Baronsmead 2vt Regulatory News (BMD)

Baronsmead VCT 3 plc

Report and Accounts for the year ended 31 December 2015

Financial Headlines

· Net asset value ("NAV") per share increased 12.0 per cent to 113.96p in the year ended 31 December 2015, before deduction of dividends.

· Dividends totalled 7.5p in the year to 31 December 2015, after the second interim dividend of 4.5p paid on 18 December 2015.

· Net annual dividend yield of 7.4 per cent. and gross annual yield of 9.9 per cent. for higher rate tax payers.

· NAV total return of 288.8p to shareholders for every 100.0p invested at launch.

Our Investment Objective

Baronsmead VCT 3 is a tax efficient listed company which aims to achieve long-term investment returns for private investors.

Investment Policy

· To invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM.

· Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value.

Dividend Policy

The board of Baronsmead VCT 3 has the objective to maintain a minimum annual dividend level of around 4.5p per ordinary share if possible, but this depends primarily on the level of realisations achieved and cannot be guaranteed.

Chairman's Statement

I am pleased to report that the Company had another good year. Before payment of 7.5p a share in dividends the NAV increased 12.24p to 113.96p (12.0 per cent.).

In January 2016, the Company published its proposals to merge with Baronsmead VCT 4 plc and early in February 2016 conducted a £10 million fundraising (which is subject to the merger being approved by shareholders).

Results

The increase in the NAV and the dividends paid over the year can be summarised as follows:

The value of the unquoted portfolio increased by 29 per cent. over the year, after allowing for losses realised on some underperforming investments and including income received in the period. The Company's investments in AIM-traded companies and Wood Street Microcap also increased by 17 per cent. (including income) despite the volatility in the markets for shares in quoted companies towards the end of the year.

Dividends

This year approximately 61 per cent. of the increase in the NAV of 12.24p per share has been paid to shareholders: an interim dividend of 3.0p in September 2015 and a second interim in lieu of a final dividend of 4.5p in December 2015.

The level of future dividends will depend upon the continued achievement of profitable realisations as well as the need to meet the fiscal rules for VCTs and will therefore vary from time to time. It is important to note that over the last few years the significant dividends we have paid were made possible because several mature investments were realised.

Investment and Divestment Activity

This has been an active year for new investments with a total of £8.3 million invested in 13 new investments and 5 follow on funding rounds. The Company invested £5.4 million in unquoted investments (3 new, 1 follow-on and 2 acquisition vehicles); and £2.9 million in AIM-traded investments (8 new and 4 follow-on).

A total of £11.9 million was realised from the full or partial sale of investments and from loan note redemptions. There were some notable successes from the sales of the Company's unquoted investment in Luxury For Less and Nexus Vehicle Holdings. Losses were, though, realised on Surgi C and Impetus Automotive Solutions.

A number of profitable realisations were made from the quoted portfolio, the most significant being from the sales of the Company's investments in Accumuli and Jelf Group.

The tables below provide details of the Company's investments and divestments during the year.

VCT Legislation

Last year's Summer Budget introduced legislation designed to ensure that VCTs comply with changes to the EU State aid rules as well as remaining effective in giving small and growing businesses access to finance. The rules introduced new criteria regarding the age of companies that will be eligible as VCT qualifying investments. There is now also a lifetime cap on the total amount of State aided investment an investee company can receive and a requirement that investment be used for growth and development only. These measures were approved when the Finance (No.2) Act 2015 received Royal Assent on 18 November 2015.

The new rules will require the Investment Manager to adapt its investment strategy to focus on the provision of development capital to younger companies to enable them to grow their businesses organically rather than through acquisition. Whilst the full implications of the new rules are still being assessed by the Investment Manager and its advisers, it is clear that the scale and nature of the Company's new investments will change and some elements of the investment portfolio will carry a higher risk.

The Board has reviewed the impact of the new rules with the Investment Manager. The Board is of the view that the Investment Manager has made sufficient adjustments to the investment focus to adapt to the new investment environment and comply with the new VCT rules. The Board is therefore confident in the Investment Manager's ability to identify an adequate supply of new and attractive investment opportunities which will continue to generate acceptable returns, and comply with the new VCT rules.

Merger Proposals and Fundraising

On 10 December 2015 the Board and the board of Baronsmead VCT 4 plc announced that they had entered into discussions regarding a possible merger. Subsequently, on 27 January 2016 the boards of directors of the two Companies published their recommended proposals for the merger of their respective assets and liabilities (the "Proposals") pursuant to a scheme of reconstruction and winding up of Baronsmead VCT 4 (the "Scheme") under section 110 of the Insolvency Act 1986, subject to shareholders' approvals. If the Scheme becomes effective it will create a larger merged Company with net assets of approximately £157 million, before taking account of any proceeds of the Company's fundraising. The background to and the anticipated benefits of the Proposals were set out in the Company's prospectus and the shareholder circular dated 27 January 2016.

The shareholders of Baronsmead VCT 3 plc will consider the resolutions with respect to the merger at a general meeting to be held on 3 March 2016. The shareholders of Baronsmead VCT 4 plc will consider the resolutions with respect to the merger at general meetings to be held on 3 and 11 March 2016. If the merger is effective, Baronsmead VCT 3 plc will be renamed "Baronsmead Second Venture Trust plc". In order to avoid any confusion as to which share certificates remain valid following the merger and renaming of the Company, new share certificates in the new name of the Company will be issued to all shareholders of the enlarged Company.

As the Company was required to publish a prospectus with respect to the merger it was cost effective to carry out a fundraising at the same time. As a result, on 27 January 2016 the Company also launched a £10m fundraising to provide the Companies' existing shareholders with the opportunity to invest in new shares in the 2015/16 tax year ("the Offer").

There was strong demand for the Offer from the Company's and Baronsmead VCT 4 plc's existing shareholders and as a result the Offer became fully subscribed on 1 February 2016, subject to the merger completing. On behalf of both the Boards of Directors, I would like to thank all of those who took part in the Offer and also those who sought to subscribe but were unable to do so due to the Offer becoming fully subscribed so quickly.

