Baronsmead 2vt Regulatory News (BMD)

Baronsmead VCT 3 plc

Annual Financial Report for the year ended 31 December 2012

The Directors present the Annual Financial Report of the Company for the yearended 31 December 2012. The full Annual Report and Accounts will shortly beavailable via the Company's website at www.baronsmeadvct3.co.uk.

Investment Objective

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

Investment policy

● To invest primarily in a diverse portfolio of UK growth businesses, whetherunquoted or traded on AIM.

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

Full details of the Company's published investment policy and risk managementare contained in the Report of the Directors in the Annual Report & Accounts.

Dividend policyThe Board of Baronsmead VCT 3 has the objective to maintain a minimum annualdividend level of around 4.5p per ordinary share if possible, but this dependsprimarily on the level of realisations achieved and cannot be guaranteed. Therewill be variations in the amount of dividends paid year on year. Since launch,the average annual tax-free dividend paid to shareholders (including theproposed final dividend of 4.5p) has been 5.9p per ordinary share (equivalentto a pre-tax return of 7.9p per ordinary share for a higher rate taxpayer). Forshareholders who received up front tax reliefs, their returns would have beenhigher.Shareholder choice

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

● Fund raising - From time to time the Company seeks to raise additional fundsby issuing new shares at a premium to the latest published net asset value toaccount for issue costs. In December 2012, the Company's offer for subscriptionraised £5.0 million (£4.7 million net).● Dividend Reinvestment Plan - The Company offers a Dividend Reinvestment Planwhich enables shareholders to purchase additional shares through the market inlieu of cash dividends. Approximately 260,000 shares were bought in this wayduring the year to 31 December 2012.● Buy back of shares - From time to time the Company buys its own sharesthrough the market in accordance with its share price discount policy. TheBoard has undertaken a review of this policy and will seek to maintain a midshare price discount of approximately 5 per cent. to net asset value. Thisconstitutes a revision to the Company's previous policy of buying back sharesthrough the market at an approximate 10 per cent. discount to the latestpublished net asset value. Further details are provided in the Chairman'sStatement. In the year to 31 December 2012, 1,306,897 shares were bought backrepresenting 2 per cent. of the shares in issue at 31 December 2012 at anaverage price which represented a 9 per cent. discount to the latest publishednet asset value.● Secondary market - The Company's shares are listed on the London StockExchange and can be bought using a stockbroker or authorised share dealingservice in the same way as shares of any other listed company. Approximately305,000 shares were bought by investors in the Company's existing shares intheyear to 31 December 2012.Financial Headlines+14.4% - Net asset value ("NAV") per share increased 14.4 per cent. to 114.6pin the twelve months ended 31 December 2012, before deduction of the interimdividend.

7.5p - Dividends totalled 7.5p for the year to 31 December 2012, including theproposed final dividend of 4.5p.

7.1% - Net annual dividend yield of 7.1 per cent. and gross annual yield of 9.5per cent.

217.4p - NAV total return to shareholders for every 100.0p invested at launch.

Chairman's StatementIn the year to 31 December 2012 the Net Asset Value ("NAV") before payment ofdividends grew by 14.5p per share representing an increase of 14.4 per cent. Afinal dividend of 4.5p per share is proposed resulting in total dividends of7.5p per share for the year which will be paid predominantly out of profitsgenerated from successful portfolio realisations in recent years.

INVESTMENT PERFORMANCE

The change in NAV per share over the year is summarised in the table below:

Pence per ordinary shareNAV as at 1 January 2012 100.16Valuation uplift (14.44 per cent.) 14.46 114.62Interim dividend paid on 21 September 2012 (3.0)

Proposed final dividend of 4.5p, payable after (4.5)shareholder

approval, on 15 April 2013

NAV as at 31 December 2012 assuming final dividend 107.12paid

We are pleased with the consistent performance of the portfolio despite thepoor economic environment since 2008. For instance, over the past three yearsthe Company's top ten investments as at 31 December 2012, representing 52 percent. of the portfolio by value, have generated an average annual growth of 17per cent. in sales and 15 per cent. in profits. The number of jobs created bythese portfolio companies has been significant with the top ten investments nowemploying some 2,500 people, an increase of 22 per cent. over the last year.This helps to validate the wider aims of the VCT legislation which are toassist in generating growth in the UK economy. Overall, our portfolio of 67companies remains in good health with 85 per cent. demonstrating steady tostrong growth.This strong performance has resulted in a steady flow of successfulrealisations which has enabled the Company to maintain a consistent annualdividend of 7.5p since 2007, which is tax free for qualifying shareholders.This dividend equates to an annual tax free dividend yield of 7.1 per cent. onthe mid share price of 105.4 p at 31 December 2012. Over the year, thevaluations of the unquoted and AIM portfolios increased by 8 and 38 per cent.respectively. The largest gains came from the AIM investments in IDOX andIndependent Living Services Limited, which increased in value by £3.12 millionand £2.03 million respectively as a result of significantly better tradingresults.

LONG TERM PERFORMANCE AND BENEFIT OF THE VCT TAX RELIEFS

The Company's policy of investing in a diverse portfolio of established andprofitable companies capable of strong growth aims to generate consistentreturns over the long term.

The NAV total return over the past ten years has been 206.3p for each 100pinvested by Baronsmead VCT 3 compared with the sector average of 172.9p for VCTgeneralists over the same period (source AIC). Assuming the final dividend isapproved, founder shareholders will have received dividends totalling 70.8p pershare compared to the initial net cost of 80.0p per share, after taking accountof the maximum initial VCT income tax relief of 20 per cent. of amountsinvested in new VCT shares that was available to qualifying investors in 2001.These dividends are tax free for qualifying investors.

SHAREHOLDER CHOICE

The Company raised gross proceeds of £4.1 million (£3.9 million net) inFebruary 2012 by way of a top up share offer. A further offer for subscriptionby way of a prospectus launched in November 2012 raised its target of £5.0million (£4.7 million net) proceeds by 21 December 2012. In deciding how muchto raise during 2012 the Directors considered the level of cash that will berequired by the Company for investment over the next few years as well as theneed to maintain sufficient liquidity to pay dividends and cover annual runningcosts.Since inception the Board has, as a service to shareholders, maintained a buyback policy of acquiring shares through the market at a discount to NAV ofapproximately 10 per cent. Each year the level of shares bought back by theCompany is relatively low. (For instance in the past three financial years theCompany has bought back an annual average of 2 per cent. of the shares in issueat the financial year end). In addition, the results of the shareholder surveycarried out in October 2012 confirmed that a significant majority of ourshareholders intend to hold their shares for the long term. As a result, inNovember 2012 the Directors decided that in order to enable those shareholderswho do wish to sell their shares to achieve a return closer to net asset valuethey would in future seek to buy back shares at a 5 per cent. discount to NAV.This should also improve the price of the Company's shares for ongoingshareholders and increase their attractiveness.This discount control policy will be kept under review based on the number ofshares bought back over the next 12 months and may therefore be subject torevision. The buying back of shares will depend on market conditions at thetime and will only happen when the Directors believe any such purchase would bein the best interests of shareholders as a whole.

OUTLOOK

As anticipated in my half-yearly report the continued scarcity of bank debt inthe UK and concerns regarding the stability of the European Union have resultedin both uncertain and slower growth for the UK economy.Against this unpromising backdrop there has been steady progress across many ofour portfolio companies as witnessed by the `top ten' investees showingincreases in turnover and profits. The relatively low levels of debt in thecompanies concerned should ensure that our investments are more resilient iftrading conditions continue to be difficult.We therefore view the next year with a mixture of caution and optimism as wecontinue to believe that good quality companies of the size in which we investcan prosper even in the current tough environment. We are fortunate that theinvestment manager ISIS has a strong track record of partnering with suchcompanies and has the experience and knowledge to support them along a growthpath.ANNUAL GENERAL MEETINGI look forward to seeing as many shareholders as possible at our 12th AnnualGeneral Meeting which will be held this year on Wednesday 10 April 2013 at thePlaisterers' Hall, One London Wall, EC2Y 5JU at 10:30am. The AGM will befollowed by presentations from the Manager and one of our investee companies.Following these presentations we would be delighted if you could join us for alight lunch.Anthony TownsendChairman15 February 2013Manager's Review

Considering the ongoing uncertainty during the period under review in thenational and European economies, the progress made by the Company's investeesis creditable. Overall, the portfolio has performed very well including anumber of significant gains by a number of quoted shareholdings.

PORTFOLIO REVIEW

Overview

The net assets of £75 million were invested as follows:

Asset class NAV % of Number of Annual NAV investees return %Unquoted 37,084,000 50 25 8Quoted 22,641,000 30 42 38Wood Street Mircocap 4,525,000 6 33 18Cash and near cash 10,312,000 14

During the year in total there were;

● New investments of £7.2 million in six new companies and eight follow ons;

● Divestments of £3.0 million from nine investments and a partial loan noterealisation.

Each quarter the direction of general trading and profitability of all investeecompanies is recorded so that the Board can monitor the overall health andtrajectory of the portfolio. At 31 December 2012, 85 per cent. of the 67companies in the portfolio were progressing steadily or better.

Unquoted Private Equity

The unquoted portfolio has again performed well and there has been a steadyincrease in unquoted values of 8 per cent. The unquoted portion of theportfolio is valued using a consistent process every three months which theBoard oversees and approves. Almost all of the value creation in unquotedinvestments has come from operational improvements (revenue and margin growth),rather than financial leverage.

The sale of TVC to the Economist Group realised £1.3 million in March 2012.

