Jz Capital Regulatory News (JZCP)

JZ Capital Partners Limited

FULL YEAR RESULTS FOR THE 12 MONTHS ENDING 28 FEBRUARY 2011

9 May 2011

JZ Capital Partners Limited (JZCP.L), the closed ended investment company listed on the London Stock Exchange which principally invests in US and European micro cap buyouts, today announces its audited results for the twelve months ended 28 February 2011.

Highlights

·; 30% NAV Total Return included:

o Net Asset Value ("NAV") of $581 million, an increase of 27% (2010: $457m)NAV per share $8.93 (2010: $7.04)

o Distributions of $14 million or 21.5c per share during the period

·; Total shareholder return of 57%

·; Total dividends for the period of 24.5c per share (2010: 15.5c), including:

o Total Special dividends of 12c per share

·; Further narrowing of the NAV discount to -26% (2010: -41%)

·; $116 million invested in companies in the US and Europe, including $27 million in energy distribution and telecoms businesses in Spain

·; $151 million of realisations including the sale of G&H Wire with an IRR of 71% and an 8.4x return on our original investment

·; At the end of the period, the portfolio consisted of 41 companies across eight industries

·; Exceptionally strong balance sheet with large cash reserves for further investment

·; Outlook positive with a strong pipeline of investment opportunities

Commenting on the results, David Zalaznick, Founder of JZCP said: 

"I am pleased to announce an excellent set of full year results for the Company, which has underlined the triple play we offer our shareholders. There has been strong NAV appreciation, a significant narrowing of the discount to NAV and finally an increase in distribution during the period."

"The US micro cap portfolio remains the main growth driver of the portfolio and we're delighted to have made our first investments in the European market. The outlook for this niche sector continues to provide us with confidence going forward and we enter the next twelve months with a strong balance sheet and a healthy pipeline of investment opportunities."

David Macfarlane, Chairman of JZCP, said:

"I'm delighted that the portfolio has continued to perform strongly, against a steadily improving macro-economic climate. The results underline the Company's disciplined investment strategy and renewed focus in providing top quartile returns for shareholders."

There will be an investor conference call at 9am (EDT)/ 2pm (BST) today to discuss JZCP's recent financial performance and portfolio developments. It can be accessed by dialling +1 212 444 0413 (US) or +44 (0)20 7806 1955 (UK) with the access code 9140854.

A playback facility will be available two hours after the conference call concludes. This facility may be accessed until 16 May 2011 by dialling +1 347 366 9565(US) or +44 (0)20 7111 1244 (UK). The code to access the playback facility is 9140854#. A recording of the investor call will also be available on JZCP's website within a few days of the call.

For further information:

About JZ Capital Partners

JZ Capital Partners Limited ("JZCP") is a closed ended investment company listed on the London Stock Exchange that seeks to create a portfolio of investments in businesses in the United States and Europe, providing a superior overall return, comprised of a current yield and significant capital appreciation.

JZCP's present investment strategies include micro cap buyouts, mezzanine loans (sometimes with equity participations) and high yield securities, senior secured debt, and second lien loans and other debt and equity opportunities, including distressed debt and structured financings, derivatives and opportunistic purchase of publicly traded securities.

The Company has no direct employees. Its investment adviser, Jordan/Zalaznick Advisers, Inc ("JZAI") receives a monthly management fee and may also be entitled to a performance-related fee. JZCP has no ownership interest in JZAI and is administered by Butterfield Fulcrum Group (Guernsey).

Chairman's Statement

Performance

The year ended 28 February 2011 has seen JZCP make substantial progress. It has produced an excellent set of results and provided Shareholders with a total return (share price appreciation and reinvested dividends) of 57%.

Net Asset value ("NAV") at the year-end stood at US$581 million, or US$8.93 per share. NAV increased by 27% over the period and NAV total return, including the distributions paid during the year of US$14 million or 21.5c per share, amounted to 30%. Of the increase in NAV, US$0.50 is attributable to net realised investment gains, while US$1.30 was driven by net unrealised gains, particularly from the micro cap portfolio and the listed investments.

Reducing the discount to NAV has long been a priority for JZCP and a further narrowing of the discount to -26% (from -41%) as at 28 February 2011 is further testament to the hands-on effort that we devote to our portfolio.

This solid performance has been supported by a disciplined investment strategy, notably through the new verticals for strategic build-ups in the US and Europe and a steadily improving macro-economic climate. The Company is in good shape with a strong balance sheet and liquidity position.

