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QUESTER VCT 5 (SVC3)

  Print      Mail a friend       Annual reports

Wednesday 15 March, 2006

QUESTER VCT 5

Final Results


                               QUESTER VCT 5 plc                               

Summary of results for the year ended 31 December 2005

Per ordinary share (pence)             2005         2004          2003

Capital values

Net asset value                        88.6         91.6          92.7

Share price                            78.0         85.5          96.0

Return and dividends

Dividend                                  -            -           1.0

Cumulative dividend                     1.5          1.5           1.5

Total return*                          90.1         93.1          94.2

*Net asset value plus cumulative dividend

DIVIDENDS

No dividend is proposed in respect of the year ended 31 December 2005.

The directors have resolved to pay an interim dividend of 1p per share in
respect of the year ending 31 December 2006.

Payment date 15 May 2006
Ex-dividend date 12 April 2006
Associated record date 18 April 2006

Chairman's statement

Overview

There is now a more widespread view in the market that the prospects for the
technology sector overall are improving. This more positive climate should feed
through to the companies in which the Fund invests. Pricing of investments has
remained more realistic and M&A activity is at a higher level than we have seen
for a number of years.

We are therefore in a more favourable environment for venture capital
investment and the Fund should be well placed to benefit from this.

Net assets

The changes underlying the movement in net assets and net assets per share are
shown below. As a result of the net movement of realised and unrealised gains
and losses and the effect of expenses, net assets per share have reduced by
3.6% during the period. Net assets have reduced by £792,000 as a result of
these movements, offset by £648,000, the net impact of raising additional
capital, less share buy-backs. Recognising that shareholders may regard this
reduction in net assets as disappointing against a background of generally
rising quoted markets, we note that it is not unusual for net assets to fall in
the early years of a fund of this type.

                                               £'000      Pence per
                                                              share
                                                                   
Net asset value at 31 December 2004           21,904           91.6
                                                                   
Income                                           408            1.7
                                                                   
Operating expenses                             (897)          (3.6)
                                                                   
Realised net gain on investments                 546            2.2
                                                                   
Unrealised loss on revaluation of              (849)          (3.5)
investments                                                        
                                                                   
Net proceeds from issue of shares                985            0.1
                                                                   
Share buy-backs                                (337)            0.1
                                                                   
Net asset value at 31 December 2005           21,760           88.6


Progress of the portfolio

There has been some good, positive underlying progress made by a number of
companies in the venture capital portfolio during an active year. The majority
of these companies, which have significant potential, have entered an important
phase in their development in terms of proving their science or getting their
products into the market. Future investment returns of Quester VCT 5 will be
determined by their success in implementing these plans.

We are seeing an increased level of M&A activity within the portfolio. It is
good to be able to report the sale of Footfall Limited during the period for
over £35million, which generated cash proceeds for the Fund of £1,208,000 and a
profit of £808,000.

It has also been an active period on the investment side; £2.2million has been
invested in seven new companies with good potential and an additional £
1.6million has been invested in nine existing companies.

We are holding reserves for further investment in existing portfolio companies
and we continue to have the capacity to make a limited number of further
venture capital investments. New investments will therefore continue to be
added to the existing portfolio during the current year.

Dividends and dividend reinvestment scheme

The sale of Footfall Limited has generated a gain of £808,000 for the Company
and the Board proposes to return £245,000 of this gain to shareholders. The
Board, in reaching this level of proposed distribution has taken into account
other valuation movements in the portfolio and the Company's future investment
plans.

In order to allow dividends to be paid from capital profits, the Company will
need to revoke its investment company status. This change of status, which is
quite normal, is required as investment companies are prohibited from paying
dividends from capital profits. It is intended that this change in status
should be effected shortly and that an interim dividend of 1p per share in
respect of the year ending 31 December 2006 be declared and be payable on 15
May 2006. For these technical reasons, the directors do not recommend a final
dividend in respect of the year ended 31 December 2005.

Following a recent change in the Prospectus Rules, the original dividend
reinvestment scheme operated by the Company has been withdrawn. It has been
replaced with a new scheme designed to be compliant with the latest rules.
Details of this new scheme are being sent to shareholders so that they may
elect to join this new scheme, if they so wish.

Change of auditor

During the year RSM Robson Rhodes LLP was appointed as auditor of the Company.

