Baronsmead 2vt Regulatory News (BMD)

12 Aug 2010 12:37

Baronsmead VCT 3 plcHalf Yearly Financial Report30 June 2010

The Directors announce the unaudited half-yearly financial report for the six months to 30 June 2010 as follows:-

Copies of the half yearly report can be obtained from the following website: www.baronsmeadvct3.co.uk .

Investment Objective

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

Investment policy

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

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

Dividend policy

The Board of Baronsmead VCT 3 has the objective to maintain a minimum annualdividend level of around 4.5p per ordinary share if possible, but this dependsprimarily on the level of realisations achieved and cannot be guaranteed. There will be variations in the amount of dividends paid year on year. Since launch the average annual tax-free dividend paid to shareholders including the declared interim dividend of 3.0p ) has been 5.4p per ordinary share (equivalentto a pre-tax return of 8.0p per ordinary share for a higher rate taxpayer). For shareholders who received up front tax reliefs, their returns would have been even higher.

Secondary market in the shares of Baronsmead VCT 3

The existing shares of the Company are listed on the London Stock Exchange and can be bought and sold using a stockbroker in the same way as shares of any other listed company.

Qualifying investors* who invest in the existing shares of the Company can benefit from:

• Tax free dividends

• Realised gains not subject to capital gains tax (although any realised losses are not allowable)

• No minimum holding period

• No need to include VCT dividends in annual tax returns

The UK tax treatment of VCTs is on a first in first out basis and therefore taxadvice should be obtained before shareholders dispose of their shares and alsoif they deferred a capital gain in respect of new shares acquired prior to 6April 2004.

* UK income tax payers, aged 18 or over, who acquire no more than £200,000 worth of VCT shares in a tax year.

FINANCIAL HEADLINES

● 3.0p - Interim dividend of 3.0p per share (unchanged from prior year) payable on 15 September 2010 to shareholders on the register at 20 August 2010.

● +3.8% - NAV per share increased by 3.8 per cent over the six month period to 30 June 2010 from 97.50p to 101.24p before payment of the 3.0p interim dividend.

● + 166.1% - NAV total return to ordinary shareholders for every 100p invested since launch.

● 8.4% - Dividend yield of 8.4 per cent tax free to qualifying shareholders(gross equivalent yield for a higher rate taxpayer is 12.5 percent). Thisrolling twelve month yield is based on the 3.0p interim dividend payable inSeptember 2010 plus the 4.5p dividend paid in December 2009 divided by the midordinary share price of 89.0p at 30 June 2010.

Performance Summary to 30 June 2010

1 year 3 years 5 Years Since launch % % % %

Total return and share price*

Net Asset Value†6.4 (5.1) 23.6 66.1 Share Price†3.5 (3.9) 28.2 45.3 FTSE All-Share 21.1 (16.2) 18.7 15.5

* Source: ISIS EP LLP and AIC.

†These returns for Baronsmead VCT 3 ignore up front tax reliefs and the impact of receiving dividends tax free.

Cash Returned to Shareholders

The table below shows the cash returned to shareholders dependent on their subscription cost, including their income tax reclaimed on subscription.

Net Cumulative Subscription Income tax cash dividends Net annual Gross price reclaim invested paid* yield± yield†Year subscribed p p p p % % 2001 (January) 100.0 20.0 80.0 51.3 6.8 10.1 2005 (March) - C 100.0 40.0 60.0 22.4 7.0 10.4Share 2010 (March) 103.1 30.9 72.2 3.0 - ^ - ^

Note - The total return could be higher for those shareholders who were able to defer a capital gain on subscription and the net sum invested may be less.

* Includes proposed interim dividend of 3.0p to be paid on 15 September 2010.

± Net annual yield represents the cumulative dividends paid expressed as an annualised percentage of the net cash invested.

†The gross equivalent yield if the dividends had been subject to higher ratetax (32.5 per cent on dividend income at 30 June 2010). As from the tax year2010/11, a new additional rate of tax on dividend income of 42.5 per cent cameinto force for those who earned more than £150,000. For those Shareholders whowould otherwise pay this higher rate of tax on dividends, the future grossequivalent yield will be higher than the figures shown.

Dividends paid to C shareholders post conversion have been adjusted by the conversion ratio (0.85642528).

ˆ The table above excludes returns for shareholders who subscribed in the Joint Offer with Baronsmead VCT 4 plc as those returns are not yet meaningful.

CHAIRMAN'S STATEMENT

I am very pleased to present my first report since becoming Chairman after the9th Annual General Meeting held in May 2010 on the retirement of Mark CannonBrookes. On behalf of the Board and shareholders, I would like to pay publictribute to Mark for his excellent work as Chairman from the formation ofBaronsmead VCT 3 in 2001.The 3.8 per cent growth in Net Asset Value ("NAV") per share continues thepositive trend since the November 2008 low point and comes at a time whenoperating profits for many of our portfolio companies are increasing. The 3pinterim dividend maintains the level paid at this stage for each of the lastthree years.Our joint offer with Baronsmead VCT 4 closed on 17 March 2010 fully subscribed,raising £8m gross proceeds for Baronsmead VCT 3 from over 900 subscribers. Weare delighted to welcome circa 200 new shareholders.