We have been particularly pleased with both the level of investments and realisations across the micro cap portfolio, which continues to be the main growth driver of the Company.

Portfolio

The financial year saw the portfolio grow to 41 companies across eight industries. In May 2010 we announced that we had outlined five new vertical industries where we have appointed senior, highly experienced industry professionals to drive opportunities and provide hands on support to grow businesses.

In addition to our existing sectors, we see a number of real opportunities to make acquisitions of controlling stakes in these verticals, where we will target high margin, non-capital and non-technology intensive businesses that are scalable.

The verticals include the following highly fragmented industries; testing services, industrial services solutions, sensors solutions, specialty foods, and water treatment. We are excited about the management team we have built around these verticals and look forward to reporting our progress in each.

Acquisitions and investments in the year totalled US$116 million in 12 businesses.

European Micro cap

In 2010, our Shareholders also approved a plan to invest, over time, up to 20% of the JZCP portfolio in the European micro cap sector. This venture will apply our successful model of employing our proprietary network of intermediaries to deliver a good volume of high quality micro cap opportunities in Europe.

We aim to benefit from our European partner's expertise and network, diversify the risk of our portfolio, and benefit from the recovery of the European market.

Realisations

There have been a number of realisations during the period, in particular the sale of Apparel Ventures, one of the Company's legacy investments, and of G&H Wire. In the latter, we realised an IRR of 71% and an 8.4x return on our investment. In total, JZCP realised a total of US$151 million.

Macro-Economic Background

There was stronger growth in the US in 2010 following a weak 2009, which was particularly fragile in the first half. The improved performance was due to a combination of rising employment, low historic interest rates, QE measures, continued tax cuts, improved manufacturing performance, greater corporate earnings, and a more optimistic outlook among businesses and consumers.

The US performed positively with the S&P500 returning 15.1% and the Wilshire 5000 growing by 17.9%, reflecting the outperformance of small to mid-cap stocks. Stock indices worldwide - excluding those in the US - were up 13.2%, further underlining the relative strength of the US economy.

The portfolio has remained unaffected by the political unrest in the Middle East towards the end of the year. Europe had a difficult 2010, with the sovereign debt crisis showing few signs of abating. However, markets historically perform well in the three years following a recession, so we see opportunities for small to mid cap companies to outperform in Europe.

US M&A activity improved in the final three months of 2010, followed by a slight lull, which appears to be reversing as markets begin to pick up.

Distributions

The Directors declared and paid an Interim Dividend of 5 cents per share for the six months ended 31 August 2010, as well as paying a Special Dividend in respect of that period of 10 cents per share.

Net cash revenue for the period allows the Board to recommend a Final Dividend of 7.5 cents per share in respect of the year ended 28 February 2011. In addition, revenue that had previously been reported as non-cash which has now been converted to cash allows the Board to declare a second Special Dividend for the year of 2 cents per share.

Therefore, subject to shareholder approval of the proposed Final Dividend, the total distribution for the year will be 24.5 cents per share (15.5 cents for the year ended 28 February 2010). The rate of increase in total distributions cannot necessarily be maintained because the occurrence of circumstances that allow the declaration of Special Dividends is irregular but conditions that could allow further Special distributions are favourable.

Share Buybacks

The Directors continue to consider using the Company's share buy back facility on investment grounds but will maintain its focus on deploying capital in the micro cap sector. The Directors will not consider using the share buy back facility as a short term measure to narrow the discount to NAV.

Incentive Fee

It is the policy of the Directors to provide where appropriate for the capital and income incentive fees to which JZAI becomes entitled under the Advisory Agreement. At 28 February 2011 no provision was taken for the income incentive fee but a provision of US$2.093 million was accrued for the capital incentive fee.

Directors

At the forthcoming Annual General Meeting Tanja Tibaldi and Patrick Firth will each retire by rotation and will each offer themselves for re-election.

Outlook

We enter into the next twelve months with confidence. We are, well positioned to take advantage of further investment and realisation opportunities in the micro cap sector and have a renewed-focus on building on the last financial year's momentum and benefitting as the economy continues to emerge from a period of recession.

The Directors are encouraged by the pipeline of high quality potential investments in the US, particularly through the verticals, and also the quality of the existing and prospective investments in Europe.