New UK accounting standards

During the year under review, the Company was required to adopt a number of new
UK accounting standards (most notably FRS 25 and FRS 26). Accordingly, these
accounting standards have been applied in the preparation of these financial
statements. In adopting the new standards, the Company is required to restate
certain brought forward balances. However, the adjustments are not judged to be
material and as such the brought forward balances have not been restated.

Outlook

The prospects for the technology sector and the environment for venture capital
investment has improved and, together with the increased level of M&A activity
that we are seeing, bodes well for the existing portfolio. We are optimistic
that during the next three to four years we will see a step up in the level of
realisations and, over the medium term, an associated increase in net asset
value. We should also start to see an increase in the level of dividend
distributions, as and when gains are realised.

Bill Passmore
Chairman
15 March 2006


INVESTMENT MANAGER'S REPORT

Introduction

We believe that the prospects for the technology sector are improving. The M&A
market has been increasingly active and this looks set to continue through the
current year. We are therefore in a more favourable climate for early stage
venture capital investment than in the Fund's earlier years.

The year has been a very busy period, during which the majority of companies in
the portfolio have performed much as expected. We have seen the trade sale of
Footfall Limited, which has realised a significant gain for the Company.
However the poor performance of a number of other companies has caused the
value of the venture capital portfolio to fall in the short term.

Developments in the venture capital portfolio

The year to 31 December 2005 was an active period; seven new investments were
made and additional funding was provided to nine existing portfolio companies.
This high level of activity has continued after the year end with the Company
having made three new investments and five further investments in existing
portfolio companies. We have worked very closely with a large number of
portfolio companies, providing further funding to support the development of
their businesses, where appropriate. Progress has been made by a number of
companies towards public market listings and some others are actively involved
in M&A discussions.

• Cyclacel plc has announced plans to combine with Xcyte Therapies, Inc. to
form a larger international biopharmaceutical company. The transaction is
anticipated to close at the end of the first quarter of 2006 creating Cyclacel
Pharmaceuticals, Inc., a publicly-traded company with a franchise in one of the
most exciting fields of biology, a development-stage portfolio of targeted
oncology drug candidates affecting the cancer cell cycle and holding
approximately $20million in cash.

• In October, Lorantis Holdings Limited was acquired by Celldex Therapeutics,
Inc., a US based biotechnology company focused on the discovery and
commercialisation of products for the treatment of cancer, infectious diseases
and immune system disorders. The effective merger of the two companies improves
the prospect of an IPO.

• Antenova Limited, a leading developer of advanced antenna technology and
innovative radio solutions used in wireless communications, has signed two
significant contracts in the period. Following the completion of a $12million
funding round in 2005, the company is well positioned to meet the demand of the
global handset and laptop antenna market.

• Footfall Limited, the leading provider of customer counting technology and
statistics to both the retail and retail property sectors was sold for over £
35million to Experian, the information solutions company, in the period. This
was the first significant exit for Quester VCT 5, giving rise to cash proceeds
of £1,202,000 and a profit of £808,000.

Valuation of the venture capital portfolio

The unquoted venture capital portfolio, taking account of both realised and
unrealised gains and losses, has reduced in value by £0.6million during the
period.

During the year, three companies benefited from valuation uplifts, as follows:

• The valuation of the original holding in Oxford Immunotec Limited rose by 35%
(£88,000) reflecting the pricing of a £7million later stage funding round,
which completed in August 2005. The company, which has developed a new blood
test for tuberculosis with fewer false positives and false negatives than the
existing 100 year old skin test, is well placed to take advantage of a growing
recognition that the existing skin test is no longer adequate. The company's
blood test has European regulatory approval and is being sold to hospitals and
clinics internationally.

• Workshare Limited is an established company that develops and markets
document integrity software products widely used by professional services firms
and large enterprises. The company's software provides secure and compliant
production and exchange of business documents, enabling users to assemble and
verify document content and record who has viewed documents. The company has
progressed well in the period, closing key sales in new vertical markets and
accelerating business transacted through its website. The carrying value of
this investment was increased by 10% (£40,000) to reflect the price of the last
investment transaction.

