Downing THREE VCT plc : Annual Financial Report

Downing Three VCT plc
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015

FINANCIAL HIGHLIGHTS

	31 Dec 2015		31 Dec 2014
	Pence		Pence
'C' Share pool
Net asset value per 'C' Share	53.2		98.2
Net asset value per 'A' Share	0.1		0.1
Cumulative distributions per 'C' Share	75.0		25.0
Adjusted for performance fee estimate	(7.4)		-
Total return per 'C' Share and 'A' Share	120.9		123.3
'D' Share pool
Net asset value per 'D' Share	51.3		71.3
Net asset value per 'E' Share	0.1		0.1
Cumulative distributions per 'D' Share	49.5		22.5
Total return per 'D' Share and 'E' Share	100.9		93.9
'F' Share pool
Net asset value per 'F' Share	71.5		75.5
Cumulative distributions per 'F' Share	20.0		15.0
Total return per 'F' Share	91.5		90.5
'H' Share pool
Net asset value per 'H' Share	90.5		94.7
Cumulative distribution per 'H' Share	10.0		5.0
Total return per 'H' Share	100.5		99.7
'J' Share pool
Net asset value per 'J' Share	98.5		n/a
Cumulative distribution per 'J' Share	-		n/a
Total return per 'J' Share	98.5		n/a

CHAIRMAN'S STATEMENT

Introduction
I am pleased to present the Annual Report for the year ended 31 December 2015. The Company currently has five share pools each of which are in different phases of their expected life.

Since the year end the oldest remaining share pool, the 'C' Share pool, has completed the task of returning funds to Shareholders and has delivered an excellent final outcome. The 'D' Share pool has also recently commenced the process of returning funds to Shareholders although there is some way to go to complete the task.  The 'F' Share pool is effectively fully invested and is not scheduled to start realising its investment portfolio for some time yet. The 'H' and 'J' Share pool are still in their initial investment phase.

A brief summary of each share pool is provided below.

'C' Share pool
The Company's 'C' Shares were originally issued in 2008 and 2009. In line with the Company's planned exit strategy, the 'C' Share pool exited from most of its remaining investments in the year, which realised £5.7 million.  As at the 31 December 2015, the 'C' Share pool held a portfolio of 2 investments with a total value of £748,000.

At 31 December 2015, the Net Asset Value ("NAV") of a combined holding of one 'C' Share and one 'A' Share stood at 53.3p, which represents an increase of 5.1% over the year after adjusting for the dividends of 50.0p per share paid in the year. Dividends paid to date total 75.0p.

Since the year end, realisations from the final two investments in Quadrate Spa Limited and Quadrate Catering Limited have been achieved, generating proceeds of £748,000. This resulted in the Company declaring final dividends of 30.5p per 'C' Share and 14.8p per 'A' Share which were paid on 24 March 2016,  triggering a performance fee payable to the management team equivalent to 7.4p per 'C' Share.

After providing for the performance fee, Total Return (cumulative dividends to date) will be 120.3p, compared to the initial cost, net of income tax relief of 70.0p. The Board believes that, considering the economic climate in which the Investment Manager had to realise much of the portfolio, this is an excellent return.

Following the final dividend, the task of returning funds to these Shareholders is considered to be complete and no further dividends are expected to be paid to 'C' Shareholders. Steps will be taken to wind up this share class in due course.

'D' Share pool
The 'D' Shares were originally issued in 2010 and at the year end held a portfolio of 13 investments with a total value of £4.4 million.

At 31 December 2015, the Net Asset Value ("NAV") of a combined holding of one 'D' Share and one 'E' Share stood at 51.4p, which represents an increase of 9.8% over the year after adjusting for the dividends of 27.0p per share paid in the year. Total Return (NAV plus cumulative dividends to date) is now 100.9p, compared to the initial NAV of 94.5p.

During the year, the Manager commenced the task of realising the pool's investment portfolio with a number of investments sold producing proceeds of £3.6 million.

These proceeds were distributed to 'D' Shareholders by way of dividend paid on 18 December 2015 (27.0p per 'D' share) and on 24 March 2016 (17.0p per 'D' Share). These returns bring total dividends paid since the launch of the share class to 66.5p per 'D' Share. Since the period end further investments have been realised generating an additional £1.5 million.

The 'D' Share pool now has five main investments remaining and work is ongoing to achieve good returns from each of them. The Manager is optimistic that the majority will be realised before the end of the year, although is cautious in respect of Aminghurst Limited where it appears possible that a full exit might take longer. The Board intends to pay further dividends as soon as a significant level of funds has been generated by further realisations.

'F' Share pool
The 'F' Share pool was launched in 2012 and now holds a portfolio of 23 investments with a total value of £7.4 million.

At 31 December 2015, the 'F' Share NAV stood at 71.5p, which represents an increase of 1.3% over the year after adjusting for the dividends of 5.0p per share paid in the year. Dividends paid to date total 20.0p such that Total Return (NAV plus cumulative dividends to date) is now 91.5p, compared to the initial NAV of 94.5p.

In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'F' Share on 24 June 2016 to Shareholders on the register at the close of business on 20 May 2016.

'H' Share pool
The 'H' Share pool was launched in 2014 and is still in its initial investment phase. At 31 December 2015, the pool held six VCT qualifying or partly qualifying investments and a further five non-qualifying investments, most of which are secured loans.

At 31 December 2015, the 'H' Share NAV stood at 90.5p, which represents a small increase over the year of 0.8% after adjusting for the dividends of 5.0p per share paid in the year. Total Return (NAV plus cumulative dividends to date) is now 100.5p, compared to the initial NAV of 100.0p.

In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'H' Share on 24 June 2016 to Shareholders on the register at the close of business on 20 May 2016.

'J' Share pool
The 'J' Share pool was launched in December 2014 and it is still in its initial investment phase. At 31 December 2015, the pool held three VCT qualifying or partly qualifying investments.

At 31 December 2015, the 'J' Share NAV stood at 98.5p, compared to the initial NAV of 100.0p.

As a result of changes to the VCT regulations in 2014, the 'J' Share pool is effectively prohibited from paying dividends in its first three years.

Share buybacks
For share classes within the initial five year period, the Company operates a general policy of buying in its own shares for cancellation when any become available in the market. This policy is currently in place for the 'F' Shares, 'H' Shares and 'J' Shares. During this period, any such purchases will be undertaken at a price equal to the latest published NAV (i.e. at nil discount). Any buybacks are subject to regulatory restrictions and other factors such as the availability of liquid funds.

The Company is now unlikely to make any further purchases of 'D' Shares and 'E' Shares as the process of returning funds to those Shareholders is now underway. No purchases of 'C' Shares and 'A' Shares will be undertaken as the Shares now have negligible value and steps will be taken in due course to cancel these share classes.

A resolution to renew the authority for the Company to purchase its own shares will be proposed at the forthcoming Annual General Meeting.

Fundraising
The 'J' Share pool fundraising closed during the year having raised a total of £11.0 million.