Quoted (AIM traded and other listed investments)

There has also been a significant uplift in the quoted portfolio of 38 percent. partially reflecting a positive re-rating of the small cap sector in thefirst quarter of 2012. This recovery has been helpful to the quoted portfoliofollowing several years of headwinds from a challenging AIM market environmentand weak share prices.The largest contributor to the uplift in the quoted portfolio was IDOX, asupplier of document management software to the UK local government, and globalengineering sectors. The IDOX share price appreciated by 125 per cent. duringthe period aided by a combination of good organic growth and accretiveacquisitions which led to successive earnings forecast upgrades.Over the three years to 31 December 2012, the approach in quoted investmentshas been to concentrate on making fewer AIM investments and becoming a moreengaged shareholder where possible and appropriate. This has taken time toimplement as only a small minority of AIM companies qualify for VCT purposes.The average size by value of the AIM and Listed investments in the portfolio inDecember 2009 was £271,000 but this had increased by 99 per cent. to £539,000by December 2012.Due to the significant uplift in the AIM and listed portfolio of £6.3 millionduring the year, the opportunity was taken to divest seven investments, mainlyin legacy companies that were valued below cost, largely to reduce the tail ofolder and poorer performing investments, Of these, three were sold throughtrade sales (Clarity Commerce Solutions, Prologic and Stagecoach Theatre Arts),one through market sales (The Real Good Food Company) and three written off(Colliers International UK, Music Festivals and Adventis Group). Proceeds fromthese seven divestments totalled £0.7 million. This represented an overalluplift in recognised value during the year of £0.2 million but a loss againstcost of £1.5 million. Some profits were taken from the investment in IDOX, with11 per cent. of the holding sold for £593,000 realising a profit of £475,000against cost.Wood StreetWood Street Microcap Investment Fund ("Wood Street") was established by ISIS inMay 2009 to provide flexibility for the Baronsmead VCTs to invest in generallylarger and more liquid non VCT qualifying AIM and Small Cap opportunities.During the year, a further investment of £1 million was made into Wood Street.The Manager receives no additional fee for managing this fund. At 31 December2012, Baronsmead VCT 3 had invested £3.5 million through Wood Street into aportfolio of 33 companies, valued at £4.5 million. Wood Street generated apositive return of 18 per cent. over the year.

Liquid assets (cash and near cash)

Baronsmead VCT 3 had cash and near cash resources of approximately £10 millionat the year-end. This asset class is conservatively managed to take minimal orno capital risk.

In addition, investments within the Wood Street fund are expected to berelatively more liquid than other investments as covered in the section above.This gives the Manager the possibility of realising cash from Wood Streetshould this ever be required to supplement liquid assets.

Unquoted Investments

During the year £5.2 million was invested in 6 unquoted companies includingthree new companies seeking acquisitions of which one was used to make theinvestment in Impetus Holdings described below. Three new unquoted investmentswere;● Happy Days Consultancy, a children's nursery business, is based in the SouthWest of the UK. The business has 17 sites already and the investment will helpaccelerate growth in new sites. This is a sector that the Manager has investedin before with a successful investment in Kidsunlimited which was realised in2008.● Pho Holdings is a group of traditional Vietnamese restaurants based inLondon. The Pho sites are informal, fast casual environments, specialising inVietnam's national dish of Pho, a tasty and nutritious noodle soup. Pho wasawarded `Best Emerging Concept' at this year's Retailer of the Year Awards. Thefirst Pho location opened on St. John Street, Clerkenwell, London, in June 2005and the group now has a total of seven sites across London and the South East.The new investment enables the team to open new sites, but with each siteretaining a unique and independent feel.● Impetus Holdings is a specialist business consultancy, supplying Sales andAfter Sales support services to the automotive industry. The business deliversa diverse range of programmes and projects for Vehicle Manufacturers, with muchof their work taking place within Dealerships and National Sales Companies.Impetus Automotive has achieved strong growth in recent years with revenuesincreasing by 50 per cent. since 2010. Clients include VW, Land Rover, Audi,Toyota, BMW, Citroën, Fiat, Ford and Jaguar. Approximately 15 per cent. of workis delivered outside of the UK. The investment by ISIS will support thebusiness in its continued expansion into new markets, building on the strongpresence established in the UK and further development of new services toclients.

Top Ten Investments

The average investment value of the top ten companies held by Baronsmead VCT 3is £3.1 million per company. Because these investments are normally held by theother four Baronsmead VCTs, the total managed by ISIS in each investee issignificantly larger than this, which enables ISIS to dedicate significantresource to manage each investment and their progress. The top ten investeesemploy some 2,500 people, which is an increase of 22 per cent. over the lastyear. Their turnover and profits had also grown by some 15 per cent. annuallyfor the last three years. Each of the top ten companies are described in moredetail below.Investment ManagementISIS continues to invest in its skills and capacity with over 40 of its totalteam of 60 devoted to investment management activities across all its investingactivities. Its focus is on generating strong investment returns from itsportfolio through a mixture of intelligent investment selection and hands onportfolio management. Its ability to select good investments owes much to itsin depth sector research and specialisation and to its strong origination teamthat help the team to generate proprietary deal flow.Its investments are supported from the outset by an experienced internal valueenhancement team together with a panel of proven Operating Partners that workexclusively with ISIS to assist management teams to deliver both strategicdevelopment and operational efficiencies. Both have enabled ISIS to build astrong track record of producing consistent returns from its unquotedinvestments.

ISIS has pursued a strategy of sector specialisation over the past fourteenyears and in that time its executives have developed in-depth knowledge ofthese sectors and valuable networks of contacts which have enabled it tocapitalise on opportunities that have presented themselves in an ever changingenvironment. Its key sectors are:

● Business Services● Financial Services● Consumer Markets● Healthcare & Education

● Technology, Media & Telecommunications

OUTLOOK

A number of commentators believe that the UK economy is unlikely to experiencesignificant growth in the near future. At this stage of the recovery, this ishard to dispute and it is a fair working assumption for investors.However many of our portfolio companies and their management teams are now moreexperienced at handling the economic uncertainties including managing theirgrowth and operations in a tougher environment than in previous decades. Lowbank borrowings within the portfolio give them robust financial structures.ISIS is an active investment manager who works with our investee to help themto grow revenue and earnings whilst continuing to enhance customer service andbuild resilient businesses with good momentum. Our intention is to seek out thebest opportunities where growth is driven by innovation and gaining marketshare through differentiation rather than relying on favourable economicgrowth. We continue to be confident that good levels of performance can bemaintained despite the ongoing challenging environment.ISIS EP LLPInvestment Manager15 February 2013

SUMMARY INVESTMENT PORTFOLIO

Investment Classification at 31 December 2012

Sector by value PercentageBusiness Services 31%Consumer Markets 18%Financial Services 2%Healthcare & Education 16%Technology, Media & 33%Telecommunications ("TMT")Total assets by value PercentageUnquoted - loan stock 34%Unquoted - ordinary and 16%preferenceAIM, listed & collective 36%investment vehicleListed interest bearing 3%securitiesNet current assets 11%principally cashTime Investments Held by PercentagevalueLess than 1 year 8%Between 1 & 3 years 24%Between 3 & 5 years 15%Greater than 5 years 53%

Table of Investments and Realisations

Investments in the year to 31 December 2012

Company Location Sector Activity Book cost £'000Unquoted investmentsNewImpetus Holding London Business Service Automotive 1,057Limited consultancy and outsourced service providerConsumer Investment London Consumer Markets Company seeking to 1,000Partners Limited† acquire businesses in the consumer markets sectorRiccal Investments London Business Services Company seeking to 1,000Limited‡ acquire businesses in the business services sectorPho Holdings Limited London Consumer Markets Restaurant group 987 specialising in Vietnamese street foodHappy Days Newquay Healthcare & Provider of nursery 833Consultancy Limited Education based childcare in Cornwall & Plymouth across 16 settingsFollow onCrew Clothing London Consumer Markets Multi-channel 360Holdings Limited clothing retailerTotal unquoted 5,237investments AIM-traded & listed investments NewZattikka plc London TMT* Online games 316 developmentFollow onDods (Group) plc London TMT* Political information 678 and communicationHangar8 plc Oxford Business Services Business jet 344 managementTangent London Business Services Digital direct 215Communications plc marketingAccumuli plc Salford TMT* Managed IT security 132Inspired Energy plc Kirkham Business Services Energy procurement 100 consultancy servicesElectric Word plc London TMT* Business to business 80 publisher

Driver Group plc Rossendale Business Services Dispute resolution

60Total AIM-traded & listed 1,925investmentsCollectiveinvestment vehicleFollow onWood Street Mircocap 1,000Investment FundTotal collective investment 1,000vehicleTotal investments in the year 8,162

# Technology, Media and Telecommunications ("TMT")

† Formerly named Ingleby (1887) Limited.

‡ Formerly named Ingleby (1885) Limited.

Realisations in the year to 31 December 2012

Company First 31 Realised Overall investment December profit/ multiple date 2011 (loss) return £'000 this period £'000Unquoted realisationsTVC Group Limited Full trade Jul 08 1,298 26 1.1 saleMLS Limited Loan Jul 06 417 0 1.0 repaymentTotal unquoted 1,715 26realisationsAIM-traded & listedrealisationsIDOX plc Market sale Jan 09 357 236 5.0 Stagecoach Theatre Full trade Feb 01 153 140 0.7Arts plc saleReal Good Food Full market Dec 03 160 65 0.4Company (The) plc salePrologic plc Full trade Jun 04 103 48 0.5 sale Clarity Commerce Full trade Oct 09 29 3 0.6Solutions plc saleColliers Written off Jul 01 4 (4) 0.0International UK plcAdventis Group plc Written off Jun 04 10 (9)

0.0

Music Festivals plc Written off Jun 11 87 (87) 0.0Total AIM-traded & listed 903 392realisations Total realisations in the year 2,618 418†

† Proceeds of £8,000 were received in respect of Getting Personal Limited,which had been sold in the year ended 31 December 2011.