• The valuation of the investment in Xention Discovery Limited, a drug
discovery company focusing on the development of ion channel-acting drugs to
address underserved indications, rose by 15% (£38,000) reflecting the pricing
of an £11million Series B financing round in July. The funds will be used to
progress various programmes in areas such as pain and type II diabetes and also
to develop further its unique approach to ion channel drug discovery.

Two investments have finally been written off during the year. The failure of
Digital Union UK Limited gave rise to a loss of £200,000. The Quester team had
been closely involved with this business and a modest amount of additional
capital had been advanced to give management time to achieve certain
objectives. In the event, these were not achieved and the decision was taken
not to provide further funding. The final write off of Anadigm Limited resulted
in a loss of £199,000. This investment had been written down over the last two
years. This was a great disappointment following the significant efforts made
to develop and support this business, which a widely spread investment
syndicate saw as having considerable potential. However, it did not achieve
fast enough growth in sales to justify further funding support.

Avidex Limited, a biotechnology company focused on the novel development of
therapeutics involving T-cell receptors leading to the treatment of cancer,
inflammation and autoimmune diseases, has secured further funding via a
significant investment from its new trade partner, Syngenta. This further
funding will take the company through to the next stage of its development and
demonstrates the progress made with its science, although the fair value of the
investment has been reduced by £310,000 to reflect the pricing of this third
party investment.

The fair value of Cyclacel has been reduced by £375,000 to reflect the initial
market valuation of Xcyte Therapies, on the announcement of the news of its
merger with Cyclacel. We expect this valuation to rise as the market becomes
aware of the quality of the Cyclacel technology.

These latter two valuation changes reflect current valuation trends across the
biotechnology sector generally, as opposed to specific performance issues with
the individual businesses.

Further reductions to fair value totalling £441,000 have been made against
Advanced Valve Technologies Limited, HTC Healthcare Group plc and Oxxon
Therapeutics Holdings, Inc. reflecting current uncertainties, although the
possibility of future upside remains.

The quoted venture capital portfolio has fallen in value by £485,000.
Approximately 80% of the fall was due to the fall in share price of three
companies; Allergy Therapeutics plc, Portrait Software plc and Public
Recruitment Group plc, on the release of trading statements. We continue to
support each company's management team and their longer term plans.

Venture capital investments made during the period

We continued to seek new venture capital opportunities on behalf of the
Company, resulting in the following seven new investments being made at a total
cost of £2.2million.

Name                         Industry sector               £'000                                     
                                                                
Cluster Seven Limited        Software                        316
                                                                
Genosis plc                  Diagnostics & devices           600
                                                                
Global Silicon Limited       Semiconductors                  333
                                                                
Lectus Therapeutics Limited  Biotechnology                   106
                                                                
Level Four Software Limited  Software                        414
                                                                
Nanotecture Group Limited    Industrial products &            88
                             services                           
                                                                
Pelikon Limited              Hardware                        373
                                                                
                                                           2,230

These initial investments will be supplemented by anticipated further
investments from reserves. Cluster Seven, Genosis, Global Silicon, Level Four,
Nanotecture and Pelikon are revenue generating, albeit at modest levels.

Cluster Seven develops and sells spreadsheet management software. The company's
products address the operational risk, control and compliance impact of
financial institutions' continuing reliance on spreadsheets. In the current
regulatory environment, the control of spreadsheets is paramount and there is a
substantial global market for Cluster Seven's products. The company has built
an impressive client base, principally in the UK, and the £2.4million first
round funding will be invested in product development and expansion in the US.
Henry Sallitt, a Quester director, has joined the board.

Genosis focuses on developing innovative and unique solutions for the diagnosis
of reproductive disorders. This is a growing market with an estimated 1 in 6
couples globally experiencing fertility issues. Genosis' first product,
Fertell, is a combined male and female home fertility test available
exclusively over-the-counter at Boots. Quester VCT 5's initial investment was a
pre-AIM investment. The company subsequently raised £7million on its AIM
listing in December, which will enable manufacturing capabilities to be scaled
up and marketing and sales resources to be enhanced.

Global Silicon, a designer and manufacturer of integrated circuit solutions for
the high growth consumer audio market, raised £6million in a series B funding
round. Jeremy Milne, a Quester director, has joined the board. The company's
lead product, Xin, is currently incorporated in audio systems such as boom
boxes and CD players in the UK and Europe. The company's new products will play
in other rapidly growing markets. The new funds will enable Global Silicon to
expand its product range and its operations.