David Macfarlane

Chairman

6 May 2011

Investment Adviser's Report

Dear Fellow Shareholders:

We are pleased to report that JZCP completed its fiscal year ending 28 February 2011 with strong results, posting year on year growth in Net Asset Value ("NAV") and distributions to shareholders. Our NAV was up 27%, from US$7.04 to US$8.93 per share and our dividends increased 58% from 15.5 cents to 24.5 cents. Combined with our discount narrowing by half and our stock appreciating by 51%, it was an excellent year.

Our NAV growth was driven by (i) two successful realizations, (ii) a significant increase in the value of our listed equities, and (iii) positive performance in our underlying investments. Since the fiscal year end, JZCP's NAV has continued to grow and liquidity has increased with the successful secondary public offering of our position in TAL International Group, Inc., a container leasing company. Our dividend growth was driven by realisations of the portfolio which resulted in cash payment of accrued income.

JZCP's total return to its shareholders for the 2011 fiscal year (stock appreciation plus dividends reinvested) was approximately 57%. As a result of our realisations, and even after making several of new investments, our liquidity continues to be very strong, with 47% of our assets held in either listed securities or cash, after paying record dividends.

1 JZCP's closing share price at 28 February 2011 was GBP4.12 (28 February 2010: GBP2.73). These have been translated using the exchange rates at 28 February 2011 and 2010.

We are pleased to note that our stock performed well over the past year having appreciated 51%. In addition, the discount on our stock narrowed significantly; the discount was 66% at February '09, 41% at February '10 and 26% at February '11. Most significantly, when you net out balance sheet cash and liquid securities, our non-public portfolio of businesses trade at a 42% discount to NAV. To make the value proposition even more compelling, the Board values our private investments at under 7X EBITDA and applies a marketability discount that averages 22%.

Portfolio Summary

Below is a summary of our portfolio by asset category:

Micro cap Portfolio

We had significant activity in our US and European micro cap portfolio, investing US$146.3 million over the past year, (including the two months past the end of the fiscal year).

Significant New Investments

·; We invested US$4.0 million in NAC Marketing Corp, the holding company for New Vitality, a leading direct-to-consumer vitamin and nutritional supplement business. We anticipate more opportunities to increase our investment in New Vitality as it identifies product line extensions and competitors to acquire in this high growth sector.

·; Galson Labs is our first acquisition into our Specialty Testing Group (vertical); Galson is a full service provider in the fast growing industrial hygiene sector. JZCP made a US$5.2 million investment in a combination of debt and equity securities and owns 45% of the business.

·; We bought two European businesses of approximately US$13.5 million each. Factor Energia is an energy distribution business in Spain, which resells electricity to smaller and medium size companies, a recently de-regulated part of the electric utility sector. The second acquisition, Xacom, is a telecom products business in Spain and Chile which will soon open in Mexico. Xacom provides large telecom companies a distribution channel by selling products to the end customer (B2B) combined with their expertise in technology and design. In addition, post period we purchased a 38% interest in Docout for US$16 million. Docout is a provider of digitalisation, document processing and storage services to financial institutions, utilities, telecoms and insurance companies in Spain.

·; We invested US$22.1 million in Salter Laboratories, a co-investment with Roundtable Capital , a well known healthcare private equity group. Salter is a manufacturer and distributer of disposable products for respiratory and sleep apnea applications. JZCP invested US$6.0 million in a subordinated debt tranche, with the remaining portion representing approximately 19% of the company's stock.

·; We made a US$1.9 million investment in Milestone Aviation, (a co-investment with Resolute Fund), as part of JZCP's US$10 million commitment to this helicopter leasing business. JZCP owns 2.8% of Milestone's stock.

We invested an additional US$7.8 million into Dental Holdings, as part of a refinancing to pay-off bank debt; we plan on refinancing this tranche with third party debt once the company's earnings stabilise but the company has suffered recently so there is plenty of work to do.

·; Finally, our first investment in our Specialty Sensor Group (vertical) is Nielsen Kellerman. JZCP invested US$5.8 million debt and equity securities and owns 35% of the business. Nielsen makes weather related sensors and measurement instruments.

Significant Realisations

·; The sale of GHW Holdings, the parent of G & H Wire, earned JZCP a 8.4x multiple of capital invested, and 71% IRR on this investment. We realised more than US$33 million from this transaction, confirming our value proposition of buying a private business in a non-auction transaction, working with management to enhance growth and, ultimately, selling to a strategic buyer.

·; We realised US$12.3 million from refinancing our share of Wound Care and SEC Holdings with third party bank debt.