VCT Rules
As Shareholders may be aware, a number of potentially significant changes to the VCT rules were made in November 2015 and some further changes announced in the Budget in March 2016. The new rules have introduced a limit on the age for most new investee companies of seven years, a lifetime cap of £15 million on the total amount of VCT and similar funding a company can receive and a ban on VCT funds being used by an investee company to acquire another trade or business. They have been brought in to bring the VCT scheme into line with the European Union's Risk Capital Guidelines. In addition, new restrictions on non-qualifying investments have been introduced and all investments into power generation businesses are now effectively banned.

The impact of the new rules on most of the share pools is expected to be minimal as they are not expecting to make any new investments. However, the remaining 'H' Share and 'J' Share funds will have to be invested under the new regulations. The Manager believes that, although these new restrictions will be significant and are unwelcome, it will still be possible to build a balanced portfolio of good quality investments and has already started to make progress to that end.

Annual General Meeting ("AGM")
The Company's ninth AGM will be held at Ergon House, Horseferry Road, London, SW1P 2AL at 10:35 a.m. on 15 June 2016.

One item of special business will be proposed at the AGM in connection with the authority for the Company to buy back shares as described above.

Outlook
Following the successful completion of the return of funds to 'C' Share pool investors, over the coming year, a significant proportion of the Investment Manager's activity will be on seeking to exit the remaining 'D' Share investments in a timely manner and at optimal value.

 

Investment activity is expected to be limited over the coming year in the 'F' Share pool, which is fully invested and will not start seeking to exit its portfolio until 2018. The Manager will continue to monitor those investments closely during the remaining period to ensure that value is built before the exit dates. We expect to see a significant number of new qualifying investments added to the 'H' Share pool and 'J' Share pool over the year as the process of building the initial investment portfolio is due to complete by the end of 2016 and 2017. A number of new investments have already been competed since the year end.

Although there will be challenges faced by each share pool, generally we believe that the Company is well positioned to deliver satisfactory results to each group of Shareholders over the full life of their investment. I look forward to updating Shareholders of all share pools in my statement in the Half Yearly Report.

Michael Robinson
Chairman
25 April 2016

INVESTMENT MANAGER'S REPORT- 'C' SHARE POOL

Introduction
Soon after the year end, the 'C' Share pool completed the task of realising its investments and, on 24 March 2016, paid final dividends.

Final outcome
Over the life of their investment, investors in the 'C' Share pool received total dividends of 105.51p per 'C' Share and 14.85p per 'A' Share making a total return of 120.36p for an original investment of 100p (70p net of income tax relief.) This equates to a return of 9.7% per annum over the life of the investment, which we believe represents a very good return to Shareholders.

'C' Share pool - investment activity
Investment activity throughout the year was almost exclusively focussed on realisations. Total disposal proceeds of £5,671,000 were received in the year.

The sale of Atlantic Dogstar Limited, AEW Pubs No 1 Limited, East Dulwich Tavern Limited and Westow House Limited completed in January 2015, generating capital proceeds to the 'C' share pool of £2,400,000 as well as a dividend of £509,000. In total, this equates to a gain against original cost of £1.2 million.

Domestic Solar Limited, the installer of domestic solar panels across the UK, was sold and generated an uplift over original cost of £165,000 on proceeds of £665,000.

Redmed Limited, the Lincoln bar operator, generated proceeds of £610,000 which represented an uplift over original cost of £102,000.

Vermont Developments Limited sold a property development site in Salford, which was its only remaining asset, and generated proceeds for the 'C' Share pool of £156,000 and a gain against cost of £131,000.

The Thames Club Limited generated proceeds equivalent to its original cost of £500,000.

The £210,000 non-qualifying loan in Hoole Hall Country Club Holdings Limited was repaid at par. 

Unfortunately, not all exit proceeds exceeded original cost and two were sold at discounts in order to provide liquidity within an acceptable timeframe. These included Future Biogas (SF) Limited which cost £697,000 and had proceeds of £442,000; and Mosaic Spa and Health Clubs Limited which cost £125,000 and had proceeds of £46,000.

The 3D Pub Co Limited which cost £267,000 and had proceeds of £233,000 and Ecossol Limited which cost £250,000 and had proceeds of £238,000 were both realised in the period at values marginally below cost due to underperformance of the investments.

Several smaller exits also completed including Honeycombe Pubs VCT Limited for £66,000, Chapel Street Services Limited, Chapel Street Food and Beverage Limited and Chapel Street Hotel Limited for a combined total of £105,000.

Quadrate Spa Limited and Quadrate Catering Limited were the last remaining investments and were sold in January 2016 at a value of £55,000 above original costs.

Outlook
We are very satisfied with the final performance of the 'C' Share pool. Following the payment of the final dividends on 24 March 2016, the 'C' Share pool now has negligible valued and no further dividends are expected. In due course, steps will be taken to cancel the 'C' Share and 'A' Share classes.

Downing LLP
25 April 2016

REVIEW OF INVESTMENTS - 'C' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2015:

'C' Share pool

	Cost		Valuation	Valuation  movement in year	% of portfolio
	£'000		£'000	£'000
VCT qualifying investments and partially qualifying investments
Quadrate Spa Limited*	364		381	17	10.3%
Quadrate Catering Limited	330		367	8	9.9%
	694		748	25	20.2%
	694		748	25	20.2%
Cash at bank and in hand			2,962		79.8%
Total investments			3,710		100%

*Part-qualifying investment

Summary of investment movements

Additions

	Cost
VCT qualifying and partially qualifying investments	£'000
Redmed Limited	158
Total 'C' Share pool	158

Disposals

	Cost	MV at  01/01/15			Disposal proceeds			Gain against cost			Total realised gain during  the year
	£'000		£'000			£'000			£'000			£'000
VCT qualifying and partially qualifying investments
Domestic Solar Limited	500		560			665			165			105	**
Chapel Street Food and Beverage Limited	50		13			45			(5)			32
Chapel Street Services Limited	50		13			42			(8)			29
Ecossol Limited	250		213			238			(12)			25
The 3D Pub Co Limited	267		227			233			(34)			6
Redmed Limited	508		609			610			102			1
Atlantic Dogstar Limited	663		1,260			1,260			597			-
Future Biogas (SF) Limited	697		476			442			(255)			(34)
Mosaic Spa and Health Clubs Limited	125		96			46			(79)			(50)
East Dulwich Tavern Limited	644		734			541			(103)			(193)	**
Westow House Limited	429		606			338			(91)			(268)	**
Non-qualifying investments
Vermont Developments Limited	25		120			156			131			36
Chapel Street Hotel Limited	2		1			18			16			17
The Thames Club Limited	500		500			500			-			-
Hoole Hall Country Club Holdings Limited	210		210			210			-			-
Honeycombe Pubs VCT Limited	188		66			66			(122)			-
AEW Pubs No1 Limited	-		261			261			261			-
Westow House Pub No1 Limited	-		15			-			-			(15)	**
East Dulwich Tavern Pub No1 Limited	-		30			-			-			(30)	**
	5,108		6,010			5,671			563			(339)

* Adjusted for additions in the year
** Disposal proceeds were supplemented by dividends totalling £517,000

INVESTMENT MANAGER'S REPORT- 'D' SHARE POOL

Introduction
The 'D' Share pool holds investments in 13 companies and is fully invested. The focus this year has been on realisations and ten full exits have completed in the period. We are in the process of developing realisation plans for the remainder of the portfolio.