Ten Largest Investments

The top ten investments by current value at 31 December 2012 illustrate thediversity and size of investee companies within the portfolio. This financialinformation is taken from publicly available information published at CompaniesHouse, which has been audited by the auditors of the investee companies.

1. IDOX PLC - London

All ISIS EP LLP managed funds

First investment: May 2002Total cost: £2,460,000Total equity held: 7.51%Baronsmead VCT 3 onlyCost: £920,000Valuation: £5,184,000Valuation basis: Traded price% of equity held: 2.80%Year ended 31 October 2011 2010 £ million £ millionRevenue 38.6 31.3EBITA 9.5 7.5Net Assets 34.4 31.0No of employees 363 332

(Source: IDOX plc, Directors' Report and Financial Statements 31 October 2011)

2. NEXUS VEHICLE HOLDINGS LIMITED - Leeds

All ISIS EP LLP managed funds

First investment: February 2008Total cost: £9,500,000Total equity held: 56.00%Baronsmead VCT 3 onlyCost: £2,368,000Valuation: £4,768,000Valuation basis: Earnings multiple% of equity held: 12.32%Year ended 30 2011 2010September £ million £ millionRevenue 38.3 33.5EBITA 4.3 4.0Net Assets 1.7 0.8No of employees 90 73

(Source: Nexus Vehicle Holdings Limited, Report & Financial Statements 30September 2011).

EBITA: Earnings before interest, tax and amortisation

3. CABLECOM NETWORKING HOLDINGS LIMITED - Clevedon

All ISIS EP LLP managed funds

First investment: May 2007Total cost: £5,600,000Total equity held: 48.00%Baronsmead VCT 3 onlyCost: £1,381,000Valuation: £4,328,000Valuation basis: Earnings Multiple% of equity held: 10.56%Year ended 30 2011 2010September £ million £ millionRevenue 12.2 8.2EBITA 1.4 0.9Net Assets 0.3 0.5No of employees 61 52

(Source: CableCom Networking Holdings Limited, Report and Financial Statements30 September 2011)

4. INDEPENDENT LIVING SERVICES LIMITED - Aberdeen

All ISIS EP LLP managed funds

First investment: September 2005Total Cost: £5,829,000Total equity held: 65.68%Baronsmead VCT 3 onlyCost: £1,599,000Valuation: £3,322,000Valuation basis: Earnings Multiple% of equity held: 15.60%Year ended 30 2011 2010September £ million £ millionRevenue 20.1 17.2EBITA 0.4 0.1Net Liabilities (1.9) (0.7)No of employees 1,468 1,254

(Source: ILS Group Limited, Annual Report year ended 30 September 2011)

5. CREW CLOTHING HOLDINGS LIMITED - London

All ISIS EP LLP managed funds

First investment: November 2006Total cost: £5,395,000Total equity held: 25.51%Baronsmead VCT 3 onlyCost: £1,344,000Valuation: £3,020,000Valuation basis: Earnings Multiple% of equity held: 6.08%Year ended 30 October 2011 2010 £ million £ millionRevenue 40.7 34.6EBITA 3.3 2.7Net Assets 5.7 3.8No of employees 311 284

(Source: Crew Clothing Holdings Limited, Report & Financial Statements30October 2011)

6. KAFEVEND HOLDINGS LIMITED - Crawley

All ISIS EP LLP managed funds

First investment: October 2005Total cost: £5,024,000Total equity held: 66.50%Baronsmead VCT 3 onlyCost: £1,252,000Valuation: £2,956,000Valuation basis: Earnings Multiple% of equity held: 15.79%Year ended 30 2011 2010September £ million £ millionRevenue 18.4 15.6EBITA 1.9 2.0Net Assets 1.5 1.2No of employees 105 95

(Source: Kafevend Holdings Limited, Directors' Report and Financial Statements30 September 2011)

7. CSC (WORLD) LIMITED - Pudsey, Leeds

All ISIS EP LLP managed funds

First investment: January 2008Total cost: £6,450,000Total equity held: 40.03%Baronsmead VCT 3 onlyCost: £1,606,000Valuation: £2,410,000Valuation basis: Earnings Multiple% of equity held: 8.81%Year ended 31 March 2012 2011 £ million £ millionRevenue 7.9 7.3EBITA 2.4 2.3Net Liabilities (2.0) (1.3)No of employees 59 58

(Source: Cobco 867 Limited, Financial Statements 31 March 2012)

8. VALLDATA GROUP LIMITED - Melksham

All ISIS EP LLP managed funds

First investment: January 2011Total cost: £6,475,000Total equity held: 39.84%Baronsmead VCT 3 onlyCost: £1,616,000Valuation: £1,754,000Valuation basis: Earnings Multiple% of equity held: 8.76%Year ended 31 March 2012 2011 £ million £ millionRevenue 7.1 6.3EBITA 0.8 0.9Net Assets 0.8 0.6No of employees 137 126

(Source: Valldata Services Limited, Directors Report and Financial Statements31 March 2012)

9. FISHER OUTDOOR LEISURE HOLDINGS LIMITED - St. Albans

All ISIS EP LLP managed funds

First investment: June 2006Total cost: £5,700,000Total equity held: 44.00%Baronsmead VCT 3 onlyCost: £1,423,000Valuation: £1,656,000Valuation basis: Earnings Multiple% of equity held: 10.45%Year ended 31 July 2011² 2010¹ £ million £ millionRevenue 43.6 26.5EBITA 2.7 2.3Net Assets 1.2 1.4No of employees 110 96

¹ 12 month period ended 31 January 2010

² 18 month period ended 31 July 2011. The Company changed its year end from 31January to 31 July

(Source: Fisher Outdoor Leisure Holdings Limited, Directors' Report andFinancial Statements 31 July 2011)

10. INSPIRED THINKING GROUP LIMITED - Birmingham

All ISIS EP LLP managed funds

First investment: May 2010Total cost: £3,200,000Total equity held: 22.50%Baronsmead VCT 3 onlyCost: £796,000Valuation: £1,571,000Valuation basis: Earnings Multiple% of equity held: 4.95%Year ended 31 August 2011 2010 £ million £ millionRevenue 21.5 12.9EBITA 1.4 1.0Net Assets 0.8 0.9No of employees 117 96

(Source: Inspired Thinking Group Holdings Limited, Report of the Directors andConsolidated Financial Statements for year ended 31 August 2011)

Extracts from the Report of the Directors

The Chairman's Statement and the Corporate Governance Statement form part ofthe Report of the Directors.

Results and Dividends

The Directors present the twelfth Report and audited financial statements ofthe Company for the year ended 31 December 2012.

Ordinary shares £'000Profit on ordinary activities after taxation 8,959

Interim dividend of 3.0p per ordinary share paid on (1,893)21 September 2012

Total dividends paid during the year (1,893)

Subject to the approval at the forthcoming Annual general Meeting the finalproposal dividend in respect of the year ended 31 December 2012 of 4.5p perordinary share will be paid on 15 April 2013 to shareholders recorded on theregister on 1 March 2013.

Principal Activity and Status

The Company is registered in England as a Public Limited Company (Registrationnumber 04115341). The Directors have managed and intend to continue to managethe Company's affairs in such a manner so as to comply with Section 274 of theIncome Tax Act 2007 which grants approval as a VCT. A review of the Company'sbusiness during the year is contained in the Chairman's Statement and Manager'sReview.Business ReviewThe Business Review has been prepared in accordance with the requirements ofSection 417 of the Companies Act 2006 and best practice. The purpose of thisreview is to provide shareholders with a summary setting out the businessobjectives of the Company, the Board's strategy to achieve those objectives,the risks faced, the regulatory environment and the key performance indicators("KPIs") used to measure performance.

Strategy for achieving objectives

Baronsmead VCT 3 plc is a tax efficient company listed on the London StockExchange's main market for listed securities and aims to achieve long-terminvestment returns for private investors.

Investment Policy

The Company's investment policy is to invest primarily in a diverse portfolioof UK growth businesses, whether unquoted or traded on AIM. Investments aremade selectively across a range of sectors in companies that have the potentialto grow and enhance their value.

Investment securities

The Company invests in a range of securities including, but not limited to,ordinary and preference shares, loan stocks, convertible securities, andfixed-interest bearing securities as well as cash. Unquoted investments areusually structured as a combination of ordinary shares and loan stocks, whileAIM-traded investments are primarily held in ordinary shares. Pendinginvestment in VCT qualifying and non-VCT qualifying unquoted, AIM-traded andother quoted securities (which may be held directly or indirectly throughcollective investment vehicles), cash is primarily held in an interest bearingaccounts, money market open ended investment companies ("OEICs"), UK giltsandtreasury bills.UK companies

Investments are primarily made in companies which are substantially based inthe UK, although many of these investees may have some trade overseas.

VCT regulation

The investment policy is designed to ensure that the Company continues toqualify and is approved as a VCT by HM Revenue and Customs. Amongst otherconditions, the Company may not invest more than 15 per cent. by value of itsinvestments calculated in accordance with Section 278 of the Income Tax Act2007 (as amended) ("VCT Value") in a single company or group of companies andmust have at least 70 per cent. of its investments by VCT Value throughout theperiod in shares and securities comprised in qualifying holdings. At least 70per cent. by VCT Value of qualifying holdings must be in "eligible shares",which are ordinary shares which have no preferential rights to assets on awinding up and no rights to be redeemed, but may have certain preferentialrights to dividends. For funds raised before 6 April 2011, at least 30 percent. by VCT Value of qualifying holdings must be in "eligible shares" whichare ordinary shares which do not carry any rights to be redeemed orpreferential rights to dividends or to assets on a winding up. At least 10 percent. of each qualifying investment must be in "eligible shares".

The companies in which investments are made must have no more than £15 millionof gross assets at the time of investment to be classed as a VCT qualifyingholding.