RESULTS

In the six months to 30 June 2010, the NAV per share increased by 3.8 per centfrom 97.50p to 101.24p before payment (due on 15 September 2010) of a 3p pershare interim dividend. This dividend arises both from the capital profitsrealised in the period and net revenues of 1.2p per share. The increase in NAVper share is primarily due to the 9 per cent increase in the value of theunquoted portfolio. In comparison the FTSE All-Share Index decreased 7.9 percent over the same period.

At the period end, over 70 per cent of the ordinary capital raised (net of launch costs) prior to 31 December 2007 was invested in VCT qualifying investments and the five other VCT qualifying tests had also all been met.

LONG TERM PERFORMANCE

The interim dividend will take the cumulative dividends paid (tax free forqualifying shareholders) for founder shareholders in 2001 to 51.3p per share and represents a very rewarding level of cash returned on their original £1 investment. This period included two major Stock Market downturns in 2003 and 2008.Shareholders from the first two prospectus offers in 2001 and 2005/06 have todate achieved positive absolute total returns. The comparable returns for theFTSE All-Share Index over differing time periods are set out above. In addition,comparable returns with other VCTs can be seen on the website of theAssociation of Investment

Companies ("AIC") who publish monthly data, www.theaic.co.uk.

The benefit of VCT tax reliefs on the dividends noted above is set out in thetable titled `Cash returned to shareholders' in terms of annual net and gross yields, including the assumptions made in these computations. Over the long term, the benefit of the tax free dividends can be very significant: in order for a higher rate tax payer since inception to receive the same income from taxable dividends as from Baronsmead VCT 3, they would have needed to have received an additional 25p per share in dividends before tax. In addition, this tax relief will be of significantly increased value to those shareholders whose income exceeds £150,000 p.a. from the 2010/11 tax year as there is a new dividend tax rate of 42.5 percent (up from 32.5 per cent).

PORTFOLIO REVIEW

Following new investment in five companies and the sale of four investments plus one AIM write off, the total portfolio comprises sixty-four companies.

The portfolio by value was invested 47 per cent in unquoted companies, 19 per cent in AIM and Listed investees, 2 per cent in Wood Street Microcap

Investment Fund and the balance of 32 per cent remained in cash or government securities. The largest unquoted investment, Nexus Vehicle Holdings Limited, and the largest AIM investment, IDOX plc,represented 6.4 and 2.0 per cent of Net Asset Value respectively.Portfolio companies are reviewed quarterly in terms of their financial healthand in the last three quarters, the number of companies exhibiting steady or better trading progress has improved to 94 per cent of the portfolio.The Manager had anticipated the economic downturn and selects investments thathave less exposure to the business cycle and have distinctive growth strategies that are intended to be less reliant on general economic conditions. These selection criteria have shown early success as can be seen by the relatively robust unquoted company valuations throughout the recessionary period and several profitable exits. A number of AIM companies have also been acquired by trade buyers from the portfolio signalling good value within their sectors.The Manager is fully aware of the likelihood of public sector spending cuts andassociated risks. Some of the portfolio companies do have exposure to the public sector; however, the portfolio as a whole has limited exposure to discretionary public spending which may be the most vulnerable area.

UNQUOTED PORTFOLIO

On average, the value of the current portfolio of unquoted investments is 27per cent higher than original cost. Seventeen companies are valued at or higherthan cost whilst three are valued below cost. These period end figures excludetwo unquoted company realisations, namely Active Assistance in March 2010 for2.8 times cost and Occam DM Ltd at 1.5 times cost in May 2010.The sale of Active Assistance was an excellent result after first investment inMarch 2008. Based in Sevenoaks, the business provides a national live-in careservice for adults and children with spinalcord injuries and neurologicalconditions. The sale involved a merger with another health care business, FirstCall Care Services Limited, to create a national provider of both live-in andlive-out care to individuals with complex long term conditions.Occam DM Ltd was the longest standing unquoted investment in the portfoliosince first investing in July 2004. Occam DM Ltd is a leading provider ofmarketing management software and direct marketing solutions with a blue chipclient base in both the public and private sectors. Occam DM Ltd was sold to StIves Group in May 2010 realising 1.5 times cost. At 31 December 2009, it had been valued at 25 per cent of cost, which illustrates both the caution applied when valuing unquoted investments until proven and how the business was transformed.The price earnings multiples used in calculating unquoted valuations havechanged little recently and so the increase in value has generally come from good profit growth. Several have shown sales growth by taking market share through innovation, particularly in establishing new and cost effective channels to market and servicing customers.For instance Mark Burchfield, Managing Director of Cablecom Networking HoldingsLimited in which the Baronsmead VCTs invested in May 2007 presented its story at the ninth AGM held in May 2010. Cablecom's tag line is `Always Connected' as the market leading provider of Student Accommodation Internet Services. Students have benefitted from the widest range of student specific IT services, some of the fastest UK broadband speeds and improvement in the `student experience'. Annual turnoverhas almost doubled over the last three years.

