Source - PRN

Acorn Income Fund Limited

Half-yearly Condensed Financial Report (unaudited)
For the six months ended 30 June 2016

The Company has today, in accordance with DTR 6.3.5, released its Half-yearly Condensed Financial Report (unaudited) for the six months ended 30 June 2016. The Report will shortly be available via the Investment Manager’s website https://www.premierfunds.co.uk/media/873580/acorn-income-fund-interim-report-2016.pdf and will also be available for inspection online at www.morningstar.co.uk/uk/NSM website.

Investment Objectives and Policy

Investment Policy

The investment objective and policy of Acorn Income Fund Limited (the “Company”) is to provide Shareholders with high income and also the opportunity for capital growth.

The Company’s investments are held in two portfolios. The Company’s assets comprise investments in equities and fixed interest securities in order to achieve its investment objective. Approximately 70% to 80% of the Company’s assets are invested in smaller capitalised United Kingdom companies, admitted to the Official List of the Financial Conduct Authority (the “FCA”) and traded on the London Stock Exchange (the “LSE”) or traded on the Alternative Investment Market (“AIM”) at the time of investment. The Company also aims to enhance income for Ordinary Shareholders by investing approximately 20% to 30% of the Company’s assets in high yielding instruments which are predominantly fixed interest securities but may include up to 15% of the Company’s overall portfolio (measured at the time of acquisition) in high yielding investment company shares.

The proportion of the overall portfolio held in the Smaller Companies Portfolio and the Income Portfolio varies from day to day as the market prices of investments move. The Directors retain discretion to transfer funds from one portfolio to the other and generally expect between 70% to 80% of the investments to be held in the Smaller Companies Portfolio.

While the Company’s investment policy is to spread risk by maintaining diversified portfolios, there are no restrictions on the proportions of either of the portfolios which may be invested in any one geographical area, asset class or industry sector. However, not more than 7.5% of the Company’s gross assets may be invested in securities issued by any one company as at the time of investment, save that (i) in respect of the Income Portfolio only, investments may be made in other investment funds subject only to the restriction set out in paragraph (c) of the section headed “Investment Restrictions” below; and (ii) in respect of the Smaller Companies Portfolio only, provided that not more than 10% of the Company‘s gross assets are invested in securities issued by any one company at any time, the 7.5% limit may be exceeded on a short term basis, with Board approval, where a company whose securities form part of the Smaller Companies Portfolio issues new securities (for example by way of a rights issue).

The Company’s capital structure is such that the underlying value of assets attributable to the Ordinary Shares is geared relative to the rising capital entitlements of the ZDP Shares. The Company’s gearing policy is not to employ any further gearing through long-term bank borrowing. Save with the prior sanction of ZDP Shareholders, the Company will incur no indebtedness other than short term borrowings in the normal course of business such as to settle share trades or borrowings to finance the redemption of the ZDP Shares.

Investment Restrictions

For so long as required by the Listing Rules in relation to closed-ended investment companies, the Company has adopted the following investment and other restrictions:

(a)        the Company will at all times invest and manage its assets in a way which is consistent with its object of spreading investment risk and in accordance with its published investment policy;

(b)        the Company will not conduct any significant trading activity; and

(c)        not more than 10% in aggregate of the value of the total assets of the Company at the time the investment is made will be invested in other listed closed-ended investment funds. The Listing Rules provide an exception to this restriction to the extent that those investment funds have stated investment policies to invest no more than 15% of their total assets in other listed closed-ended investment companies.

Derivatives

The Company may invest in derivatives, money market instruments and currency instruments including contracts for difference, futures, forwards and options. These investments may be used for hedging positions against movements in, for example; equity markets, currencies and interest rates. In addition, these instruments will only be used for efficient portfolio management purposes. The Company will not use such instruments to engage in trading transactions. The Company will not maintain derivative positions should the total underlying exposure of these positions exceed one times adjusted total capital reserves.

Performance Summary

for the six months ended 30 June 2016

30/06/2016 31/12/2015 % change
Total Return Performance*
Total Return on Gross Assets*## - - -8.13%
Numis Smaller Companies (Ex Investment Companies) Index 16,209.97 17,171.76 -5.60%
FTSE All Share Index 5,737.47 5,502.42 4.27%
FTSE Small Cap (Ex Investment Companies) Index 5,765.70 6,044.52 -4.61%
Share Price and NAV Returns
Ordinary Shares
Share Price 349.00p 400.00p -12.75%
NAV** 334.18p 395.94p -15.60%
IFRS NAV# 333.93p 395.50p -15.57%
Total return on Net Assets* - - -13.95%
Ordinary Share Price Total Return - - -10.96%
Discount (-) Premium (+) to NAV on Ordinary Shares +4.43% +1.02% -
ZDP Shares
Share Price 135.00p 131.75p 2.47%
NAV** 133.00p 128.89p 3.19%
IFRS NAV 133.19p 129.22p 3.07%
Discount (-) Premium (+) to NAV on ZDP Shares +1.50% +2.21% -
Cover on ZDP Shares*** 2.69:1 2.98:1 -
Package Discount (-) Premium (+) to
NAV Combined Ordinary and ZDP Shares +3.41% +1.39% -
6 months to 30/06/2016 6 months to 30/06/2015 % change
Dividends and Earnings
Revenue return per ordinary share 10.50p 8.14p 41.77%
Dividends declared per ordinary share 7.50p 6.75p 11.11%

*   assumes dividends reinvested
**  NAV calculated in accordance with the Articles
*** non cumulative cover- source JP Morgan Cazenove
#   NAV calculated in accordance with International Financial Reporting Standards
## adjusted for the issue and buyback of new Ordinary and ZDP Shares