Net asset value and results
At 31 December 2015, the 'D' Share NAV stood at 51.3p and the 'E' Share NAV at 0.1p, giving a combined NAV of 51.4p. Total Return (NAV plus cumulative dividends to date) was 100.9p for a combined holding of one 'D' and one 'E' Share. This represents a net increase of 7.0p over the period (after adjusting for dividends paid during the period of 27.0p per 'D' Share), equivalent to an increase of 9.8%.

The return on ordinary activities for the 'D' Shares for the period was a gain of £690,000 (2014: loss £59,000) being a revenue profit of £306,000 (2014: £233,000) and a capital gain of £384,000 (2014: loss £292,000).

'D' Share pool - investment activity
Two small new investments completed in the period, Redmed Limited, the owner and operator of a bar in Lincoln for £194,000; and Future Biogas (SF) Limited, the operator of a biogas plant in Norfolk for £169,000.

Ten full exits occurred in the period generating proceeds of £2,900,000 and a realised gain over the opening 2015 valuation of £294,000.

Domestic Solar Limited, the installer of domestic solar panels across the UK, was sold and generated an uplift over original cost of £132,000 on proceeds of £532,000.

The investment in Alpha Schools Holdings Limited was realised in the period for £513,000, an uplift of £146,000 over original cost

Liverpool Nurseries (Holdings) Limited generated proceeds of £427,000 and an uplift over the brought forward market value of £40,000, although marginally below original investment cost of £435,000.

Green Electricity Generation Limited was sold at an uplift over cost of £65,000 and generated proceeds of £315,000.

Other full exits in the period that generated proceeds above cost include: Slopingtactic Limited which cost £196,000 and had proceeds of £248,000; Progressive Energies Limited which cost £170,000 and had proceeds of £203,000; and Ridgeway Pub Company Limited which cost £137,000 and had proceeds £150,000.

The exit of West Tower Property Limited returned the original cost of £250,000 to the Share pool.

Unfortunately not all exits exceeded original cost and some were sold at discounts due to performance issues. These included Ecossol Limited which cost £250,000 and had proceeds of £237,000 and Kilmarnock Monkey Bar Limited which had cost £42,000 and had proceeds of £25,000.

Partial exits totalling £650,000 also took place during the period. The most significant of these were Future Biogas (Reepham Road) Limited with proceeds equivalent to cost of £261,000 and Redmed Limited which cost £166,000 and received proceeds of £176,000.

'D' Share pool - portfolio valuation
The majority of the 'D' Share portfolio performed in line with expectations during the year. There were a small number of valuation movements which resulted in a net unrealised profit of £87,000.

Fenkle Street LLP, is a property development company based in Newcastle. The hotel is trading well and an uplift in the value of £98,000 has been recognised.

Quadrate Catering Limited and Quadrate Spa Limited were in an exit process at the period end date and have subsequently completed. The investments have been valued at the full amount of exit proceeds received which represented a total uplift of £81,000 across both companies.

Kidspace Adventures Holdings Limited, the owner of three well established children's play areas in Croydon, Romford and Epsom continues to perform well and an increase in the valuation of £17,000 has been recognised in the period.

Future Biogas (Reepham Road) Limited, the owner and operator of a biogas plant in Norfolk, has not performed in line with initial expectations and while the issues have now been resolved, performance to date is notably below plan. This has resulted in a decrease in the valuation of £65,000.

Small movements in value were also made on two investments: £47,000 decrease to Mosaic Spa and Health Clubs Limited; and a £7,000 uplift on Avon Solar Limited.

Outlook
The realisation of the 'D' share pool investments has continued well and exit plans for the remaining investments are progressing. We believe that there are good prospects for the majority of the remaining investment portfolio to be realised by the end of 2016, although we are cautious in respect of Aminghurst, where it make take more time to finally exit.

Downing LLP
25 April 2016

REVIEW OF INVESTMENTS - 'D' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2015:

'D' Share pool

	Cost	Valuation	Valuation  movement in year	% of portfolio
	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Quadrate Catering Limited	441	538	57	10.8%
Quadrate Spa Limited*	496	520	24	10.4%
Kidspace Adventures Holdings Limited	375	465	17	9.3%
Mosaic Spa and Health Clubs Limited*	521	346	(47)	6.9%
Westcountry Solar Solutions Limited	250	250	-	5.0%
Avon Solar Limited	210	218	7	4.4%
Future Biogas (Reepham Road) Limited	581	196	(65)	3.9%
Camandale Limited*	422	2	(1)	0.0%
	3,296	2,535	(8)	50.7%
Non-qualifying investments
Aminghurst Limited	1,321	1,321	-	26.4%
Fenkle Street LLP	122	220	98	4.4%
Future Biogas (SF) Limited	169	169	-	3.4%
Commercial Street Hotel Limited	100	100	-	2.0%
Redmed Limited	27	24	(3)	0.5%
	1,739	1,834	95	36.7%
	5,035	4,369	87	87.4%
Cash at bank and in hand		629		12.6%
Total investments		4,998		100%

*Part-qualifying investment

Summary of investment movements

Additions

	Cost
	£'000
VCT qualifying and partially qualifying investments
Mosaic Spa and Health Clubs Limited	46
Camandale Limited	8
Non-qualifying investments
Redmed Limited	194
Future Biogas (SF) Limited	169
Total 'D' Share pool	417

Disposals

	Cost	MV at  01/01/15			Disposal proceeds		Gain against cost		Total realised gain during the year
	£'000		£'000		£'000		£'000		£'000
VCT qualifying and partially qualifying investments
Domestic Solar Limited	400		448		532		132		84	**
Alpha Schools Holdings Limited	367		438		513		146		75
Liverpool Nurseries (Holdings) Limited	435		387		427		(8)		40
Ecossol Limited	250		213		237		(13)		24
Ridgeway Pub Company Limited	137		126		150		13		24
Slopingtactic Limited	196		226		248		52		22
Progressive Energies Limited	170		190		203		33		13
Green Electricity Generation Limited	250		303		315		65		12
Future Biogas (Reepham Road) Limited	261		261		261		-		-
West Tower Property Limited	250		250		250		-		-
Camandale Limited	102		35		28		(74)		(7)
Non-qualifying investments
Redmed Limited	166		166		176		10		10
Aminghurst Limited	185		185		185		-		-
Kilmarnock Monkey Bar Limited	42		25		25		(17)		-
Total 'D' Share pool	3,211		3,253		3,550		339		297

* Adjusted for additions in the year
** Disposal proceeds were supplemented by dividends totalling £7,000

INVESTMENT MANAGER'S REPORT- 'F' SHARE POOL

Introduction
The 'F' Share pool is fully invested in a portfolio focussed on asset backed businesses and those with predictable revenue streams. In the period, two new qualifying investments were made at a total cost of £1.2m. Three qualifying follow on investments totalling £456,000 were also made.

Four non-qualifying investments were realised in the period, generating total proceeds of £326,000.

Net asset value and results
At 31 December 2015, the 'F' Share NAV stood at 71.5p. Total Return (NAV plus cumulative dividends to date) for Shareholders who invested in the original share offer is now 91.5p. This represents a net increase of 1.0p per share over the period (after adjusting for dividends paid during the period of 5.0p per Share), equivalent to an increase of 1.4%.