·; We also replaced US$10.9 million of JZCP-held subordinated debt in Dantom with a like amount of third party bank debt.

Other Significant Activities

Due primarily to operating performance increases, we have written up five investments:

Woundcare US$21.7 million

Dantom US$9.5 million

Nationwide US$2.1 million

Accutest US$3.0 million

Sechrist US$ 5.0 million

We have also written down our investment in Dental Holdings by US$13.5 million, recognising reduced financial performance due to micro-economic management challenges.

The effective multiple at which we are valuing the micro-cap portfolio increased from 6.0x trailing EBITDA to 6.9x. Note the average purchase multiple for this portfolio is 6.1x. We continue to leverage prudently, with only 1.1x EBITDA represented by debt senior to JZCP. Finally, we see no issues with any existing bank debt maturities.

Other sectors

Our Mezzanine portfolio has decreased as the capital markets have allowed existing borrowers to tap into less expensive debt markets. Specifically, Roofing Supply Group and PETCO refinanced US$18.2 million and US$19.0 million of our subordinated debt, respectively. The remaining three investments of any size (and value to our balance sheet) are Continental Cement, TTS and Haas TCM. They continue to pay as agreed with no foreseeable operational or financing issues.

Our bank debt portfolio is also decreasing as the facilities we purchased have either paid off at maturity or early, all times at par. The significant reduction comes from the sale of Harrington Holdings. Our US$14.8 million debt tranches were redeemed at par plus accrued interest. The remaining bank debt investments are spread across six entities. The first lien loans are trading in the upper nineties, with one at 92% of par. The significant second lien position we hold has rebounded well; it is in Kinetek, a Resolute sponsored transaction.

Our holdings in listed equities are in three companies in which we held significant equity positions, and they subsequently went public. The two largest holdings, TAL International (an international container leasing company) and Safety Insurance (a retail and commercial insurance business), have benefited from the recovering economy; our position in TAL has risen US$23 million, or 92% over the past year, while Safety Insurance rose US$13 million, or 30% over the same time frame.

Post year end, JZCP participated in the secondary sale of shares of TAL International Group, Inc. JZCP sold a total of 314,760 shares with net proceeds of US$10.8 million (after the underwriting discount).

At this price, JZCP earned a 29.7% IRR and 4.2x multiple of capital investment in its TAL investment. After the sale, JZCP owns 1.1 million shares of TAL.

Our legacy investments have been active as well:

We realised US$23.6 million from the sale of Apparel Ventures. This investment was made 16 years ago. Despite numerous ups and downs in the company's operations, we recovered two times our investment - the benefits of not being forced to sell at any given time.

A Gear Co. realisation of US$4.8 million was the final payment on a residual stock portion we held in one of our legacy transactions.

Significant New Investments

On the investment side, JZCP made a $8.1million add-on investment in Healthcare Holdings, a power wheelchair company. This investment in new senior subordinated notes is due to a very aggressive bank group insisting on reducing their exposure. All the shareholders including JZCP purchased the entire US$15.7 million bank loan for US$13.3 million, or 85% of face value. It will pay 12.5% cash interest on the notes' face value, creating a 15% return on the discounted amount. Despite a few micro-economic hiccups driven by Medicare changes, the company continues to perform admirably with EBITDA in the US$9 million range.

Other Significant Activities

One company of note is AC Tech, an aerospace specialty chemicals company which was spun out of Permatex, one of our legacy portfolio companies, when we sold it many years ago. The Company has signed several new contracts with large commercial and military aerospace OEM's and suppliers and has good visibility on 2011/12 earnings. Consequently, our Board has increased the valuation of JZCP's 43% stake in AC Tech by US$9.2 million. We look forward to AC Tech realising its potential after some challenging years.

New opportunities and current events

We continue to work with our five investment "verticals", coordinating with our seasoned executives to find appropriate businesses to acquire for our strategic build-up program. We have closed three businesses within these verticals with two profiled earlier in this report. After the February fiscal year end we acquired Nashville Chemical, a water treatment business, the first in our water treatment vertical and have a very active pipeline of future transactions.

The Euro-micro cap business in which JZCP made a €60 commitment is very active as well. We have also made three investments in this sector, the most recent being Docout S.L., a document storage and processing company that was bought in April 2011.

Principal risks and uncertainties

As a fund, the Company's risks are those associated with its investment portfolio. Given the nature of the portfolio, the principal risks are associated with the financial and operating performance of the underlying investments, along with some market risk associated with the publicly listed equities. The notes to the financial statements describe the Company's risk management processes.