Company Summary

Capital Structure

Bank Loan As at 30 June 2016, the Company had no bank loans outstanding.
Zero Dividend Preference Shares (1p each) 21,357,174 (excluding treasury shares).
The ZDP Shares will have a final capital entitlement of 138 pence per ZDP Share on 31 January 2017 subject to there being sufficient capital in the Company. The ZDP Shares are not entitled to any dividends. ZDP shareholders rank ahead of the ordinary shareholders in regards to rights as to capital. The ZDP shareholders have the right to receive notice of all general meetings of the Company, but do not have the right to attend or vote unless the business of the meeting involves an alteration of the rights attached to the ZDP Shares, in which case the holders of ZDP Shares can attend and vote.
Ordinary Shares (1p each) 15,910,692 (excluding treasury shares).
The Ordinary Shares, excluding treasury shares, are entitled to participate in all dividends and distributions of the Company. On a winding-up holders of Ordinary Shares are entitled to participate in the distribution and the holders of Ordinary Shares are entitled to receive notice of and attend and vote at all general meetings of the Company.
Treasury Shares As at 30 June 2016 there were 1,275,972 Ordinary and 1,712,757 ZDP Shares held in treasury.
Shareholder Funds £53.13 million as at 30 June 2016. (calculated in accordance with IFRS)
Market Capitalisation of the Ordinary Shares £55.52 million as at 30 June 2016.
The Board The Board consists of three independent non-executive directors, Helen Green (“Chairman”), Nigel Ward and David Warr (the “Directors”).
Investment Manager Premier Asset Management (Guernsey) Limited (“PAMG Ltd”), is a subsidiary of Premier Asset Management Limited (“PAM Ltd”). PAM Ltd had approximately £­4.6 billion of funds under management as at 30 June 2016. PAMG Ltd is licensed under the provisions of the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, by the Guernsey Financial Services Commission to carry on controlled investment business.
Investment Advisers Premier Fund Managers Limited (“PFM Ltd”) – the Company’s Income Portfolio is managed by Paul Smith and Nigel Sidebottom.
Unicorn Asset Management Limited (“Unicorn Ltd”) – the Company’s Smaller Companies Portfolio is managed by Simon Moon and Fraser Mackersie.
Secretary Northern Trust International Fund Administration Services (Guernsey) Limited provide the Company’s secretarial and administrative services.
Management Fee 0.7% per annum (Total Assets) charged 75% to capital and 25% to revenue, plus performance fee. Minimum annual management fee £100,000.

Financial Calendar

Company’s year end                                                               31 December
Annual results announced                                                      April
Annual General Meeting                                                         26 September 2016
Company’s half-year end                                                        30 June
Half-year results announced                                                   August
Dividend payments - 2016                                                      At the end of March, June, September and December

Company Website

https://www.premierfunds.co.uk/investors/investments/investment-trusts/acorn-income-fund

Chairmans Statement and Interim Management Report

30 June 2016

Dear Shareholder,

2015 had been an excellent year for Acorn. Acorn had outperformed the UK small cap indices and small cap stocks had themselves performed exceptionally well against larger capitalisation companies. The first half of 2016 has not proved so favourable for Acorn. The market was thrown into turmoil following the unexpected referendum result which, as our investment advisers explain in their reports, impacted smaller companies more severely than larger companies which generally have a greater exposure to overseas earnings and therefore benefit from weak sterling. Whilst the FTSE 100 Index rebounded strongly following the initial post Brexit setback, smaller companies remained relatively depressed.  

Investment Performance

Over the 6 months to 30 June 2016 the UK market hit a low point in mid February and then rallied ahead of the referendum on 23 June. The initial downward spike in the FTSE 100 Total Return Index was soon corrected and this leading Index closed the half year up 6.62% at its high point for the period. The FTSE All-Share Total Return Index rose 4.27%. The FTSE Small Cap (ex Investment Companies) Total Return  Index in contrast fell sharply following the referendum result and only recovered a small part  of the fall to end down 4.61% over the six month period. The Numis Small Company Index (Total Return ex Investment Companies) fell 5.60%. The Merrill Lynch Sterling Non Gilts Index which benefitted from a further fall in bond yields, rose 7.20%. 

Acorn’s gross asset performance (adjusted for share issuance and buybacks) showed a total return of -8.13%. Net asset value total return was -13.95%. Share price total return, which benefitted from an increased premium over the period, was -10.96%.  

The Zero Dividend Preference Shares (ZDPs) appreciated in value by 2.47% over the six months.

The total return on the Smaller Companies Portfolio over the period was -10%. The Income Portfolio return was flat missing out on much of the strength in sterling bond markets by having taken a very defensive low duration position. Nevertheless the bond portfolio did protect value during a time when the equity portfolio was falling. 

Asset Allocation

Acorn’s split between the Smaller Companies Portfolio and the Income Portfolio has remained at approximately 77.5% to the Smaller Companies Portfolio and 22.5% to the Income Portfolio throughout the period. The split is based on the board’s and the advisers’ continuing belief that the Smaller Companies Portfolio offers an attractive income stream whilst fixed interest securities, although generally lower risk than equites, remain exposed to an eventual increase in interest rates and an increasing default rate.

Share Issuance and Buy Backs

The Company has power to issue shares at a premium to net asset value and to buy back into Treasury or for cancellation at a discount.  These transactions are executed in both classes of share in the correct ratio to maintain the capital structure. Issues are done at a premium to the package net asset value (the NAV of Ordinary Shares and ZDPs combined) and buy backs at a discount to the package net asset value, such that the transaction will always be cover enhancing for the ZDP Shares and NAV enhancing for the Ordinary Shares. 

In early January 2016 the company issued two tranches of new shares totalling 125,000 Ordinary Shares and 167,790 ZDP Shares raising approximately £716,000. There were no buy backs in the six month period under review.

At the start of the period the ordinary shares were trading on a premium of 1.02% and the package of Ordinary Shares and ZDPs (in appropriate ratio) was at a premium of 2.21%. At the period end (30/06/2016), in the immediate aftermath of the Brexit vote, the premium increased with the NAV falling and the share price holding up relatively well. At
30 June 2016 the Ordinary Share premium was 4.43% and the package premium 3.41%. 

Earnings and Dividends

The first interim dividend of 3.5p was paid on 29 March 2016. This represented a 7.7% increase on the corresponding dividend in 2015. In announcing the second interim dividend the Directors noted that Acorn’s portfolio of UK smaller companies continues to deliver earnings and dividend growth. The dividend was increased to 4.0p on the second interim payment, which was paid on 28 June 2016 and this represented a 14.3% increase on the preceding distribution of 3.5p.

Discontinuation Vote

The Company's AGM on 26 September includes an opportunity to vote on the continuation of the Company, a resolution which is put to shareholders every five years.  The Notice of meeting is contained within the Annual Report and Accounts for 2015 and in that report I explained that if as a shareholder you want Acorn to continue in its present form it is necessary to vote against the discontinuance resolution, resolution 10, in the Notice of Meeting. The Directors support the continuation of the Company and accordingly have recommended that shareholders vote against this resolution. Shareholders who have mislaid their form of proxy can contact the company secretary to request a replacement.

Outlook

Political and market reaction to the Brexit vote has unfolded rapidly in the few weeks since the period end. A new Prime Minister was selected and assumed the role with minimal delay following David Cameron's resignation and this removed one element of uncertainty overhanging markets. The longer term economic consequences of Brexit are difficult to judge given the many potential trading arrangements that might be negotiated with the EU and other countries. Markets will suffer from the uncertainties surrounding the UK's exit from the EU until there is a clearer picture of what the future holds. The Bank of England, aiming to pre-empt any trend towards recession as a result of Brexit, have cut interest rates to 0.25% and recommenced quantitative easing and this has helped stimulate a broad based market recovery. As noted earlier the initial rally in the last week of June was restricted to larger companies. But at the time of writing small and mid cap indices as well as the FTSE 100 index have recovered to levels which are higher than they stood at immediately preceding the Brexit vote. Acorn's net asset value had also recovered to above the pre Brexit level. The NAV at 22 June 2016, prior to the referendum, had been 367.31p and had fallen to 334.18p at the half year end. However by 5 August the NAV had more than made up the lost ground rising to 373.67p. The discount on the ordinary shares has also narrowed significantly from 15.6% at the half year end to approximately 7.7% at the time of writing. 