Board of Directors

It has been agreed that if their respective shareholders approve the merger of the Company and Baronsmead VCT 4 plc, Robert Owen and Malcolm Groat, Chairman and a director respectively of Baronsmead VCT 4 plc, will join our Board and Gill Nott and Andrew Karney will retire from it.

As I may not have another opportunity to put in on record in print, I would therefore like to thank both Gill and Andrew for all the loyal and dedicated service they have given to the Company since it was launched. It has been a pleasure working with them both and on behalf of both shareholders and the Board I would like to thank them and wish them all the very best for the future.

Annual General Meeting

I look forward to meeting as many shareholders as possible at our Annual General Meeting to be held on 19 April 2016 at 10.00am at Saddlers Hall, 40 Gutter Lane, London, EC2V 6BR. This will be followed by presentations from the Manager and a shareholder workshop.

Outlook

The UK economy improved during 2015 although this may be affected by recent stock market volatility in the face of the downward growth trend in China, the fall in the oil price and deflation in Europe. However, the environment for young growing companies in this country remains positive while the sources of finance to assist them to achieve that growth remain limited. This is encouraging given the change in focus required by the new VCT rules described above and should be able to provide new and exciting investment opportunities for the Company.

In the meantime, shareholders should take a great deal of comfort from the fact that the Company has an established and diverse portfolio of investments that continue to perform well and should therefore deliver strong and consistent returns over the medium term while the newer portfolio is established.

Anthony Townsend

Chairman

23 February 2016

Manager's Review

The year has seen excellent performance from the both the unquoted and quoted portfolios. During the year, there was a total of approximately £6.4 million invested in 11 new additions (excluding 2 acquisition vehicles) to the portfolio as well as 5 follow-on investments in existing portfolio companies.

PORTFOLIO REVIEW

Overview

The net assets £79.2 million were invested as follows:

Each quarter the direction of general trading and profitability of all investee companies is assessed so that the Board can monitor the overall health and trajectory of the portfolio. At 31 December 2015, 83 per cent. of the 72 companies directly held in the portfolio (i.e. excluding the investments held by Wood Street Microcap) were progressing steadily or better.

The tables below show the breakdown of new investments and realisations over the course of the year and below is commentary on some of the key highlights in both the unquoted and quoted portfolios.

Unquoted Portfolio

The unquoted portfolio performance has been strong, growing by around 29 per cent. over the course of the year. This includes capitalised interest received on the sale of investments and loan note redemptions. The portfolio is valued by the Board using a consistent process every quarter. The majority of the value created by portfolio companies comes from trading and operational improvements (revenue and margin growth), rather than financial leverage.

Unquoted Investment Activity

During the year, £5.4 million was invested in 6 unquoted companies including 3 new additions to the portfolio and 2 acquisition vehicles. The unquoted companies added to the unquoted portfolio are:

· Mortgages Made Easy ("MME"). MME is one of the UK's leading providers of broking services for mortgages and related financial products to freelancing contractors (e.g. IT contractors and engineers).

· Centre4 Testing is a specialist provider of software testing services that helps its clients to manage the significant risks involved with software implementations, upgrades and integration. Centre4 Testing provides a range of services from full-service consultancy through to fast and flexible contractors using a database of over 10,000 professional UK-based testers. Centre4 Testing has supported over 250 clients across the UK.

· Cerillion provides Customer Relationship Management ("CRM") and billing software as an enterprise solution to telecoms companies globally with clients in 36 countries.

The remaining two new unquoted investments (Kalyke Investment and Yeo Bridge) are in companies preparing to conduct a trade in the business sector, and it is expected that they will begin to trade within the next two years.

Unquoted Divestment Activity

During the year there were four full realisations and three loan note redemptions which realised proceeds of approximately £8.1 million for Baronsmead VCT 3.

· Luxury For Less generated a return of 2.0 times its original cost after it was sold in March 2015 following a relatively short investment period of only 20 months. Luxury For Less is an online bathroom products retailer, supplying direct to consumers principally via its website www.bathempire.com.

· Nexus Vehicle Holdings has been a longer hold as we invested in 2008. Sales have grown five fold since then and a full realisation was achieved to a Private Equity buyer in December 2015 delivering an excellent return of 4.5x cost. This was the largest investment by cost in the Company's unquoted portfolio.

· Following a period of strong realisations over the last three years, there have been two less successful exits to report. Surgi C (spinal surgical implants) has been partially realised recovering 0.3x the original cost. Additionally, there was no recovery of the investment in Impetus Automotive Solutions, (a specialist consultant to the automotive industry) which was sold to a trade buyer.

While it is disappointing to have two poor realisations in one financial period, it is in the nature of private equity investment that some investments will fail to achieve their full potential. Our track record of realisations over many years remains strong.

Quoted Portfolio (AIM-traded investments)

This has been another strong year with an uplift in the quoted portfolio of 16 per cent. building on the very significant aggregate gains over the last three years (2014: 8 per cent.; 2013: 33 per cent.; 2012: 38 per cent.). The performance of the quoted portfolio is a reflection not just of market movements over this period but also the changes introduced by the Livingbridge Quoted Investment Team since 2009. As described in previous years a number of more significant holdings have now been built where the team has a closer, more influential relationship and can utilise some of the good practice from Private Equity experience and the results from this approach are continuing to come through.

Whilst it is expected that our work in the quoted arena will deliver future positive growth over the long term, the high annual growth rates achieved over the last four years have been helped by the fact we have emerged from a recession and should be considered as above average.

Quoted Investment Activity

The level of new quoted investment for Baronsmead VCT 3 of £2.9 million was made across 8 new and 4 follow on investments. Two of the larger investments were:

· A new investment of approximately £0.46 million in CentralNic Group which is a provider of internet domain name and registry services. As an example of its services it has global exclusive rights to commercially exploit the new top level domain .xyz recently endorsed by Google's Alphabet holding company which has the domain abc.xyz.

· A follow-on investment of £0.45 million in Ideagen, a provider of compliance document management services to the healthcare, marketing, complex manufacturing and other industries.