Lectus Therapeutics specialises in the discovery and development of novel drugs
(ion channel modulators) for diseases associated with pain management, urinary
incontinence and angina, offering important clinical and economic advantages
over existing therapies in a growing market. The company raised £8.2million in
the Series A funding in which Quester VCT 5 participated alongside other
Quester funds, leading French venture capital firm Sofinova and the top two
Japanese pharmaceutical firms, Taheda and Astellas. The new funds will be used
to advance existing programmes and provide opportunities for commercial
partnerships with pharmaceutical companies.

Level Four Software is an independent software company providing powerful test
and development tools for all types of 'automated teller machine' (ATM)
networks, enabling banks and processors to capitalize further on their existing
investments in ATM technology. The ATM industry is expected to experience an
exciting period of growth as financial institutions connect to 'chip and pin'
and exploit the revenue generating opportunity presented by increasing customer
use of ATMs. The company is well placed to exploit the market opportunity and
the aggregate £2million investment made by Quester funds will enable the
company to accelerate its development. Henry Sallitt has joined the board.

Nanotecture has created a novel way of making 3D structures with nano-scale
(one billionth of a meter) architectures. The company develops products with
applications in molecular filtration for the pharmaceutical industry, in
designing sensors for the auto sector and in powering mobile phones, PDAs and
digital cameras for the consumer electronics industry.

Pelikon is an innovative manufacturer of thin, flexible electro luminescent
displays for consumer electronics, home appliances and industrial applications.
The company has progressed the commercialisation of its display technology and
over one million flexible displays have been distributed world wide. The
investment, part of a £5million pre-IPO funding round, will position the
company to accelerate growth.

We also supported the existing portfolio with nine further investments
totalling £1.6million as shown below:

Name                               Industry sector              £'000
                                                                     
Advanced Valve Technologies        Industrial products &          193
Limited                            services                          
                                                                     
Avidex Limited                     Biotechnology                  131
                                                                     
Azea Networks, Inc.                Communications                 129
                                                                     
Celona Technologies Limited        Software                       209
                                                                     
HTC Healthcare Group plc           Consumer goods & services       71
                                                                     
Identum Limited                    Software                       359
                                                                     
Oxford Immunotec Limited           Diagnostics & devices          286
                                                                     
Workshare Limited                  Software                        56
                                                                     
Xention Discovery Limited          Biotechnology                  205
                                                                     
                                                                1,639

Following the year end, a further £802,000 has been invested in three new and
five existing investments.

Sector spread

A summary of the spread of sectors covered by the portfolio at 31 December 2005
is provided in the table below:

Percentage of venture

Industry sector              Percentage of venture   Valuation     Number of
                              capital portfolio at               investments
                                         valuation       £'000                                            
                                                 %                          
                                                                            
Software                                      26.8       2,286             6
                                                                            
Biotechnology                                 24.4       2,080             7
                                                                            
Diagnostics & devices                         14.3       1,220             2
                                                                            
Communications                                10.9         928             2
                                                                            
Industrial products &                          7.5         642             4
services                                                                    
                                                                            
Semiconductors                                 6.0         516             2
                                                                            
Hardware                                       4.4         373             1
                                                                            
Electronics                                    3.7         315             2
                                                                            
Consumer goods & services                      2.0         170             1
                                                                            
                                             100.0       8,530            27

Listed equity and bond portfolios

At 31 December 2005, the Company held a portfolio of listed equities valued at
£3.6million (cost: £2.7million). During the year, the opportunity was taken to
realise some of the gains accruing and 14.6% of the portfolio was sold
realising a profit of £123,000. The listed equity portfolio performed well,
generating an IRR of 27.6% over the year. The FTSE All Share index generated an
IRR of 22.0% over the same period.

At the year end, the Company held cash of £6.8million, which together with the
bond portfolio, represents the liquid reserves held to cover follow-on
investments.

The company also still has the capacity to make further new investments and
further activity will be seen during 2006.

Outlook

A number of companies in the portfolio are now at key points in their
development where they are starting to achieve market penetration or prove
their science. Values of those companies, which continue to implement their
business plans successfully, will increase and a number have significant
potential.