Outlook

As we continue to realise NAV growth from well performing portfolio companies and realisations, our expectation is for a superior return for our shareholders. We hope to affect the triple play we achieved this year- i.e. growing NAV, increased dividend and narrowing of the discount.

We are very excited about the next few years as momentum on building out our verticals in the U.S. and our micro cap strategy in Europe continues to grow.

As we approach JZCP's and its predecessor JZEP's 25th anniversary (Dec 2011), we are mindful of your support over many years and do not take it for granted. We would appreciate you contacting us if you have any investment ideas for JZCP, on either side of the Atlantic.

Yours faithfully,

David W. Zalaznick John W. Jordan II May 2011

Statement of Comprehensive Income

For the year ended 28 February 2011

*Comparative figures for weighted average number of Ordinary shares in issue during the period and basic and diluted gain/(loss) per Ordinary share have been restated to reflect the one share for five consolidation on 22 June 2009 and the bonus element of new shares issued on 22 June 2009.

All items in the above statement are derived from continuing operations.

All net income is attributable to the Ordinary shareholders of the Company.

The Company's investment activities commenced on 1 July 2008 upon transfer of investments following the liquidation of JZEP.

The format of the Income Statement follows the recommendations of the AIC Statement of Recommended Practice.

The accompanying notes form an integral part of the financial statements.

Statement of Financial Position

As at 28 February 2011

These audited financial statements were approved by the Board of Directors and authorised for issue on 6 May 2011. They were signed on its behalf by:

David Macfarlane Patrick Firth

Chairman Director

The accompanying notes form an integral part of the financial statements.

Statement of changes in equity

For the year ended 28 February 2011

Comparative for the year ended 28 February 2010

The accompanying notes form an integral part of the financial statements.

Statement of cash flows

For the year ended 28 February 2011

The accompanying notes form an integral part of the financial statements.

Notes to the Financial Statements

 1. General Information

JZ Capital Partners Limited (the "Company") is a Guernsey domiciled closed-ended investment company which was incorporated in Guernsey on 14 April 2008 under The Companies (Guernsey) Law, 1994. The Company is subject to the Companies (Guernsey) Law, 2008. The Company's Share Capital consists of Ordinary shares and Zero Dividend Preference ("ZDP") shares. The Ordinary shares and ZDP shares were admitted to the official list of the London Stock Exchange on 1 July 2008.

The Company was granted consent on 8 May 2008 by the Guernsey Financial Services Commission under The Control of Borrowing (Bailiwick of Guernsey) Ordinance,1959 to raise up to £300,000,000 by the issue of shares.

The Company was launched in connection with a scheme of reconstruction and voluntary winding up of JZ Equity Partners Plc ("JZEP") under section 110 of the Insolvency Act 1986. JZEP's assets, after providing for its liabilities were transferred in specie to the Company on 1 July 2008 and the Company issued to JZEP Shareholders (other than those who opted against the new scheme) one Ordinary Share for each JZEP Ordinary Share and one Zero Dividend Preference ("ZDP") Share for each JZEP ZDP Share that they held.

On 22 June 2009 a Placing and open offer of Ordinary Shares resulted in 117,037,749 Ordinary and 110,527,388 Limited Voting Ordinary shares being issued at the price of 42 pence. The Ordinary shares were subsequently consolidated on the basis that all holders of Ordinary shares will hold one Ordinary share for every five Ordinary Shares held immediately prior to the share consolidation. New ZDP shares were also issued following the redemption of the old ZDP shares (note 17).

Limited Voting Ordinary Shares ("LVO") were issued so that certain of the Company's existing Shareholders and certain new investors that are Qualifying US Persons could participate in the Ordinary Share Issue without causing the Company to be treated as a US domestic company for the purposes of US securities laws and/or a CFC for US tax purposes. Limited Voting Ordinary Shares are identical to, and rank pari passu in all respects with, the New Ordinary shares except that the Limited Voting Ordinary Shares will only carry a limited entitlement to vote in respect of the appointment or removal of Directors and will not carry any entitlement to vote in respect of certain other matters. The LVO shares are not listed and are not admitted to trade on or through the facilities of the London Stock Exchange.

In 2009, the Guernsey Financial Services Commission (GFSC) amended the rules in respect of closed ended funds formerly authorised under the Control of Borrowing (Bailiwick of Guernsey) Ordinances 1959 to 1989 to bring all such funds under the Protection of Investors (Bailiwick of Guernsey) Law 1987. This amendment required the closed ended funds to elect to be either a registered or authorised fund. The Company elected to remain an authorised fund.