AIM-TRADED PORTFOLIO AND WOODSTREET MICROCAP INVESTMENT FUND

These share portfolios were down 5.4 per cent and 2.2 per cent over the six months under review as the UK quoted markets lost some of their earlier recovery due to concerns about government deficits and economic growth.

Interest from trade buyers again highlighted value in the AIM portfolioincluding a bid possibility for WIN plc where further investment had been madein 2009. Realised profits totalled £168,000 from the AIM portfolio. The mainsuccess came from disposing of some 50 per cent of the shares held in AdvancedComputer Software plc at 2.1 times cost at the time of flotation in July 2008.

Our holding in the Wood Street Microcap Investment Fund is now valued at £1 million across nineteen non-qualifying investments.

NEW INVESTMENT

Unquoted investment totalled £3.5 million in the six months under review comprising investment in Surgi C Limited, Inspired Thinking Group Limited and Getting Personal Limited plus two further round financings into Independent Living Services Limited and Nexus Vehicle Holdings Limited.

• Surgi C Limited, the UK's leading independent distributor of spinal implantsis based in Birmingham. The business has grown strongly as a result of anincreasing product portfolio and the high levels of education and support itprovides to spinal surgeons. www.surgi-c.com• Birmingham based Inspired Thinking Group Limited (ITG) provides services thathelp large marketing departments operate more efficiently, including improved procurement of artwork and print management. The new funding was used to acquire Total Marketing Service, a provider of workflow management systems to marketing departments.• Getting Personal Limited is a leading online retailer, based in Manchester,which sells personalised and unique gifts. The business was established inNovember 2005 with just one product, a personalised calendar. www.GettingPersonal.co.uk now sells over 4,000 items ranging from personalisedcards, notebooks, mugs and chocolate to non-personalised items for generalgifting.• Existing portfolio company Nexus Vehicle Holdings Limited, a leading providerof vehicle rental, used further funding to acquire Adapted Vehicle Hire, which is a niche rental business providing adapted vehicles for the disabled driver market.• Two further small investments were made in portfolio company IndependentLiving Services Limited, an acute domiciliary care provider based in Scotland,firstly to fund a small acquisition and secondly to repurchase shares.The volume of qualifying AIM opportunities also increased from the depressedlevels of 2009. Some £481k was invested in qualifying holdings and £460k innon-qualifying shareholdings. Three investments in the latter category weremarket purchases in support of the strategy to take more influential stakes bythe combined Baronsmead VCTs in a smaller number of AIM investments, where alikely exit strategy to a trade buyer can be envisaged.After the period end, £3.5 million was invested by the five Baronsmead VCTs inNetcall plc of which Baronsmead VCT 3 provided £687,000. Netcall plc, based in St Ives provides software and communication solutions into the call centremarket, mainly under the Queuebuster label. The fund-raising is primarily forthe acquisition of Telephonetics, which specialises in speech recognitionsoftware.

INVESTMENT AND TAX PLANNING

On 18 January 2010 the Company issued a Joint Offer for Subscription withBaronsmead VCT 4 to raise £16m in aggregate. This Offer became fully subscribedand closed on 17 March 2010 with over 70 per cent of the funds raised havingbeen invested by the existing shareholders of the Baronsmead VCTs.Having raised £7.56m net of costs under the Offer, the Company has sufficientcash resources to fund all of its operations for at least the next 12 months. As a result, the Directors do not intend, at this stage, to raise further funds through issuing new shares in the current tax year. As many of the Company's shareholders are also shareholders in the other Baronsmead VCTs they will be informed of any offers that those VCTs may make available to either their existing shareholders or more widely during the course of the current tax year.The Company operates a share policy of buying shares in to Treasury inaccordance with the resolutions passed by the shareholders from time to time.During the six months to 30 June 2010, 910,000 shares were bought back intoTreasury. As a result, as at 30 June 2010 the Company held 6,377,317 Treasuryshares which were bought back at an average discount of approximately 9.2 percent to NAV. Recent interest in the Company's existing shares may result in theCompany issuing shares out of Treasury in order to rectify imbalances in thedemand and supply of shares that occur from time to time. In accordance withshareholders' authorities, when re-issued,Treasury shares may be sold at a discount to NAV provided it is narrower than when they were acquired. Amongst other things, depending on the number of shares available at the time, the Company may re-issue Treasury shares to ensure there are sufficient shares available for the Company's Dividend Reinvestment Plan.

ANNUAL REPORTING AND COMPANY SECRETARY

For the second time in three years, the 2009 Annual Report & Accounts forBaronsmead VCT 3 won the AIC's best report for the VCT sector. `The Judgesfound this report and accounts interesting and informative, with clearobjectives and a straightforward statement from the Chairman. Details of newand underlying holdings were viewed positively as was the addition of investorcase studies.'Following the split in 2005 from its former parent F&C Asset Management plc,ISIS EP LLP later assumed responsibility for the provision of Company Secretarial services. With effect from 1 March 2010 ISIS has engaged Capita Sinclair Henderson Limited ("CSH") to provide this service on its behalf, although ISIS continues to remain legally responsible and is the named Company Secretary. CSH has a long history of providing such services to investment companies both under the current owners Capita Group plc and previously as Sinclair Henderson Limited.