We anticipate an increasing rate of realisations from the portfolio as it
matures. As with the very positive Footfall realisation, these future potential
successful realisations, balanced by the possible under-performance of some
companies, should flow through to support net asset growth and dividend
payments over the medium term.

15 March 2006

Fund summary as at 31 December 2005

                             Industry Sector  Original Valuation      %    % of
                                                  Cost           equity fund by
                                                 £'000     £'000   held   value
                                                                                                                        
Quoted venture capital 
investments                                                                                          
Allergy Therapeutics plc     Biotechnology         500       514   1.1%    2.4%
                                                                               
Genosis plc                  Diagnostics &         600       596   3.4%    2.7%
                             devices                                           
                                                                               
Polaron plc                  Industrial            250       145   1.2%    0.7%
                             products &                                        
                             services                                          
                                                                               
Portrait Software plc*       Software              565       327   1.5%    1.5%
                                                                               
Public Recruitment Group plc Industrial            250        74   0.7%    0.3%
                             products &                                        
                             services                                          
                                                                               
Quadnetics Group plc         Electronics            57        47   0.1%    0.2%
                                                                               
Total quoted venture capital                     2,222     1,703           7.8%
investments                                                                    
                                                                               
Unquoted venture capital                                                       
investments                                                                    
                                                                               
Advanced Valve Technologies  Industrial            606       335  10.2%    1.5%
Limited                      products &                                        
                             services                                          
                                                                               
Antenova Limited             Communications        402       402   2.2%    1.9%
                                                                               
Arithmatica Limited          Semiconductors        287       183   2.5%    0.8%
                                                                               
Avidex Limited %             Biotechnology         571       261   1.3%    1.2%
                                                                               
Azea Networks, Inc.          Communications        526       526   2.2%    2.4%
                                                                               
Celona Technologies Limited  Software              338       338   5.5%    1.6%
                                                                               
Cluster Seven Limited        Software              316       316   4.0%    1.5%
                                                                               
Cyclacel Group plc           Biotechnology         500       125   4.0%    0.6%
                                                                               
Global Silicon Limited       Semiconductors        333       333   4.2%    1.5%
                                                                               
HTC Healthcare Group plc     Consumer goods &      285       170   3.5%    0.8%
                             services                                          
                                                                               
Identum Limited              Software              395       395   8.6%    1.8%
                                                                               
Lectus Therapeutics Limited  Biotechnology         106       106   3.0%    0.5%
                                                                               
Level Four Software Limited  Software              414       414  18.0%    1.9%
                                                                               
Lorantis Holdings Limited    Biotechnology         400       400   0.9%    1.8%
                                                                               
Mesophotonics Limited        Electronics           357       268   2.4%    1.2%
                                                                               
Nanotecture Group Limited    Industrial             88        88   0.8%    0.4%
                             products &                                        
                             services                                          
                                                                               
Oxford Immunotec Limited     Diagnostics &         535       624   3.7%    2.9%
                             devices                                           
                                                                               
Oxxon Therapeutics Holdings, Biotechnology         367       182   1.3%    0.8%
Inc.                                                                           
                                                                               
Pelikon Limited              Hardware              373       373   2.9%    1.7%
                                                                               
Workshare Limited            Software              456       496   2.7%    2.3%
                                                                               
Xention Discovery Limited    Biotechnology         455       492   3.4%    2.3%
                                                                               
Total unquoted venture                           8,110     6,827          31.4%
capital investments                                                            
                                                                               
Total venture capital                           10,332     8,530          39.2%
investments                                                                    
                                                                               
Listed fixed interest                            2,890     2,893          13.3%
investments                                                                    
                                                                               
Listed equity investments                        2,732     3,603          16.6%
                                                                               
Total investments                               15,954    15,026          69.1%
                                                                               
Cash and other net assets                        6,734     6,734          30.9%
                                                                               
Net assets                                      22,688    21,760         100.0%

* formerly AIT Group plc

INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2005

                              2005     2005    2005    2004     2004   2004
                              Revenue  Capital Total   Revenue  Capital Total                                           
                       Notes  £'000    £'000   £'000   £'000    £'000   £'000 
                                                                              
Loss on investments at      1       -    (303)  (303)       -     (86)   (86)
fair value through                                                            
profit or loss                                                                
                                                                              