The return on ordinary activities for the 'F' Share pool for the period was a gain of £108,000 (2014: £71,000) being a revenue profit of £165,000 (2014: £82,000) and a capital loss of £57,000 (2014: £11,000).

'F' Share pool - investment activity
A new investment of £1,000,000 was made in Apex Energy Limited. The company is seeking to undertake the build and operation of electricity generation power plants.

£258,000 of non-qualifying loan was replaced with a qualifying investment in Pearce and Saunders Limited, the freehold pub company that operates three sites in south east London. A further £46,000 was also invested in a new company, Pearce and Saunders DevCo Limited that will be used to take advantage of a related development opportunity.

£200,000 was invested in Atlantic Dogstar Limited, the owner and operator of five London pubs.

A further qualifying investment of £65,000 was also made in Vulcan Renewables Limited.

Two further partially qualifying and non-qualifying investments were made in the period: Redmed Limited for £87,000 and London City Shopping Centre Limited for £23,000.

One full exit of a qualifying company occurred in the period: Tor Solar Limited, the operator of a solar farm in the south west of England, generated proceeds of £753,000 and a £73,000 profit over the original investment cost.
The partial exit of Redmed Limited generated proceeds of £329,000 in the period. This represented a small uplift of £10,000 over cost.

During the year, several realisations of non-qualifying loans were made: Hoole Hall Hotel Limited for £84,000; Dominions House Limited for £59,000; and The 3D Pub Co Limited for £55,000.

'F' Share pool - portfolio valuation
The majority of the 'F' Share pool investments have performed in line with expectations over the period and continue to be valued at original cost. There have however been several adjustments made which have resulted in a net unrealised loss of £136,000 in the year.

Following a further round of financing the valuation of Vulcan Renewables Limited was increased by £126,000.

Lambridge Solar Limited, the owner of a solar farm in Lincolnshire is performing well and the valuation has been increased by £43,000.

After third party valuations of the sites at two of our freehold London pub companies, Pabulum Pubs Limited and Augusta Pub Company Limited, the valuations were increased by £29,000 and £34,000 respectively.

Kidspace Adventures Holdings Limited, which owns three well established children's play areas in Croydon, Romford and Epsom continues to perform well. As a result the valuation has been increased by £11,000.

Unfortunately, these increases were offset by three value reductions. The pubs owned and operated by Pearce and Saunders Limited have experienced underperformance in the year and the valuation has been reduced by £248,000.

Performance at two of the Share pool's Scottish nightclubs, Fubar Stirling Limited and City Falkirk Limited has continued to operate below expectations and value reductions of £99,000 and £30,000 respectively have been made. Whilst we continue to work closely with the management of both clubs to bring trading back on track, it is clear that the depressed economic conditions in the region are a major contributing factor to the weak performance.

Outlook
The focus now for the 'F' Share portfolio is on close monitoring and support of the portfolio companies to ensure that prospects for growth are optimised in the period until the realisation process commences in 2018.

Downing LLP
25 April 2016

REVIEW OF INVESTMENTS - 'F' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2015:

'F' Share pool	Cost	Valuation	Valuation  movement in year	% of portfolio
	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Apex Energy Limited	1,000	1,000	-	12.9%
Vulcan Renewables Limited	653	779	126	10.1%
Goonhilly Earth Station Limited	760	760	-	9.8%
Lambridge Solar Limited	500	543	43	7.0%
Merlin Renewables Limited	500	500	-	6.5%
Grasshopper 2007 Limited	378	378	-	4.9%
Augusta Pub Company Limited	290	324	34	4.2%
Kidspace Adventures Holdings Limited	250	310	11	4.0%
Pearce and Saunders Limited*	497	248	(248)	3.2%
Pabulum Pubs Limited	200	229	29	3.0%
Atlantic Dogstar Limited	200	200	-	2.6%
Fresh Green Power Limited	200	200	-	2.6%
City Falkirk Limited	422	177	(30)	2.3%
Fubar Stirling Limited	268	169	(99)	2.2%
Green Energy Production UK Limited	100	100	-	1.3%
Cheers Dumbarton Limited	48	17	-	0.2%
Redmed Limited*	18	13	(2)	0.2%
Lochrise Limited	13	-	-	0.0%
	6,297	5,947	(136)	77.0%
Non-qualifying investments
Aminghurst Limited	839	839	-	10.8%
Baron House Developments LLP	481	481	-	6.2%
London City Shopping Centre Limited	66	66	-	0.9%
Pearce and Saunders DevCo Limited	46	46	-	0.6%
Southampton Hotel Developments Limited	298	-		0.0%
	1,730	1,432	-	18.5%
	8,027	7,379	(136)	95.5%
Cash at bank and in hand		349		4.5%
Total investments		7,728		100%

*Part-qualifying investment

Summary of investment movements

Additions

	Cost
	£'000
VCT qualifying and partially qualifying investments
Apex Energy Limited	1,000
Pearce and Saunders Limited	304
Atlantic Dogstar Limited	200
Redmed Limited	87
Vulcan Renewables Limited	65
Non-qualifying investments
Pearce and Saunders DevCo Limited	46
London City Shopping Centre Limited	23
Total 'F' Share pool	1,725

Disposals

	Cost	MV at  01/01/15			Disposal proceeds		Gain against cost		Total realised gain during the year
	£'000	£'000			£'000		£'000		£'000
VCT qualifying and partially qualifying investments
Tor Solar PV Limited	680		680		753		73		73
Redmed Limited	319		323		329		10		6
Pearce and Saunders Limited	257		257		257		-		-	**
Non-qualifying investments
Aminghurst Limited	128		128		128		-		-
Hoole Hall Hotel Limited	84		84		84		-		-
Dominions House Limited	59		59		59		-		-
The 3D Pub Co Limited	55		55		55		-		-
Total 'F' Share pool	1,582		1,586		1,665		83		79

* Adjusted for additions in the year
** Disposal proceeds were supplemented by dividends totalling £46,000

INVESTMENT MANAGER'S REPORT- 'H' SHARE POOL

The 'H' Share pool raised funds in 2014 and has made good progress in building its VCT qualifying portfolio.

Net asset value and results
At 31 December 2015, the net asset value per 'H' Share was 90.5p. Total Return (NAV plus cumulative dividends to date) for Shareholders who invested in the original share offer is now 100.5p. This represents a net increase of 0.8p per share over the year (after adjusting for dividends paid during the year of 5.0p per Share), equivalent to an increase of 0.8%.

The return on ordinary activities for the 'H' Share pool for the year was a gain of £112,000 (2014: loss £46,000) being a revenue profit of £217,000 (2014: loss £46,000) and a capital loss of £105,000 (2014: nil).

Investment activity
The pool made six qualifying investments in the period, as well as three non-qualifying investments. Details are set out below:

A new investment of £1,300,000 was made in Apex Energy Limited. The company is seeking to undertake the build and operation of electricity generation power plants.

The 'H' Share pool invested £1,084,000 in Kidspace Adventures Holdings Limited, which owns three well established children's play areas in Croydon, Romford and Epsom.