Brexit may make some investments less attractive but will also open up new opportunities. Any adjustments required to Acorn's investments can be accommodated within the normal management of Acorn's portfolios. The Directors see no advantage in deviating from the broad strategy and investment process that has served Acorn well since its inception.

Helen Green
Chairman
30 August 2016

Responsibility Statement

for the period from 1 January 2016 to 30 June 2016

We confirm that to the best of our knowledge:

  • the condensed set of financial statements has been prepared in accordance with International Accounting Standard 34 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 by:

Helen Green
Chairman
30 August 2016

Investment Advisers’ Reports

The Smaller Companies Portfolio

During the six months to 30 June 2016 the Smaller Companies Portfolio returned -10.62% underperforming the benchmark index, the NSCI (ex IC), which returned -5.60%, both on a total return basis. The portfolio performance is calculated before allowing for management costs and other expenses.

The defining event of the period under review was the UK’s decision to leave the EU on 23 June. The surprise outcome led to a sharp market sell-off in the initial aftermath of the vote and a period of heightened volatility, which was further exacerbated by the fall-out in the political establishment caused by the leave vote. Small and medium sized companies, which are generally more domestically focused than their larger cap peers, bore the brunt of the post Brexit sell-off as investors grew increasingly nervous about the economic outlook in the UK. In contrast, the more internationally focused large cap index held up well as Sterling weakened.

The Smaller Companies Portfolio initiated positions in five new holdings and exited three existing holdings in full during the period under review.  Two of the new investments made were through initial public offerings (IPO). The new positions initiated during the period were: BBA Aviation, a global aviation support and aftermarket services company; Midwich Group, a specialist AV and document solutions distributor; Card Factory, the vertically integrated retailer of greeting cards; NewRiver Retail, a retail property focused REIT and Morses Club, a leading UK non-standard consumer finance company. Positions in Vp and Diploma were exited in full during the period, both of which had experienced significant yield compression after several years of capital outperformance and were offering below average dividend yields. The position in DX Group, the parcels, mail and logistics operator was also exited in full.

The strongest contribution to performance during the period came from Somero Enterprises, the manufacturer of industrial machinery, which ended the period 33% higher. The company released final results during the period and posted strong growth in profits, led by robust trading in North America, Europe and the Middle East.  Other notable performers included British Polythene Industries, a manufacturer of polythene products, whose share price rose by 34% driven by a bid for the company and BBA Aviation, which saw its share price rise by 17%.

The primary negative contribution to performance came from Secure Trust Bank, which fell by 38%, as sentiment towards the banking sector deteriorated on the run-up to and in the aftermath of the EU referendum. The challenger bank provided a number of updates on trading during the period, which were generally encouraging and also announced the sale of the Everyday Loans Group and the subsequent payment of a special dividend with the proceeds. Another notable detractor from performance was Sprue Aegis, the manufacturer of smoke and carbon monoxide detectors, whose share price fell by 51% following a disappointing update in which sales into France slowed and an exceptional warranty charge to address issues with the battery used in certain models.

A key consideration of our investment process is the sustainability of a company’s dividend payments. Many of the underlying investee companies have long established track records of increasing dividend payments, which, in turn, are comfortably covered by earnings. During periods of uncertainty, the reliability of these dividend flows is of even greater value. It was also pleasing to see a number of investee companies return excess cash to shareholders in the form of special dividends during the period, highlighting the strong cash generation characteristics that we look for in companies.

The heightened market volatility is providing opportunities to buy high quality stocks on attractive valuations and as active fund managers we will be looking to take advantage of current market conditions to drive performance over the longer term. 

Simon Moon and Fraser Mackersie
Unicorn Asset Management Limited

Income Portfolio

The new year arrived amid significant market turbulence. The VIX ‘fear gauge’ (an index of market volatility) spiked to levels reminiscent of last September’s equity market correction, as resurgent fears over slowing global growth and doubts surrounding the ability of central bankers to arrest such a decline proved pervasive. UK equities tested a three-year low, and market yields declined as investors sought shelter in the gilt market, causing 10-year yields to decline to 1.56% by the end of January. Credit spreads predictably gapped sharply wider in sympathy. February saw a spate of negative headlines regarding the stability of the European banking system inspiring further risk aversion, although in the case of most names in the sector, concerns quickly ebbed as the oil price rallied by $10 per barrel with other markets following suit.

Demand for gilts remained strong with further stimulus from the ECB and lacklustre economic data dampening the outlook for growth and inflation.   

The potential for a ‘Brexit’ drew the markets’ gaze during April, as the Americans entered the discussion in vociferous fashion. Sterling slid lower against the Euro before staging a limited recovery, while gilt markets implied 5 year inflation expectations in excess of 10 year expectations for the first time in a decade. Gilt yields widened, most notably at the 10 year point, peaking at 1.66% before closing out the month at 1.59%. Credit spreads tightened, countering much of the upward move in rates and ensuring relative stability in corporate bond yields. UK Equity markets rallied as oil took another leg higher, while FTSE 100 volatility dipped to a 2016 low. May saw volatility in credit spreads decline, with the gilt market following suit having reversed April’s widening in the first week of the month, with UK PMI’s missing estimates and the housing market showing signs of slowing as uncertainty over the referendum manifested itself in the real economy.  

The EU Referendum was the only game in town during June, with the eventual result taking many by surprise. The decision by the markets to discount the risks posed by a ‘leave’ vote proved to be complacent, as both Sterling and UK equities reversed weakness earlier in June ahead of the vote, which exacerbated already sharp declines following the outcome. UK government bond yields reflected the ensuing uncertainty, tightening sharply as investors sought shelter. The moves in the curve which followed suggesting that the market was pricing in both further loosening of policy by the Bank of England and a sustained period of lower growth, while Sterling suffered a double-digit decline against the US dollar. The weakening of the pound against the Euro was marginally less dramatic, as the Euro itself suffered from speculation as to how the remaining member states would cope with the potential departure of the UK. The financial sector fell firmly out of favour as credit spreads moved generically 40% wider, before paring much of their losses in the following few sessions. UK banks saw their share prices decline by as much as 30% on Friday 24th. While the headlines of an equity market bounce alleviated the concerns of some, concerns over the effects of faltering domestic demand and a weaker pound resulted in the underperformance of smaller, domestically focussed companies in both the equity and credit markets.