RECENT HM REVENUE & CUSTOMS/HM TREASURY ANNOUNCEMENTS

The Manager, in conjunction with our trade association, the AIC and other VCTManagers, has worked hard over many years to inform HMRC and HM Treasury of thepositive economic impact from unquoted private equity backed companies.The resulting AIC report "Supporting enterprise and growth: the role of VentureCapital Trusts" published in March 2010 is based on evidence submitted byfifteen VCT Managers and has helped the Government understand the economicreturn to the state, generated from the investment made in VCTs throughproviding tax relief. Most notably, it states "of the 303 investee companies who provided data, the net employment impact since VCT investment has been a 48 per cent increase in the total workforce to over 25,402 employees." The percentageincrease in employment was slightly higher for the twenty-four companies fromwithin the Baronsmead portfolios that were included in the survey.The changes in VCT legislation commented on in the 22 June 2010 Budget had infact been announced a year earlier but will only probably be enacted for the fiscal year starting on 6 April 2011.

OUTLOOK

The unquoted portfolio is demonstrating good resilience during the current period of economic uncertainty that will take time to dissipate as the overhang of government debt is digested and hopefully suitably reduced.

Entrepreneurial companies such as those backed by Baronsmead VCT 3 are seen bymost commentators to be an important way to assist the process of economic rejuvenation. These companies have a good record of creating jobs often through considerable innovation and `doing it differently'.We have the funds to invest in such situations. There is also a solid platformwithin our portfolio companies for further growth and so there are more grounds for optimism than there have been over the last few years.Anthony TownsendChairman12 August 2010

Table of Investments and Realisations

Investments in the six months to 30 June 2010

Number Company Location Nature of Activity Investment Business cost (£ '000) Unquoted investments New 1 Getting personal Manchester Consumer On-line retail of 988 Limited Markets personalised gifts 2 Inspired Thinking Birmingham Business Marketing 796 Group Limited Services services & work flow systems 3 Surgi C Limited Birmingham Healthcare Distribution of 1,102 & Education spinal implants Follow on 1 Independent Living Alloa Healthcare Care at home 122 Services Limited & Education services 2 Nexus Vehicle Pudsey Business Vehicle rental 500 Holdings Limited Services provider to corporates Paper consideration 1 Crew Clothing London Consumer Branded clothing 51 Company Limited* Markets retailer 2 Independent Living Alloa Healthcare Care at home 150 Services Limited* & Education services Total Unquoted investments 3,709 AIM-traded & listed investments New 1 Bglobal plc Darwen Business Smart Metering 176 Services 2 Strategic Thought Maidenhead IT & Media Risk management 35 Group plc software Follow on 1 Electric Word plc London IT & Media Business to 31 business publisher 2 Green Compliance Cirencester Business Blue collar 156 plc Services compliance 3 Jelf Group plc Bristol Financial Financial 210 Services solutions consultancy 4 Proactis Holdings Wetherby IT & Media Procurement 219 plc Software 5 Tasty plc London Consumer Restaurant 114 Markets Operator Total AIM-traded and listed 941 investments Collective investment vehicles Follow on 1 Wood Street 500 Microcap Investment Fund Total Collective investment 500 vehicles Total investments in the 5,150 period

* Paper consideration from rolled up interest reinvested.

Realisations in the six months to 30 June 2010

31 Decem Realised ber First 2009 profit/ Overall (loss) investment valuation this multiple period Number Company date £'000 £'000 return * Unquoted realisations 1 Active Assistance Trade sale Mar 08 1,155 414 2.8 2 Occam DM Ltd Trade sale Jul 04 121 340 1.5 Total Unquoted real 1,276 754 isations AIM traded & listed realisations 1 Character Group plc Trade sale Feb 08 88 44 0.9 2 INVU plc Trade sale May 07 1 0 0.0 3 Inverness Medical Part sale Aug 09 28 0 1.3 Inc. 4 Advanced Computer Part Sale Jul 08 540 13 2.1 Software plc 657 57 Written off 1 Payzone plc May 03 1 (1) - 1 (1) Total AIM-traded & listed 658 56†realisations Total realisations in the period 1,934 810

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

†Proceeds of £5,000 were also received in respect of an investment, InteractiveProspect Targeting plc, written off in a prior period. In addition, a loss of £9,000 was realised during the period on the redemption on 7 June 2010 of a UKTreasury Gilt which had paid a rate of interest of 4.75 per cent.Investment Portfolio 31 30 June % of December Equity 2009 2010 held by % of Equity Book valuation valuation % of Baronsmead held cost by Company Nature of £'000 £'000 ╪ £'000 Net VCT 3 plc all business assets funds* Unquoted Nexus Vehicle Business 2,367 2,511 3,975 6.4 12.6 57.4Holdings Services Reed & Mackay Business 1,211 3,145 3,697 6.0 9.5 40.0Limited Services Crew Clothing Consumer 984 1,300 1,962 3.2 5.7 24.1