Quoted Divestment Activity

Proceeds from realisations during the year from the quoted portfolio totalled £3.8 million and delivered an aggregate return of 3.3x cost. Notably within this is the full realisation of Accumuli (4.4x cost), the full realisation of Cohort (1.7x cost), the full realisation of Jelf Group (2.8x cost) and the partial realisation of Anpario (4.3x cost).

Following several years of significant growth in the value of AIM-traded investments, the Livingbridge Quoted Team has recently pursued a deliberate policy of realising a higher than normal level of quoted investments to take advantage of strong pricing and improved liquidity and lock in the gains made on these investments.

Wood Street

Wood Street Microcap Investment Fund ("Wood Street") was established by Livingbridge in May 2009 to provide flexibility for the Baronsmead VCTs to invest in larger and more liquid non VCT qualifying AIM and Small Cap opportunities. It represents another innovation introduced by the Livingbridge Quoted Team to seek performance improvement. At 31 December 2015, Baronsmead VCT 3's cumulative £3.5 million investment was valued at £9.1 million, following a gain of a further 19 per cent. over the year (2014: 9 per cent.; 2013: 55 per cent.; 2012: 18 per cent.). As at 31 December 2015, Wood Street held investments in 39 AIM-traded and listed companies.

Liquid assets (cash and near cash)

Baronsmead VCT 3 had cash and near cash resources of approximately £15.8 million at the year-end. This asset class is conservatively managed to take minimal or no capital risk, a strategy outlined in prospectuses that have been issued in the past.

OUTLOOK

Livingbridge seeks to invest in businesses that have intrinsic growth potential and where value growth is not overly dependent on the economic cycle. Livingbridge also invests in its own capabilities in order to support the development of the companies we back. We have continued to invest in our own business during this report period, increasing the size and skills of the investment team so we can continue to enhance how we help investees.

We are pleased with the overall trading performance of the companies within both our unquoted and quoted portfolios and we believe there is a good foundation for continued value growth within the portfolio driven by future profit growth. We are always aware of the potential volatility within quoted markets and the last two years have seen a significant level of realisations to turn a material part of the value growth of the quoted portfolio into cash for shareholders.

As the Chairman's statement has covered, the VCT rule changes necessary to secure EU State Aid approval have led to us implementing some changes to our investment focus. We anticipate a greater proportion of our future portfolio will be slightly younger and earlier stage in their development but the focus remains on companies that are established, well managed, growing and profitable at the time of investment. This requires adaptation not reinvention by Livingbridge and we are confident of continuing to deliver consistent positive investment returns.

Livingbridge VC LLP

Investment Manager

23 February 2016

Investments in the year

* Technology, Media & Telecommunications ("TMT").

# During the year, the EG Solutions plc Loan note and capitalised interest was converted into Ordinary shares.

Realisations in the year

‡ Proceeds at time of realisation including redemption premium and interest.

* Includes interest/dividends received, loan note redemptions and partial realisations accounted for in prior periods.

† Proceeds of £12,000 were received in respect of Bglobal plc which had been written off in a prior period. Deferred consideration of £105,000 was received in respect of Playforce Holdings Ltd, £39,000 was received in respect of MLS Ltd and £88,000 in respect of CSC (World) Ltd, all of which had been sold in prior period.

Ten Largest Investments

1. IDOX plc- Berkshire

All funds managed by Livingbridge

First investment: May 2002

Total cost: £1,641,000

Total equity held: 4.98%

Baronsmead VCT 3 only

Cost: £614,000

Valuation: £3,266,000

Valuation basis: Bid Price

% of equity held: 1.83%

Year ended 31 October

(Source: IDOX PLC Annual Report & Accounts 31 October 2015)

2. Tasty plc- London

All funds managed by Livingbridge

First investment: September 2006

Total cost: £3,223,000

Total equity held: 14.45%

Baronsmead VCT 3 only

Cost: £594,000

Valuation: £2,559,000

Valuation basis: Bid Price

% of equity held: 2.53%

Year ended 28 December

(Source: Tasty Plc, Report and Financial Statements 28 December 2014)

3. Netcall plc - Hertfordshire

All funds managed by Livingbridge

First investment: July 2010

Total cost: £4,354,000

Total equity held: 17.83%

Baronsmead VCT 3 only

Cost: £869,000

Valuation: £2,501,000

Valuation basis: Bid Price

% of equity held: 3.58%

Year ended 30 June

(Source: Netcall plc, Annual Report and Accounts, 30 June 2015)

4. Crew Clothing Holdings Ltd- London

All funds managed by Livingbridge

First investment: November 2006

Total cost: £5,833,000

Total equity held: 28.10%

Baronsmead VCT 3 only

Cost: £1,453,000

Valuation: £2,242,000

Valuation basis: Earnings Multiple

% of equity held: 6.70%

Year ended 26 October

(Source: Crew Clothing Holdings Limited, Report and Financial Statements 26 October 2014)

5. Create Health Ltd- London 

All funds managed by Livingbridge

First investment: March 2013

Total cost: £4,253,000

Total equity held: 29.00%

Baronsmead VCT 3 only

Cost: £953,000

Valuation: £2,223,000

Valuation basis: Earnings Multiple

% of equity held: 5.74%

Year ended 31 March

(Source: Create Health Ltd Abbreviated Accounts 31 March 2015)

6. Kingsbridge Risk Solutions Ltd- Gloucestershire

All funds managed by Livingbridge

First investment: January 2014

Total cost: £4,470,000

Total equity held: 34.00%

Baronsmead VCT 3 only

Cost: £851,000

Valuation: £1,944,000

Valuation basis: Earnings Multiple

% of equity held: 5.72%

Year ended 31 January

(Source: Kingsbridge Risk Solutions Ltd, Abbreviated Accounts 31 January 2015)

# not disclosed

7. Happy Days Consultancy Ltd- Newquay 

All funds managed by Livingbridge

First investment: April 2012

Total cost: £7,617,000

Total equity held: 65.00%

Baronsmead VCT 3 only

Cost: £1,710,000

Valuation: £1,881,000

Valuation basis: Earnings Multiple

% of equity held: 12.87%

Year ended 31 December

(Source: H. Days Holdings Limited, Directors' Report and Financial Statements 31 December 2014)

8. Pho Holdings Ltd- London

All funds managed by Livingbridge

First investment: July 2012

Total cost: £4,415,000

Total equity held: 28.00%

Baronsmead VCT 3 only

Cost: £991,000

Valuation: £1,588,000

Valuation basis: Earnings Multiple

% of equity held: 5.54%

Year ended 1 March

(Source: Pho Holdings Ltd, Directors' Report and Financial Statements 1 March 2015)

* 53 week period ended 1 March 2015.