Overall portfolio performance was flat and stable as finding value within a tighter credit market required greater care and diversification away from traditional bonds whilst the portfolio did not benefit from rapidly declining sovereign yields given the short duration posture. Portfolio activity included adding to our position in DW Catalyst Fund, buying shares at a material discount to NAV, and initiating a position in JPM Global Convertibles Fund, a portfolio which traded close to its aggregate ‘bond floor’ while benefiting from material upside from a retracement in either equities or credit spreads. We proceeded to focus the portfolio, exiting positions including Transport for London, IBM, GE Capital and Sky, while increasing conviction positions including BT Group, Enterprise Inns and the preference shares of Real Estate Credit Investments, as difficult conditions provided opportunities to buy value.

We took profits in some of the JP Morgan Global Convertibles holding later in the period after the underlying portfolio proved defensive throughout the volatile first quarter and then rallied strongly with equity markets. The holding in GLI Finance ZDPs was reduced on recent performance and a reduced visibility in management’s strategy going forward. Positions in Grainger and RSL Finance were exited given the potential for a vote to leave the EU to negatively impact the UK housing market. We purchased a new holding Soc Gen Issuer 3.2% 10/1/2021, in a structured investment offering a defined return as long as European high yield credit events/ defaults did not rise significantly above levels experienced during the depths of the credit crisis.

Paul Smith
Premier Fund Managers Limited

Schedule of Principal Investments

as at 30 June 2016

Position Company Market Value £’000 Percentage of Portfolio Percentage of Total Assets
Smaller Companies Portfolio
1 Conviviality Retail plc 2,426,742 3.99 2.96
2 Macfarlane Group 2,370,750 3.90 2.89
3 Clipper Logistics plc 2,309,987 3.80 2.82
4 Acal plc 2,219,700 3.65 2.71
5 Primary Health Properties plc 2,135,000 3.51 2.60
6 Secure Trust Bank plc 2,035,000 3.35 2.48
7 Castings plc 1,922,199 3.16 2.34
8 British Polythene Industries plc 1,856,000 3.05 2.26
9 Park Group plc 1,817,491 2.99 2.22
10 Safestyle UK plc 1,776,000 2.92 2.17
11 James Halstead plc 1,754,667 2.89 2.14
12 Epwin Group plc 1,712,000 2.82 2.09
13 Somero Enterprises inc 1,705,000 2.80 2.08
14 Numis Corporation plc 1,485,000 2.44 1.81
15 Manx Telecom plc 1,477,500 2.43 1.80
16 FDM Group Holdings plc 1,335,000 2.20 1.63
17 Alumasc Group plc 1,320,000 2.17 1.61
18 Telecom Plus plc 1,302,500 2.14 1.59
19 Mucklow A&J Group plc 1,271,369 2.09 1.55
20 Jarvis Securities plc 1,265,750 2.08 1.54
35,497,655 58.38 43.29
Income Portfolio
1 Ecofin Water & Power Opportunities 6% 2016 1,022,438 6.07 1.25
2 Real Estate Credit Pref Shs NPV 929,625 5.52 1.13
3 SG Issuer 3.20% 10/01/2021 607,500 3.61 0.74
4 DW Catalyst Fund 579,479 3.44 0.71
5 Hadrian's Wall Secured Investments Limited 450,000 2.67 0.55
6 British Telecoms plc 5.75% 07/12/2028 392,906 2.33 0.48
7 Credit Suisse 7.875% 24/02/2041 374,495 2.22 0.46
8 ITV 2.125% 21/09/2022 341,544 2.03 0.42
9 Xstrata Finance Dubai 2.625 19/11/2018 338,401 2.01 0.41
10 HSBC Holdings 6.00% 29/03/2040 336,905 2.00 0.41
11 Electricite de France 6.125% 02/06/2034 321,974 1.91 0.39
12 UBS 7.25% 22/02/2022 306,330 1.82 0.37
13 Cooperative Central F2V 8.375 31/12/2049 299,880 1.78 0.37
14 F&C Global Smaller Companies 3.50% 31/07/2019 293,300 1.74 0.36
15 BAA Funding 7.075% 2028 292,284 1.74 0.36
16 St Modwen Properties Securities (Jersey) Ltd 2.875% 06/03/2019 292,050 1.73 0.36
17 Debenhams plc 5.25% 2021 284,234 1.69 0.35
18 JPMorgan Global Convertibles Income Fund Limited 279,200 1.66 0.34
19 Northumbrian Water Finance 6.875% 06/02/2023 258,556 1.54 0.32
20 F&C Finance plc 9.00% 20/12/2016 251,815 1.50 0.31
TOTAL 8,252,916 49.01 10.09

Schedule of Principal Investments

as at 31 December 2015

Position Company Market Value £’000 Percentage of Portfolio Percentage of Total Assets 2015
Smaller Companies Portfolio
1 Conviviality Retail plc 3,101,000 4.52 3.44
2 Macfarlane Group 2,890,720 4.22 3.21
3 Secure Trust Bank plc 2,794,471 4.08 3.10
4 Acal plc 2,707,250 3.95 3.00
5 Clipper Logistics plc 2,626,733 3.83 2.91
6 Primary Health Properties plc 2,392,500 3.49 2.65
7 Safestyle UK plc 2,375,000 3.47 2.63
8 Park Group plc 2,234,621 3.26 2.48
9 Alumasc Group plc 2,204,587 3.22 2.44
10 Castings plc 2,088,371 3.05 2.32
11 Epwin Group plc 2,048,000 2.99 2.27
12 James Halstead plc 2,024,100 2.95 2.24
13 British Polythene Industries plc 1,935,125 2.82 2.15
14 Numis Corporation plc 1,816,875 2.65 2.01
15 Tyman plc 1,765,500 2.58 1.96
16 Somero Enterprises inc 1,638,000 2.39 1.82
17 Mucklow A&J Group plc 1,626,990 2.37 1.80
18 Manx Telecom plc 1,560,000 2.28 1.73
19 Harvey Nash Group plc 1,556,600 2.27 1.73
20 Brewin Dolphin Holdings plc 1,550,500 2.26 1.72
42,936,943 62.65 47.61
Income Portfolio
1 Ecofin Water & Power Opportunities 6% 2016 1,017,313 5.62 1.13
2 Real Estate Credit Pref Shs NPV 718,940 3.97 0.80
3 Societe Generale 3.85% 10/07/2020 598,680 3.31 0.66
4 UBS 7.25% 22/02/2022 424,707 2.35 0.47
5 Lloyds FRN 14/01/2017 400,124 2.21 0.44
6 Societe Generale 8.25% 29/11/49 359,590 1.99 0.40
7 HSBC 6% 29/03/2040 351,362 1.94 0.39
8 Credit Suisse 7.875% 24/02/2041 349,413 1.93 0.39
9 F&C Global Smaller Companies CULS 3.5% 311,500 1.72 0.35
10 EDF 6% 02/06/2034 303,300 1.68 0.34
11 St Mowden Properties 2.875% 06/03/19 302,550 1.67 0.34
12 Debenhams 5.25% 15/07/2021 298,481 1.65 0.33
13 Cooperative Central F2V 8.375 31/12/2049 278,851 1.54 0.31
14 Heathrow 7.075% 04/08/2028 269,146 1.49 0.30
15 F&C Asset Management  9% 20/12/2016 261,614 1.45 0.29
16 Aviva 5.9021% Perp - 2020 256,475 1.42 0.28
17 Henderson UK Finance 7.25% 24/03/2016 255,472 1.41 0.28
18 Glencore Finance Dubai 2.625% 19/11/2018 254,401 1.41 0.28
19 Abbey National 5.75% 02/03/2026 253,073 1.40 0.28
20 Spirit Issuer 5.472% 28/12/2034 251,250 1.39 0.28
TOTAL 7,516,242 41.55 8.34