£1,250,000 has been invested in Hedderwick Limited, which is seeking a suitable leisure-based site.

£1,000,000 was invested in Atlantic Dogstar Limited, in January 2015. The company owns and operates five freehold pubs in London.

Antelope Pub Limited owns and operates a pub of the same name in Tooting, London. £500,000 has been invested in the company in the period.

Oak Grove Renewables Limited operates an anaerobic digestion plant in Norfolk. £420,000 has been invested in the company in the period.

In addition to the above, a number of non-qualifying investments were made in the form of secured loans. These help to generate investment income on funds ahead of them being employed in VCT qualifying investments. The most significant of these was Hobblers Heath Limited, which is building a children's adventure playground in Hounslow, West London. £727,000 has been invested in this company.

A non-qualifying loan of £200,000 was made to UK Solar (Hartwell) LLP to fund the construction of a solar plant in Northamptonshire.

£155,000 non-qualifying loan was made to Augusta Pub Company Limited, an owner and operator of freehold London pubs.

Six non-qualifying loans were fully or partially repaid in the period and generated total proceeds of £5,767,000. Of these, five were fully repaid and generated total proceeds of £5,735,000.

Full repayment was made on: Deeside Solar Farms Limited of £1.8m; Woodbridge Solar Limited of £1.8m; Vulcan Renewables Limited of £1.4m, Future Biogas (SF) Limited of £525,000; and UK Solar (Hartwell) Limited of £200,000.

The 'H' Share pool investments have performed in line with expectations over the period and the majority continue to be valued at original cost with only one valuation reduction of £105,000 on Oak Grove Renewables Limited due to performance issues at the anaerobic digestion plant.

Outlook
The task of building the 'H' Share portfolio is now well underway. We continue to have a good pipeline of potential investment opportunities from which we expect to be able to expand the qualifying portfolio over the next four years whilst closely monitoring the current investments.

Downing LLP
25 April 2016

REVIEW OF INVESTMENTS - 'H' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2015:

'H' Share pool	Cost	Valuation	Valuation  movement in year	% of portfolio
	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Apex Energy Limited	1,300	1,300	-	10.6%
Hedderwick Limited	1,250	1,250	-	10.2%
Kidspace Adventures Holdings Limited	1,084	1,084	-	8.8%
Atlantic Dogstar Limited	1,000	1,000	-	8.1%
Antelope Pub Limited	500	500	-	4.1%
Oak Grove Renewables Limited	420	315	(105)	2.6%
	5,554	5,449	(105)	44.4%
Non-qualifying investments
Pub People Limited	984	984	-	8.0%
Hobblers Heath Limited	727	727	-	6.0%
Ludlow Taverns Springhill Limited	388	388	-	3.2%
Pearce and Saunders Limited	193	193	-	1.6%
Augusta Pub Company Limited	155	155	-	1.2%
	2,447	2,447	-	20.0%
	8,001	7,896	(105)	64.4%
Cash at bank and in hand		4,360		35.6%
Total investments		12,256		100%

*Part-qualifying investment

Summary of investment movements

Additions

	Cost
	£'000
VCT qualifying and partially qualifying investments
Apex Energy Limited	1,300
Hedderwick Limited	1,250
Kidspace Adventures Holdings Limited	1,084
Atlantic Dogstar Limited	1,000
Antelope Pubs Limited	500
Oak Grove Renewables Limited	420
Non-qualifying investments
Hobblers Heath Limited	727
UK Solar (Hartwell) LLP	200
Augusta Pub Company Limited	155
Total 'H' Share pool	6,636

Disposals

	Cost	MV at  01/01/15			Disposal proceeds		Gain against cost		Total realised gain during the year
	£'000		£'000		£'000		£'000		£'000
Non-qualifying investments
Deeside Solar Farm Limited	1,800		1,800		1,800		-		-
Woodbridge Solar Limited	1,800		1,800		1,800		-		-
Vulcan Renewables Limited	1,410		1,410		1,410		-		-
Future Biogas (SF) Limited	525		525		525		-		-
UK Solar (Hartwell) Limited	200		200		200		-		-
Ludlow Taverns Springhill Limited	32		32		32		-		-
	5,767		5,767		5,767		-		-

* Adjusted for additions in the year

INVESTMENT MANAGER'S REPORT- 'J' SHARE POOL

Fundraising
The 'J' Share fundraising launched in December 2014 and has raised £11 million. 10,733,377 'J' Shares were allotted in the year at an average price of 102.8p per share. The task of investing these new funds is now underway.

Net asset value and results
At 31 December 2015, the net asset value per 'J' Share was 98.5p, a decrease of 1.5p on the initial price resulting from the initial "cash drag" from holding uninvested funds.

Results and dividend
The return on ordinary activities for the 'J' Share, after taxation, for the period was £158,000, being a revenue loss of £53,000 and a capital loss of £105,000.

Investment activity
Four  initial investments were made in the period being a qualifying investment of £1,000,000 in Cedarville Limited, £1,000,000 in Pilgrim Trading Limited, £420,000 in Oak Grove Renewables Limited and a non-qualifying secured loan investment of £410,000 in UK Solar (Lower Newton) LLP.

The loan in to UK Solar (Lower Newton) has subsequently been repaid, leaving the fund with three qualifying investments and no non-qualifying investments at 31 December 2015.

Unfortunately one investment in the Share pool has had a valuation reduction due to performance issues. Oak Grove Renewables was reduced in value by £105,000.

Outlook
The task of building the 'J' Share portfolio has very recently begun. We have a good pipeline of potential investment opportunities from which we expect to be able to build a solid qualifying portfolio with good potential for growth over the planned life of the share pool. Accordingly, we expect to complete a number of new qualifying and non-qualifying investments for the share pool in the coming year.

Downing LLP
25 April 2016

REVIEW OF INVESTMENTS - 'J' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2015:

'J' Share pool	Cost	Valuation	Valuation  movement in year	% of portfolio
	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Cedarville Limited	1,000	1,000	-	9.4%
Pilgrim Trading Limited	1,000	1,000	-	9.4%
Oak Grove Renewables Limited	420	315	(105)	3.0%
	2,420	2,315	(105)	21.8%
	2,420	2,315	(105)	21.8%
Cash at bank and in hand		8,279		78.2%
Total investments		10,594		100%

Summary of investment movements

Additions

	Cost
	£'000
VCT qualifying and partially qualifying investments
Cedarville Limited	1,000
Pilgrim Trading Limited	1,000
Oak Grove Renewables Limited	420
Non-qualifying investments
UK Solar (Lower Newton) LLP	410
Total 'J' Share pool	2,830

Disposals

	Cost	MV at  01/01/15			Disposal proceeds		Gain against cost		Total realised gain during  the year
	£'000		£'000		£'000		£'000		£'000
Non-qualifying investments
UK Solar (Lower Newton) LLP	410		410		410		-		-
	410		410		410		-		-

* Adjusted for additions in the year

Directors' responsibilities statement
The Director's are responsible for preparing the Strategic Report, The Report of the Directors, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Conduct Authority.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (FRS 102). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.

In preparing these financial statements the Directors are required to:

· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions, to disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.