9. TLA Worldwide plc- London 

All funds managed by Livingbridge

First investment: November 2011

Total cost: £3,604,000

Total equity held: 12.51%

Baronsmead VCT 3 only

Cost: £733,000

Valuation: £1,563,000

Valuation basis: Bid Price

% of equity held: 2.54%

Year ended 31 December

(Source: TLA Worldwide Plc, Annual Report and Financial Statement Year End 31 December 2014)

Values have been converted from USD to GBP 2013 = 1.64880 // 2014 = 1.55320

10. CableCom II Networking Holdings Ltd- Somerset

All funds managed by Livingbridge

First investment: October 2013

Total cost: £5,000,000

Total equity held: 11.16%

Baronsmead VCT 3 only

Cost: £1,250,000

Valuation: £1,481,000

Valuation basis: Earnings Multiple

% of equity held: 2.46%

Year ended 31 October

(Source: CableCom Networking Limited, Report and Financial Statement Period End 31 October 2014)

* 13 month period ended 31 October 2014. The company changed its year end from 30 September to 31 October.

Principal Risks & Uncertainties

The Board has included below details of the principal risks and uncertainties facing the Company and the appropriate measures taken in order to mitigate these risks as far as practicable.

The financial risks faced by the Company are covered within the notes to the Financial Statements below.

Business Model

Other Matters

Applying the Business Model

This section of the Strategic Report sets out the practical steps that the Board has taken in order to apply the business model, achieve the investment objective and adhere to the investment policy. The investment policy, which is set out in full in the Annual Report and Accounts, is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue and Customs.

Investing in the right companies

Investments are primarily made in companies which are substantially based in the UK, although many of these

investees may have some trade overseas. Investments are selected in the expectation that the application of private equity disciplines, including an active management style for unquoted companies, will enhance value and enable profits to be realised from planned exits.

The Board has delegated the management of the investment portfolio to Livingbridge VC LLP ("Livingbridge" or the "Manager"). The Manager has adopted a 'top-down, sector-driven' approach to identifying and evaluating potential investment opportunities, by assessing a forward view of firstly the business environment, then the sector and finally the specific potential investment opportunity.

Based on its research, the Manager has selected a number of sectors that it believes will offer attractive growth prospects and investment opportunities. Diversification is also achieved by spreading investments across different asset classes and making investments for a variety of different periods.

The Manager's Review above provides a review of the investment portfolio and of market conditions during the year, including the main trends and factors likely to affect the future development, performance and position of the business.

The Company aims to be at least 90 per cent. invested, directly or indirectly, in VCT qualifying and non-qualifying growth businesses subject always to the quality of investment opportunities and the timing of realisations. It is intended that at least 75 per cent. of any funds raised by the Company will be invested in VCT qualifying investments. Non-VCT qualifying investments held in unquoted, AIM-traded and other quoted companies may be held directly or indirectly through collective investment vehicles.

Risk is spread by investing in a number of different businesses within different qualifying industry sectors using a mixture of securities. Generally no more than £2.5 million, at cost, is invested in the same company. The maximum the Company will invest in a single company (including a collective investment vehicle) is 15 per cent. of its investments by value of its investments calculated in accordance with Section 278 of the Income Tax Act 2007 (as amended) ("VCT Value"). The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of its suitability for sale.

The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stocks, convertible securities and interest bearing securities as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks, while AIM-traded investments are primarily held in ordinary shares. Pending investment in VCT qualifying and non-VCT qualifying unquoted, AIM-traded and other quoted securities (which may be held directly or indirectly through collective investment vehicles), cash is primarily held in interest bearing accounts, money market open ended investment companies ("OEICs"), UK gilts and treasury bills. VCTs are required to comply with a number of different regulations and the Company has appointed Philip Hare & Associates LLP as its VCT Tax Status Advisers to advise it on compliance with VCT requirements. Philip Hare & Associates reviews new investment opportunities, as appropriate, and reviews regularly the investment portfolio of the Company. Philip Hare & Associates works closely with the Manager but reports directly to the Board.

Environmental, Human Rights, Employee, Social and Community Issues

The Company seeks to conduct its affairs responsibly and the Manager is encouraged to consider environmental, human rights, social and community issues, where appropriate, with regard to investment decisions.

The Company is required, by company law, to provide details of environmental (including the impact of the Company's business on the environment), employee, human rights, social and community issues; including information about any policies it has in relation to these matters and the effectiveness of these policies. The Company does not have any employees and as a result does not maintain specific policies in relation to these matters.

Livingbridge as Investment Manager has an Environmental, Social and Governance ("ESG") policy. As a responsible investor, Livingbridge fully incorporates ESG factors into its investment programme. The ESG policy focuses on environmental, social and corporate governance factors, including risks and opportunities, affecting both the Company and/or specific portfolio companies.

Livingbridge undertakes an in-house risk assessment questionnaire pre-investment to highlight any significant or material ESG issues. Should any such issues be identified, these are then addressed via specific due diligence pre-investment.

Upon completion of an investment the completed in-house questionnaires are assessed by an external consultant to corroborate risks identified, advise the company how to address any ESG issues and also to identify any potential upside opportunities e.g. energy savings. Relevant ESG matters are then included in the portfolio company board meetings as appropriate and also in the standard Livingbridge portfolio progress reports allowing Livingbridge to assess the impact of any interventions or recommendations.

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013, including those within its underlying investment portfolio.