Condensed Statement of Comprehensive Income (unaudited)

for the period ended 30 June 2016

Period ended 30 June 2016 Period ended 30 June 2015
Revenue Capital Total Total
Notes GBP GBP GBP GBP
Net (losses)/gains on financial assets designated as at
fair value through profit or loss 8 - (9,012,028) (9,012,028) 7,910,502
(Losses)/gains on derivative financial instruments - (300,753) (300,753) 279,012
Investment income 3 1,926,979 165,000 2,091,979 1,607,747
Total income and gains/(losses) 1,926,979 (9,147,781) (7,220,802) 9,797,261
Expenses 4 (256,052) (282,825) (538,877) (569,536)
Return/(loss) on ordinary activities before finance costs
and taxation 1,670,927 (9,430,606) (7,759,679) 9,227,725
Interest payable and similar charges 5 - (844,087) (844,087) (776,786)
Return/(loss) on ordinary activities before taxation 1,670,927 (10,274,693) (8,603,766) 8,450,939
Taxation on ordinary activities - - - -
Other comprehensive income - - - -
Total comprehensive income/(loss) for the period
attributable to ordinary shareholders 1,670,927 (10,274,693) (8,603,766) 8,450,939
Pence Pence Pence Pence
Return/(loss) per Ordinary share 7 10.50 (64.59) (54.09) 54.55
Dividend per Ordinary Share 6 7.50 0.00 7.50 6.75
Return per ZDP Share 7 - 3.95 3.95 3.74

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.

The Notes form an integral part of these Financial Statements.

Condensed Statement of Financial Position (unaudited)

as at 30 June 2016

30 June 2016 31 Dec 2015
GBP GBP
Notes (Unaudited) (Audited)
NON-CURRENT ASSETS
Financial assets designated as at fair value through profit or loss 8 77,651,132 86,634,633
CURRENT ASSETS
Receivables 9 1,105,383 617,154
Cash and cash equivalents 3,266,801 2,933,049
Derivative financial instruments - 8,746
4,372,184 3,558,949
TOTAL ASSETS 82,023,316 90,193,582
CURRENT LIABILITIES
Derivative financial instruments 183,754 141,151
Payables - due within one year 10 263,927 239,888
447,681 381,039
NON-CURRENT LIABILITIES
ZDP Shares 11 28,444,824 27,380,779
TOTAL LIABILITIES 28,892,505 27,761,818
NET ASSETS 53,130,811 62,431,764
EQUITY
Share capital 12 171,867 171,867
Share premium 27,436,022 27,436,022
Treasury shares 13 (4,568,238) (5,064,352)
Revenue reserve 2,213,537 1,735,911
Special reserve 10,000,000 10,000,000
Capital reserve 17,877,623 28,152,316
TOTAL EQUITY 53,130,811 62,431,764
Pence Pence
Net asset value per Ordinary Share (per Articles) 334.18 395.94
Net asset value per Ordinary Share (per IFRS) 333.93 395.50
Net asset value per ZDP Share (per Articles) 133.00 128.89
Net asset value per ZDP Share (per IFRS) 133.19 129.22

The Financial Statements were approved by the Board of Directors and authorised for issue on 30 August 2016 and signed on its behalf by:

Helen Green        
Chairman              

David Warr
Director

The Notes form an integral part of these Financial Statements.

Condensed Statement of Cash Flows (unaudited)

for the period ended 30 June 2016

Period ended 30 June 2016 Period ended 30 June 2015
Notes GBP GBP
Operating activities
Return on ordinary activities before taxation (8,603,766) 8,450,939
Net losses/(gains) on financial assets designated as at fair value through profit or loss 8 9,012,028 (7,910,502)
Investment income 3 (2,091,979) (1,607,747)
Interest expense 5 844,087 776,786
Decrease/(increase) in derivative financial assets 8,746 (77,249)
Increase/(decrease) in derivative financial liabilities 42,603 (35,661)
Increase in payables and appropriations 10 6,662 20,084
Decrease in receivables excluding accrued investment income 9 34 198,757
Net cash flow used in operating activities before investment income (781,585) (184,593)
Investment income received 1,801,443 1,645,867
Net cash flow from operating activities before taxation 1,019,858 1,461,274
Tax paid - -
Net cash flow from operating activities after taxation 1,019,858 1,461,274
Investing activities
Purchase of financial assets (11,728,471) (15,226,998)
Sale of financial assets 11,519,594 17,589,991
Net cash flow (used in)/from investing activities (208,877) 2,362,993
Financing activities
Equity dividends paid 6 (1,193,301) (1,044,112)
Treasury shares sold 496,114 -
Buyback of Ordinary Shares - (435,875)
ZDP shares sold out of treasury 221,063 -
ZDP Shares issued - (18,406)
Cost of issue of ZDP Shares (1,105) (245,108)
Net cash flow used in financing activities (477,229) (1,743,501)
Increase in cash and cash equivalents 333,752 2,080,766
Cash and cash equivalents at beginning of period 2,933,049 961,105
Cash and cash equivalents at end of period 3,266,801 3,041,871

The Notes form an integral part of these Financial Statements.