The Company's corporate objective is to create a portfolio of investments in businesses primarily in the United States, providing a superior overall return comprised of a current yield and significant capital appreciation. The Company's present strategies include investments in micro-cap buyouts, mezzanine loans (sometimes with equity participations) and high yield securities, senior secured debt and second lien loans and other debt and equity opportunities, including distressed debt and structured financings, derivatives and opportunistic purchase of publicly traded securities.

The Company has no direct employees. For its services the Investment Adviser receives a management fee and may also be entitled to a performance-related fee (note 11). The Company has no ownership interest in the Investment Adviser. The Company is administered by Butterfield Fulcrum Group (Guernsey) Limited (note 11).

2. Significant Accounting Policies

The accounting policies adopted in the preparation of these financial statements have been consistently applied during the period, unless otherwise stated.

Statement of Compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"), which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB") and International Accounting Standards ("IAS") and Standing Interpretations approved by the International Accounting Standards Committee ("IASC") that remain in effect, together with applicable legal and regulatory requirements of Guernsey Law and the Listing Rules of the London Stock Exchange.

Basis of Preparation

The financial statements have been prepared under the historical cost or amortised cost basis, modified by the revaluation of derivative financial instruments and certain financial instruments designated at fair value through profit or loss upon initial recognition. The principal accounting policies adopted are set out below. The preparation of financial statements in conformity with IFRS requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statements follow the Association of Investment Companies ("AIC") Statement of Recommended Practice ("SORP") issued on 21 January 2009.

Going Concern

A fundamental principle of the preparation of financial statements in accordance with IFRS is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realisation of assets and settlement of liabilities occurring in the ordinary course of business. In accordance with this requirement, the Company's policy is to prepare the financial statements on a going concern basis unless the Directors intend to liquidate the Company.

The Directors consider the Company has adequate financial resources and believe that the Company is well placed to manage its business risks successfully to continue in operational existence for the foreseeable future and that it is appropriate to prepare the financial statements on the going concern basis.

Changes in accounting policy and disclosures

The accounting policies adopted are consistent with those of the previous financial period except as follows:

The Company has adopted the following standards and amendments as of 1 March 2010:

IFRS 2 Share-based Payments - Group cash-settled share-based payment transactions. IFRS 2 has been amended to clarify the accounting for group cash-settled share-based payment transactions, where a

subsidiary receives goods or services from employees or suppliers but the parent or another entity in the group pays for those goods or services.

IFRS 3 (Revised 2008) Business Combinations and IAS 27 (Revised 2008) Consolidated and Separate Financial Statements. A change to the scope of IFRS 3 increases the number of transactions to which it must be applied, by including combinations of mutual entities and combinations without consideration (e.g., dual listed shares).

Amendment to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items. The final amendment addresses only the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item.

IFRIC Interpretation 17 Distributions of Non-Cash Assets to Owners. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends.

Going Concern

The following standards, amendments and interpretations are not effective and are not expected to have material impact on the financial position or performance of the Company:

IFRS 2 Share-based Payments - Group cash-settled share-based payment transactions. IFRS 2 has been amended to clarify the accounting for group cash-settled share-based payment transactions, where a

subsidiary receives goods or services from employees or suppliers but the parent or another entity in the group pays for those goods or services.

IFRS 3 (Revised 2008) Business Combinations and IAS 27 (Revised 2008) Consolidated and Separate Financial Statements. A change to the scope of IFRS 3 increases the number of transactions to which it must be applied, by including combinations of mutual entities and combinations without consideration (e.g., dual listed shares).

Amendment to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items. The final amendment addresses only the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item.

IFRIC Interpretation 17 Distributions of Non-Cash Assets to Owners. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends.

Functional and presentational currency

Items included in the financial statements of the Company are measured in the currency of the primary economic environment in which the Company operates ("the functional currency"). The functional currency of the Company as determined in accordance with IFRS is the US dollar because this is the currency that best reflects the economic substance of the underlying events and circumstances of the Company. The financial statements are presented in US dollars, as the Company has chosen the US dollar as its presentation currency, and all values were presented to the nearest thousand except where otherwise stated.