Asset mix

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 thequality of investment opportunities and the timing of realisations. It isintended that at least 75 per cent. of any funds raised by the Company will beinvested in VCT qualifying investments. Non-VCT qualifying investments held inunquoted, AIM-traded and other quoted companies may be held directly orindirectly through collective investment vehicles.

Risk diversification and maximum exposures

Risk is spread by investing in a number of different businesses withindifferent qualifying industry sectors using a mixture of securities. Generallyno more than £2.5 million, at cost, is invested in the same company. Themaximum the Company will invest in a single company (including a collectiveinvestment vehicle) is 15 per cent. of its investments by VCT value. The valueof an individual investment is expected to increase over time as a result oftrading progress and a continuous assessment is made of its suitability forsale.

Investment style

Investments are selected in the expectation that the application of privateequity disciplines including an active management style for unquoted companieswill enhance value and enable profits to be realised from planned exits.

Co-investment

The Company aims to invest in larger more mature unquoted and AIM-tradedcompanies and to achieve this it invests alongside the other Baronsmead VCTs.

Management retention

The Manager's members and staff invest in unquoted investments alongside theCompany. This scheme is in line with current practice of private equity housesand its objective is to attract, recruit and retain and incentivise theManager's team and is made on terms which align the interest of Shareholdersand the Manager.Borrowing powersThe Company's policy is to use borrowing for short term liquidity purposes onlyup to a maximum of 25 per cent. of the Company's gross assets, as permittedbythe Company's articles.Management

The Board has delegated the management of the investment portfolio to theManager. The Manager also provides or procures the provision of companysecretarial, administrative, accounting and custodian services to the Company.

The Manager has adopted a `top-down, sector-driven' approach to identifying andevaluating potential investment opportunities, by assessing a forward view offirstly the business environment, then the sector and finally the specificpotential investment opportunity. Based on its research, the Manager hasselected a number of sectors that it believes will offer attractive growthprospects and investment opportunities. Diversification is also achieved byspreading investments across different asset classes and making investments fora variety of different periods.

The Manager's Review above provides a review of the investment portfolio and ofmarket conditions during the year.

Principal risks, risk management and regulatory environment

The Board believes that the principal risks faced by the Company are:

Economic risk

Events such as a continuing economic recession and movement in interest ratescould affect smaller companies' valuations. The Manager's strategy to invest ina diverse portfolio of companies seeks to mitigate this risk.

Regulatory risks

General changes in legislation, regulations or government policy couldsignificantly influence the decisions of investors or impact upon the marketsin which the Company invests and the status of the Company as a VCT.

* Loss of approval as a Venture Capital Trust - the Company must comply with

Section 274 of the Income Tax Act 2007 which allows it to be exempted from

capital gains tax on investment gains. Any breach of these rules may lead

to the Company losing its approval as a VCT, qualifying shareholders who

have not held their shares for the designated holding period having to

repay the income tax relief they obtained and future dividends paid by the

Company becoming subject to tax. The Company would also lose its exemption

from corporation tax on capital gains. * CP12/19 - as outlined in the Financial Services Authority consultation paper CP12/19, VCTs are potentially within the scope of proposed new regulations restricting the distribution of unregulated collective

investment schemes and close substitutes to retail investors. Although the

FSA has been receptive to concerns raised in response to the consultation

paper, there is no certainty that VCTs will be excluded from the scope of

the final regulations. However, if ultimately within scope, it is likely

that such regulation would adversely affect the Company's ability to raise

new funds in the future.

* The Alternative Investment Fund Managers Directive ("AIFMD") - The AIFMD,

2011/61/EU, entered into force on 21 July 2011. European Member States are

required to implement the AIFMD into national law by 22 July 2013. The

AIFMD seeks to regulate managers ("AIFMs") of alternative investment funds

("AIFs") which are marketed or managed in the EU. AIFs, such as the Company, may, subject to satisfying certain requirements, obtain authorisation as an internally managed AIF or appoint a third party manager, such as the Manager, to act as its AIFM. Depending on how the Directive is implemented, this could have cost implications for the

Company. The Board and the Company's advisers will continue to monitor the

progress and likely implications of the AIFMD.

* Regulatory - the Company is required to comply with the Companies Act 2006,

the rules of the UK Listing Authority and United Kingdom Accounting

Standards. Breach of any of these might lead to suspension of the Company's

Stock Exchange listing, financial penalties or a qualified audit report.

Investment and strategic risk

An inappropriate strategy, lack of good investment opportunities and increasedcompetitiveness for deals, and poor asset allocation might lead to underperformance and poor returns to shareholders. The Company's investment strategyis regularly reviewed by the Board and performance of the investment portfoliois considered at each meeting.

Credit risk

Cash management risk may occur by placing cash deposits with high riskinstitutions or not spreading cash effectively. The cash management strategy isset by the Board and the Investment Committee of the Manager approves allliquid asset investments. Due diligence is undertaken on the sponsor or managerof any non -government instruments invested in and this is updated on a regularbasis to minimise the risk.Competitive Risk

Retention of key personnel of the Manager is vital to the success of theCompany. The Manager provides appropriate incentive schemes and a careerdevelopment strategy to ensure retention of key personnel.

Market risk

Investments in AIM-traded and unquoted companies, by their nature, involve ahigher degree of risk than

investment in companies traded on the main market. In particular, smallercompanies often have limited

product lines, markets or financial resources and may be dependent for theirmanagement on a smaller

number of key individuals.Liquidity risk

The Company's investments may be difficult to realise. The fact that a share istraded on AIM does not

guarantee its liquidity. The spread between the buying and selling price ofsuch shares may be wide and thus the price used for valuation may not beachievable.

Reputational risk

Inadequate or failed controls might result in breaches of regulations or lossof shareholder trust.

Operational riskFailure of the Manager's and administrator's accounting systems or disruptionto its business might lead to an inability to provide accurate reporting andmonitoring. Internal controls reporting on all service providers is provided tothe Board for review on a regular basis.

Financial risk

The Board has identified the Company's principal financial risks which are setout in the notes to the Financial Statements below. Inadequate controls mightlead to misappropriation of assets. Inappropriate accounting policies mightlead to misreporting or breaches of regulations.The Board seeks to mitigate the internal risks by setting policy, regularreview of performance, enforcement of contractual obligations and monitoringprogress and compliance. In the mitigation and management of these risks, theBoard applies rigorously the principles detailed in the FRC's "InternalControls: Guidance to Directors". Details of the Company's internal controlsare contained in the Corporate Governance section of the Company's AnnualReport for the year ended 31 December 2012.

Performance and key performance indicators ("KPIs")

The Board expects the Manager to deliver a performance which meets theobjectives of achieving long term investment returns, including tax-freedividends, for private investors. A review of the Company's performance duringthe financial period, the position of the Company at the year end and theoutlook for the coming year is contained within the Chairman's Statement above.

The Board assesses the performance of the Manager in meeting the Company'sobjective against the primary KPIs highlighted above.

Issue and Buy-Back of Shares

Pursuant to a top-up offer in February 2012, the Company allotted 3,853,400ordinary shares at a price of 107.30p representing 5.4 per cent. of the thenissued share capital with an aggregate nominal value of £385,340 raising£4,135,000 of new funds in total. The terms of issue were set out in the OfferDocument dated 12 January 2012 and the offer price was set on 20 February 2012.As a result of an offer for subscription launched on 20 November 2012, theCompany allotted a further 4,258,668 ordinary shares at a price of 117.40prepresenting 5.6 per cent. of the then issued share capital with an aggregatenominal value of £425,866.80 raising £5,000,000 of new funds in total. Theterms of issue were set out in the Securities Note dated 20 November 2012 andthe offer price was set on 21 December 2012.During the period the Company bought back 1,306,897 ordinary shares with anominal value of 10p to be held in treasury representing 1.7 per cent. of theissued share capital at a cost of £1,257,743. No shares were sold fromtreasury during the period. Shares will not be sold at a discount wider thanthe discount prevailing at the time the shares were initially bought back bythe Company. The Company holds 8,929,214 ordinary shares in treasury, being themaximum number of ordinary shares held in treasury during the year,representing 11.8 per cent. of the issued share capital as at 15 February 2013.

Directors

Biographies of the Directors who served during the year and at the date of thisreport are shown in the Annual Report for the year ended 31 December 2012.

As explained in more detail under Corporate Governance in the Annual Report forthe year ended 31 December 2012 and in accordance with the provisions of theAIC Code of Corporate Governance, the Board has agreed that Directors who haveheld office for more than nine years will retire annually. Accordingly, as Mr AKarney and Mrs G Nott have held office for a period of more than nine years,they will retire by rotation at the forthcoming Annual General Meeting of theCompany and, being eligible, offer themselves for re-election. Mrs G Nott whois a director of Baronsmead VCT 2 plc and Baronsmead VCT 5 plc is also requiredto seek annual re-election under the terms of the UKLA's Listing Rules.Mr Orrock, who was elected at the Company's Annual General Meeting held in2011, will in accordance with the Company's Articles of Association and theprovisions of the AIC Code of Corporate Governance, retire at the forthcomingAnnual General Meeting of the Company and, being eligible, offer himself forre-election.

The Board confirms that, following formal performance evaluations, theperformance of each of the Directors continues to be effective and demonstratescommitment to the role. The Board believes that it is therefore in the bestinterests of shareholders that the retiring Directors be re-elected.

The interests of the Directors in the shares of the Company at the end of thecurrent and prior year

were as follows: 31 December 31 December 2012 2011 Ordinary Ordinary 10p shares 10p sharesAnthony Townsend 44,439 7,609Andrew Karney 86,548 82,709Gillian Nott 82,739 55,900Ian Orrock 15,535 -Total shares held 229,261 146,218

There have been no changes in the holdings of the Directors between 31 December2012 and 15 February 2013.