Statement as to disclosure of information to Auditor
The Directors in office at the date of the report have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditor is unaware. Each of the Directors has confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the Auditor.

INCOME STATEMENT
for the year ended 31 December 2015

			Year ended 31 December 2015				Year ended 31 December 2014
			Revenue	Capital	Total		Revenue	Capital	Total
			£'000	£'000	£'000		£'000	£'000	£'000
Income			2,449	-	2,449		1,466	-	1,466
(Loss)/gain on investments			-	(200)	(200)		-	226	226
			2,449	(200)	2,249		1,466	226	1,692
Investment management fees			(695)	-	(695)		(564)	-	(564)
Other expenses			(275)	-	(275)		(296)	-	(296)
Return/(loss) on ordinary activities before tax			1,479	(200)	1,279		606	226	832
Tax on total comprehensive income and ordinary activities			(162)	-	(162)		(155)	-	(155)
Return/(loss) attributable to equity shareholders			1,317	(200)	1,117		451	226	677
Basic and diluted return/(loss) per:
'C' Share			9.5p	(4.4p)	5.1p		2.5p	7.4p	9.9p
'A' Share			-	-	-		-	-	-
'D' Share			3.1p	3.8p	6.9p		2.3p	(2.9p)	(0.6p)
'E' Share			-	-	-		-	-	-
'F' Share			1.5p	(0.5p)	1.0p		0.8p	(0.1p)	0.7p
'H' Share			1.6p	(0.8p)	0.8p		(0.5p)	-	(0.5p)
'J' Share			(0.8p)	(1.6p)	(2.4p)		n/a	n/a	n/a

All Revenue and Capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. The total column within the Income Statement represents the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS 102"). The supplementary revenue and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 by the Association of Investment Companies ("AIC SORP").

Other than revaluation movements arising on investments held at fair value through the profit and loss, there were no differences between the return/loss as stated above and at historical cost.

INCOME STATEMENT (ANALYSED BY SHARE POOL)
for the year ended 31 December 2015

'C' Share pool

		Year ended 31 December 2015				Year ended 31 December 2014
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Income		815	-	815		391	-	391
(Loss)/gain on investments		-	(317)	(317)		-	529	529
		815	(317)	498		391	529	920
Investment management fees		(56)	-	(56)		(89)	-	(89)
Other expenses		(41)	-	(41)		(64)	-	(64)
Return/(loss) on ordinary activities before tax		718	(317)	401		238	529	767
Tax on total comprehensive income and ordinary activities		(36)	-	(36)		(56)	-	(56)
Return/(loss) attributable to equity shareholders		682	(317)	365		182	529	711

'D' Share pool

		Year ended 31 December 2015				Year ended 31 December 2014
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Income		528	-	528		473	-	473
Gain/(loss) on investments		-	384	384		-	(292)	(292)
		528	384	912		473	(292)	181
Investment management fees		(97)	-	(97)		(103)	-	(103)
Other expenses		(54)	-	(54)		(67)	-	(67)
Return/(loss) on ordinary activities before tax		377	384	761		303	(292)	11
Tax on total comprehensive income and ordinary activities		(71)	-	(71)		(70)	-	(70)
Return/(loss) attributable to equity shareholders		306	384	690		233	(292)	(59)

'F' Share pool

		Year ended 31 December 2015				Year ended 31 December 2014
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Income		407	-	407		424	-	424
Loss on investments		-	(57)	(57)		-	(11)	(11)
		407	(57)	350		424	(11)	413
Investment management fees		(144)	-	(144)		(184)	-	(184)
Other expenses		(85)	-	(85)		(117)	-	(117)
Return/(loss) on ordinary activities before tax		178	(57)	121		123	(11)	112
Tax on total comprehensive income and ordinary activities		(13)	-	(13)		(41)	-	(41)
Return/(loss) attributable to equity shareholders		165	(57)	108		82	(11)	71

'H' Share pool

		Year ended 31 December 2015				Year ended 31 December 2014
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Income		594	-	594		178	-	178
Loss on investments		-	(105)	(105)		-	-	-
		594	(105)	489		178	-	178
Investment management fees		(253)	-	(253)		(188)	-	(188)
Other expenses		(69)	-	(69)		(48)	-	(48)
Return/(loss) on ordinary activities before tax		272	(105)	167		(58)	-	(58)
Tax on total comprehensive income and ordinary activities		(55)	-	(55)		12	-	12
Return/(loss) attributable to equity shareholders		217	(105)	112		(46)	-	(46)

'J' Share pool

		Year ended 31 December 2015				Year ended 31 December 2014
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Income		104	-	104		-	-	-
Loss on investments		-	(105)	(105)		-	-	-
		104	(105)	(1)		-	-	-
Investment management fees		(144)	-	(144)		-	-	-
Other expenses		(26)	-	(26)		-	-	-
Loss on ordinary activities before tax		(66)	(105)	(171)		-	-	-
Tax on total comprehensive income and ordinary activities		13	-	13		-	-	-
Loss attributable to equity shareholders		(53)	(105)	(158)		-	-	-

BALANCE SHEET
as at 31 December 2015

		2015		2014
		£000		£000
Fixed assets
Investments		22,707		28,204
Current assets
Debtors		632		417
Cash at bank and in hand		16,578		7,182
		17,210		7,599
Creditors: amounts falling due within one year		(494)		(734)
Net current assets		16,716		6,865
Net assets		39,423		35,069
Capital and reserves
Called up share capital		78		67
Capital redemption reserve		106		106
Special reserve		15,749		22,268
Share premium reserve		24,639		13,608
Revaluation reserve		(1,466)		(289)
Capital reserve - realised		(1,033)		(1,033)
Revenue reserve		1,350		342
Total equity shareholders' funds		39,423		35,069
Basic and diluted net asset value per Share:
'C' Share		53.2p		98.2p
'A' Share		0.1p		0.1p
'D' Share		51.3p		71.3p
'E' Share		0.1p		0.1p
'F' Share		71.5p		75.5p
'H' Share		90.5p		94.7p
'J' Share		98.5p		n/a

BALANCE SHEET (ANALYSED BY SHARE POOL)
as at 31 December 2015

'C' Shares

		2015		2014
		£000		£000
Fixed assets
Investments		748		6,576
Current assets
Debtors		174		67
Cash at bank and in hand		2,962		503
		3,136		570
Creditors: amounts falling due within one year		(71)		(109)
Net current assets		3,065		461
Net assets		3,813		7,037
Capital and reserves
Called up share capital		18		18
Capital redemption reserve		106		106
Special reserve		2,733		5,761
Share premium reserve		-		-
Revaluation reserve		55		932
Capital reserve - realised		-		-
Revenue reserve		901		220
Total equity shareholders' funds		3,813		7,037

'D' Shares

		2015		2014
		£000		£000
Fixed assets
Investments		4,369		7,119
Current assets
Debtors		251		152
Cash at bank and in hand		629		31
		880		183
Creditors: amounts falling due within one year		(124)		(172)
Net current assets		756		11
Net assets		5,125		7,130
Capital and reserves
Called up share capital		25		25
Capital redemption reserve		-		-
Special reserve		5,206		7,562
Share premium reserve		-		-
Revaluation reserve		(667)		(713)
Capital reserve - realised		-		-
Revenue reserve		561		256
Total equity shareholders' funds		5,125		7,130