Company Limited markets

Quantix Limited IT & Media 1,194 1,862 1,886 3.0 11.4

48.0 CableCom IT & Media 1,381 1,848 1,854 3.0 10.6 48.0Networking Holdings Fisher Outdoor Consumer 1,423 1,777 1,777 2.9 10.5 44.0Leisure Holdings Markets Limited CSC (World) IT & Media 1,606 1,250 1,687 2.7 8.8 40.0Limited Carnell Business 1,499 2,639 1,663 2.7 8.3 37.5Contractors Services Independent Healthcare & 1,073 1,566 1,637 2.6 16.2 68.1

Living Services Education

Kafevend Holdings Consumer 1,252 1,445 1,583 2.5 15.8

66.5Limited Markets

Credit Solutions Financial 1,032 1,127 1,128 1.8 8.9

35.0Limited Services MLS Limited IT & Media 781 1,138 1,126 1.8 5.3 22.5

Surgi C Limited Health Care 1,102 - 1,102 1.8 9.8

42.5 & Education Playforce Business 1,033 1,106 1,039 1.7 9.7 44.0Holdings Limited Services Getting Personal Consumer 988 - 988 1.6 8.3 37.5Limited Markets Inspired Thinking Business 796 - 796 1.3 5.0 22.5Group Limited Services Empire World Business 1,297 658 707 1.1 ††Trade Limited Services

TVC Group Limited IT & Media 1,233 341 601 1.0 13.0

59.3

Xention Discovery Healthcare & 893 183 160 0.2 3.3

5.6 Education Kidsunlimited Business 113 113 113 0.2 0.0 0.0Group Limited Services Total Unquoted 23,258 24,009 29,481 47.5 AIM IDOX plc IT & Media 1,038 1,136 1,220 2.0 3.3 9.7 Green Compliance Business 406 500 750 1.2 2.6 14.4plc Services Murgitroyd plc Business 319 712 659 1.1 3.1 6.2 Services WIN plc IT & Media 413 374 608 1.0 4.3 19.0

Advanced Computer IT & Media 263 1,081 564 0.9 0.4

2.2Software plc Brulines Holdings Business 646 715 564 0.9 1.8 9.6plc Services

Proactis Holdings IT & Media 619 307 478 0.8 5.4

26.5plc

Jelf Group plc Financial 761 235 463 0.7 1.4

6.3 Services

Begbies Traynor Financial 231 607 328 0.5 0.6

2.5Group plc Services

Interquest Group Business 310 259 304 0.5 1.8

7.2plc Services

Mount Engineering Business 385 275 302 0.5 2.3

13.4plc Services

Electric Word plc IT & Media 267 247 293 0.5 3.1

22.3 Tasty plc Consumer 470 161 291 0.5 2.5 17.1 Markets Kiotech Healthcare & 275 298 275 0.4 2.2 15.8

International plc Education

Ffastfill plc IT & Media 251 297 260 0.4 0.9 6.5

Vero Software plc IT & Media 300 181 237 0.4 3.7

14.3 Craneware plc IT & Media 71 184 223 0.3 0.2 1.1

Dods (Group) plc IT & Media 541 158 216 0.3 1.4

4.4 IS Pharma plc Healthcare & 246 239 198 0.3 1.0 5.9 Education Adventis Group Business 361 267 193 0.3 3.1 20.7plc Services Stagecoach Consumer 419 194 189 0.3 4.5 9.1

Theatre Arts plc Markets

EG Solutions plc IT & Media 375 101 172 0.3 3.1

14.2

Sanderson Group IT & Media 387 132 170 0.3 1.8

6.9plc Quadnetics Group Business 296 162 161 0.3 0.6 2.1plc Services Bglobal plc Business 176 - 158 0.3 0.5 2.7 Services Driver Group plc Business 438 294 156 0.2 2.3 10.4 Services Praesepe plc Consumer 525 185 155 0.2 0.7 3.8 Markets Plastics Capital Business 473 184 142 0.2 1.8 10.0plc Services Autoclenz Business 400 122 122 0.2 3.1 12.3Holdings plc Services Cohort plc Business 179 138 118 0.2 0.3 1.4 Services Real Good Food Consumer 540 17 114 0.2 0.6 2.3Company (The) plc Markets Prologic plc IT & Media 310 124 103 0.2 4.1 15.0

Brainjuicer Group IT & Media 50 59 73 0.1 0.4

1.9plc

Colliers CRE plc Financial 470 78 61 0.1 0.3

0.8 Services Marwyn Value Financial 64 62 60 0.1 1.5 6.9Investors plc Services STM Group plc Financial 140 58 49 0.1 0.5 3.8 Services

Clarity Commerce IT & Media 50 40 46 0.1 0.3

6.2Solutions plc Tangent Business 180 73 45 0.1 0.8 4.7Communications Services plc