Gender Diversity

The Board of Directors of the Company comprises one female and three male Directors. The Manager has an equal opportunity policy and currently employs 40 men and 29 women.

Appointment of the right investment manager

The Board expects the Manager to deliver a performance which meets the objective of achieving long-term investment returns, including tax free dividends. A review of the Company's performance during the financial year, the position of the Company at the year end and the outlook for the coming year is contained within the Chairman's Statement above. The Board assesses the performance of the Manager in meeting the Company's objective against the Key Performance Indicators ("KPIs").

The investment management agreement

Under the management agreement, the Manager receives a fee of 2.5 per cent. per annum of the net assets of the Company. In addition, the Manager receives an annual secretarial and accounting fee which was fixed at £33,816 in 2006 and is subject to annual review (linked to the movement in the UK Retail Price Index ("RPI")), plus a variable fee of 0.125 per cent. of the net assets of the Company which exceed £5 million.

Annual running costs are capped at 3.5 per cent. of the net assets of the Company (excluding any performance fee payable to the Manager and irrecoverable VAT), any excess being refunded by the Manager by way of an adjustment to its management fee. The running cost as at 31 December 2015 was 3.0 per cent.

The management agreement may be terminated at any date by either party giving twelve months' notice of termination and if terminated, the Manager is only entitled to the management fees paid to it and any interest due on unpaid fees.

Performance fees

A performance fee is payable to the Manager when the total return on net proceeds of the ordinary shares exceeds 8 per cent. per annum (simple). To the extent that the total return exceeds the threshold over the relevant period then a performance fee of 10 per cent. of the excess will be paid to the Manager. The amount of any performance fee which is paid in an accounting period is capped at 5 per cent. of net assets.

No performance fee was payable for the year ended 31 December 2015 (2014: £nil).

Management retention

The Board is keen to ensure that the Manager continues to have one of the best investment teams in the VCT and private equity sector. A co-investment scheme was introduced in November 2004 under which members of the Manager's investment team invest their own money into a proportion of the ordinary shares of each unquoted investment made by the Baronsmead VCTs. The Board regularly monitors the co-investment scheme arrangements but considers the scheme to be essential in order to attract, retain and incentivise the best talent. The scheme is in line with current market practice in the private equity industry and the Board believes that it aligns the interests of the Manager with those of the Baronsmead VCTs.

Executives have to invest their own capital in every unquoted transaction and cannot decide selectively which investments to participate in. In addition the co-investment only delivers a return after each VCT has realised a priority return built into the structure. The shares held by the members of the co-investment scheme in any portfolio company can only be sold at the same time as the investment held by the Baronsmead VCTs is sold. Any prior ranking financial instruments, such as loan stock, held by the Baronsmead VCTs have to be repaid in full together with the agreed priority annual return before any gain accrues to the ordinary shares. This ensures that the Baronsmead VCTs achieve a good priority return before profits accrue to the co-investment scheme.

The executives participating in the co-investment scheme subscribe jointly for a proportion (currently 12 per cent.) of the ordinary shares available to the Baronsmead VCTs in each unquoted investment. The level of participation was increased from 5 per cent. in 2007 when the Manager's performance fee was reduced from 20 per cent. to its current level of 10 per cent.

Since the formation of the scheme in 2004, 58 executives have invested a total of £895,000 in 47 companies. At 31 December 2015, 25 of these investments have been realised generating proceeds of £241m for the Baronsmead VCTs and £12.3m for the co-investment scheme. For Baronsmead VCT 3 the average money multiple on these 25 realisations was 2.2 times cost. Had the co-investment shares been held instead by the Baronsmead VCTs, the extra return to shareholders would have been 4.1p a share (based on the current number of shares in issue). The Board considers this small cost to retain quality people to be in the best interests of shareholders.

Advisory fees

During the year to 31 December 2015, the Manager received income of £57,000 (2014: £167,000) in connection with advisory fees and incurred abort fees of £10,000 (2014: £13,000), with respect to investments attributable to Baronsmead VCT 3.

Directors' fees of £207,000 (2014: £200,000) were received by the Manager in relation to services provided to companies in the investment portfolio, during the year, with respect to investments attributable to Baronsmead VCT 3.

Alternative Investment Fund Manager's Directive ("AIFMD")

The AIFMD regulates the management of alternative investment funds, including VCTs. On 22 July 2014 the

Company was registered as a Small UK registered Alternative Investment Fund Manager under the AIFMD.

Viability Statement

In accordance with principle 21 of the AIC Code of Corporate Governance published by the AIC in February 2015, the Directors have assessed the prospects of the Company over the three year period to 31 December 2018. This period is used by the board during the strategic planning process and is considered reasonable for a business of our nature and size.

In making this statement the Board carried out a robust assessment of the principal risks facing the Company,

including those that might threaten its business model, future performance, solvency, or liquidity.

The Board also considered the ability of the Company to raise finance and deploy capital. Their assessment took account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact of the underlying risks.

This review has considered the principal risks which were identified by the Manager. The Board concentrated its efforts on the major factors which affect the economic, regulatory and political environment. The Board also paid particular attention to the importance of its close working relationship with the Manager, Livingbridge. 

The Directors have also considered the Company's income and expenditure projections and find these to be realistic and sensible.

As part of this process the Directors have also considered the viability of the merged company if the takeover of

Baronsmead VCT 4 plc proceeds. In view of the fact the merged entity will be much larger than the original firm they feel that this increased size will help to mitigate some of the business risks mentioned above.

Based on the Company's processes for monitoring costs, share price discount, the Manager's compliance with the investment objective, policies and business model, asset allocation and the portfolio risk profile, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 December 2018.

Returns to Investors

Dividend policy

The Board of Baronsmead VCT 3 has the objective to maintain a minimum annual dividend level of around 4.5p per ordinary share if possible, but this depends primarily on the level of realisations achieved and cannot be guaranteed.

Since 2007, the average annual tax free dividend paid to shareholders has been 8.6p per ordinary share (equivalent to a pre-tax return of 11.4p per ordinary share for a higher rate taxpayer). For shareholders who received up front tax reliefs of 20 per cent, 30 per cent. or 40 per cent, their returns would have been even higher.