Condensed Statement of Changes in Equity (unaudited)

as at 30 June 2016

Share Capital
30 June 2016
Share Premium
30 June 2016
Treasury Reserve
30 June 2016
Revenue Reserve
30 June 2016
Special Reserve
30 June 2016
Capital Reserve
30 June 2016
Total                            30 June 2016
GBP GBP GBP GBP GBP GBP GBP
Balances as at 1 January 2016 171,867 27,436,022 (5,064,352) 1,735,911 10,000,000 28,152,316 62,431,764
Total comprehensive income/(loss) for the period attributable to shareholders
- - - 1,670,927 - (10,274,693) (8,603,766)
Dividends - - - (1,193,301) - - (1,193,301)
Treasury shares sold - - 496,114 - - - 496,114
Balances as at
30 June 2016 171,867 27,436,022 (4,568,238) 2,213,537 10,000,000 17,877,623 53,130,811

Condensed Statement of Changes in Equity (unaudited)

as at 31 December 2015

Share Capital 31 Dec 2015 Share Premium
31 Dec 2015
Treasury Reserve
31 Dec 2015
Revenue Reserve
31 Dec 2015
Special Reserve
31 Dec 2015
Capital Reserve
31 Dec 2015
Total                            31 Dec 2015
GBP GBP GBP GBP GBP GBP GBP
Balances as at 1 January 2015 173,533 27,870,231 (6,297,145) 996,144 10,000,000 19,503,355 52,246,118
Total comprehensive income for the year attributable to shareholders - - - 2,876,020 - 8,648,961 11,524,981
Dividends - - - (2,136,253) - - (2,136,253)
Treasury shares sold - - 1,232,793 - - - 1,232,793
Buyback of Ordinary Shares - - (435,875) - - - (435,875)
Cancellation of Ordinary Shares (1,666) (434,209) 435,875 - - - -
Balances as at
31 December 2015 171,867 27,436,022 (5,064,352) 1,735,911 10,000,000 28,152,316 62,431,764

The Notes form an integral part of the Financial Statements.

Notes to the Condensed Financial Statements (unaudited)

for the period ended 30 June 2016

1           ACCOUNTING POLICIES

(a)        Basis of preparation

The financial statements for the six months ended 30 June 2016 have been prepared in accordance with IAS 34 “Interim Financial Reporting” as adopted by the European Union, the AIC’s SORP (as revised in February 2015) and applicable legal and regulatory requirements of the Companies (Guernsey) Law, 2008.

The Unaudited Condensed Interim Financial Statements do not include all the information and disclosures in the Annual Financial Statements and should be read in conjunction with the Company’s Annual Report and Audited Financial Statements for the year ended 31 December 2015.

The accounting policies and methods of computation followed in this Interim Unaudited Condensed set of Financial Statements are consistent with those of the latest Annual Audited Financial Statement for the year ended 31 December 2015 which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union, except for the adoption of the new standards and interpretations effective as of 1 January 2016, as listed below, which had no impact on the financial position or performance of the Company.

IFRS 7 – Financial Instruments Amendments – (effective 1 January 2016)

IAS 1 – Presentation of Financial Statements – (effective 1 January 2016)

Presentation of information

The Unaudited Condensed Interim Financial Statements have been prepared on a going concern basis under the historical cost convention adjusted to take account of the revaluation of the Company’s investments at fair value.

In order to better reflect the activities of an Investment Company and in accordance with the guidance issued by the Association of the Investment Companies, supplementary information which analyses the Statement of Comprehensive Income between items of capital and revenue nature has been presented within the Statement of Comprehensive Income.

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 smaller capitalised UK companies.

Information regarding the results of each reportable segment follows. 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.

Segmental information is measured on the same basis as that used in the preparation of the Company’s Financial Statements.

Smaller
Income Companies
Portfolio Portfolio Unallocated Total
GBP GBP GBP GBP
30 June 2016
External revenues:
Net gains/(losses) on financial assets designated as at fair value
through profit or loss 18,888,869 (27,900,897) - (9,012,028)
Losses on derivative financial instruments (300,753) - - (300,753)
Bank interest - - 761 761
Dividend income 64,495 1,646,398 - 1,710,893
Bond income 380,325 - - 380,325
Total income and (losses)/gains 19,032,936 (26,254,499) 761 (7,220,802)
Expenses - - (538,877) (538,877)
Interest payable and similar charges - - (844,087) (844,087)
Total comprehensive income/(loss) for the period attributable
to shareholders 19,032,936 (26,254,499) (1,382,203) (8,603,766)

   

Smaller
Income Companies
Portfolio Portfolio Unallocated Total
GBP GBP GBP GBP
30 June 2016
Financial assets designated as at fair value through
profit or loss 16,843,604 60,807,528 - 77,651,132
Receivables 267,164 838,219 - 1,105,383
Cash and cash equivalents 1,859,705 1,407,096 - 3,266,801
Total assets 18,970,473 63,052,843 - 82,023,316
Derivative financial instruments 183,754 - - 183,754
Payables - - 263,927 263,927
Total current liabilities 183,754 - 263,927 447,681

   

Smaller
Income Companies
Portfolio Portfolio Unallocated Total
GBP GBP GBP GBP
31 December 2015
External revenues:
Net gains on financial assets designated as at fair value
through profit or loss 587,228 10,247,817 - 10,835,045
Gains on derivative financial instruments 4,019 - - 4,019
Bank interest - - 609 609
Dividend income 53,253 2,505,468 - 2,558,721
Bond income 853,078 - - 853,078
Total income and gains 1,497,578 12,753,285 609 14,251,472
Expenses - - (1,133,014) (1,133,014)
Interest payable and similar charges - - (1,593,477) (1,593,477)
Total comprehensive income for the year attributable
to shareholders 1,497,578 12,753,285 (2,725,882) 11,524,981

   

Smaller
Income Companies
Portfolio Portfolio Unallocated Total
GBP GBP GBP GBP
31 December 2015
Financial assets designated as at fair value through
profit or loss 18,103,395 68,531,238 - 86,634,633
Receivables 316,275 297,639 3,240 617,154
Derivative financial instruments 8,746 - - 8,746
Cash and cash equivalents 796,660 2,136,389 - 2,933,049
Total assets 19,225,076 70,965,266 3,240 90,193,582
Derivative financial instruments 141,151 - - 141,151
Payables - - 239,888 239,888
Total current liabilities 141,151 - 239,888 381,039

Geographical information

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

Other Rest of
UK Guernsey Jersey Europe the world Total
GBP GBP GBP GBP GBP GBP
30 June 2016
External revenues
Total Revenue 1,715,300 117,242 - 143,055 116,382 2,091,979
Other Rest of
UK Guernsey Jersey Europe the world Total
GBP GBP GBP GBP GBP GBP
31 December 2015
External revenues
Total Revenue 3,075,400 135,133 702 89,093 112,080 3,412,408

The Company did not hold any non-current assets during the period other than financial instruments (31 December 2015:
£Nil).

Major customers

The Company regards its shareholders as customers. There were no shareholders with a holding greater than 10% at the period end.

3            INVESTMENT INCOME

Period ended Period ended
30 June 2016 30 June 2015
GBP GBP
Bank interest 761 187
Dividend income 1,710,893 1,178,249
Bond income 380,325 429,311
2,091,979 1,607,747

For the period ended 30 June 2016, the dividend income includes a special dividend of £165,000 (June 2015: £Nil) from Secure Trust Bank plc in connection with sale of a business which has been reflected in the capital reserve.