Income                      2     408       -     408      618       -    618
                                                                              
Investment management       3    (267)   (267)   (534)    (276)   (276)  (552)
fee                                                                           
                                                                              
Other expenses              4    (363)       -   (363)    (277)       -  (277)
                                                                              
(Loss)/return on                                                              
ordinary 
activities                                                                                                             
before tax                       (222)   (570)   (792)       65   (362)  (297)
                                                                              
Tax on ordinary             6       -       -       -        2       -      2
activities                                                                    
                                                                              
(Loss)/return on                                                              
ordinary 
activities                                                                                                              
after tax                        (222)   (570)   (792)       67   (362)  (295)
                                                                              
(Loss)/return per           7   (0.9)p  (2.3)p  (3.2)p     0.3p  (1.5)p (1.2)p
share                                                                         

The total column of this statement is the profit and loss account of the
Company.

In order to reflect the activities of a venture capital trust, the Income
statement has been analysed between items that are part of the capital returns
so as to provide supplementary information.

All revenue and capital items in the above statement derive from continuing
operations.

The Company has only one class of business and derives its income from
investments made in shares and securities and from bank deposits.

The accompanying notes are an integral part of this statement.

BALANCE SHEET

AS AT 31 DECEMBER 2005

                                                         2005        2004               
                                                               (restated)                                        
                                        Notes           £'000       £'000
                                                                         
Fixed assets                                                             
                                                                         
Investments at fair value through                      15,026      12,615
profit or loss                                                           
                                                                         
Current assets                                                           
                                                                         
Debtors                                                   179          56
                                                                         
Cash at bank                                            6,776       9,373
                                                                         
                                                        6,955       9,429
                                                                         
Creditors (amounts falling due within                   (175)        (94)
one year)                                                                
                                                                         
Net current assets                                      6,780       9,335
                                                                         
Creditors (amounts falling due after                     (46)        (46)
more than one year)                                                      
                                                                         
Net assets                                             21,760      21,904
                                                                         
Capital and reserves                                                     
                                                                         
Called-up equity share capital                            246         239
                                                                         
Capital redemption reserve                                  6           2
                                                                         
Share premium account                                   5,966       4,992
                                                                         
Special reserve                                        15,643      16,542
                                                                         
Capital reserve - realized                                973         130
                                                                         
- unrealised                                            (928)        (77)
                                                                         
Revenue reserve                                         (146)          76
                                                                         
Equity shareholders' funds                             21,760      21,904
                                                                         
Net asset value per share               6               88.6p       91.6p

The financial statements were approved by the directors on 15 March 2006 and
are signed on their behalf by:

Bill Passmore

Chairman

The accompanying notes are an integral part of this statement.

CASHFLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2005

                                                        2005      2004
                                                                      
                                                       £'000     £'000
                                                                      
Cash (outflow)/inflow from operating activities        (450)       557
                                                                      
Corporation tax refund                                     -         2
                                                                      
Financial investment                                                  
                                                                      
Purchase of venture capital investments              (3,904)   (2,348)
                                                                      
Purchase of listed equities and fixed interest       (6,781)   (6,285)
investments                                                           
                                                                      
Sale/redemption of venture capital investments         1,219       776
                                                                      
Sale/redemption of listed equities and fixed           6,671    13,200
interest investments                                                  
                                                                      
Total financial investment                           (2,795)     5,343
                                                                      
Equity dividends paid                                      -     (221)
                                                                      
Management of liquid resources                                        
                                                                      
Purchase of Treasury Deposits                          (280)         -
                                                                      
Financing                                                             
                                                                      
Issue of ordinary shares pursuant to the offers                       
for                                                                   
                                                                      
subscription made during the year                      1,042     1,446
                                                                      
Issue of shares in accordance with the terms of                       
                                                                      
the dividend reinvestment scheme                           -        34
                                                                      
Share issue expenses                                    (57)      (53)
                                                                      
Buy-back of ordinary shares                            (337)      (89)
                                                                      
Total financing                                          648     1,338
                                                                      
(Decrease)/increase in cash for the period           (2,877)     7,019
                                                                      
Reconciliation of net cash flow to movement in net                    
funds                                                                 
                                                                      
(Decrease)/increase in cash for the period           (2,877)     7,019
                                                                      
Cash used to increase liquid resources                   280         -
                                                                      
Net funds at the start of the period                   9,373     2,354
                                                                      
Net funds at the end of the period                     6,776     9,373

The accompanying notes are an integral part of this statement.


RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS

FOR THE YEAR ENDED 31 DECEMBER 2005

                           Capital                    Capital  Capital                  
                                                                                        
                   Share   redemption Share   Special reserve  reserve    Revenue       
                                                                                        
                   Capital Reserve    premium reserve realised unrealised reserve Total 
                                                                                        
                   £'000   £'000      £'000   £'000   £'000    £'000      £'000         
                                                                                        
At 1 January 2004  239     -          4,992   16,544  130      (77)       76      21,904
                                                                                        
Effect of creating                                                                      
a capital                                                                               
                                                                                        
redemption reserve -       2          -       (2)     -        -          -       -     
                                                                                        
At 1 January 2004  239     2          4,992   16,542  130      (77)       76      21,904
(restated)                                                                              
                                                                                        
Share issues                                                                            
pursuant to the                                                                         
                                                                                        
offers for         11      -          1,031   -       -        -          -       1,042 
subscription                                                                            
                                                                                        
Expenses of share  -       -          (57)    -       -        -          -       (57)  
issues                                                                                  
                                                                                        
Share buy-ins      (4)     4          -       (337)   -        -          -       (337) 
                                                                                        
Total loss for the -       -          -       -       -        -          (792)   (792) 
period                                                                                  
                                                                                        
Gains/(losses) on  -       -          -       -       546      (849)      303     -     
investments                                                                             
                                                                                        
Net expenses       -       -          -       -       (267)    -          267     -     
charged to capital                                                                      
                                                                                        
Transfer from      -       -          -       -       2        (2)        -       -     
unrealised reserve                                                                      
                                                                                        
Transfer from      -       -          -       (562)   562      -          -       -     
special reserve                                                                         
                                                                                        
At 31 December     246     6          5,966   15,643  973      (928)      (146)   21,760
2005                                                                                    

The accompanying notes are an integral part of these statements.


NOTES TO THE FINANCIAL STATEMENTS

1. Loss on investments at fair value through profit or loss

The overall loss on investments for the year shown in the Income statement is
analysed as follows:

                                                    2005         2004
                                                                     
                                                   £'000        £'000
                                                                     
Realised net gains on disposal                       953          399
                                                                     
Write off of investments                           (407)        (250)
                                                                     
Net unrealised loss on revaluation of              (849)        (235)
investments                                                          
                                                                     
                                                   (303)         (86)

The realised net gains on disposal represents the difference between proceeds
received and the carrying values of those investments sold during the year.

The amounts reported under 'write off of investments' represent the proportion
of the carrying value of certain investments that have, in the opinion of the
directors, suffered an impairment which is regarded as permanent. These
write-offs amounted to £407,000 in the year ended 31 December 2005 (2004: £
250,000; 2003: £400,000).

Both realised net gains on disposal and amounts written off are charged to the
realised capital reserve.

2. Income

                                       2005           2004
                                                          
                                      £'000          £'000
                                                          
Dividend income                                           
                                                          
- Listed equity shares                  112             78
                                                          
Interest receivable                                       
                                                          
- Listed fixed interest                 217            446
securities                                                
                                                          
- Loans to unquoted                       8              -
companies                                                 
                                                          
- Bank deposits                          71             94
                                                          
                                        408            618

3. Investment management fee

Quester Capital Management Limited ('QCML') provides investment management
services to the Company under an agreement dated 3 December 2001, as amended by
a supplemental agreement dated 23 December 2004.

A charge of £534,000 (2004: £552,000) in respect of the management fee payable
to QCML was accrued during the year together with irrecoverable VAT of £74,000
(2004: £71,000). The fee, which is calculated quarterly and is payable in
advance, was levied at a rate of 2.5% (2004: 2.5%) on the Company's net assets
during the financial year ended 31 December 2005. Following the changes
resulting from the supplemental agreement referred to above, this charge is
capped to ensure that the Company's Running Costs do not exceed 3.5% of the
closing net asset value.