 'F' Shares

		2015		2014
		£000		£000
Fixed assets
Investments		7,379		7,377
Current assets
Debtors		129		139
Cash at bank and in hand		349		792
		478		931
Creditors: amounts falling due within one year		(115)		(134)
Net current assets		363		797
Net assets		7,742		8,174
Capital and reserves
Called up share capital		11		11
Capital redemption reserve		-		-
Special reserve		9,155		9,617
Share premium reserve		-		-
Revaluation reserve		(644)		(508)
Capital reserve - realised		(1,033)		(1,033)
Revenue reserve		253		87
Total equity shareholders' funds		7,742		8,174

'H' Shares

		2015		2014
		£000		£000
Fixed assets
Investments		7,896		7,132
Current assets
Debtors		49		59
Cash at bank and in hand		4,360		5,856
		4,409		5,915
Creditors: amounts falling due within one year		(138)		(319)
Net current assets		4,271		5,596
Net assets		12,167		12,728
Capital and reserves
Called up share capital		13		13
Capital redemption reserve		-		-
Special reserve		(1,345)		(672)
Share premium reserve		13,608		13,608
Revaluation reserve		(105)		-
Capital reserve - realised		-		-
Revenue reserve		(4)		(221)
Total equity shareholders' funds		12,167		12,728

'J' Shares

		2015		2014
		£000		£000
Fixed assets
Investments		2,315		-
Current assets
Debtors		28		-
Cash at bank and in hand		8,279		-
		8,307		-
Creditors: amounts falling due within one year		(46)		-
Net current assets		8,261		-
Net assets		10,576		-
Capital and reserves
Called up share capital		11		-
Capital redemption reserve		-		-
Special reserve		-		-
Share premium reserve		11,031		-
Revaluation reserve		(105)		-
Capital reserve - realised		-		-
Revenue reserve		(361)		-
Total equity shareholders' funds		10,576		-

STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2015

	Called up share capital	Capital redemption reserve	Special reserve	Share premium reserve	Revaluation reserve	Capital reserve - realised	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Year ended 31 December 2014
At 1 January 2014	54	106	14,001	10,160	(517)	(1,033)	66	22,837
Gain on investments	-	-	-	-	226	-	-	226
Retained revenue	-	-	-	-	-	-	451	451
Issue of new shares	13	-	-	13,608	-	-	-	13,621
Share issue costs	-	-	-	-	-	-	(175)	(175)
Share premium cancellation	-	-	10,160	(10,160)	-	-	-	-
Transfer between reserves	-	-	(1,893)	-	2	1,891	-	-
Dividend paid	-	-	-	-	-	(1,891)	-	(1,891)
At 31 December 2014	67	106	22,268	13,608	(289)	(1,033)	342	35,069
Year ended 31 December 2015
At 1 January 2015	67	106	22,268	13,608	(289)	(1,033)	342	35,069
(Loss)/gain on investments	-	-	-	-	(234)	34	-	(200)
Retained revenue	-	-	-	-	-	-	1,317	1,317
Issue of new shares	11	-	-	11,031	-	-	-	11,042
Share issue costs	-	-	-	-	-	-	(309)	(309)
Transfer between reserves	-	-	(6,519)	-	(943)	7,462	-	-
Dividend paid	-	-	-	-	-	(7,496)	-	(7,496)
At 31 December 2015	78	106	15,749	24,639	(1,466)	(1,033)	1,350	39,423

CASH FLOW STATEMENT
for the year ended 31 December 2015

					Year ended 31 December 2015
					'C' Share pool					'D' Share pool	'F' Share pool	'H' Share pool	'J' Share pool	Total
					£'000					£'000	£'000	£'000	£'000
Net cash inflow/(outflow) from operating activities								536		159	156	46	(35)	862
Cash flows from investing activities
Purchase of investments								(158)		(416)	(1,724)	(6,636)	(2,830)	(11,764)
Sale of investments								5,669		3,550	1,665	5,767	410	17,061
Net cash inflow/(outflow) from    investing activities							5,511			3,134	(59)	(869)	(2,420)	5,297
Net cash inflow/(outflow) before financing activities							6,047			3,293	97	(823)	(2,455)	6,159
Cash flows from financing activities
Equity dividends paid							(3,588)			(2,695)	(540)	(673)	-	(7,496)
Proceeds from share issue							-			-	-	-	11,042	11,042
Share issue costs								-		-	-	-	(309)	(309)
Net cash inflow/(outflow) from financing activities							(3,588)			(2,695)	(540)	(673)	10,733	3,237
Increase/(decrease) in cash								2,459		598	(443)	(1,496)	8,278	9,396
									Year ended 31 December 2014
Net cash inflow from operating activities							150			215	53	215	-	633
Cash flow from investing activities
Purchase of investments									(650)	-	(2,181)	(7,582)	-	(10,413)
Sale of investments									371	143	1,189	450	-	2,153
Net cash (outflow)/inflow from investing activities									(279)	143	(992)	(7,132)	-	(8,260)
Net cash outflow before financing activities							(129)			358	(939)	(6,917)	-	(7,627)
Cash flows from financing activities
Equity dividends paid									(179)	(499)	(541)	(672)	-	(1,891)
Proceeds from share issue									-	-	-	13,621	-	13,621
Share issue costs									-	-	-	(175)	-	(175)
Net cash inflow from financing activities							(179)			(499)	(541)	12,774	-	11,555
(Decrease)/increase in cash							(308)			(141)	(1,480)	5,857	-	3,928

NOTES

1. General information
Downing THREE VCT plc ("The Company") is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales.

2. Accounting policies
Basis of accounting
The Company has prepared its financial statements under FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and in accordance with the Statement of Recommended Practice ("SORP") for investment trust companies and venture capital trusts issued by the Association of Investment Companies ("AIC") revised November 2014.

The Company implements new Financial Reporting Standards ("FRS") issued by the Financial Reporting Council when required.

This is the first year in which the Financial Statements have been prepared under FRS 102, however it has not been necessary to restate comparatives as the treatment previously applied aligns with the requirements of FRS 102. As a result, there are no reconciling differences between the previous financial reporting framework and the current financial reporting framework and the comparative figures represent the position under both current and previous financial reporting frameworks.

The financial statements are presented in Sterling (£).

Presentation of Income Statement
In order to better reflect the activities of a venture capital trust and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The return on ordinary activities is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.
Investments
Venture capital investments are designated as "fair value through profit or loss" assets due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed on a fair value basis, with a view to selling after a period of time, in accordance with the Company's documented investment policy. The fair value of an investment upon acquisition is deemed to be cost. Thereafter investments are measured at fair value in accordance with the International Private Equity and Venture Capital Valuation Guidelines ("IPEV") together with FRS 102 sections 11 and 12.

For unquoted investments, fair value is established using the IPEV guidelines. The valuation methodologies for unquoted entities used by the IPEV to ascertain the fair value of an investment are as follows:

· Price of recent investment;
· Multiples;
· Net assets;
· Discounted cash flows or earnings (of underlying business);
· Discounted cash flows (from the investment); and
· Industry valuation benchmarks.