No Director has a service contract with the Company.

All Directors are members of the Audit and Risk, Management Engagement andRemuneration and Nomination Committees. With a relatively small Board, it isdeemed both practical and proportionate to involve all the Directors in eachcommittee.The Directors who held office at the date of approval of this Directors' Reportconfirm that, so far as they are each aware, there is no relevant auditinformation of which the Company's auditors are unaware; and each Director hastaken all the steps that they ought to have taken as a Director to makethemselves aware of any relevant audit information and to establish that theCompany's auditors are aware of that information.

Directors' Professional Development

When a new Director is appointed he or she is offered an induction programmethat is arranged with the Manager. Directors are also provided on a regularbasis with key information on the Company's policies, regulatory and statutoryrequirements and internal controls. Changes affecting directors'responsibilities are advised to the Board as they arise. Directors alsoregularly participate in industry seminars.

Directors' Indemnity

Directors' and officers' liability insurance cover is in place in respect ofthe Directors. The Company's Articles of Association provide, subject to theprovisions of UK legislation, an indemnity for Directors in respect of costswhich they may incur relating to the defence of any proceedings brought againstthem arising out of their positions as Directors, in which they are acquittedor judgement is given in their favour by the Court. Save for such indemnityprovisions in the Company's Articles of Association and in the Directors'letters of appointment, there are no qualifying third party indemnityprovisions.

Management

ISIS EP LLP manages the investments for the Company. The liquid assets withinthe portfolio (being cash, gilts and other assets, which are not categorised asventure capital investments for the purpose of the FSA's rules) have beenmanaged by FPPE LLP. This is a limited liability partnership, which isauthorised and regulated by the FSA and which has the same controlling membersas the Manager. The Manager has continued to act as the Manager of the Companyand as the investment manager of the Company's illiquid assets (being allAIM-traded and other venture capital investments).The Manager also provides or procures the provision of accounting, secretarial,administrative and custodian services to the Company. The management agreementmay be terminated at any date by either party giving twelve months' notice oftermination. Under the management agreement, the Manager receives a fee of 2.5per cent. per annum of the net assets of the Company. If the managementagreement is terminated, the Manager is only entitled to the management feespaid to it and any interest due on unpaid fees.In addition, the Manager receives an annual secretarial and accounting fee thatwas initially fixed at £33,816 in 2006 and is revised annually to reflect themovement in RPI, plus a variable fee of 0.125 per cent. of the net assets ofthe Company which exceed £5 million. The annual fee was initially capped at£102,212 per annum and is also revised annually to reflect the movement in RPI.Annual running costs are capped at 3.5 per cent. of the net assets of theCompany (excluding any performance fee payable to the Manager and irrecoverableVAT), any excess being refunded by the Manager by way of an adjustment to itsmanagement fee. The running cost as at 31 December 2012 was 3.0 per cent.During the year the Management Engagement and Remuneration Committee met todiscuss and consider the continuing appointment of the Manager. The Committeereviewed and considered the agreements between the Company and the Manager andthe Manager's performance and after careful consideration the Committeerecommended to the Board that ISIS EP LLP should continue as Manager of theCompany. It is the Board's opinion that the continuing appointment of ISIS EPLLP on the terms agreed is in the best interests of shareholders as a whole.The Board believes that the knowledge and experience accumulated by the Managerin the period since the launch of the first Baronsmead VCT in 1995 is reflectedin processes which are designed to find, manage and realise good quality growthbusinesses.Co-investment SchemeThe Co-investment Scheme was introduced in November 2004. Members of theManager's investment team invest their own capital into a proportion of theordinary shares of each and every unquoted investment made by the BaronsmeadVCTs. The shares held by the members of the Co-investment Scheme in anyportfolio company can only be sold at the same time as the investment held bythe Baronsmead VCTs is sold. In addition, any prior ranking financialinstruments, such as loan stock, held by the Baronsmead VCTs have to be repaidin full together with the agreed priority annual return before any gain accruesto the ordinary shares. This ensures that the Baronsmead VCTs achieve a goodpriority return before profits accrue to the Co-investment Scheme.The Board is keen to ensure that the Manager continues to have one of the bestinvestment teams in the VCT and private equity market place and considers theScheme to be essential in order to attract, retain and incentivise the besttalent. The Scheme is in line with current market practice in the privateequity industry and the Board believes that it aligns the interests of theManager with those of the Baronsmead VCTs since executives have to invest theirown capital in every unquoted transaction and cannot decide selectively inwhich investments to participate. In addition the Co-investment only delivers areturn after each VCT has realised a priority return built into the structure.The executives participating in the Co-investment Scheme subscribe jointly fora proportion (currently 12 per cent.) of the ordinary shares available to theBaronsmead VCTs in each unquoted investment. The level of participation wasincreased from 5 per cent. in 2007 when the Manager's performance fee wasreduced from 20 per cent. to its current level of 10 per cent.

Since the formation of the Scheme in 2004, 52 executives have invested a total

of £696k in 32 companies. At 31 December 2012 nine of these investments havebeen realised generating proceeds of £81 million for the Baronsmead VCTs and£4.7 million for the co-investment scheme. For Baronsmead VCT 3 the averagemoney multiple on these nine realisations was 2.3 times cost. Had theco-investment shares been held instead by the Baronsmead VCTs that moneymultiple would have been 2.4 times cost. Over the period of eight years (basedupon the current number of shares in issue) this equates to approximately 1.8pa share.Performance Incentive

A performance fee is payable to the Manager when the total return on netproceeds of the ordinary share offers exceeds 8 per cent. per annum (simple) onnet funds raised. The performance fee payable in any one year is capped at5 per cent. of net assets.

To the extent that the total return exceeds the threshold, a performance fee(plus VAT) will be paid to the Manager of 10 per cent. of excess performance.No performance fee was paid in 2011 and there is no performance fee payable forthe year to 31 December 2012.

ISIS Equity Partners - Advisory Fees

During the year to 31 December 2012, ISIS EP LLP received net income of £96,550(2011: £71,250) in connection with advisory fees and incurred abort fees of£59,382 (2011: £15,246) with respect to

investments attributable to Baronsmead VCT 3.

VCT Status Adviser

The Company has retained PricewaterhouseCoopers LLP (`PwC') as its VCT TaxStatus Advisers to advise it on compliance with VCT requirements. PwC reviewsnew investment opportunities, as appropriate, and reviews regularly theinvestment portfolio of the Company. PwC works closely with the Manager butreports directly to the Board.

Creditor Payment Policy

The Company's payment policy is to settle investment transactions in accordancewith market practice and to ensure settlement of supplier invoices inaccordance with stated terms. At 31 December 2012, there were no outstandingsupplier invoices (2011: none).

Environment

The Company seeks to conduct its affairs responsibly and environmental factorsare, where appropriate, taken into consideration with regard to investmentdecisions.

Substantial Interests

At 15 February 2013 the Company was not aware of any beneficial interestexceeding 3 per cent. of ordinary share capital in circulation.

Going Concern

After making enquires, and bearing in mind the nature of the Company's businessand assets, the Directors consider that the Company has adequate resources tocontinue in operational existence for the foreseeable future. In arriving atthis conclusion the Directors have considered the liquidity of the Company andits ability to meet obligations as they fall due for a period of at leasttwelve months from the date that these financial statements were approved. Asat 31 December 2012 the Company held cash balances & investments in interestbearing securities and Money Market Funds with a combined value of £5,728,000.Cash flow projections have been reviewed and show that the Company hassufficient funds to meet both its contracted expenditure and its discretionarycash outflows in the form of the share buy-back programme and dividend policy.The Company has no external loan finance in place and therefore is not exposedto any gearing covenants.By Order of the Board,ISIS EP LLPSecretary100 Wood StreetLondon EC2V 7AN15 February 2013

The full Annual Report contains the following statements regardingresponsibility for the Annual Report and financial statements (references inthe following statements are to pages in the Annual Report).

Statement of Directors' Responsibilities

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

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

Company law requires the Directors to prepare financial statements for eachfinancial year. Under that law they have elected to prepare the financialstatements in accordance with UK Accounting Standards.

The financial statements are required by law to give a true and fair view ofthe state of affairs of the Company and of the profit or loss of the Companyfor that period.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards ("UK GAAP") have beenfollowed, subject to any material departures disclosed and explained in thefinancial statements; and

• prepare the financial statements on the going concern basis unless it isinappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records thatdisclose with reasonable accuracy at any time the financial position of theCompany and enable them to ensure that its financial statements comply with theCompanies Act 2006. They have general responsibility for taking such steps asare reasonably open to them to safeguard the assets of the Company and toprevent and detect fraud and other irregularities.Under applicable law and regulations, the Directors are also responsible forpreparing a Directors' Report (including Business Review), Directors'Remuneration Report and Corporate Governance Statement that comply with thatlaw and those regulations.

The Directors are responsible for the maintenance and integrity of thecorporate and financial information included on the Company's website,www.baronsmeadvct3.co.uk. Visitors to the website should be aware thatlegislation in the UK governing the preparation and dissemination of financialstatements may differ from legislation in other jurisdictions.

Responsibility statement of the Directors in respect of the Annual FinancialReport

We confirm that to the best of our knowledge:

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

● the Report of the Directors includes a fair review of the development andperformance of the business and the position of the Company together with adescription of the principal risks and uncertainties that it faces.

On behalf of the Board,Anthony TownsendChairman15 February 2013NON-STATUTORY ACCOUNTSThe financial information set out below does not constitute the Company'sstatutory accounts for the years ended 31 December 2012 and 2011 but is derivedfrom those accounts. Statutory accounts for 2011 have been delivered to theRegistrar of Companies, and those for 2012 will be delivered in due course. TheAuditors have reported on those accounts; their report was (i) unqualified,(ii) did not include a reference to any matters to which the Auditors drewattention by way of emphasis without qualifying their report and (iii) did notcontain a statement under Section 498 (2) or (3) of the Companies Act 2006. Thetext of the Auditors' report can be found in the Company's full Annual Reportand Accounts at www.baronsmeadvct3.co.uk.