Strategic Thought IT & Media 35 - 35 0.1 0.4

2.1Group plc

Zoo Digital Group IT & Media 584 15 30 0.0 0.3

0.9plc

Mission Marketing IT & Media 190 35 14 0.0 0.2

0.7Group (The) plc Total AIM 14,454 10,306 10,599 17.1 Listed

Vectura Group plc Healthcare & 771 1,208 720 1.2 0.5

1.3 Education Chime IT & Media 369 372 302 0.5 0.2 1.5Communications plc Total Listed 1,140 1,580 1,022 1.7

New York Stock Ex

change

Inverness Medical Healthcare & 157 224 136 0.2 0.0

0.1Inc. Education Total New York 157 224 136 0.2 Stock Exchange Interest bearing securities UK T-Bill 06/09/ 5,995 - 5,995 9.7 10 UK T-Bill 05/07/ 4,498 - 4,498 7.3 10 BlackRock Cash 5,700 5,700 5,700 9.2 Market OEIC JP Morgan Cash 1,200 - 1,200 1.9 Market OEIC Total interest 17,393 5,700 17,393 28.1 bearing securities Collective investment vehicles Wood Street 1,025 526 1,005 1.6 Microcap Investment Fund Total collective 1,025 526 1,005 1.6 investment vehicles Total investments 57,427 42,345 59,636 96.2 Net current as 2,365 3.8 sets Net assets 62,001 100.0

╪ The total investment valuation at 31 December 2009 per the table above does not agree to the audited accounts due to purchases and sales since that date.

* All funds managed by the same investment manager, ISIS EP LLP, including Baronsmead VCT 3.

†Following a restructuring, the effective ownership percentage is dependent on final exit proceeds.

AIM, Listed and NYSE Portfolio Concentration Analysis as at 30 June 2010

% of Investment ranking Book cost Valuation Quoted by valuation £'000 £'000 Portfolio Top Ten 5,467 6,354 54.0 11-20 3,239 2,703 23.0 21-30 3,696 1,694 14.4 30+ 3,349 1,006 8.6 Total 15,751 11,757 100.0

Independent Review Report to Baronsmead VCT 3 plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 which comprises the Income Statement, Reconciliation of Movement in Shareholders' Funds, Balance Sheet and Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the Disclosureand Transparency Rules (``the DTR'') of the UK's Financial Services Authority(``the UK FSA''). Our review has been undertaken so that we might state to theCompany those matters we are required to state to it in this report and for noother purpose. To the fullest extent permitted by law, we do not accept orassume responsibility to anyone other than the Company for our review work, forthis report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the Statement Half-Yearly Financial Reports as issued by the UK Accounting Standards Board.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview.Scope of review

We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410 Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with the Statement Half-Yearly Financial Reports as issued by the UK Accounting Standards Board and the DTR of the UK FSA.

Simon Pashbyfor and on behalf ofKPMG Audit PlcChartered AccountantsEdinburgh12 August 2010

Responsibility statement of the Directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordancewith the Statement `Half-yearly Financial reports' issued by the UK Accounting Standards Board;• the Chairman's Statement (constituting the interim management report)includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements;

• the Statement of Principal Risks and Uncertainties below is a fair review of the information required by DTR 4.2.7R being a description of the principal risks and uncertainties for the remaining six months of the year; and

• the financial statements include a fair review of the information required byDTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the currentfinancial year and that have materially affected the financial position orperformance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.By Order of the Board,Anthony TownsendChairman12 August 2010Unaudited Income Statement

For the six months to 30 June 2010

Six months to 30 June Six months to 30 June Year to 31 December 2010 2009 2009* Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Unrealised gains on - 1,019 1,019 - 2,438 2,438 - 2,434 2,434investments Realised gains/ - 806 806 - (15) (15) - 1,350 1,350(losses) on investments Income 1,287 - 1,287 678 - 678 1,513 - 1,513 VAT - - - (2) (6) (8) (2) (6) (8) Investment (182) (547) (729) (170) (510) (680) (339) (1,016) (1,355)management fee Other expenses (181) - (181) (166) - (166) (347) - (347) Profit on ordinary 924 1,278 2,202 340 1,907 2,247 825 2,762 3,587activities before taxation Taxation on ordinary (224) 224 - (54) 54 - (167) 167 -activities Profit on ordinary 700 1,502 2,202 286 1,961 2,247 658 2,929 3,587activities after tax ation Return per ordinary 1.19p 2.55p 3.74p 0.53p 3.65p 4.18p 1.22p 5.41p 6.63pshare: Basic

* These figures are audited.

Unaudited Reconciliation of Movement in Shareholders' Funds

For the six months to 30 June 2010

Six Six months to months to Year to 30 June 30 June 31 December 2010 2009 2009 £'000 £'000 £'000* Opening shareholders' funds 52,878 55,136 55,136 Profit for the period 2,202 2,247 3,587 Increase in share capital in issue 8,165 1,524

1,524

Purchase of shares for treasury (801) (816)

(821) Dividends paid - (2,415)+ (6,483)^ Expenses of share issue (443) (80) (65) Closing shareholders' funds 62,001 55,596 52,878* These figures are audited.

+ Includes payment of 2008 final dividend.

^ Includes payment of 2008 final dividend and 2009 first and second interim dividends.

Notes

1. The unaudited interim results which cover the six months to 30 June 2010 have been prepared in accordance with applicable accounting standards and adopting the accounting policies set out in the statutory accounts of the Company for the period to 31 December 2009.