4            EXPENSES

Period ended 30 June 2016
Revenue Capital Total
GBP GBP GBP
Manager's fee* 76,359 229,077 305,436
Administrator's fee 46,597 - 46,597
Registrar's fee 8,582 - 8,582
Directors' fees 38,644 - 38,644
Custody fees 19,945 - 19,945
Audit fee 17,308 - 17,308
Directors' and Officers' insurance 3,565 - 3,565
Annual fees 12,595 - 12,595
Commission paid - 53,748 53,748
Legal and professional fees 8,848 - 8,848
Broker fees 19,192 - 19,192
Sundry costs 27,389 - 27,389
Gain on foreign exchange (22,972) - (22,972)
256,052 282,825 538,877

*The Company has entered into a Management Agreement with Premier Asset Management (Guernsey) Limited, a wholly-owned, Guernsey incorporated subsidiary of Premier Asset Management Limited. The Investment Manager receives a management fee of 0.7% per annum of total assets (subject to a minimum fee of £100,000) calculated monthly and payable quarterly in arrears, out of which it pays fees to the Investment Advisers. The Investment Manager is also paid a shareholder communication and support fee, currently £3,100 for the twelve months from 1 April 2016 to 31 March 2017. The Investment Manager is also potentially entitled to a performance fee of 15% of any excess of the NAV per Ordinary Share (together with any dividends paid by reference to the relevant period) over the higher of the first benchmark or the second benchmark. The first benchmark is calculated as the NAV per Ordinary Share immediately following completion of the tender offer, in January 2007, compounded at a rate of 10% per annum up to the relevant calculation day. The second benchmark being the higher NAV on the last day in the prior period is used if a performance fee was paid in that prior period. The Management Agreement may be terminated by either party on 12 months’ written notice.

Under the terms of their appointment, each Director is paid a fee of £20,000 per annum by the Company. In addition the Chairman receives £7,500 per annum (in total remuneration £27,500) and both the Chairman of the Audit Committee and the Remuneration and Management Engagement Committee and Risk Committee each receive an additional £5,000 (total remuneration for each post being £25,000).

Period ended 30 June 2015
Revenue Capital Total
GBP GBP GBP
Manager's fee 70,972 212,502 283,474
Administrator's fee 48,838 - 48,838
Registrar's fee 10,437 - 10,437
Directors' fees 37,458 - 37,458
Custody fees 29,663 - 29,663
Audit fee 14,023 - 14,023
Directors' and Officers' insurance 3,517 - 3,517
Annual fees 12,125 - 12,125
Bank charges 241 - 241
Commission paid - 10,053 10,053
Legal and professional fees 2,128 - 2,128
Broker fees 16,123 - 16,123
Sundry costs 10,397 - 10,397
Loss on foreign exchange 91,059 - 91,059
346,981 222,555 569,536

5              INTEREST PAYABLE AND SIMILAR CHARGES

Period ended 30 June 2016 Period ended 30 June 2015
Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP
Appropriation in respect of ZDP shares - 795,131 795,131 - 729,777 729,777
Amortisation of ZDP issue costs - 48,956 48,956 - 47,009 47,009
- 844,087 844,087 - 776,786 776,786

6           DIVIDENDS IN RESPECT OF ORDINARY SHARES

Period ended
30 June 2016
Pence
GBP per share
First Interim payment 556,873 3.50
Second interim payment 636,428 4.00
1,193,301 7.50

   

Year ended
31 Dec 2015
Pence
GBP per share
First Interim payment 502,721 3.25
Second interim payment 541,391 3.50
Third interim payment 545,767 3.50
Fourth interim payment 546,374 3.50
2,136,253 13.75

7           EARNINGS PER SHARE

Ordinary Shares

The total return per Ordinary Share (per IFRS) is based on the total loss on ordinary activities for the period attributable to Ordinary shareholders of £8,603,766 (30 June 2015: £8,450,939) and on 15,906,825 (30 June 2015: 15,493,885) shares, being the weighted average number of shares in issue during the period. There are no dilutive instruments and therefore basic and diluted gains per share are identical.

The revenue return per Ordinary Share (per IFRS) is based on the revenue return on activities for the period attributable to Ordinary shareholders of £1,670,927 (30 June 2015: £1,260,766) and on 15,906,825 (30 June 2015: 15,493,885) shares, being the weighted average number of shares in issue during the period. There are no dilutive instruments and therefore basic and diluted gains per share are identical.

The capital return per Ordinary Share (per IFRS) is based on the capital loss on ordinary activities for the period attributable to Ordinary shareholders of £10,274,693 (30 June 2015: loss of £7,190,173) and on 15,906,825
(30 June 2015: 15,493,885) shares, being the weighted average number of shares in issue during the period. There are no dilutive instruments and therefore basic and diluted gains per share are identical.

ZDP shares

The return per ZDP Share (per IFRS) is based on the appropriation in respect of ZDP Shares and the amortisation of ZDP Share issue costs totaling £844,087 (30 June 2015: £776,786) and on 21,353,095 (30 June 2015: 20,795,832) shares, being the weighted average number of ZDP Shares in issue during the period.

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

30 June 2016 31 Dec 2015
GBP GBP
INVESTMENTS
Opening portfolio cost 67,722,601 62,431,660
Purchases at cost 11,745,852 36,586,284
Sales
- proceeds (11,717,321) (36,937,572)
- realised gains on sales 4,225,616 8,055,355
- realised losses on sales (2,189,475) (2,413,126)
Closing book cost 69,787,273 67,722,601
Unrealised appreciation on investments 13,255,943 22,195,364
Unrealised depreciation on investments (5,392,084) (3,283,332)
Fair value 77,651,132 86,634,633
Realised gains on sales 4,225,616 8,055,355
Realised losses on sales (2,189,475) (2,413,126)
(Decrease)/increase in unrealised appreciation on investments (8,939,417) 8,476,148
Increase in unrealised depreciation on investments (2,108,752) (3,283,332)
Net (losses)/gains on financial assets designated as at fair value through profit or loss (9,012,028) 10,835,045

As at 30 June 2016, the closing value of investments comprises £60,807,528 (Dec 2015: £68,531,238) of equity shares, £16,843,604 (Dec 2015: £18,064,090) of fixed income securities and £153,346 (Dec 2015: £39,305) in respect of long gilts held.

IFRS 13 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 market value of the investments as at the reporting date:

Financial assets designated as at fair value through profit or loss

30 June 2016 30 June 2016 31 Dec 2015 31 Dec 2015
Market value Market value Market value Market value
% GBP % GBP
Level 1 78.11 60,654,182 79.15 68,570,543
Level 2 21.82 16,940,535 20.79 18,012,917
Level 3 0.07 56,415 0.06 51,173
Total 100.00 77,651,132 100.00 86,634,633

Level 3 investments comprise three investments valued at cost. As there is not an active market for these investments the investment manager and directors consider the cost to be an appropriate fair value at 30 June 2016. Lehman Brother Holdings Capital Trust V 6.9% bonds were subordinated and are in default and the Investment Adviser does not expect any return of capital or interest and the bonds are valued at zero.