The Manager's appointment is for a fixed term which shall expire on the seventh
anniversary of the commencement of the Fund and shall continue until terminated
by either party subject to a notice period. If such notice is given on or after
the seventh anniversary of the commencement of the Fund, the notice period
shall be the longer of (i) twelve months and (ii) the period from the date on
which notice is given to the tenth anniversary of the commencement of the Fund.
Thereafter the notice period shall be twelve months.

The management fee payable to Newton Investment Management Limited, to the
extent that it is not covered by transaction fees payable by the Company, will
be met by QCML out of the above fee.

QCML also provides administrative and secretarial services to the Company for
which it is entitled to a fee of £55,000 per annum (linked to the movement in
the RPI). This fee is included in other expenses (note 4).

4. Other expenses

                                          2005           2004
                                                             
                                         £'000          £'000
                                                             
Administration and secretarial              55             53
services                                                     
                                                             
Directors' remuneration (note 5)            39             39
                                                             
Auditor's remuneration                                       
                                                             
- Audit services                            14             18
                                                             
- Non audit services                        10              8
                                                             
Insurance                                   13             12
                                                             
Legal and professional expenses             25             15
                                                             
UKLA, LSE and registrar fees                19             14
                                                             
Interest expense                             2              2
                                                             
Transaction costs                           20              -
                                                             
Other expenses                              53             17
                                                             
Irrecoverable VAT                          113             99
                                                             
                                           363            277

5. Directors' remuneration

                                                            2005           2004
                                                                               
                                                           £'000          £'000
                                                                               
Fees paid to directors                                        12             12
                                                                               
Amounts paid to third parties, excluding VAT, in              27             27
consideration of the services of directors                                     
                                                                               
                                                              39             39

6. Tax on ordinary activities

                                      2005       2005     2004        2004     
                                                                               
                                      Revenue    Capital  Revenue     Capital  
                                                                               
                                      £'000      £'000    £'000       £'000    
                                                                               
Corporation tax receivable - prior             -        -           2         -
year adjustment                                                                
                                                                               
                                               -        -           2         -
                                                                               
Reconciliation of profit on ordinary                                           
activities to taxation                                                         
                                                                               
                                            2005     2005        2004      2004
                                                                               
                                         Revenue  Capital     Revenue   Capital
                                                                               
                                           £'000    £'000       £'000     £'000
                                                                               
(Loss)/profit on ordinary activities       (222)    (570)          65     (362)
before tax                                                                     
                                                                               
Tax on profit on ordinary activities        (67)    (171)          19     (109)
at standard UK corporation tax rate                                            
at 30%(2004:30%)                                                               
                                                                               
Effects of:                                                                    
                                                                               
Loss on investments at fair value              -       91           -        26
through profit or loss                                                         
                                                                               
Non-taxable income                          (34)        -        (23)         -
                                                                               
Unutilised expenses                          101       80           4        83
                                                                               
Prior year adjustment                          -        -           2         -
                                                                               
                                               -        -           2         -

7. Loss per share

The total loss per share of 3.2p (2004: 1.2p) is based on the total loss from
ordinary activities after tax of £792,000 (2004: £295,000) and on ordinary
shares of 24,571,235 (2004: 23,610,383), being the weighted average number of
shares in issue during the year.

6. Net asset value

The net asset value per share as at 31 December 2005 of 88.6p (2004: 91.6p) is
based on net assets of £21,760,000 (2004: £21,904,000) divided by the
24,556,227 (2004: 23,905,023) ordinary shares in issue at that date.

This preliminary statement is not the company's statutory accounts. The
statutory accounts for the year ended 31 December 2004 have been delivered to
the Registrar of Companies and received an audit report which was unqualified,
did not include a reference to any matters to which the auditors drew attention
by way of emphasis without qualifying the report, and did not contain
statements under section 237(2) and (3) of the Companies Act 1985. The
statutory accounts for the year ended 31 December 2005 have not yet been
approved, audited or filed.

A copy of the above document will be submitted to the UK Listing Authority, and
will shortly be available for inspection at the UK Listing Authority's Document
Viewing Facility, which is situated at:

Financial Services Authority

25 The North Colonnade

Canary Wharf

London

E14 5HS

Copies of the full financial statements for the period ended 31 December 2005
are expected to be posted to shareholders on 16 March 2006 and will be
available to the public at the registered office of the Company at 29 Queen
Anne's Gate, London, SW1H 9BU.