Shareholder choice

The Board wishes to provide shareholders with a number of choices that enable them to utilise their investment in Baronsmead VCT 3 in ways that best suit their personal investment and tax planning and in a way that treats all shareholders equally.

· Fund raising | From time to time the Company seeks to raise additional funds by issuing new shares at a premium to the latest published net asset value to account for costs.

· Dividend Reinvestment Plan | The Company offers a Dividend Reinvestment Plan which enables shareholders to purchase additional shares through the market in lieu of cash dividends. Approximately 711,000 shares were bought in this way during the year to 31 December 2015.

· Buy back of shares | From time to time the Company buys its own shares through the market in accordance with its share price discount policy. Subject to certain conditions, the Company seeks to maintain a mid-share price discount of approximately 5 per cent. to net asset value.

· Secondary market | The Company's shares are listed on the London Stock Exchange and can be bought using a stockbroker or authorised share dealing service in the same way as shares of any other listed company. Approximately 382,000 shares were bought by investors in the Company's existing shares in the year to 31 December 2015.

On behalf of the Board

Anthony Townsend

Chairman

23 February 2016

Extract of the Directors Report

Shares and Shareholders

Share capital

During the year the Company bought back a total of 1,065,000 ordinary shares to be held in Treasury, representing 1.26 per cent. of the issued share capital as at 31 December 2015, with an aggregate nominal value of £106,500. The total amount paid for these shares was £1,046,925. The Company's remaining authority to buy back shares from the 2015 Annual General Meeting ("AGM") is 8,833,302.

Prior to the sales from Treasury described below, the number of shares held in Treasury was 10,374,214 which was the maximum held during the year. On 16 September 2015, the Company sold 140,000 ordinary shares from Treasury at a price of 100.0p per share.

As at the date of this report the Company's issued share capital was as follows:

Shares will not be sold out of Treasury at a discount wider than the discount at which the shares were initially bought back by the Company.

Shareholders

Each 10p ordinary share entitles the holder to attend and vote at general meetings of the Company, to participate in the profits of the Company, to receive a copy of the Annual Report & Accounts and to a final distribution upon the winding up of the Company.

There are no restrictions on voting rights, no securities carry special rights and the Company is not aware of any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights. There are no agreements to which the Company is party that may affect its control following a takeover bid.

In addition to the powers provided to the Directors under UK company law and the Company's Articles of Association, at each AGM the shareholders are asked to authorise certain powers in relation to the issuing and purchasing of the Company's own shares. Details of the powers granted at the 2015 AGM, all of which remain valid, can be found in the previous Notice of AGM.

The Board is not, and has not been throughout the year, aware of any beneficial interests exceeding 3 per cent. of the total voting rights.

Dividends

The Company paid the following dividends for the year ended 31 December 2015:

Annual General Meeting

The notice of the AGM of the Company to be held at 10.00am on 19 April 2016 at Saddlers Hall, 40 Gutter Lane, London, EC2V 6BR will be sent to shareholders and will be available on the Company's website.

Directors

Responsibility for Accounts and Going Concern

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditor is unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

After making enquires, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the Company and its ability to meet obligations as they fall due for a period of at least twelve months from the date that these financial statements were approved. As at 31 December 2015, the Company held cash balances and investments in UK Treasury Bills with a combined value of £15,802,000. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buyback programme and dividend policy. The Company has no external loan finance in place and therefore is not exposed to any gearing or covenants.

The Directors have chosen to include their report on global greenhouse emissions in the Strategic Report under the section on environmental, human rights, employee, social and community issues.

By Order of the Board

Livingbridge VC LLP

Secretary

100 Wood Street London EC2V 7AN

23 February 2016

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

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 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 and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

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

Responsibility Statement of the Directors in respect of the annual financial report

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

· the Annual Report includes a fair review of the development and performance of the business and the

position of the issuer together with a description of the principal risks and uncertainties that they face; and

· the report and accounts, taken as a whole, are fair, balanced, and understandable and provide the necessary information for shareholders to assess the Company's performance, business model and strategy.

On behalf of the Board

Anthony Townsend

Chairman

23 February 2016

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 December 2014 and 2015 but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar of Companies, and those for 2015 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts at www.baronsmeadvct3.co.uk 

Income Statement

For the year ended 31 December 2015

All items in the above statement derive from continuing operations.

There are no recognised gains and losses other than those disclosed in the Income Statement.

The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the realised and unrealised profit or loss on investments and the proportion of the management fee charged to capital.

The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS"). The supplementary revenue return 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").

Statement of Changes in Equity

For the year ended 31 December 2015

For the year ended 31 December 2014

Balance Sheet

As at 31 December 2015

The financial statements were approved by the Board of Directors on 23 February 2016 and were signed on its behalf by:

Anthony Townsend

Chairman

Statement of Cash Flows

For the year ended 31 December 2015

Notes to the Financial Statements

We have grouped notes into sections under three key categories:

1. Basis of preparation

2. Investments, performance and shareholder returns

3. Other required disclosures

The key accounting policies have been incorporated throughout the Notes to the Financial Statements adjacent to the disclosure to which they relate.

1. Basis of Preparation

1.1 Basis of accounting

These Financial Statements have been prepared 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") in November 2014 and on the assumptions that the Company maintains VCT status. The adoption of FRS 102 for this financial year was recommended by the Audit Committee as detailed in the Corporate Governance section of the Directors' Report in the full Annual report. There are no significant changes to the Company's accounting policies as a result of the adoption of FRS 102, which became mandatory for companies with a financial year beginning from 1 January 2015.

The Financial Statements have been prepared on a going concern basis.

2. Investments, Performance and Shareholder Returns

2.1 NAV per share

The treasury NAV per share as at 31 December 2015 has been calculated by assuming that all shares hld in treasury were sold to the market at the mid-share price of 101.00p at 31 December 2015 (2014: 95.00p).

2.2 Return per share

2.3 Investments

Purchases or sales of investments are recognised at the date of transaction.