Foreign exchange

Monetary assets and liabilities denominated in foreign currency are translated into the functional currency at the rate of exchange ruling at the end of the reporting period date. Transactions in foreign currencies during the course of the period are translated at the rate of exchange ruling at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at reporting period end exchange rates of monetary assets and liabilities and non-monetary assets and liabilities that are denominated in foreign currencies are recognised in the statement of comprehensive income. Foreign exchange gains and losses on financial assets and financial liabilities at fair value through profit or loss are recognised together with other changes in the fair value. Net foreign exchange gains or losses on monetary financial assets and liabilities other than those classified as at fair value through profit or loss are included in the line item 'Net foreign currency exchange gains/(losses)'.

Derivatives

The Company may use derivatives for the purpose of efficient portfolio management, including for hedging purposes and potentially in order to take a synthetic exposure to an investment position in circumstances where the derivative contract is more efficient than a position would be in the underlying security. Open forward currency contracts are valued at the relevant exchange rate on that day.

Financial assets and financial liabilities

(a) Financial assets and liabilities at fair value through profit or loss

(i) Classification

The Company classifies its investments in listed investments, investments in first and second lien debt securities, other equity opportunities and other investments within its Micro Cap and Legacy portfolios as financial assets at fair value through profit or loss. These financial assets are designated by the Board of Directors as fair value through profit or loss at inception. Financial assets or financial liabilities held for trading are those acquired or incurred principally for the purposes of sale or repurchase in the short term. All derivatives are included in this category.

Financial assets and financial liabilities designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Company's investment strategy as documented in its prospectus. Information about these financial assets and financial liabilities are evaluated by the management of the Company on a fair value basis together with other relevant financial information.

(ii) Recognition / derecognition

Purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership. Financial liabilities at fair value through profit or loss are derecognised when the obligation specified in the contract is discharged, cancelled or expires.

Financial assets and liabilities at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Subsequent to initial recognition, all financial assets and liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the 'financial assets or financial liabilities at fair value through profit or loss' category are presented in the statement of comprehensive income in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income within investment income when the Company's right to receive payment is established.

(iii) Fair value estimation

The fair value of financial instruments traded in active markets (such as publicly traded securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Company is the bid price.

Realised surpluses and deficits on the partial sale of investments are arrived at by deducting the average cost of such investments from the sales proceeds.

Fair value estimation methods for the other classes of financial assets and liabilities at fair value through profit or loss are presented in the valuation policy.

(b) Loans and receivables

(i) Classification

The Company classifies unquoted senior subordinated debt within Mezzanine investments as loans and receivables. Investments are generally accounted for at amortised cost using the effective interest method except where there is deemed to be impairment in value which indicates that a provision should be made.

(ii) Recognition / derecognition

Purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

(iii) Measurement

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

The Company assesses at each reporting date whether a financial asset or group of financial assets classified as loans and receivables are impaired. Evidence of impairment may include indications that the counterparty is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the asset's carrying amount and the net present value of expected cash flows discounted at the original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of comprehensive income as net impairments on loans and receivables.

Impaired debts together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a previous write-off is later recovered, the recovery is credited to net impairments/write back of impairments on loans and receivables.

Cash and cash equivalents

Cash and cash equivalents comprise bank balances and cash held by the Company including short-term bank deposits with an original maturity of three months or less. Cash also includes amounts held in interest bearing overnight accounts.

Other receivables

Other receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

Other payables

Other payables are not interest-bearing and are stated at their nominal value

Financial liabilities and equity

Financial liabilities and equity are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Financial liabilities and equity are recorded at the amount of proceeds received, net of issue costs.

Zero dividend preference ("ZDP") shares

In accordance with International Accounting Standard 32 - Financial Instruments: Presentation, ZDP shares have been disclosed as a financial liability as the shares are redeemable at a fixed date and holders are entitled to a fixed return. ZDP shares are recorded at amortised cost using the effective interest rate method.

Income

Interest income for all interest bearing financial instruments are included on an accruals basis using the effective interest method. Dividend income is recognised when the Company's right to receive payment is established. When there is reasonable doubt that income due to be received will actually be received, such income is not accrued until it is clear that its receipt is probable. Where following an accrual of income, receipt becomes doubtful, the accrual is either fully or partly written off until the reasonable doubt is removed.

Expenses

Investment Adviser's basic fees are allocated to revenue (pre 1 March 2010 the fees were allocated 65% to revenue and 35% to realised capital reserve). This change in policy was to the prior allocation method permitting the distribution of more cash than what was generated from investment income and thus distorting reported net revenue. The incentive fee is attributed to those parts to which it relates (see note 11). The Company will also provide for a Capital Gains Incentive fee based on net unrealised investments gains.