2. Return per share is based on a weighted average of 58,829,168 ordinary shares in issue (30 June 2009 - 53,697,653, 31 December 2009 - 54,121,721).

3. Earnings for the first six months to 30 June 2010 should not be taken as a guide to the results of the full financial year.

4. During the six months to 30 June 2010 the Company issued, pursuant to theoffer for subscription, 5,601,586 ordinary shares at an offer price of 102.5pper share and 2,318,712 ordinary shares at an offer price of 104.5p whichraised £8,165,000, before costs. During this period the Company purchased910,000 ordinary shares to be held in Treasury at a cost of £801,000. At 30June 2010 the Company holds 6,377,317 ordinary shares in Treasury. ExcludingTreasury shares, there were 61,242,534 ordinary shares in issue at 30 June 2010(30 June 2009 - 54,232,236, 31 December 2009 - 54,232,236).

5. The interim dividend of 3.0 pence per ordinary share (1.1 pence revenue and 1.9 pence capital) will be paid on 15 September 2010 to shareholders on the register on 20 August 2010. The ex-dividend date is 18 August 2010.

6. The financial information contained in this Half-yearly Financial Reportdoes not constitute statutory accounts as defined in Section 434 of theCompanies Act 2006. The information for the year to 31 December 2009 has beenextracted from the latest published audited financial statements. The auditedfinancial statements for the year to 31 December 2009, which were unqualified,have been filed with the Registrar of Companies. No statutory accounts inrespect of any period after 31 December 2009 have been reported on by theCompany's auditors or delivered to the Registrar of Companies.7. Copies of the Half-yearly Financial Report have been mailed to shareholdersand are available from the Registered Office of the Company at 100 Wood Street,London EC2V 7AN.Unaudited Balance SheetAs at 30 June 2010 As at As at As at 30 June 30 June 31 December 2010 2009 2009 £'000 £'000 £'000* Fixed Assets Unquoted investments 29,481 28,021 25,285 Traded on AIM 10,599 10,866 10,394 Listed on FTSE Small Cap 1,022 1,087 1,580 Traded on NYSE 136 - 224

Collective Investment Vehicle 1,005 516

526 Interest bearing securities 17,393 12,864 12,956 59,636 53,354 50,965 Current assets Debtors 254 236 349 Cash at bank and on deposit 2,613 2,490 2,033 2,867 2,726 2,382

Creditors (amounts falling due within (502) (484)

(439)one year) Net current assets 2,365 2,242 1,943

Total assets less current liabilities 62,001 55,596 52,908

Creditors (amounts falling due after - -

(30)one year) Net assets 62,001 55,596 52,878 Capital and reserves Called-up share capital 6,762 5,970 5,970 Share premium account 15,010 8,065 8,080 Capital redemption reserve 10,862 10,862 10,862 Revaluation reserve 2,209 1,630 1,393 Capital reserve 26,156 28,800 26,271 Revenue reserve 1,002 269 302 Equity shareholders' funds 62,001 55,596 52,878 As at As at As at 30 June 30 June 31 December 2010 2009 2009* Net asset value per share 101.24p 102.51p

97.50p

Number of ordinary shares in issue 61,242,534 54,232,236 54,232,236

Treasury net asset value per share 100.08p 101.49p

96.47p

Number of ordinary shares in issue 61,242,534 54,232,236 54,232,236

Number of ordinary shares held in 6,377,317 5,467,317 5,467,317Treasury Number of listed ordinary shares 67,619,851 59,699,553 59,699,553 \* These figures are audited.

Unaudited Statement of Cash Flows

For six months to 30 June 2010

Six months Six months Year to to to 30 June 30 June 31 December 2010 2009 2009 £'000 £'000 £'000*

Net cash inflow from operating activities 499 1,123 955

Capital expenditure and financial (6,846) 1,423 5,195investment Equity dividends paid - (2,415) (6,483)

Net cash (outflow) / inflow before (6,347) 131

(333)financing

Net cash inflow from financing 6,927 627

634 Increase in cash 580 758 301

Reconciliation of net cash flow to

movement in net cash Increase in cash 580 758 301 Opening net cash 2,033 1,732 1,732 Net cash at end of period 2,613 2,490 2,033

Reconciliation of operating profit before taxation to net cash flow from

operating activities Profit on ordinary activities before 2,202 2,247 3,587taxation Unrealised gains on investments (1,019) (2,438)

(2,434)

Realised (gains)/losses on investments (806) 15

(1,350)

Changes in working capital and other 122 1,299 1,152non-cash items

Net cash inflow from operating activities 499 1,123 955

\* These figures are audited.

Principal Risks and Uncertainties

The Company's assets consist of equity and fixed interest investments, cash andliquid resources. Its principal risks are therefore market risk, credit riskand liquidity risk. Other risks faced by the Company include economic, loss ofapproval as a Venture Capital Trust, investment and strategic, regulatory,reputational, operational and financial risks. These risks, and the way in which they are managed, are described in more detail under the heading Principal risks, risk management and regulatory environment within the Business Review and Notes in the Company's Annual Report and Accounts for the year to 31 December 2009. The Company's principal risks and uncertainties have not changed materially

since the date of that report.Related PartiesISIS EP LLP (`the Manager') manages the investments of the Company. The Manageralso provides or procures the provision of secretarial, accounting,administrative and custodian services to the Company. Under the management agreement, the Manager receives a fee of 2.5 per cent per annum of the net assets of the Company. This is described in more detail under the heading Management within the Report of the Directors in the Company's Annual Report and Accounts for the year to 31 December 2009. During the period the Company has incurred management fees of £729,000 and secretarialand accounting fees of £53,000 payable to the Manager.