Investments are measured at fair value. For AIM-traded securities this is either bid price or the last trade price, depending on the convention of the exchange on which the investment is traded.

In respect of unquoted investments, these are valued at fair value by the Directors using methodology which is consistent with the International Private Equity and Venture Capital Valuation guidelines ("IPEV"). This means investments are valued using an earnings multiple, which has a discount or premium applied which adjusts for points of difference to appropriate stock market or comparable transaction multiples. Alternative methods of valuation will include application of an arm's length third party valuation, a provision on cost or a NAV basis.

Gains and losses arising from changes in the fair value of the investments are included in the Income Statement for the year as a capital item. Transaction costs on acquisition are included within the initial recognition and the profit or loss on disposal is calculated net of transaction costs on disposal.

All investments are initially recognised and subsequently measured at fair value. Changes in fair value are recognised in the Income Statement. The details of which are set out above.

The methods of fair value measurement are classified into a hierarchy based on reliability of the information used to determine the valuation.

• Level a - Fair value is measured based on quoted prices in an active market.

• Level b - Fair value is measured based on directly observable current market prices or indirectly being derived from market prices.

• Level c - i) Fair value is measured using a valuation technique that is based on data from an observable market or;

ii) Fair value is measured using a valuation technique that is not based on data from an observable market.

The gains and losses included in the above table have all been recognised in the Income Statement above.

For Level c (ii) unquoted investments, the effect on fair value of changing one or more assumptions to reasonably possible alternatives has been considered. The portfolio has been reviewed and both downside and upside reasonable possible alternatives have been identified and applied to the valuation of each of the investments. The inputs flexed in determining the reasonably possible alternative assumptions include the earnings stream and marketability discount.

Applying the downside alternatives the value of the unquoted investments would be £1.7 million or 6.4 per cent. lower. Using the upside alternatives the value of the unquoted investments would be increased by £1.9 million or 7.0 per cent.

2.4 Dividends

2.5 Income

Interest income on loan notes and dividends on preference shares are accrued on a daily basis. Provision is made against this income where recovery is doubtful.

Where the terms of unquoted loan notes only require interest or a redemption premium to be paid on redemption, the interest and the redemption premium is recognised as income once redemption is reasonably certain. Until such date interest is accrued daily and included within the valuation of the investment. When a redemption premium is designed to protect the value of the instrument holder's investment rather than reflect a commercial rate of revenue return the redemption premium should be recognised as capital. The treatment of redemption premiums is analysed to consider if they are revenue or capital in nature on a company by company basis. No redemption premiums have been received in the year ended 31 December 2015.

Income from fixed interest securities and deposit interest is included on an effective interest rate basis.

Dividends on quoted shares are recognised as income when the related investments are marked ex-dividend and where no dividend date is quoted, when the Company's right to receive payment is established.

† All investments have been designated at fair value through profit or loss on initial recognition, therefore all investment income arises on investments at fair value through profit or loss.

‡ Other income on financial assets not designated fair value through profit or loss.

2.6 Investment management fee and other expenses

All expenses are recorded on an accruals basis.

Management fees are allocated 25 per cent. income: 75 per cent. capital derived in accordance with the board's expected split between long term income and capital returns. Performance fees are allocated 100 per cent. to capital.

The management agreement may be terminated by either party giving twelve months notice of termination.

The Manager, Livingbridge VC LLP, receives a fee of 2.5 per cent. per annum of the net assets of the Company, calculated and payable on a quarterly basis.

The Manager is entitled to a performance fee when the total return on net proceeds of the ordinary shares exceeds 8 per cent. per annum (on a simple basis). The Manager is entitled to 10 per cent. of the excess. The amount of any performance fee which is paid in respect of a calculation period shall be capped at 5 per cent. of the shareholders' funds at the end of the calculation period. No performance fee is payable for the year ended 31 December 2015 (2014: £nil).

Other expenses

Information on directors' remuneration is given in the directors' remuneration table in the full Annual Report and Accounts.

Charges for other services provided by the auditors in the year ended 31 December 2015 were in relation to tax compliance work (including iXBRL). The Audit Committee reviews the nature and extent of non-audit services to ensure that independence is maintained. The Directors consider that the auditors were best placed to provide such services.

2.7 Debtors

2.8 Creditors (amounts falling due within one year)

2.9 Tax

UK corporation tax payable is provided on taxable profits at the current rate.

Provision is made for deferred taxation on all timing differences calculated at the current rate of tax relevant to the benefit or liability.

The tax charge for the year is lower than the standard rate of corporation tax in the UK for a company. The differences are explained below:

At 31 December 2015 the Company had surplus management expenses of £4,005,000 (2014: £2,182,000) which have not been recognised as a deferred tax asset. This is because the Company is not expected to generate taxable income in a future year in excess of the deductible expenses of that future year and, accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus expenses. Due to the Company's status as a VCT, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

3. Other Required Disclosures

3.1 Called-up share capital

Allotted, called-up and fully paid:

* Carrying one vote each.

During the year the Company bought back into treasury 1,065,000 ordinary shares and sold from treasury 140,000 ordinary shares, representing 1.1 per cent. of the ordinary shares in issue at the beginning of the financial year.

There were no changes in share capital between the year end and when the financial statements were approved.

Treasury shares

When the Company re-acquires its own shares, they are held as treasury shares and not cancelled.

Shareholders have authorised the Board to sell treasury shares at a discount to the prevailing NAV subject to the following conditions:

· It is in the best interests of the Company;

· Demand for the Company's shares exceeds the shares available in the market;

· A full prospectus must be produced if required; and

· HMRC will not consider these 'new shares' for the purposes of the purchasers' entitlement to initial income tax relief.

3.2 Reserves

Gains and losses on realisation of investments of a capital nature are dealt with in the capital reserve. Purchases of the Company's own shares to be either held in treasury or cancelled are also funded from this reserve. 75 per cent. of management fees are allocated to the capital reserve in accordance with the board's expected split between long term income and capital returns.

* Changes in fair value of investments are dealt with in this reserve.