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

30 June 2016 30 June 2016 31 Dec 2015 31 Dec 2015
Market value Market value Market value Market value
% GBP % GBP
Level 2 derivative financial assets - - 100.00 8,746
Level 2 derivative financial liabilities 100.00 183,754 100.00 141,151

There have been no transfers between levels of the fair value hierarchy during the period under review. It is the Company’s policy to recognise all the transfers into the levels and transfers out of the levels at the end of the reporting period. Transfers into each level shall be disclosed and discussed separately from transfer out of each level.

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.

9              RECEIVABLES

30 June 2016 31 Dec 2015
GBP GBP
Due from brokers 197,727 -
Prepayments 8,253 5,047
Accrued income 899,403 608,867
Sundry receivables - 3,240
1,105,383 617,154

10            PAYABLES

30 June 2016 31 Dec 2015
GBP GBP
Accrued expenses 95,519 82,911
Amounts due to brokers 17,377 -
Trade creditors 151,031 156,977
263,927 239,888

11            ZDP SHARES

30 June 2016 31 Dec 2015
GBP GBP
ZDP Share entitlement 28,444,824 27,380,779
The above entitlement comprises the following:
21,189,384 ZDP Shares issued to date up to 31 Dec 2015 22,768,091 -
201,348 Buyback of ZDP Shares during the year to 31 Dec 2015 - (263,514)
167,790 ZDP shares sold out of treasury during the period to 30 June 2016 221,063 -
425,998 ZDP shares sold out of treasury during the year to 31 Dec 2015 - 560,062
27,032,008 ZDP Shares issued to date up to 31 Dec 2014 - 22,471,543
ZDP Premium (96,310) (174,160)
Appropriation in respect of ZDP Shares 5,512,197 4,717,066
ZDP value (calculated in accordance with the Articles) 28,405,041 27,310,997
ZDP issue costs (105,483) (202,566)
Issue costs amortised 48,956 98,188
Add back ZDP Premium 96,310 174,160
ZDP value (calculated in accordance with IFRS) 28,444,824 27,380,779

The fair value of the ZDP Shares is considered to be the same as the value calculated in accordance with IFRS.

ZDP Shares carry no entitlement to income distributions to be made by the Company. The ZDP Shares will not pay dividends but 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. If the Company had been wound up on 30 June 2016, the ZDP Shares would have had an entitlement of 133.00 pence each. The ZDP Shares have the right to receive notice of and attend, but shall not have the right to vote at, any general meeting.

Under the Articles of Incorporation, 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. The number of issued ZDP Shares is 21,357,174
(Dec 2015: 21,189,384). The number of ZDP Shares held in treasury as at 30 June 2016 was 1,712,757 (2015: 2,306,546).The non-amortisation of the ZDP Shares in line with the Articles has the effect of increasing the NAV per Ordinary Share by 0.91 pence.

12            SHARE CAPITAL

Authorised GBP
Ordinary Shares of 1p each  unlimited
Number of
 Issued Shares
The issue of Ordinary Shares took place as follows:
Ordinary Shares 11 Feb 1999 29,600,002
Tender offer 17 Jan 2007 (20,660,212)
Purchase of treasury shares - Year ended 31 December 2011 (215,000)
Placing - Year ended 31 December 2013 6,438,339
Purchase of treasury shares - Year ended 31 December 2013 (1,756,000)
Shares sold out of Treasury - Year ended 31 December 2013 1,971,000
Issue of Shares during the year 2,500,205
Buyback of Ordinary Shares - Year ended 31 December 2014 (2,650,000)
Shares sold out of Treasury - Year ended 31 December 2014 390,000
Buyback of Ordinary Shares - Year ended 31 December 2015 (150,002)
Shares sold out of Treasury - Year ended 31 December 2015 317,360
Number of shares in issue at 31 December 2015 15,785,692
Issue from treasury shares during the period -
Shares sold out of Treasury during the period 125,000
Number of shares in issue at 30 June 2016 15,910,692
Issued and fully paid capital as at 30 June 2016 £171,867

The Ordinary Shares (excluding treasury shares) are entitled to participate in all dividends and distributions of the Company. On a winding-up holders of Ordinary Shares are entitled to participate in the distribution and the holders of Ordinary Shares are entitled to receive notice of and attend and vote at all general meetings of the Company.

13            TREASURY RESERVES

30 June 2016 31 Dec 2015
GBP GBP
Balance as at 1 January (5,064,352) (6,297,145)
Treasury shares sold during the period/year 496,114 1,232,793
Buyback of Ordinary Shares during the period/year - (435,875)
Cancellation of Treasury Shares during the period/year - 435,875
Balance as at 30 June 2016 (4,568,238) (5,064,352)
30 June 2016 31 Dec 2015
No. Shares No. Shares
Balance as at 1 January 1,400,972 1,735,000
Buyback of shares during the period/year - 150,000
Treasury shares sold during the period/year (125,000) (317,360)
Cancellation of Treasury Shares during the period/year - (166,668)
Balance as at 30 June 2016 1,275,972 1,400,972

14            RELATED PARTIES

Premier Asset Management (Guernsey) Limited is the Company’s Investment Manager and operates under the terms of the management agreement in force which gives it complete control over the Company’s investment portfolio.

£305,436 (Jun 2015: £283,474) of costs were incurred by the Company with this related party in the period, of which £151,031 (Dec 2015: £156,977) was due to this related party as at 30 June 2016.

The directors’ remuneration is disclosed in Note 4.

15            SUBSEQUENT EVENTS

These Financial Statements were approved for issue by the Board on 30 August 2016. Subsequent events have been evaluated until this date.

No other significant events have occurred after the statement of financial position date in respect of the Fund that may be deemed relevant to the accuracy of these Financial Statements.

Directors, Advisers and Contacts
Directors
Helen Foster Green (Chairman)
John Nigel Ward
David John Warr

Investment Manager
Premier Asset Management (Guernsey) Limited PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Tel: 01483 306090
Contact: Nigel Sidebottom

Investment Adviser – Smaller Companies Portfolio
Unicorn Asset Management Limited Preacher’s Court
The Charterhouse
Charterhouse Square
London EC1M 6AU
Tel: 0207 2530889
Contact: Simon Moon

Investment Adviser – Income Portfolio
Premier Fund Managers Limited Eastgate Court
High Street
Guildford GU1 3DE
Tel: 01483 306090
Contact: Nigel Sidebottom

Administrator and Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL

Custodian
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA

Corporate Broker
Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
Tel: 0207 2601000

Registrar
Anson Registrars Limited
PO Box 426
Anson House
Havilland Street
St Peter Port
Guernsey GY1 3WX
Email:[email protected]

Company’s Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL

Company Details
Company Number: 34778
GIIN Number: CY0IXM.99999.SL.831

Ordinary Shares
ISIN: GB0004829437
Ticker: AIF

ZDP Shares
ISIN: GG00B4W1FT21
Ticker: AIFZ




 

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