Income Statement

For the year ended 31 December 2012

2012 2011 Notes Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000Unrealised gains on 8 - 9,373 9,373 - 1,403 1,403investmentsRealised gains on 8 - 426 426 - 1,824 1,824investmentsIncome 2 1,187 - 1,187 1,963 - 1,963Investment management 3 (409) (1,228) (1,637) (385) (1,155) (1,540)feeOther expenses 4 (390) - (390) (365) - (365)Profit on ordinary 388 8,571 8,959 1,213 2,072 3,285activities before taxationTaxation on ordinary 5 (25) 25 - (244) 244 -activitiesProfit on ordinary 363 8,596 8,959 969 2,316 3,285activities aftertaxationReturn per ordinary 7 0.58p 13.67p 14.25p 1.61p 3.85p 5.46pshare: Basic

The 'Total' column of this statement is the profit and loss account of theCompany.

All revenue and capital items in this statement derive from continuingoperations.

No operations were acquired or discontinued in the year.

There are no recognised gains and losses other than those disclosed in theIncome Statement therefore a separate statement of total recognised gains andlosses has not been prepared.

Reconciliation of Movements in Shareholders' Funds

For the year ended 31 December 2012

Notes 2012 2011 £'000 £'000Opening shareholders' funds 60,095 64,643Profit for the year 8,959 3,285 Gross proceeds of share issues 11/12 9,135

-

Purchase and sales of shares for treasury 12 (1,260)

(613)

Expenses of share issue and buybacks 12 (474) (6)Dividends paid 6 (1,893) (7,214)Closing shareholders' funds 74,562 60,095Balance SheetAs at 31 December 2012 Notes 2012 2011 £'000 £'000Fixed assetsInvestments 8 66,740 59,312Current assetsDebtors 9 5,261 562Cash at bank 1,438 683Cash on deposit 1,800 8,499 1,245Creditors (amounts falling due within one year) 10 (677) (462)Net current assets 7,822 783Net assets 74,562 60,095Capital and reservesCalled-up share capital 11 7,573 6,762Share premium account 12 22,866 15,012Capital redemption reserve 12 10,862 10,862Capital reserve 12 18,928 24,262Revaluation reserve 12 13,649 2,876Revenue reserve 12 684 321Equity shareholders' funds 13 74,562 60,095Net asset value per share- Basic 13 111.62p 100.16p- Treasury 13 110.88p 99.16p

The financial statements were approved by the Board of Directors on 15 February2013 and were signed on its behalf by:

Anthony Townsend (Chairman)Cash Flow Statement

For the year ended 31 December 2012

2012 2011 Notes £'000 £'000Operating activitiesInvestment income received 1,337 1,787Deposit interest received 7 3Other income received - 63Investment management fees paid (1,572) (1,570)Other cash payments (378) (357)

Net cash outflow from operating activities 15 (606) (74)

Capital expenditure and financial investment Purchases of investments (63,220) (91,893)Disposals of investments 65,620 99,215Net cash inflow from capital expenditure and 2,400 7,322financial investmentDividendsEquity dividends paid 6 (1,893) (7,214) Net cash(outflow)/inflow before financing (99) 34Financing Gross proceeds of share issues 4,135

-

Purchase and sale of shares for treasury (1,260)

(613)

Expenses on share issue and buybacks (221)

(6)

Net cash inflow/(outflow) from financing 2,654

(619)

Increase/(decrease) in cash at bank and on 2,555 (585)deposit in the year Reconciliation of net cash flow to movement innet cash at bank and on depositIncrease/(decrease) in cash at bank and on 2,555 (585)depositOpening cash at bank and on deposit 683

1,268

Closing cash at bank and on deposit 14 3,238

683

The accompanying notes are an integral part of these statements.

Notes to the Accounts1. Accounting polices(a) Basis of accounting

These financial statements have been prepared under UK Generally AcceptedAccounting Practice ("UK GAAP") and in accordance with the Statement ofRecommended Practice ("SORP") for investment trust companies and venturecapital trusts issued by the Association of Investment Companies ("AIC") inJanuary 2009, and on the assumption that the Company maintains VCT status.

The Company is no longer an investment company as defined by Section 833 of theCompanies Act 2006, as investment company status was revoked on 4 February 2004in order to permit the distribution of capital profits.

The principal accounting policies adopted are set out below.

Presentation of the Income Statement

In order to better reflect the activities of a VCT and in accordance with theSORP, supplementary information which analyses the income statement betweenitems of a revenue and capital nature has been presented alongside the incomestatement.

Profit/(loss) on ordinary activities after taxation is the measure theDirectors believe appropriate in assessing the Company's compliance withcertain requirements set out in Section 274 of the Income Tax Act 2007.

(b) Valuation of investments

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

Investments are valued at fair value. For AIM traded, listed securities andcollective investment vehicles this is either bid price or the last tradedprice, depending on the convention of the exchange on which the investment istraded.

In respect of unquoted investments, these are fair valued by the Directorsusing methodology which is consistent with the International Private Equity andVenture Capital Valuation ("IPEV") guidelines. This means investments arevalued using an earnings multiple, which has a discount or premium appliedwhich adjusts for points of difference to appropriate stock market orcomparable transaction multiples. Alternative methods of valuation will includeapplication of an arm's length third party valuation, a provision on cost or anet asset value basis.Gains and losses arising from changes in the fair value of the investments areincluded in the Income Statement for the period as a capital item. Transactioncosts on acquisition are included within the initial recognition and the profitor loss on disposal is calculated net of transaction costs on disposal.

(c) Income

Interest income on loan stock and dividends on preference shares are accrued ona daily basis. Provision is made against this income where recovery isdoubtful. Where the terms of unquoted loan stocks only require interest or aredemption premium to be paid on redemption, the interest and redemptionpremium is recognised as income once redemption is reasonably certain. Untilsuch date interest is accrued daily and included within the valuation of theinvestment.

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

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

(d) Expenses

All expenses are recorded on an accruals basis.

(e) Revenue/capital

The revenue column of the income statement includes all income and expenses.The capital column accounts for the realised and unrealised profit and loss oninvestments and the proportion of management fee charged to capital.

(f) Issue costs

Issue costs are deducted from the share premium account.

(g) Deferred taxation

Deferred taxation is recognised in respect of all timing differences that haveoriginated but not reversed at the balance sheet date where transactions orevents that result in an obligation to pay more, or the right to pay less, taxin future have occurred at the balance sheet date. This is subject to deferredtax assets only being recognised if it is considered more likely than not thatthere will be suitable profits from which the future reversal of the underlyingtiming differences can be deducted. Timing differences are differences arisingbetween the Company's taxable profits and its results as stated in thefinancial statements which are capable of reversal in one or more subsequentperiods.(h) Capital reserves(i) Capital ReserveGains and losses on realisation of investments of a capital nature are dealtwith in this reserve. Purchase of the Company's own shares to be either held intreasury or cancelled are also funded from this reserve. 75 per cent. ofmanagement fees are allocated to the capital reserve in accordance with theBoard's expected split between long-term income and capital returns.

(ii) Revaluation Reserve

Changes in fair value of unrealised investments, are dealt with in thisreserve.2. Income 2012 2011 £'000 £'000Income from investments†UK franked 285 281UK unfranked 820 1,242UK unfranked - reinvested 29 -Redemption premium 45 374 1,179 1,897Other income‡Deposit interest 8 3Other income - 63Total income 1,187 1,963Total income comprises:Dividends 285 282Interest 902 1,681 1,187 1,963Income from investments: AIM-traded & listed securities 298 309Unquoted securities 881 1,588 1,179 1,897† All investments have been designated fair value through profit or loss oninitial recognition, therefore all investment income arises on investments atfair value through profit or loss.

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

3. Investment management fee

2012 2011 £'000 £'000Investment management fee 1,637 1,540Performance fee - - 1,637 1,540For the purposes of the revenue and capital columns in the income statement,the management fee has been allocated 25 per cent. to revenue and 75 per cent.to capital, in line with the Board's expected long term return in the form ofincome and capital gains respectively from the Company's investment portfolio.The management agreement may be terminated by either party giving twelve monthsnotice of termination. The Manager, ISIS EP LLP, receives a fee of 2.5 percent. per annum of the net assets of the Company, calculated and payable on aquarterly basis.The Manager is entitled to a performance fee when the total return on netproceeds of the ordinary share offers exceeds 8 per cent. per annum (on asimple basis) on net funds raised. To the extent that the Total Return exceedsthis threshold, a performance fee (plus VAT) will be paid to the Manager of 10per cent. of the excess. The performance fee payable in any one year will becapped at 5 per cent. of the Shareholders' funds at end of the calculationperiod. No performance fee is payable for the year ended 31 December 2012(2011: £nil).In addition, the Manager receives an annual secretarial and accounting fee thatwas initially fixed at £33,816 in 2006 and is revised annually to reflect themovement in RPI, plus a variable fee of 0.125 per cent. of the net assets ofthe Company which exceed £5 million. The annual fee was initially capped at£102,212 per annum and is also revised annually to reflect the movement in RPI.It is chargeable 100 per cent. to revenue.

Amounts payable to the Manager at the year end are disclosed in note 10.

4. Other expenses 2012 2011 £'000 £'000Directors' fees 80 73 Secretarial and accounting fees 121

113

Remuneration of the auditors and their associates: - audit 21 22 - other services supplied pursuant to legislation 5 5(interim review) - other services supplied relating to taxation 7 9 -Other 156 143 390 365

The Chairman received £25,000 per annum (2011: £23,500) and the Audit Chairmanreceived £20,000 per annum (2011: £16,625). Each of the other Directorsreceived £17,500 per annum (2011: £16,000).