The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value.

Gains and losses arising from changes in fair value are included in the Income Statement for the year as a capital item and transaction costs on acquisition or disposal of the investment are expensed. Where an investee company has gone into receivership, liquidation or administration (where there is little likelihood of recovery), the loss on the investment, although not physically disposed of, is treated as being realised.

It is not the Company's policy to exercise significant influence over investee companies. Therefore the results of these companies are not incorporated into the Income Statement except to the extent of any income accrued. This is in accordance with the SORP and FRS 102 sections 14 and 15 that does not require portfolio investments, where the interest held is greater than 20%, to be accounted for using the equity method of accounting.

Income
Dividend income from investments is recognised when the Shareholders' rights to receive payment has been established, normally the ex-dividend date.

Interest income is accrued on a time apportionment basis, by reference to the principal sum outstanding and at the effective rate applicable and only where there is reasonable certainty of collection in the foreseeable future.

Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except as follows:

· Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
· Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. The Company has adopted the policy of allocating Investment Manager's fees 100% as revenue.
· Expenses and liabilities not specific to a share class are generally allocated pro rata to the net assets.
· Performance incentive fees arising from the disposal of investments are deducted as a capital item.

Taxation
The tax effects on different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company's effective rate of tax for the accounting year.

Due to the Company's status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arise.

Deferred taxation which is not discounted is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the accounts. Deferred taxation is not discounted.

Other debtors and other creditors
Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.

Issue costs
Issue costs in relation to the shares issued for each share class have been deducted from the share premium account for the relevant share class.

3. Basic and diluted return per share

	'C' Shares	'A' Shares	'D' Shares	'E' Shares	'F' Shares	'H' Shares	'J' Shares
Revenue return/ (loss) (£'000)	682	-	306	-	165	217	(53)
Weighted average number of shares in issue	7,158,326	10,750,064	9,979,109	14,994,862	10,821,660	13,446,972	6,718,727
Net capital (loss) /gain for the year (£'000)	(317)	-	384	-	(57)	(105)	(105)

As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share for any of the share classes. The return per share disclosed therefore represents both the basic and diluted return per share for all share classes.

4. Basic and diluted net asset value per share

			31 Dec 2015					31 Dec 2014
	Shares in issue
			Net asset value					Net asset value
	31 Dec 2015	31 Dec 2014	per share				£'000	per share			£'000
'C' Shares	7,158,326	7,158,326		53.2p			3,802		98.2p		7,026
'A' Shares	10,750,064	10,750,064		0.1p			11		0.1p		11
'D' Shares	9,979,109	9,979,109		51.3p			5,110		71.3p		7,115
'E' Shares	14,994,862	14,994,862		0.1p			15		0.1p		15
'F'  Shares	10,821,660	10,821,660		71.5p			7,742		75.5p		8,174
'H'  Shares	13,446,972	13,446,972		90.5p			12,167		94.7p		12,728
'J' Shares	10,733,377	-		98.5p			10,576		-		-
							39,423				35,069

5. Principal risks
The Company's financial instruments comprise investments held at fair value through profit and loss, being equity and loan stock investments in unquoted companies, loans and receivables consisting of short term debtors, cash deposits and financial liabilities, being creditors arising from its operations. The main purpose of these financial instruments is to generate cashflow and revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short-term creditors and does not use any derivatives.

The fair value of cash deposits and short term debtors and creditors equates to their carrying value in the Balance Sheet.

Loans and receivables and other financial liabilities are stated at amortised cost which the Directors consider is equivalent to fair value.

The Company's investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company's operations are:

· Investment risks
· Credit risk
· Liquidity risk

The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year.

The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year end are provided below:

 

Investment risks

As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds in accordance with its investment policy. The management of these investment risks is a fundamental part of investment activities undertaken by the Investment Manager and overseen by the Board. The Manager monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Manager to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.

The key investment risks to which the Company is exposed are:

· Investment price risk
· Interest rate risk

 

Investment price risk

Investment price risk arises from uncertainty about the valuation of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through changes in the fair value of unquoted investments that it holds.

Interest rate risk

The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.

There are three categories in respect of interest which are attributable to the financial instruments held by the Company as follows:

· "Fixed rate" assets represent investments with predetermined yield targets and comprise certain loan note investments.
· "Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate or LIBOR and comprise cash at bank and liquidity fund investments and certain loan note investments.
· "No interest rate" assets do not attract interest and comprise equity investments and debtors.

 

The Company monitors the level of income received from fixed and floating rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, cash deposits and debtors.

The Manager manages credit risk in respect of loan stock with a similar approach as described under "Investment risks" above. In addition the credit risk is partially mitigated by registering floating charges over the assets of certain investee companies. The strength of this security in each case is dependent on the nature of the investee company's business and its identifiable assets. Similarly the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.

Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc, both of which are A-rated financial institutions and both also ultimately part-owned by the UK Government. Consequently, the Directors consider that the credit risk associated with cash deposits is low.

There have been no changes in fair value during the year that are directly attributable to changes in credit risk.

 

Liquidity risk

Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. As the Company has a relatively low level of creditors, (£494,000, 2014: £734,000) and has no borrowings, the Board believes that the Company's exposure to liquidity risk is low. The Company always holds sufficient levels of funds as cash in order to meet expenses and other cash outflows as they arise. For these reasons, the Board believes that the Company's exposure to liquidity risk is minimal.
The Company's liquidity risk is managed by the Investment Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.

6. Related party transactions
Downing Managers 3 Limited ("DM3"), a wholly owned subsidiary, is the Company's Investment Manager.

During the year ended 31 December 2015, £695,000 (2014: 564,000) was payable to DM3 in respect of Investment management fees. Additionally, DM3 provides accounting, secretarial and administrative services for an annual fee of £56,000 (2014: £55,000). At the year end a balance of £199,000 (2014: £193,000) was due to DM3.

7. Events after the end of the reporting period
Following the end of the reporting period, Downing Corporate Finance Limited exercised their option to purchase the entire legal and beneficial ownership of 2 ordinary shares of £1 each in the capital of Downing Managers 3 Limited for consideration of £1,058, which shares constitute the entire issued share capital of the Company.

Immediately following this, the investment management and admin agreement was novated from Downing Managers 3 Limited to Downing LLP, resulting in Downing LLP becoming the investment manager.

In addition, the remaining funds attributable to the 'C' Shares and 'A' Shares were distributed by way of dividends of 30.5p per 'C' Share and 14.8p per 'A' Share on 24 March 2016. This equated to a payment of £2.2 million to 'C' Shareholders and £1.6 million to 'A' Shareholders (including £532,000 on the 'A' Shares held by members of the management team). Following this, the 'C' Share pool will have negligible remaining value and is expected to be delisted and wound up in due course.

ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 December 2015, but has been extracted from the statutory financial statements for the year ended 31 December 2015 which were approved by the Board of Directors on 25 April 2015 and will be delivered to the Registrar of Companies. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.

The statutory accounts for the period ended 31 December 2014 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.

A copy of the full annual report and financial statements for the year ended 31 December 2015 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at Ergon House, London, SW1P 2AL and will be available for download from www.downing.co.uk.