# The total of these items is £9,067,000 which agrees to the total profit on ordinary activities.

Share premium is recognised net of issue costs.

The Company does not have any externally imposed capital requirements.

On 18 December 2013 the court granted orders allowing the Company to cancel its share premium account and capital redemption reserve. The amounts of £22,866,000 (share premium) and £10,862,000 (capital redemption reserve) less costs paid became distributable during 2015.

3.3 Financial instruments risks

The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy to invest in a diverse portfolio of UK growth businesses.

The Company's investing activities expose it to a range of financial risks. These key risks and the associated risk management policies to mitigate these risks are described below.

Market risk

Market risk includes price risk on investments and interest rate risk on investments and other financial assets and liabilities.

Price Risk

The investment portfolio is managed in accordance with the policies and procedures described in the Strategic Report.

Investments in unquoted stocks and AIM-traded companies involve a higher degree of risk than investments in the main market. The Company aims to reduce this risk by diversifying the portfolio across business sectors and asset classes.

Management performs continuing analysis on the fair value of investments and the Company's overall market positions are monitored by the board on a quarterly basis.

Valuation methodology includes the application of earnings multiples derived from either listed companies with similar characteristics or recent comparable transactions. Therefore the value of the unquoted element of the portfolio may also indirectly be affected by price movements on the listed exchanges.

Interest rate risk

The Company has the following investments in fixed and floating rate financial assets:

# Due to the complexity of the instruments and uncertainty surrounding timing of realisation the weighted average time for which the rate is fixed has not been calculated.

Credit risk

Credit risk refers to the risk that counterparty will default on its obligation resulting to a financial loss to the Company. The Investment Manager monitors credit risk on an ongoing basis.

At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:

Credit risk arising on fixed interest instruments is mitigated by investing in UK Treasury Bills.

Credit risk on unquoted loan stock held within unlisted investments is considered to be part of market risk as disclosed earlier in the note.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk.

All the assets of the Company which are traded on a recognised exchange are held by JP Morgan Chase ("JPM"), the Company's Custodian. The board monitors the Company's risk by reviewing the Custodian's internal controls reports as described in the Corporate Governance section of the full Annual Report.

The cash held by the Company is held by JPM and Lloyds Bank. The board monitors the Company's risk by reviewing regularly the internal control reports of these banks. Should the credit quality or the financial position of either bank deteriorate significantly the Investment Manager will seek to move the cash holdings to another bank.

There were no significant concentrations of credit risk to counterparties at 31 December 2015 or 31 December 2014. No individual investment in a portfolio company exceeded 4.1 per cent. of the net assets attributable to the Company's shareholders at 31 December 2015 (2014: 4.3 per cent.).

Liquidity risk

The Company's financial instruments include investments in unquoted companies which are not traded in an organised public market, as well as AIM-traded equity investments, all of which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.

The Company's liquidity risk is managed on an ongoing basis by the Investment Manager. The Company's overall liquidity risks are monitored on a quarterly basis by the Board.

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. At 31 December 2015 these investments were valued at £15,802,000 (2014: £19,817,000).

3.4 Related parties

Related party transactions include Management, Secretarial, Accounting and Performance fees payable to the Manager, Livingbridge VC LLP, as disclosed in notes 2.6 and 2.8, and fees paid to the Directors as disclosed in note 2.6. In addition, the Manager operates a Co-investment Scheme, detailed in the Management retention section of the Strategic Report, whereby employees of the Manager are entitled to participate in all unquoted investments alongside the Company.

During the year to 31 December 2015, the Manager received income of £57,000 (2014: £167,000) in connection with advisory fees and incurred abort fees of £10,000 (2014: £13,000), with respect to investments attributable to Baronsmead VCT 3.

Directors' fees of £207,000 (2014: £200,000) were received by the Manager in relation to services provided to companies in the investment portfolio, during the year, with respect to investments attributable to Baronsmead VCT 3.

3.5 Segmental reporting

The Company has one reportable segment being investing in primarily a portfolio of UK growth businesses, whether unquoted or traded on AIM.

3.6 Post balance sheet event

Proposed merger between Baronsmead VCT 3 plc and Baronsmead VCT 4 plc and closed Offer for subscription

On 10 December 2015 the boards of directors of the Company and Baronsmead VCT 4 plc announced that they had entered into discussions regarding a possible merger. Subsequently, on 27 January 2016 the boards of directors of the Company and Baronsmead VCT 4 plc published their recommended proposals (the "Proposals") for the reconstruction and voluntary winding up of Baronsmead VCT 4 plc in connection with the merger with the Company (the "Scheme") under section 110 of the Insolvency Act 1986, subject to shareholders' approvals.

The shareholders of the Company will consider the resolutions with respect to the Proposals at a general meeting to be held on 3 March 2016. The shareholders of Baronsmead VCT 4 plc will consider the resolutions with respect to the Proposals at general meetings to be held on 3 and 11 March 2016. If the merger becomes effective, Baronsmead VCT 3 plc acquire the assets and liabilities of Baronsmead VCT 4 plc in consideration of new shares to be issued to the former shareholders of Baronsmead VCT 4 plc and the Company will be renamed "Baronsmead Second Venture Trust plc".

As the Company issued a prospectus with respect the Proposals is was cost effective to launch an offer for subscription to raise up to £10m, conditional on the Scheme becoming effective, to provide the existing shareholders of the Company as well as the shareholders of Baronsmead VCT 4 plc with the opportunity to invest in new shares in the 2015/16 tax year ("the Offer"). The Offer became fully subscribed on 1 February 2016 and the Company expects to issue new shares with respect to amounts subscribed under the Company's Offer on 11 March 2016, subject to the Scheme becoming effective.

Realisation of Independent Community Care Management ("ICCM")

The Company's investment in ICCM Limited was sold to a trade buyer on 3 February 2016. The final proceeds received were approximately £183,000 less than the 31 December 2015 valuation. The lower valuation was the result of working capital adjustments agreed prior to completion and further negative trading news during January 2016.

National Storage Mechanism

A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: http://www.morningstar.co.uk/uk/NSM

END

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.