Charges for other services provided by the auditors in the year ended31 December 2012 were in relation to the interim review and tax compliance work(including iXBRL). The Audit and Risk Committee reviews the nature and extentof non-audit services to ensure that independence is maintained. The Directorsconsider the auditors were best placed to provide these services.

All figures include VAT, where applicable. The Company is not registered forVAT.

5. Tax on ordinary activities

5a. Analysis of charge for the year

2012 2011 £'000 £'000UK corporation tax - -

The income statement shows the tax charge allocated between revenue andcapital.

5b. Factors affecting tax charge for the year

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

2012 2011 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000Profit on ordinary 388 8,571 8,959 1,213 2,072 3,285activities before taxationCorporation tax at a rate 95 2,100 2,195 321 549 870of 24.5 per cent. (2011:26.5 per cent.)Effect of:Non-taxable dividend income (70) - (70) (74) - (74)Non-taxable investment - (2,401) (2,401) - (855) (855)gainsMarginal relief - - - (3) 3 -Losses carried forward - 276 276 - 59 59Tax charge for the year 25 (25) - 244 (244) -(note 5a)At 31 December 2012 the Company had surplus management expenses of £3,045,000(2011: £1,856,000) which have not been recognised as a deferred tax asset. Thisis because the Company is not expected to generate taxable income in a futureperiod in excess of the deductible expenses of that future period and,accordingly, the Company is unlikely to be able to reduce future taxliabilities through the use of existing surplus expenses. Due to the Company'sstatus as a VCT, and the intention to continue meeting the conditions requiredto obtain approval in the foreseeable future the Company has not provideddeferred tax on any capital gains and losses arising on the revaluation ordisposal of investments.6. Dividends 2012 2011 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000Amounts recognised asdistributions to equityholders in the year:For the year ended 31December 2010

- Final dividend of 4.5p - - - 546 2,183 2,729per ordinary share paid on

8 April 2011For the year ended 31December 2011

- Interim dividend of 3.0p - - - 389 1,407 1,796per ordinary share paid on

29 September 2011

- Second interim divided of - - - 597 2,092 2,6894.5p per ordinary share

paid on 9 December 2011For the year ended 31 December 2012 - Interim dividend of 3.0p - 1,893 1,893per ordinary share paid on 21 September 2012 - 1,893 1,893 1,532 5,682 7,214

A final dividend of 4.5p per share is proposed.

In the 2011 financial year Baronsmead VCT 3 paid a second interim dividend inlieu of a final dividend which resulted in three dividend payments during theyear.7. Returns per shareThe 14.25p return per ordinary share (2011: 5.46p return) is based on the netprofit from ordinary activities after taxation of £8,959,000 (2011: £3,285,000profit) and on 62,863,845 ordinary shares (2011: 60,112,945), being theweighted average number of shares in circulation during the year.

8. Investments

All investments are designated fair value through profit or loss at initialrecognition, therefore all gains and losses arise on investments designated atfair value through profit or loss.

Financial Reporting Standard 29 `Financial Instruments: Disclosures' (theStandard) requires an analysis of investments valued at fair value based on thereliability and significance of the information used to measure their fairvalue. The level is determined by the lowest (that is the least reliable orindependently observable) level of input that is significant to the fair valuemeasurement for the individual investment in its entirety as follows: * Level 1 - investments whose prices are quoted in an active market. * Level 2 - investments whose fair value is based directly on observable current market prices or indirectly being derived from market prices. * Level 3 - investments whose fair value is determined using a valuation

technique based on assumptions that are not supported by observable current

market prices or based on observable market data.

2012 2011 £'000 £'000Level 1Interest bearing securities 2,490 9,979Investments traded on AIM 20,833 14,402Investments listed on LSE 1,808 1,318 25,131 25,699Level 2Collective investment vehicle (Wood Street Microcap 4,525 2,826Investment Fund)Level 3Unquoted investments 37,084 30,787 66,740 59,312 2012 2011 £'000 £'000Equity shares 38,946 28,324Loan notes 25,226 21,009Preference shares 78 -Fixed income securities 2,490 9,979 66,740 59,3128. Investments (continued) Level 1 Level 2 Level 3 Listed interest Collective bearing Traded Listed investment securities on AIM on LSE vehicle Unquoted Total £'000 £'000 £'000 £'000 £'000 £'000Opening book cost 9,979 17,310 1,729 2,525 24,893 56,436Opening unrealised - (2,908) (411) 301 5,894 2,876(depreciation)/appreciationOpening valuation 9,979 14,402 1,318 2,826 30,787 59,312Movements in the year:Purchases at cost 55,087 1,925 - 1,000 5,237 63,249Sales - proceeds (62,576) (1,295) - - (1,749) (65,620)- realised gains on sales - 392 - - 34 426Unrealised (losses)/gains - (1,465) - - 65 (1,400)realised during the yearIncrease in unrealised - 6,874 490 699 2,710 10,773appreciationClosing valuation 2,490 20,833 1,808 4,525 37,084 66,740Closing book cost 2,490 16,867 1,729 3,525 28,480 53,091Closing unrealised - 3,966 79 1,000 8,604 13,649appreciationClosing valuation 2,490 20,833 1,808 4,525 37,084 66,740During the year the Company incurred brokerage costs on purchases of £1,500(2011: £1,800) and brokerage costs on sales of £2,100 (2011: £1,000) in respectof ordinary shareholder interests.

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

The Standard requires disclosure, by class of financial instruments, if theeffect of changing one or more inputs to reasonably possible alternativeassumptions would result in a significant change to the fair value measurement.The information used in determination of the fair value of Level 3 investmentsis chosen with reference to the specific underlying circumstances and positionof the investee company. The portfolio has been reviewed and both downside andupside reasonable possible alternatives have been identified and applied to thevaluation of each of the unquoted investments. Applying the downsidealternatives the value of the unquoted investments would be £2.5 million or 6.8per cent. lower. Using the upside alternative the value would be increased by£2.6 million or 7.0 per cent.9. Debtors 2012 2011 £'000 £'000 Prepayments and accrued income 375 562Amounts due from fundraising 4,886 - 5,261 562

10. Creditors (amounts falling due within one year)

2012 2011 £'000 £'000Management, performance, secretarial and accounting fees 474 405due to the ManagerFundraising costs 139 -Other creditors 64 57 677 46211. Called-up share capitalAllotted, called-up and fully paid: £'000Ordinary shares

67,619,851 ordinary shares of 10p each listed at 31 December 2011 6,762

8,112,068 ordinary shares of 10p each issued during the year

811

75,731,919 ordinary shares of 10p each listed at 31 December 2012 7,573

7,622,317 ordinary shares of 10p each held in treasury at (762)31 December 20111,306,897 ordinary shares of 10p each repurchased during the year (131)and held in treasury8,929,214 ordinary shares of 10p each held in treasury at (893)31 December 201266,802,705 ordinary shares of 10p each in circulation at 6,68031 December 2012

As at 15 February 2013 the Company's issued share capital was 75,731,919ordinary shares of 10 pence each, of which 8,929,214 were held in treasury. Thenumber of shares in circulation was 66,802,705 ordinary shares carrying onevote each.

The capital of the Company is managed in accordance with its investment policy,in pursuit of its investment objectives, both of which are detailed in theReport of the Directors in the Annual Report and Accounts.

Treasury shares

The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003came into force on 1 December 2003 and allowed the Company to hold sharesacquired by way of market purchase as treasury shares, rather than having tocancel them. Shareholders have previously approved a resolution permitting theCompany to issue shares from treasury at a discount to the prevailing NAV ifthe Board considers it in the best interests of the Company to do so. However,treasury shares will not be sold at a discount wider than the discountprevailing at the time the shares were initially bought back by the Company. Itis the Board's intention only to use the mechanism of reissuing treasury shareswhen demand for the Company's shares is greater than the supply available inthe market place. Treasury shares would not be considered by HM Revenue &Customs to be new shares entitling the purchaser to initial income tax relief,and therefore shares are unlikely to be issued from treasury in the same yearas a `top up' offer for subscription.The Company does not have any externally imposed capital requirements. Whereshares are bought back but not cancelled the share capital remains unchanged.The NAV is calculated by using the number of shares in issue less those boughtback and held in treasury.12. Reserves Share Capital Capital Revaluation Revenue premium redemption reserve reserve reserve account reserve £'000 £'000 £'000 £'000 £'000At 31 December 2011 15,012 10,862 24,262 2,876 321Gross proceeds of share 8,324 - - - -issuesPurchase of shares for - - (1,260) - -treasuryExpenses of share issue (470) - (4) - -and buybacksReallocation of prior - - (1,400) 1,400 -year unrealised gainsRealised gain on - - 426 - -disposal of investments*Net increase in value of - - - 9,373 -investments*Management fee - - (1,228) - -capitalised*Taxation relief from - - 25 - -capital expenses*Revenue profit on - - - - 363ordinary activitiesafter taxation*Dividends paid in the - - (1,893) - -yearAt 31 December 2012 22,866 10,862 18,928 13,649 684

At 31 December 2012, reserves distributable by way of dividend amounted to£19,612,000 (2011: £21,264,000), comprising the capital reserve and revenuereserve less the net unrealised loss on those level one investments whoseprices are quoted in an active market and deemed readily realisable.

* The total of these items is £8,959,000 which agrees to the total profit onordinary activities after taxation.

