assets at fair value through profit or loss

29,409,640

22,065,828

Loans and receivables

1,137,787

6,191,243

Total assets

30,547,427

28,257,071

Financial liabilities

Financial liabilities at fair value through profit or loss

Accrued expenses

107,827

357,578

Derivative financial liabilities

-

24,178

Total financial liabilities at fair value through profit or loss

107,827

381,756

Financial liabilities measured at amortised cost

12,056,776

11,636,432

Total liabilities excluding net assets attributable to holders of Ordinary shares

12,164,603

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 ZDP shares as detailed in the Statement of Financial Position.

Derivative financial liabilities presented above represent forward foreign exchange contracts. Derivative financial assets represent long gilts.

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 reviews 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 30 June 2012, if market prices had been 15% higher with all the other variables held constant, the return attributable to Shareholders for the period would have been £4,405,881 (Dec 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 23.97% (Dec 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 period would have been £4,405,881 (Dec 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 23.97% (Dec 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 30 June 2012 the Company's largest exposure to a single investment was £1,314,747 (Dec 2011: £1,420,813), 4.3% (Dec 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:

30 Jun 2012

31 Dec 2011

GBP

GBP

Financial assets designated as at fair value through profit or loss (fixed income securities only)

5,620,691

4,333,395

Cash and cash equivalents

667,857

5,829,513

Interest, dividends and other receivables

469,930

361,730

6,758,478

10,524,638

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

Rating

30 Jun 2012

31 Dec 2011

Aaa

7.06%

9.60%

Aa

3.09%

1.67%

A

12.74%

17.64%

Baa

24.85%

22.46%

Ba

1.51%

7.08%

B

4.78%

0.00%

WR

0.00%

0.00%

No Rating available

45.97%

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 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 was a new commitment at 31 December 2011 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 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.

(c)			Liquidity Risk (continued)
		The table below details the residual contractual maturities of financial liabilities:
		As at 30 June 2012:
																1-3 months				Over 1 year
																GBP				GBP
		Financial liabilities including derivatives
		Payables - due within one year														107,827				-
		Derivative financial instruments														-				-
		ZDP share entitlement														-				12,056,776
																107,827				12,056,776
		As at 31 December 2011:
																1-3 months				Over 1 year
																GBP				GBP
		Financial liabilities including derivatives
		Payables - due within one year														357,578				-
		Derivative financial instruments														24,178				-
		ZDP share entitlement														-				11,636,432
																381,756				11,636,432
	(d)	Interest Rate Risk
		The Company could hedge interest 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 30 June 2012
						Less than			Fixed interest					Non-interest				Total
						1 month								Bearing
						GBP			GBP					GBP				GBP
	Financial Assets
	Financial assets at fair value through profit or loss on initial recognition					-			5,620,692					23,751,847				29,372,539
	Cash and cash equivalents					667,857			-					-				667,857
	Interest, dividends and other receivables					-			-					469,930				469,930
	Derivative financial instruments					-			-					37,101				37,101
	Total Financial Assets					667,857			5,620,692					24,258,878				30,547,427
	Financial Liabilities
	Derivative financial instruments				-			-					-				-
	Payables				-			-					107,827				107,827
	ZDP share entitlement				-			12,056,776					-				12,056,776
	Total Financial Liabilities				-			12,056,776					107,827				12,164,603
	Total interest sensitivity gap				667,857			(6,436,084)
	As at 31 December 2011
					Less than			Fixed interest					Non-interest				Total
					1 month								Bearing
					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 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 18a.

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 period ended 30 June 2012 would have increased by approximately £835 (Dec 2011: £14,574)& or 0% (Dec 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 attributable to shareholders for the period ended 30 June 2012 would have decreased by approximately £835 (Dec 2011: £14,574)or 0 % (Dec 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 30 June 2012, the Company's holdings in derivatives translated into GBP were as specified below:

Type of contract

Expiration

Underlying

Notional amount of contracts outstanding

Fair value assets / (liabilities)

GBP

Forward

September 2012

Sold USD

1,165,000

21,146

Forward

September 2012

Sold EUR

1,455,000

2,354

23,501

At 31 December 2011

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

	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:
(e)	Foreign Exchange Risk
	30 June 2012
							Monetary assets		Monetary liabilities				Net exposure
							GBP		GBP		GBP		GBP
	Euro						1,210,712		-		(1,175,647)		35,065
	US Dollar						857,207		-		(762,854)		94,353
	Australian Dollar						14,650		-		-		14,650
											Forward FX contracts
	31 December 2011
							Monetary assets		Monetary liabilities				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 principle 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 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.
	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						10,137,781
	Share capital and share premium						168,571
	Non distributable reserves						8,379,683
	Treasury shares						(303,211)
	Total						18,382,824
	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.

Directors

John Campbell Boothman (Chairman)

Helen Foster Green

John Nigel Ward

Manager	Custodian
Premier Asset Management (Guernsey) Limited PO Box 405 Anson Place Mill Court La Charroterie St Peter Port Guernsey GY1 3GF	BNP Paribas Trust Company (Guernsey) Limited BNP Paribas House St Julian's Avenue St Peter Port Guernsey GY1 3WE
Investment Advisers	United Kingdom Stockbrokers
Unicorn Asset Management Limited Preacher's Court The Charterhouse Charterhouse Square London EC1M 6AU	Fairfax I.S. PLC 46 Berkeley Square Mayfair London W1J 5AT
	Auditor
Premier Fund Managers Limited Eastgate Court High Street Guildford GU1 3DE	KPMG Channel Islands Limited PO Box 20 20 New Street St Peter Port Guernsey GY1 4AN
Administrator, Secretary, Registrar and Registered Office
Anson Fund Managers Limited Anson Place Mill Court La Charroterie St Peter Port Guernsey GY1 3GF

 

END

 

 

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