Going Concern

After making enquiries, and bearing in mind the nature of the Company'sbusiness and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the Company and its ability to meet obligations as they fall due for a period of at least twelve months from thedate that these financial statements were approved. As at 30 June 2010 the Company held cash balances, investments in UK Gilts and Money Market Funds with a combined value of £20,006,000. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buyback programme and dividend policy. The Company has no external loan finance in place and is therefore not exposed to any gearing covenants.

Shareholder Information and Contact Details

Enquiries

Shareholders should contact the following regarding queries:

Basic contact details, ie change of address, joining the DRIP, queries re: share and tax certificates and bank mandate forms: Computershare (Company Registrar)

www-uk.computershare.com/investor

Investors who hold ordinary shares in their own name can check their holdings on our Registrar's website

www-uk.computershare.com. Please note that to access this facility investors will need to quote the reference number shown on their share certificate.

Alternatively, by registering for the Investors' Centre facility onComputershare's website, investors can view details of all their holdings forwhich Computershare is Registrar, as well as access additional facilities anddocumentation. Please see www.investorcentre.co.uk for further information.

Shareholder Helpline

Tel: 0870 703 0137 (Calls charged at national rate).

The Shareholder Helpline is available on UK business days between Monday andFriday, 8.30 am to 5 pm. The helpline contains automated self-servicefunctionality which is available 24 hours a day, 7 days a week. Using yourShareholder Reference Number which is available on your share certificate ordividend tax voucher, our self service functionality will enable you achieve the following things:Automated Functions

- confirm the latest share price

- confirm your current share holding balance

- confirm payment history

- order a Change of Address, Dividend Bank Mandate or Stock Transfer Form

e-mail: web.queries@computershare.co.uk

For information on asset allocations, dividend policies, investment process, DRIP mechanism, share price movements, the share price discount and selling shares:

ISIS EP LLP (the Investment Manager) at www.isisep.com

e-mail: michael.probin@isisep.com; margaret.barff@isisep.com

Tel: Michael Probin 020 7506 5796; Margaret Barff 020 7506 5630.

The Baronsmead website (www.baronsmeadvcts.co.uk) links to helpful sites, contains details of the team and some case studies of investments.

Share Price

The Company's shares are listed on the London Stock Exchange. The mid-price ofthe Company's shares is given daily in the Financial Times in the InvestmentCompanies section of the London Share Service. Share price information can also be obtained from many financial websites.

Trading Shares

The Company's shares can be bought and sold in the same way as any other quoted company on the London Stock Exchange via a stockbroker.

The market makers in the shares of Baronsmead VCT 3 plc are:

Matrix Corporate Capital (the Company's broker) 020 3206 7000 Singer Capital Markets 020 3205 7500 Winterflood 020 3100 0251 Financial CalendarNovember 2010 Quarterly fact sheet to 30 September 2010 February 2011 Results for the year to 31 December 2011 announced and annual report and accounts sent to shareholders May 2011 Annual General Meeting Corporate InformationDirectors Registrar and Transfer Office Anthony Townsend (Chairman)± Computershare Investor Services PLC Andrew Karney†PO Box 82 Gillian Nott OBE* The Pavilions Robert Owen Bridgwater Road Bristol BS99 6ZZ Secretary Tel: 0870 703 0137 ISIS EP LLP Brokers Registered Office Matrix Corporate Capital LLP 100 Wood Street One Vine Street London EC2V 7AN London W1J 0AH Investment Manager Auditors ISIS EP LLP KPMG Audit Plc 100 Wood Street Saltire Court London EC2V 7AN 20 Castle Terrace Edinburgh EH1 2EG Investor Relations Michael Probin Solicitors 020 7506 5796 Norton Rose 3 More London Riverside Registered Number London SE1 2AQ 04115341 VCT Status Adviser PricewaterhouseCoopers LLP

* Chairman of the Audit Committee 1 Embankment Place †Senior Independent Director London WC2N 6RH ± Chairman of the Nomination Committee

and

Remuneration and Management Engagement

Committee. Website www.baronsmeadvct3.co.uk Additional Information

The information provided in this report has been produced in order for shareholders to be informed of the activities of the Company during the period it covers. ISIS EP LLP does not give investment advice and the naming of companies in this report is not a recommendation to deal in them.

Baronsmead VCT 3 plc is managed by ISIS EP LLP which is Authorised and regulated by the FSA. Past performance is not necessarily a guide to future

performance. Stock markets and currency movements may cause the value of investments and the income from them to fall as well as rise and investors may not get back the amount they originally invested. Where investments are

made in unquoted securities and smaller companies, their potential volatility may increase the risk to the value of, and the income from, the investment.