Expenses which are deemed to be incurred wholly in connection with the maintenance or enhancement of the value of the investments are charged to realised capital reserve. All other expenses are accounted for on an accruals basis and are presented as revenue items.

Formation costs

Expenses directly attributable to the set up of the Company or the issue of share capital are charged against capital.

Finance costs

Finance costs are interest expenses in respect of the ZDP shares and are recognised in the statement of comprehensive income using the effective interest method.

Escrow accounts

Where investments are disposed of, the consideration given may include contractual terms requiring that a percentage of the consideration is held in an escrow account pending resolution of any indemnifiable claims that may arise and as such the value of these escrow amounts is not immediately known. The Company records gains realised on investments held in escrow in the statement of comprehensive income following confirmation that any such idemnifiable claims have been resolved and none are expected in the future.

3. Segment Information

The Investment Manager is responsible for allocating resources available to the Company in accordance with the overall business strategies as set out in the Investment Guidelines of the Company. The Company has been organised into the following segments:

·; Portfolio of Bank debt.

·; Portfolio of Mezzanine investments,

·; Portfolio of Micro Cap investments.

·; Portfolio of Legacy investments.

·; Portfolio of Listed investments.

The investment objective of each segment is to achieve consistent medium-term returns from the investments in each segment while safeguarding capital by investing in diversified portfolios.

There have been no changes in reportable segments during the course of the year. The segment information provided is also presented to the board of the Company.

For the year ended 28 February 2011

1The capital incentive fee is allocated across segments where a realised gain or loss has occurred. Segments with realised losses are allocated a credit pro rata to the size of the realised loss and segments with realised gains are allocated a charge pro rata to the size of the realised gain. 

For the year ended 28 February 2010

At 28 February 2011

At 28 February 2011

Certain income and expenditure is not considered part of the performance of an individual segment. This includes net foreign exchange gains, interest on cash, finance costs, management fees, custodian and administration fees, directors' fees and other general expenses.

The following table provides a reconciliation between net reportable segment income and operating profits.

Other receivables and prepayments are not considered to be part of individual segment assets. Certain liabilities are not considered to be part of the net assets of an individual segment. These include custodian and administration fees payable, directors' fees payable and Other payables and accrued expenses.

The following table provides a reconciliation between net total segment assets and liabilities and total assets and liabilities.

Other Information

Geographical Segment

For the current year the Directors are of the opinion that the Company is now engaged in two geographical segments, as the Company now has an investment in the European Micro-Cap sector. However due to the current level of investment in this sector no geographical segment analysis is provided. For the current year, a majority of the investments are issued by the companies operating and generating revenue in the United States.

4. Critical Accounting Judgements and Key Sources of Estimation Uncertainty

The following are the key assumptions and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Fair value of investments at fair value through profit or loss ("FVTPL")

Certain investments are classified as FVTPL, and valued accordingly, as disclosed in note 2 and the valuation policy. The key source of estimation uncertainty is on the valuation of unquoted equities and equity-related securities.

Loans and receivables

Certain investments are classified as Loans and Receivables, and valued accordingly, as disclosed in note 2 and the valuation policy. The key estimation is the impairment review and the key assumptions as disclosed in note 2.

5. Net gain on investments at fair value through profit or loss

6. Net (impairments)/write back of impairments on loans and receivables

7. Net foreign currency exchange (losses)/gains

8. Investment income

Income for the year ended 28 February 2011

Preference Dividend Loan note Other Other

 Income for the year ended 28 February 2010

Preference Dividend Loan note Other Other

Interest on investments is shown net of a US$8,247,000 (year ended 28 February 2010: US$6,543,000) write down calculated in accordance with the Company's accounting and valuation policy.

9. Bank and deposit interest

10. Finance costs

The ZDP Shares have no right to any of the income available for distribution but have an entitlement, on a predetermined growth basis, to the available assets at any winding-up date prior to 22 June 2016. The original ZDP shares were redeemed at 215.80 pence on 22 June 2009. The new ZDP shares were issued at 215.80 pence on 22 June 2009 and will have a pre-determined final capital entitlement of 369.84 pence on 22 June 2016. The new ZDP shares, final capital entitlement is calculated using a rate equal to 8% return compounding on a monthly basis. Finance costs are allocated to the statement of comprehensive income using the effective interest rate method.

11. Investments