13. Net asset value per share

The net asset value per share and the net asset values attributable to theordinary shares at the year end are calculated in accordance with theirentitlements in the Articles of Association and were:

Net asset value per Net asset value Number of shares share attributable attributable 2012 2011 2012 2011 2012 2011 Number Number Pence pence £'000 £'000Ordinary shares 66,802,705 59,997,534 111.62 100.16 74,562 60,095(basic)Ordinary shares 75,731,919 67,619,851 110.88 99.16 83,971 67,050(treasury)Basic net asset value per share is based on net assets at the year end, and on66,802,705 (2011: 59,997,534) ordinary shares, being the respective number ofshares in circulation at the year end.The treasury net asset value per share as at 31 December 2012 included ordinaryshares held in treasury valued at the mid share price of 105.38p at 31 December2012 (2011: 91.25p).

14. Analysis of changes in cash

2012 2011 £'000 £'000Beginning of year 683 1,268Net cash inflow/(outflow) 2,555 (585)As at 31 December 2012 3,238 683

15. Reconciliation of profit on ordinary activities before taxation to net cashoutflow from operating activities

2012 2011 £'000 £'000Profit on ordinary activities before taxation 8,959 3,285Gains on investments (9,799) (3,227)Decrease/(increase) in debtors 187

(101)

Increase/(decrease) in creditors 76 (31)Income reinvested (29) - Net cash outflow from operating activities (606)

(74)

16. Contingencies, guarantees and financial commitments

At 31 December 2012 there were no contingent liabilities, guarantees orfinancial commitments of the Company.

17. Significant interests

There are no interests of 20 per cent. or more of any class of share capital inany underlying holdings in investee companies.

Further information on the significant interests is disclosed in the InvestmentPortfolio above.

18. Financial instruments and associated risks

The Company's financial instruments comprise equity and fixed interestinvestments, cash balances and liquid resources. The Company holds financialassets in accordance with its investment policy to invest in a diverseportfolio of established and profitable UK unquoted companies and companiesraising new share capital on AIM.

Fixed asset investments (see note 8) are valued at fair value. For quotedsecurities this is either bid price or the last traded price, depending on theconvention of the exchange on which the investment is quoted. In respect ofunquoted investments, these are valued at fair valued by the Directors (usingrules consistent with IPEV (International Private Equity and Venture CapitalValuation) Guidelines). The fair value of all other financial assets andliabilities is represented by their carrying value in the Balance sheet.The Company's investing activities expose it to various types of risk that areassociated with financial instruments and markets in which it invests. The mostimportant types of financial risk to which the Company is exposed are marketrisk, interest rate risk, credit risk and liquidity risk. The nature and extentof the financial instruments held at the balance sheet date and the riskmanagement policies employed by the Company are discussed in notes 19 to 22.

19. Market risk

Market risk embodies the potential for both losses and gains and includesinterest rate risk and price risk.

The Company's strategy on the management of investment risk is driven by theCompany's investment objective as outlined in note 18. The management of marketrisk is part of the investment management process and is typical of privateequity investment. The portfolio is managed in accordance with policies andprocedures in place as described in more detail in the extracts from the Reportof the Directors above, with an awareness of the effects of adverse pricemovements through detailed and continuing analysis, with an objective ofmaximising overall returns to shareholders. Investments in unquoted stocks andAIM traded companies, by their nature, involve a higher degree of risk thaninvestments in the main market. Some of that risk can be mitigated bydiversifying the portfolio across business sectors and asset classes. TheCompany's overall market positions are monitored by the Board on a quarterlybasis.

Details of the Company's investment portfolio at the balance sheet date aredisclosed in the schedule of investments set out above. An analysis ofinvestments between debt and equity instruments is disclosed in note 8.

41 per cent. (2011: 31 per cent.) of the Company's investments are listed onthe London Stock Exchange, traded on AIM or invested through Wood StreetMicrocap Fund. A 5 per cent. increase in stock prices as at 31 December 2012would have increased the net assets attributable to the Company's shareholdersand the total profit for the year by £1,358,000 (2011: £927,000); an equalchange in the opposite direction would have decreased the net assetsattributable to the Company's shareholders and the total profit for the year byan equal amount.56 per cent. (2011: 52 per cent.) of the Company's investments are in unquotedcompanies held at fair value. Valuation methodology includes the application ofearnings multiples derived from either listed companies with similarcharacteristics or recent comparable transactions. Therefore the value of theunquoted element of the portfolio may also be indirectly affected by pricemovements on the listed exchanges. A 5 per cent. increase in the valuations ofunquoted investments at 31 December 2012 would have increased the net assetsattributable to the Company's shareholders and the total profit for the year by£1,854,000 (2011: £1,539,000); an equal change in the opposite direction wouldhave decreased the net assets attributable to the Company's shareholders andthe total profit for the year by an equal amount.

20. Interest rate risk

At 31 December 2012 £2,000,000 (2011: £6,799,000) fixed rate securities wereheld by the Company. As a result, the Company is exposed to fair value interestrate risk due to fluctuations in the prevailing levels of market interestrates. However the effect of these interest rate changes is not materiallysignificant.At 31 December 2012 £25,226,000 (2011: £21,009,000) fixed rate loan notes wereheld by the Company. The weighted average coupon rate for the loan notesecurities is 9.38 per cent. as at 31 December 2012 (2011: 9.34 per cent.). Dueto the complexity of the instruments and uncertainty surrounding timing ofredemption the weighted average time for which the rate is fixed has not beencalculated.

The table below summarises weighted average effective interest rates for theother fixed interest-bearing financial instruments:

Fixed rate 2012 2011 Total Weighted Weighted Total Weighted Weighted fixed average average fixed average average rate interest time for rate interest time for portfolio rate which rate portfolio rate which £'000 % is fixed £'000 % rate days is fixed daysFixed interest 2,000 0.12 21 6,799 0.2 3instrumentsFloating rateWhen the Company retains cash balances, the majority of cash is ordinarily heldon interest bearing deposit accounts and, where appropriate, within an interestbearing money market open ended investment company ("OEIC"). The benchmark ratewhich determines the interest payments received on interest bearing cashbalances is the bank base rate which was 0.5 per cent. as at 31 December 2012(2011: 0.5 per cent.). 2012 2011 £'000 £'000Floating rateFloating rate instruments ("OEIC") 490 3,180Cash at bank 1,438 683Cash on deposit 1,800 - 3,728 3,86321. Credit riskCredit risk is the risk that a counterparty to a financial instrument will failto discharge an obligation or commitment that it has entered into with theCompany. The Investment Manager has in place a monitoring procedure in respectof counterparty risk which is reviewed on an ongoing basis. The carryingamounts of financial assets represent the maximum credit risk exposure at thebalance sheet date.At the reporting date, the Company's financial assets exposed to credit riskamounted to the following: 2012 2011 £'000 £'000Investments in fixed interest instruments 2,000

6,799

Investments in floating rate instruments 490 3,180Cash at bank 1,438 683Cash on deposit 1,800 - Interest, dividends and other receivables 5,261 562 10,989 11,224

Credit risk arising on unquoted loan notes is considered in conjunction withthe associated equity investment in the portfolio company.

Credit risk arising on fixed interest instruments is mitigated by investing inUK Government Stock.

Credit risk arising on floating rate instruments is mitigated by investing inmoney market open ended investment companies managed by BlackRock. Credit riskon unquoted loan stock held within unlisted investments is considered to bepart of market risk as disclosed in note 19.Credit risk arising on transactions with brokers relates to transactionsawaiting settlement. Risk relating to unsettled transactions is considered tobe small due to the short settlement period involved and the high creditquality of the brokers used. The Board monitors the quality of service providedby the brokers used to further mitigate this risk.

All assets of the Company which are traded on a recognised exchange are held byJP Morgan Chase ("JPM"), the Company's custodian. The Board monitors theCompany's risk by reviewing the custodian's internal controls reports asdescribed in the Corporate Governance section in the Annual Report.

The cash held by the Company is held by JPM and Lloyds TSB. The Board monitorsthe Company's risk by reviewing regularly the internal control reports of thesebanks. Should the credit quality or the financial position of either bankdeteriorate significantly the Investment Manager will seek to move the cashholdings to another bank.There were no significant concentrations of credit risk to counterparties at31 December 2012 or 31 December 2011. No individual investment exceeded 6.9 percent. of the net assets attributable to the Company's shareholders at31 December 2012 (2011: 9.4 per cent ).

22. Liquidity risk

The Company's financial instruments include investments in unquoted companieswhich are not traded in an organised public market as well as AIM-traded equityinvestments both of which generally may be illiquid. As a result, the Companymay not be able to liquidate quickly some of its investments in theseinstruments at an amount close to their fair value in order to meet itsliquidity requirements, or to respond to specific events such as deteriorationin the creditworthiness of any particular issuer.The Company's liquidity risk is managed on an ongoing basis by the InvestmentManager in accordance with policies and procedures in place as described in theextracts from the Report of the Directors above. The Company's overallliquidity risks are monitored on a quarterly basis by the Board.

The Company maintains sufficient investments in cash and readily realisablesecurities to pay accounts payable and accrued expenses.

At 31 December 2012 these investments were valued at £5,728,000 (2011:£10,662,000).

23. Related parties

Related party transactions include Management, Secretarial, Accounting andPerformance fees payable to the Manager, ISIS EP LLP, as disclosed in notes 3and 4, and fees paid to the Directors as disclosed in note 4. In addition, theManager operates a Co-Investment Scheme, detailed in the extracts from theReport of the Directors above, whereby employees of the Manager are entitled toparticipate in certain unquoted investments alongside the Company.

National Storage Mechanism

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

Annual General Meeting

The Company's Annual General Meeting will be held at Plaisterers' Hall, OneLondon Wall, London EC2Y 5JU on Wednesday, 10 April 2013 at 10:30a.m.

Annual Report and Accounts

The Annual Report and Accounts will be posted to shareholders on Friday, 1March and will shortly be available on the Company's website located atwww.baronsmeadvct3.co.uk.

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